Tax-Free Acquisitions

Summary

This practice note discusses key considerations for parties structuring acquisitions to be tax-free to interestholders and covers tax-free corporate reorganizations, Section 351 contributions, and tax-free partnership acquisitions. The most important initial tax consideration in any potential M&A deal is arguably the determination of whether or not the transaction should be taxable or tax-free to the seller. As discussed in Tax Benefit Maximization in Mergers and Acquisitions — Tax-Free or Taxable?, a seller would typically prefer the transaction to be "tax-free" in order to defer paying taxes on gains from the sale. The type of consideration that can be used in a tax-free acquisition is limited, however, and usually consists of equity in the buyer, target or an acquisition vehicle. Therefore, the seller will most likely push for a tax-free structure only if it: (i) does not need cash immediately and (ii) is comfortable with the investment risk inherent in accepting equity in the buyer...