Corporate reorganizations: Simple as A B C!;

              Corporate Reorganizations:
Simple as A B C!
by Herbert M, Paul
New York
Business management is often faced with the problem of whether
or not to combine with another corporation which is in a similar,
related or complementary field. In today's business climate it is be­coming
increasingly common for corporations to combine. The audit
staff, while not responsible for the tax planning concerning a combina­tion
of businesses, should nevertheless be familiar with the various tax
problems involved. This article will acquaint the staff man who is not
a specialist in taxes with the various basic methods employed and
principles involved in such combinations.
The decision to combine one business entity with another is a
management decision which involves business considerations. As
with many other phases of business, however, the tax consequences
are vitally important if not decisive. For our purposes we shall dis­tinguish
and consider two classes of combinations: taxable and tax
free.
A taxable combination is essentially the purchase of a business
entity. For tax purposes this form of combining is considered as a
completed and closed transaction. Thus the entire gain is considered
as earned in the year of the transaction. The gain recognized is the
difference between the tax basis of the property sold and the consid­eration
received. As you can see, the taxable combination is treated
the same as'a purchase by one individual of stock owned by another.
Frequently the value of a company about to be combined with
another has grown so large that tax on the gain involved in a taxable
combination would be prohibitive. Accordingly, the usual form of
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