Multiple Step Acquisitions: Dancing The Tax-Free Tango

1. Introduction

This article explores the rules affecting the taxation of multiple step acquisitions, which have changed considerably in the new millennium, in the context of (i) reorganizations in which two or more sequential stock or asset transfers are combined to produce a single, often tax-free, transaction, (ii) single step tax-free reorganizations followed by stock or asset transfers to affiliates, and (iii) F reorganizations that also involve preceding or subsequent stock or asset transfers.² As the discussion of these transactions demonstrates, a consistent policy is beginning to emerge with respect to the taxation of multiple step acquisitions.

The government has begun to utilize step transaction principles selectively, applying the doctrine to create tax-free reorganizations, such as double mergers and F reorganizations, but declining to apply the doctrine when its application would preclude tax-free treatment, as in the case of post-reorganization