- 14 - payment of previously taxed income reflected in Central’s accumulated adjustments account. OPINION As a general rule, any gain recognized on the sale or exchange of property is taxable. However, the Internal Revenue Code provides that certain transactions may occur in such a way that ownership interests are exchanged, yet no taxable event is deemed to have taken place. One instance where nonrecognition is provided involves corporate reorganizations that come within the provisions of section 368. The income tax regulations explain the rationale behind the reorganization provisions as follows: Under the general rule, upon the exchange of property, gain or loss must be accounted for if the new property differs in a material particular, either in kind or in extent, from the old property. The purpose of the reorganization provisions of the Code is to except from the general rule certain specifically described exchanges incident to such readjustments of corporate structures made in one of the particular ways specified in the Code, as are required by business exigencies and which effect only a readjustment of continuing interest in property under modified corporate forms. Requisite to a reorganization under the Code are a continuity of the business enterprise under the modified corporate form, and (except as provided in section 368(a)(1)(D)) a continuity of interest therein on the part of those persons who, directly or indirectly, were the owners of the enterprise prior to the reorganization. * * * [Sec. 1.368-1(b), Income Tax Regs.] Shareholders generally do not recognize gain or loss when stock in a corporation that is a party to a reorganization is, pursuant to a plan of reorganization, exchanged solely for stock in another corporation that is a party to the reorganization.Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Next
Last modified: May 25, 2011