The all-cash D reorganization rules apply only when there is complete shareholder identity and proportionality of ownership between the target and the acquiror. Without that identity, an asset sale for cash followed by a liquidation is simply a taxable transaction. Treas. Reg. § 1.368-2(l).
A and B each own 50% of the stock of T. The T stock has a fair market value of $100x. B and C own 90% and 10%, respectively, of the stock of S. T sells all of its assets to S in exchange for $100x of cash and immediately liquidates.
Because complete shareholder identity and proportionality of ownership in T and S does not exist, paragraph (l)(2)(i) of this section does not apply. The requirements of sections 368(a)(1)(D) and 354(b)(1)(B) are not satisfied, and the transaction does not qualify as a reorganization described in section 368(a)(1)(D).
The cash D rules apply only where the same persons own the target and acquiror in the same proportions. Here the owners of T and S differ.
A and B own T equally, but S is owned 90% by B and 10% by C, so there is no complete shareholder identity or proportionality.
Because paragraph (l)(2)(i) does not apply, there is no deemed issuance of a nominal share and no recast into a reorganization.
The asset sale for cash and the liquidation are tested under the general rules and are taxable, not a section 368(a)(1)(D) reorganization.
