- 16 -
368(a)(1)(A). See sec. 1.368-1(b), Income Tax Regs.; T.D. 7745,
1981-1 C.B. 134. Failure to comply with any one of these
requirements will preclude treatment as a tax-free reorganization
within the meaning of section 368(a)(1)(A).
Respondent argues that the merger failed to meet the
continuity of business enterprise requirement necessary to
qualify the merger as a tax-free reorganization within the
meaning of section 368(a)(1)(A).10 The continuity of business
enterprise requirement was first expressed in Cortland Specialty
Co. v. Commissioner, supra. See Laure v. Commissioner, 653 F.2d
253, 258 (6th Cir. 1981). This requirement is now embodied in
section 1.368-1(b), Income Tax Regs., and described in paragraph
(d) of the same section. These regulations are based on an
interpretation of judicial precedents which articulate the
continuity of business enterprise doctrine. See T.D. 7745, 1981-
1 C.B. 134. The basic concept behind the continuity of business
enterprise requirement is that the receipt of a new ownership
interest in an entity that retains none of the business
attributes of the shareholder’s former corporation is more
closely akin to a sale or liquidation than to a mere adjustment
in the form of ownership. See Laure v. Commissioner, supra at
258.
10Respondent also argues that the merger did not have any
business purpose. Because we hold that the merger did not
satisfy the continuity of business enterprise requirement, we
need not address respondent’s alternative argument.
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