Paloma purchased all of the outstanding Dove stock in 2001. Dove has prospered u
ID: 2414919 • Letter: P
Question
Paloma purchased all of the outstanding Dove stock in 2001. Dove has prospered under Paloma's direction, and now Hawk Corporation is interested in acquiring Dove, but not directly. Hawk forms a new subsidiary, called Starling, whose purpose is to merge with Dove. Starling (the target) transfers its asset, Hawk stock, to Dove (acquiring) in exchange for all of the Dove stock. Dove distributes the Hawk stock to Paloma in exchange for her Dove stock. Starling distributes the Dove stock to its shareholder, Hawk, and then ceases to exist. Dove is now a wholly owned subsidiary of Hawk, and Paloma is a Hawk shareholder. Hawk immediately liquidates Dove to acquire all of Dove's assets and liabilities. Hawk continues Dove's previous line of business. The end result is that Hawk has all of Dove's assets and liabilities and Paloma is a shareholder of Hawk. Explain whether this reverse triangular restructuring qualifies as a reorganization under § 368 or whether the step transaction doctrine causes it to be disqualified.
Explanation / Answer
Solution:
Whether a controlling corporation's transfer of the acquiring corporation's stock to another subsidiary controlled by the controlling corporation as part of the plan of reorganisation, following the merger of the acquired corporation with and into the acquiring corporation, will cause the transaction to fail to qualify as a reorganisation under section 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code.
No, this would not be triangular restructuring which is qualified as a reorganization under section 368, anf hence it is disqualified as controlling coporation that is Hawk is tranfering all its assets through its wholly owned subsidiary Starling to acquire dove and then dove is liquidated by Hawk and all its assets and liablities are owned by Hawk. From the abpove discussion , it ios clear that hawk wanted to acquire Dove for getting the controlling interest in Paloma. Hence this is not reverse triangular restructing and hence it is disqualified.
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