CCA 201315021: Suggested legal analysis for a recapitalization

Plain-English summary

Chief Counsel advice supplies suggested language for the law section of a recapitalization analysis. It identifies the general income rule and the nonrecognition rules for exchanges of stock or securities in a reorganization. It also addresses gain recognition when money or other property is received, the treatment of a recapitalization as a reorganization, and the rules for corporations receiving money or property for stock. The memo further states the nonrecognition rule for exchanges of common stock for common stock or preferred stock for preferred stock in the same corporation.

Ruling snapshot

• Question: Which Code provisions should frame the legal analysis of the proposed recapitalization?
• Outcome: Advice given, suggested statutory analysis was provided.
• Key authorities: IRC §§ 61(a), 354(a)(1), 356(a)(1), 356(g)(2), 368(a)(1)(E), 368(b), 1032(a), and 1036(a).

Full text (IRS public release)

ID: CCA_2013030515082153 Number: 201315021
Release Date: 4/12/2013
Office: ----------------------
UILC: 368.05-00

From: ---------------
Sent: Tuesday, March 05, 2013 3:08:22 PM
To: ------------------------------------
Cc:
Subject: recap case

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Here is suggested language for the first few paragraphs of the “LAW” section (up to
§1.368-1(c)):

Section 61(a) provides the general rule that gross income means all income from whatever

source derived.

Section 354(a)(1) provides that no gain or loss shall be recognized if stock or securities in

a corporation a party to a reorganization are, in pursuance of the plan of reorganization,

exchanged solely for stock or securities in such corporation or in another corporation a party to

the reorganization.

Section 356(a)(1) provides that if section 354 or 355 would apply to an exchange but for

the fact that the property received in the exchange consists not only of property permitted by

section 354 or 355 to be received without the recognition of gain but also of other property or

money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess

of the sum of such money and the fair market value of such other property. Section 356(g)(2)

provides that for special rules for a transaction described in section 354, 355, or this section, but

which has the effect of the payment of compensation, see section 61(a)(1).
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Section 368(a)(1)(E) provides that a recapitalization is a reorganization. Section 368(b)

provides that a “party to the reorganization” includes a corporation resulting from a

reorganization.

Section 1032(a) provides that no gain or loss shall be recognized to a corporation on the

receipt of money or other property in exchange for stock (including treasury stock) of such

corporation.

Section 1036(a) provides that no gain or loss shall be recognized if common stock in a
corporation is exchanged solely for common stock in the same corporation, or if preferred stock
in a corporation is exchanged solely for preferred stock in the same corporation.

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