Basis Calculations in Section 368 Reorganizations: Tax Deferral Benefits For Subsidiary Shareholders

Section 368 of the Internal Revenue Code allows companies to complete a tax-deferred reorganization if it meets certain requirements and conditions. Stock distributions and exchanges must conform to the basis transfer rules found in IRC 362 for the transaction to be tax-free.

There are seven different types of corporate reorganizations/restructurings allowed under Section 368. Each type of reorganization transaction or event has specific reporting requirements, which tax advisers must understand through each stage of the transaction.

The major challenge in reporting a tax-free reorganization under Section 368 is identifying the shareholders and establishing stock bases for the shares they hold. While the Service allows corporate tax advisers to use aggregation methods to calculate shareholder basis in target stock exchanged in a Section 368 transaction, accurately reporting transferred basis remains a complex exercise, with several key issues requiring IRS guidance.

Tax advisers must know the tax and basis transfer rules for each type of transaction specified in Section 368 to accurately report basis transfers and to advise corporate clients of the tax consequences of various spinoff and reorganization transactions.

Listen as our experienced panel provides a practical and hands-on guide to basis calculations challenges arising from a Section 368 reorganization.

1. IRC Section 368 types of reorganizations
   1. Requirements for tax-free reorganizations (Section 368 types A-G)
   2. Tax consequences of a Section 368 reorganization
      1. To acquiring corporation
      2. To target/acquired corporation
      3. To shareholders
2. Section 362 basis transfer rules
3. Basis calculation rules and IRS guidance in a “Type B” reorganization
4. Basis calculation issues in a “reverse triangular” reorganization
5. Required filings
6. Available elections and alternative calculations using net inside basis

The panel will discuss these and other crucial topics:

• Types of tax-free reorganization and requirements of each
• What circumstances require a tax adviser to calculate per-shareholder basis in target/acquired stock
• Calculations and schedules to prepare in anticipation of a reorganization?
• Basis calculations in a straight “Type B” reorganization vs. in a “reverse triangular” reorganization

Learning Objectives

After completing this course, you will be able to:

• Differentiate between various types of reorganization transactions defined in Section 368 qualifying for tax-deferral treatment
• Discern the applicable IRS guidance for calculating shareholder basis of target/acquired stock in a Section 368 reorganization
• Recognize the steps required and the aggregation methods allowed to calculate stockholder basis in a Type B reorganization
• Identify the opportunities for using alternate methods of basis calculation in reverse triangular reorganizations

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Specific knowledge and understanding of business acquisition structure, purchase agreements, identifying intangible assets; familiarity with price allocation and valuation methodologies, and interpreting transaction documents for purposes of tax and financial reporting

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).