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See sec. 354(a)(1). Section 368(a)(1)(A) defines a
reorganization as “a statutory merger or consolidation”. A
statutory merger or consolidation is one effected pursuant to the
corporate laws of the United States, a State, a territory, or the
District of Columbia. See sec. 1.368-2(b)(1), Income Tax Regs.
The merger of Colonial into Central meets this literal
requirement. Petitioners argue that they are entitled to tax-
free treatment under the Code because the merger was a complete
and valid transaction for State law purposes.
It has long been held that qualification as a merger under
State law is not, by itself, sufficient to qualify as a
reorganization under section 368(a)(1)(A). Courts have
interpreted section 368 as imposing three additional requirements
for a merger to be treated as a reorganization under section
368(a)(1)(A). These are: (1) Business purpose; (2)continuity of
business enterprise; and (3) continuity of interest. See Gregory
v. Helvering, 293 U.S. 465 (1935); Wortham Mach. Co. v. United
States, 521 F.2d 160 (10th Cir. 1975); Cortland Specialty Co. v.
Commissioner, 60 F.2d 937 (2d Cir. 1932); Atlas Tool Co. v.
Commissioner, 70 T.C. 86, 100 (1978), affd. 614 F.2d 860 (3d Cir.
1980). Following judicial precedent, the regulations also
require that there be a business purpose for the transaction,
continuity of business enterprise, and continuity of interest, in
order for a merger to qualify as a reorganization under section
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