How the Bill Would Change Current Tax Law
Under current law, corporations can often structure acquisitions and reorganizations to be tax-free. IRC § 368 allows for nonrecognition of gain or loss in qualifying reorganizations, such as statutory mergers or stock-for-assets acquisitions. Similarly, IRC § 351 allows for tax-free transfers of property to a corporation in exchange for stock if the transferors are in control of the corporation immediately after.
The proposed legislation would amend both sections. It would deny tax-free treatment for reorganizations under IRC § 368 and for certain property transfers under IRC § 351 if the combined average annual gross receipts of the involved corporations for the three-year period preceding the transaction exceed $500 million.
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