- 20 -
by Colonial totaled $4,549,146 just before the merger on December
31, 1993. Three days after the merger, Central distributed these
same tax-exempt bonds to Mr. Honbarrier.15 This distribution
occurred on January 3, 1994.16 The last tax-exempt bond acquired
by Central in the merger was worth $300,000 and held in the Alex
Brown and Sons account. This bond was liquidated by Central 4
months after the merger. Unlike Colonial, Central did not invest
in tax-exempt bonds. Central placed its money in short-term
liquid investments, such as certificates of deposit because it
needed cash and cash equivalents to operate its business. Thus,
we conclude that Central did not continue Colonial’s business of
holding tax-exempt bonds and municipal bond funds.
2. Significant Use of Acquired Corporation’s Business
Assets
Continuity of business enterprise can also be satisfied if
the acquiring corporation uses a significant portion of the
acquired corporation’s historic business assets in a business.
See sec. 1.368-1(d)(4)(i), Income Tax Regs. A corporation’s
historic business assets are the assets used in its historic
15On Dec. 31, 1993, the date of the merger, Central made
$2,450,854 in cash distributions to Mr. Honbarrier and other
shareholders of Central.
16The merger was effective on Dec. 31, 1993, at 1 second
before midnight. Dec. 31, 1993, fell on a Friday, and the tax-
exempt bonds totaling $4,549,146 were distributed to Mr.
Honbarrier on Jan. 3, 1994, which fell on a Monday. Mr.
Honbarrier testified that the bonds could not be signed over to
him until the bank opened on Monday, Jan. 3, 1994, even though
the merger was effective on Friday, Dec. 31, 1993.
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011