Tax Representation Letter from Acquiror and Merger Sub for Tax-Free Section 368(a)(2)(D) Reorganization

Summary

This template is a Tax Representation Letter from the Acquiror and Merger Subsidiary for a Tax-Free Section 368(a)(2)(D) that an acquiring corporation and its merger subsidiary should provide to tax counsel in order for tax counsel to issue a tax opinion that a forward subsidiary merger (aka forward triangular merger) qualifies as a tax-free reorganization. If, however, neither parent acquiror's nor target's tax counsel is providing a tax opinion, the representations contained in this template may still be helpful to include in the representations provided by parent acquiror and merger subsidiary in the merger agreement. This template includes practical guidance and drafting notes. In order to qualify as a tax-free reorganization under Section 368(a)(2)(D), several requirements must be met, including: (a) The reorganized company must continue a substantial portion of the target's historic business. (b) The continuity of proprietary interest requirement must be satisfied; (c) The target corporation must be merged into the acquiror's subsidiary; (d) The companies must formally adopt a "plan of reorganization"; (e) The parties must have a valid business purpose for engaging in the merger; (f) The merged company must hold "substantially all" of the properties held by target prior to the merger (the IRS has set a guideline under Rev. Proc. 77-37, 1977-2 C.B. 568, which provides that this requirement will be satisfied if target transfers at least 90% of its net assets and 70% of its gross assets in the merger; (g) The merger would have qualified as an A reorganization had the target merged with the acquiring parent corporation; (h) The parent acquiror must be in control of merger sub following the merger; and (i) The target's shareholders cannot receive any stock in merger sub. For a discussion of different types of tax-free reorganizations under Section 368(a), see Tax-Free Acquisitions. The template provides a starting point for drafting representations applicable to a tax-free Section 368(a)(2)(D) reorganization and should be tailored for the specific facts and circumstances. This template does not address representations that may be applicable to special kinds of corporations, such as real estate investment trusts. This template also does not address acquisitions that occur with non-U.S. corporations. Capitalized terms in this template are generally included in the standard tax-free reorganization merger agreement; however, you should cross-reference the acquisition agreement to ensure that the applicable definitions are the same. If both target and parent acquiror's tax counsel are providing tax opinions, the representation letter should be addressed to both target and acquiror's tax counsel, as each must rely on the representations provided therein. See also Tax Representation Letter from Target for Tax-Free Section 368(a)(2)(D) Reorganization.