Taxation Status of Transactions Involving Term Paper

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Based on that, the original 8% cash transaction would not be considered a reorganization, but the subsequent exchange of stock for the 75% interest in Travis would be considered a non-taxable reorganization. This view was upheld in Chapman v. CIR. This recognizes the principle of continuity of interest that is required. The first transaction, the 8% that was purchased for cash, would not qualify as a reorganization, as it does not represent continuity of interest. In Chapman V. CIR, the court ordered that the 8% interest would need to be liquidated in order for the transaction to be considered a nontaxable reorganization.

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If Austin were to liquidate Travis back into Austin, it would qualify as a reorganization, since Austin now owns a controlling interest in Travis. As long as the reorganization plan is adopted after the controlling interest is acquired, it would qualify as a reorganization to absorb Travis into Austin.

As per Chapman v. CIR, the way to minimize the tax consequences of the 8% purchase to Travis shareholders would have been to sell the 8% interest….....

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