On Sept. 21, the IRS and Treasury issued final regulations under Section 368(a)(1)(F), which are effective for transactions entered into on or after that date.
The final regulations (T.D. 9739) modify the August 2004 proposed regulations (REG-106889-04), which provided guidance on "F' reorganizations. Such reorganizations involve a mere change in identity, form, or place or organization of a single corporation. The proposed regulations provided four requirements for a valid F reorganization.
The first requirement is that resulting corporation stock is distributed in exchange for transferor corporation stock (e.g. this effectuates the mere change in form). The second requirement is an identity of stock ownership. The third requirement is that the resulting corporation cannot hold any assets or have any tax attributes immediately before the "potential F reorganization." The fourth requirement is that the transferor corporation must liquidate.
The final regulations retain and modify the four requirements from the proposed regulations and also add two more requirements. The fifth requirement is that the resulting corporation is the only acquiring corporation, and the sixth requirement is that immediately after the potential F reorganization, the resulting corporation does not hold property (other than from the transferor corporation) acquired from a corporation that results in succeeding to any Section 381(c) attributes.
The six requirements adopt several new definitions such as a "potential F reorganization" and "resulting corporation" to reflect long-standing principles that while an F reorganization can occur either in an instant or over a period of time, the transactions that occur immediately beforehand or immediately after the steps in the F reorganization generally do not negate the reorganization (see Rev. Rul. 96-29). Also, the regulations state that an otherwise valid reorganization under another provision should not be overridden by possible F reorganization treatment.
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