Frequently Asked Questions
F Reorganization FAQ
Direct answers to the questions that come up most often, before and during a deal.
What is an F reorganization?
An F reorganization is a tax-free reorganization under IRC Section 368(a)(1)(F), defined as a mere change in identity, form, or place of organization of one corporation. It's most commonly used to insert a new holding company above an existing operating company without triggering tax.
What are the six requirements for an F reorganization?
Under Treas. Reg. Section 1.368-2(m)(1): the resulting corporation's stock is issued solely for the transferor's stock; ownership is identical before and after; the resulting corporation holds no property or attributes beforehand; the transferor completely liquidates for tax purposes; no property ends up held by an unintended corporation afterward; and there is only one resulting corporation.
Does an F reorganization require IRS approval or a private letter ruling?
No. It is a self-executing test. If the transaction satisfies the six requirements of Treas. Reg. Section 1.368-2(m), it qualifies as an F reorganization without any advance IRS approval.
Why do buyers ask sellers to complete an F reorganization before closing?
So the buyer can get asset-sale tax treatment (a stepped-up basis via a Section 338(h)(10) or 336(e) election) on a transaction that is legally structured, and often operationally simpler, as a stock purchase.
Can an S corporation do an F reorganization?
Yes, and it's one of the most common uses. An F reorg lets an S corporation insert a holding company above it, with the operating company continuing as a QSub or disregarded LLC, since an S corporation itself cannot have a corporate parent.
Is an F reorganization taxable?
A properly structured F reorganization is tax-free: no gain or loss is recognized, and shareholder basis and holding period carry over. If any of the six requirements is not satisfied, the transaction can instead be treated as a taxable liquidation or exchange.
How long does an F reorganization take?
The mechanical steps themselves, forming the new holding company, contributing stock, converting the old entity to an LLC, can often be completed in one to a few weeks once the structure is decided. The planning and drafting that precedes it, and coordination with the surrounding transaction, usually takes longer than the reorg itself.
What's the difference between an F reorganization and other reorganization types?
Most reorganizations under Section 368 (types A, B, C, D, and G) involve combining or dividing two or more separate corporations, and carry requirements like continuity of business enterprise and continuity of shareholder interest. An F reorganization restructures a single corporation among its existing owners and is exempt from those broader tests.
Related reading
What Is an F Reorganization? A Plain-English Guide
The foundational explainer: what an F reorganization is, the statute behind it, and why it comes up so often in deals.
The Six Requirements of an F Reorganization
The six-part test from Rev. Rul. 2008-18 and Treas. Reg. §1.368-2(m), and where deals actually go wrong on each one.
Why Buyers Request an F Reorganization Before Closing
The M&A use case: why a buyer’s counsel asks a seller to do an F reorg before signing, and what it changes about the deal.
Have a deal that needs an F reorg?
I structure and close F reorganizations directly, either as lead tax counsel or alongside the deal counsel already running the transaction.