Rationalizing Reorganizations and Other Corporate Acquisitions

Abstract:     
This paper examines the taxation of human shareholders in the case of mergers and acquisitions. The relevant law is currently extraordinarily complex, utterly inconsistent, and in many instances arguably unfair. There are really only two plausible ways to cure these ills. The first, to move to a tax system with more fulsome gain recognition, ultimately probably in the form of mark-to-market taxation, is not in my opinion feasible (either technically or what is perhaps more important politically). Accordingly, the second, to move to a tax system with less gain recognition merits attention.

In this paper, I propose such a tax system. In particular, under my proposal, a human shareholder whose stock is sold or exchanged pursuant to a merger or acquisition would be entitled to nonrecognition treatment so long as either (1) he receives stock in the acquiring corporation or (2) he involuntarily receives consideration other than stock in the acquiring corporation but promptly and appropriately reinvests such consideration.

Working Paper Series