A D reorganization is defined as a transfer by a corporation of all or a part of its assets to another corporation if, immediately after the transfer, the transferor, or one or more of its shareholders (including persons who were shareholders immediately before the transfer), or any combination thereof, is in control of the corporation to which the assets are transferred; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356. § 368(a)(1)(D).
In addition to satisfying the definition of a D reorganization, there must be a business purpose, continuity of proprietary interest, and continuity of business enterprise to qualify for tax-free treatment.
The Code sections that provide non-recognition treatment are as follows:
In the acquisitive transaction shown, the target transfers substantially all of its assets to the acquiror in exchange for acquiror stock (actual or deemed). The target then liquidates, and the result is that the transferor’s shareholders are in control of the acquiror, which now holds the target’s assets along with its own.
A D reorganization moves all or part of a corporation’s assets to a second corporation that, immediately after, is controlled by the transferor or its shareholders.
Stock or securities of the transferee must be distributed under the plan in a transaction qualifying under section 354, 355, or 356. Without that distribution there is no D reorganization.
For the acquisitive D reorganization, the control requirement is tested using the section 304(c) definition of control, a lower 50 percent threshold.
Section 1032 covers the acquiror, section 361(a) and (c) cover the target on the transfer and distribution, and section 354(a)(1) covers the shareholders on the stock they receive.
