A cash D reorganization is an acquisitive reorganization under section 368(a)(1)(D) in which a target transfers substantially all of its assets to an acquiror owned by the same persons (or related persons) and then liquidates. Even though no acquiror stock is actually issued, the regulations deem a nominal share of acquiror stock to be issued and distributed, so the all-cash transaction is tested as a reorganization. Treas. Reg. § 1.368-2(l).
A owns all of the stock of Corp T. C, who is A’s son, owns all of the stock of Corp S. The T stock has a fair market value of $100x. T sells all of its assets to S in exchange for $100x of cash and immediately liquidates.
Under paragraph (l)(2)(ii), A and C are treated as one individual. Accordingly, there is complete shareholder identity and proportionality of ownership in T and S. Therefore, under paragraph (l)(2)(i), the requirements of sections 368(a)(1)(D) and 354(b)(1)(B) are treated as satisfied notwithstanding that no S stock is issued. S is deemed to issue a nominal share of S stock to T in addition to the $100x of cash, T is deemed to distribute all such consideration to A, and A is deemed to transfer the nominal share of S stock to C. The transaction qualifies as a reorganization described in section 368(a)(1)(D).
Under paragraph (l)(2)(ii), a father and son are treated as a single individual, which creates the complete shareholder identity the cash D rules require.
Because identity and proportionality of ownership exist, the section 368(a)(1)(D) and 354(b)(1)(B) requirements are satisfied even though S issues no actual stock for the T assets.
S is deemed to issue a nominal share of S stock to T, which T is deemed to distribute, and which then moves among the related shareholders to reflect their ownership.
T sells substantially all of its assets to S for cash and immediately liquidates, the pattern that the all-cash D reorganization rules are designed to capture.
