IRS Issues Final Regulations Allowing Foreign Merger Section 368 Reorganizations

The IRS has issued final regulations defining the term "statutory merger" or "consolidation" as it is used in Internal Revenue Code (Code) Section 368(a)(1)(A) (an "A Reorganization). The new regulations also affect statutory mergers or consolidations in forward triangular and reverse triangular reorganizations under Code Sections 368(a)(2)(D) and (E).

Background on the Section 368 Reorganization Rules

Code Section 368 reorganizations generally allow U.S. target corporation shareholders to exchange target stock for buyer corporation stock without gain recognition. An A Reorganization is defined in the Code as a "statutory merger or consolidation." Previously the term "statutory merger" was interpreted by regulations as a merger or consolidation effected under the corporate law of a "State or Territory or the District of Columbia." Although many foreign jurisdictions have merger statutes that operate similarly to those of U.S. state laws, a merger involving entities organized