CCA 201125017: In a merger, the Acquiror succeeds to the Target’s deduction

Plain-English summary

Chief Counsel Advice compared a technical advice memorandum with a revenue ruling involving property transferred after a merger for services performed before the merger. It stated that the default rule assigns the deduction to the service recipient, identified as the Target. Because both situations involved a merger, the Acquiror succeeded to the Target’s deduction. The advice treated the key facts as the same, while describing the view as tentative. It also noted that the property transfer in the memorandum was a cash payment treated as a property transfer under § 1.83-7, while the revenue ruling involved exercise of the Acquiror’s shares.

Ruling snapshot

• Question: Which corporation receives the deduction when property is transferred after a merger for services performed before the merger?
• Outcome: Advice given.
• Key authorities: IRC § 83; Treas. Reg. § 1.83-7.

Full text (IRS public release)

ID: CCA_2011021513120015 Number: 201125017
Release Date: 6/24/2011
Office: -----------------------
UILC: 83.00-00

From: --------------------
Sent: Tuesday, February 15, 2011 1:12:02 PM
To: ------------------
Cc:
Subject: RE: 2003-98 and the TAM

-------- thanks for looking at the ruling. Both involve situations where property was transferred after a merger that related to services performed before the merger. The default rule is that the service recipient (Target) gets the deduction. However, in the TAM the transfer of property (there, a payment of cash treated as a property transfer under 1.83-7) occured after the merger; in situation 4 of the Rev. Rul, the transfer of property (there, an exercise of shares of the Acquiror), occured after the merger. In both cases, if the transaction was a stock transaction, the Target gets the deduction. But since there was a merger in both cases, the Acquiror succeeds to the Target's deduction. So on the key facts, I think they are the same.

This is just my tentative view.