On January 10 of the current year, Austin Corporation acquires for cash 8% of Travis Corporation’s single class of stock. On August 25 of the current year, Austin makes a tender offer to exchange Austin common stock for the remaining Travis shares. Travis shareholders tender an additional 75% of the outstanding Travis stock. The exchange is completed on September 25 of the current year. Austin ends up with slightly more than 83% of the Travis shares. The remaining 17% of the Travis stock is held by about 100 former shareholders of Travis who own small blocks of stock. Your tax manager has asked you to draft a memorandum explaining whether one or both of the two acquisition transactions qualify as a nontaxable reorganization. If part or all of either transaction is taxable to Travis’ shareholders, suggest ways to restructure the acquisitions so as to maximize tax benefits of the transaction. Assume that Austin does not want to make a Sec. 338 election.
Matt Bonner, CEO of Travis, asked a question that might be relevant to reporting the transaction: To simplify the corporate structure, can Austin liquidate Travis into Austin without recognizing any gain or loss?
At a minimum you should consult:
• IRC Sec. 368(a)(1)(B)
• Reg. Sec. 1.368-2(c)
• Eldon S. Chapman, et al. v. CIR, 45 AFTR 2d 80-1290, 80-1 USTC ¶9330 (1st Cir., 1980)
• Arden S. Heverly, et al. v. CIR, 45 AFTR 2d 80-1122, 80-1 USTC ¶9322 (3rd Cir., 1980)