Document Type

Article

Publication Date

9-2025

Abstract

The tax advantages of reverse triangular mergers under section 368(a)(2)(E) are well known. They enable the acquiring corporation (P) to use up to 60 percent cash consideration to acquire the stock of target (T) through a merger with a controlled subsidiary (S), with T surviving. This amount of boot is higher than what is allowed under a B or C reorganization. Because it is a triangular merger, it avoids exposing the assets of P to the liabilities of T (unlike a direct merger), and because it is equivalent to a stock acquisition, it avoids having to transfer assets, which is more cumbersome (unlike a forward triangular merger or a C reorganization). There are limits (T must own substantially all its assets after the transaction, and P must use voting stock to acquire control “in the transaction”), but these are usually manageable.

Comments

Reprinted with the permission of Tax Analysts.

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