1Initial Structure100%100%Individual ACorp S(Acquiror)Corp T(Target)CashFMV = 1002Asset Sale & Target LiquidationCash of 100Operating assets worth 100aCash of100Surrender of100% ofT StockbIndividual ACorp S(Acquiror)Corp T(Target)3Ending Point100%Individual ACorp S(Acquiror)Cash of 100T operating assets4Deemed Nominal Share TransferNominalShare ofCorp SNominal Share of Corp SIndividual ACorp S(Acquiror)Corp T(Target)LegendOwnership / structural holdingTransfer of stock / cash / assets

All-Cash D Reorganization Explained

The diagram walks through an all-cash acquisitive D reorganization in four steps. In the Initial Structure, Individual A owns 100% of Corp S (the Acquiror, holding cash) and 100% of Corp T (the Target), whose operating assets have a fair market value of $100x.

In Asset Sale & Target Liquidation, Corp S buys all of Corp T’s operating assets for cash of $100x (step a), and Corp T then distributes that $100x of cash to Individual A while A surrenders 100% of the T stock as T liquidates (step b). No Corp S stock is actually issued in the exchange.

At the Ending Point, Individual A owns 100% of Corp S, Corp S holds the former T operating assets, and Individual A holds the $100x of cash.

Because there is complete identity and proportionality of ownership between T and S, Treas. Reg. § 1.368-2(l)(3) treats the requirements of §§ 368(a)(1)(D) and 354(b)(1)(B) as satisfied notwithstanding that no S stock is issued. As shown in the Deemed Nominal Share Transfer panel, S is deemed to issue a nominal share of Corp S stock to T (deemed distributed to A), and the transaction qualifies as a reorganization described in § 368(a)(1)(D).

Key Takeaways

All-cash D reorganization

An acquisitive D reorganization can qualify even when the acquiring corporation pays only cash and issues no stock, provided the shareholder-identity and proportionality tests are met. § 368(a)(1)(D).

Complete identity of ownership

Because Individual A owns 100% of both Corp S and Corp T in the same proportions, paragraph (l)(2)(i) treats the stock-distribution requirements of §§ 368(a)(1)(D) and 354(b)(1)(B) as satisfied.

Deemed nominal share

Corp S is deemed to issue a nominal share of its stock to Corp T, in addition to the $100x of cash actually paid, and T is deemed to distribute all such consideration to A. Treas. Reg. § 1.368-2(l)(3).

Asset sale plus liquidation

The economics are an asset sale for cash followed by T’s liquidation, but the reorganization characterization governs the tax treatment of the transferor, transferee, and shareholder.

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