A type B reorganization defined in

section 368 (a)(1)(B) is a stock-for-stock acquisition.

More specifically, the acquiring corporation, Marley,

can only use its voting stock or the voting stock of its parent,

if applicable, to acquire at least 80 percent of

the voting power and 80 percent of the non-voting stock of the target, Sunchaser.

Notice that Marley must acquire control of Sunchaser using solely Marley voting stock.

Consequently, the inclusion of as little as one dollar

of boot can cause the entire transaction to be taxable.

Because boot is not allowed in a type B reorganization,

gain is rarely recognized.

While there are some limited exceptions to the voting stock requirement,

type B reorganizations are not common among publicly traded companies.

This figure illustrates the organizational structure after a type B reorganization.

Despite the disadvantage of having to use only voting stock,

a type B reorganization is fairly straightforward.

The target shareholders often act individually

and transferring their stock to the acquiring corporation,

meaning the target and acquiring corporations are not directly involved.

In a type C reorganization, the acquirer, Marley,

obtain substantially all of the assets of the target, Sunchaser,

in exchange for Marley voting stock and a limited amount of other property.

Sunchaser must then distribute all assets received in

the reorganization along with any of its own property retained and then liquidate.

At a high level, this reorganization is

a voting stock for assets exchange with target liquidation.

This figure illustrates the organizational structure after a type C reorganization.

Notice that upon completion,

the ownership structure closely resembles that of type A.

A key distinction, however,

is that type A reorganizations are statutory mergers and consolidations, and thus,

governed by state law,

whereas type C reorganizations are governed by provisions in the code.

As a result, type C reorganizations often have

more restrictions regarding the consideration that can be used by the acquirer.

For example, if Marley only transfers voting stock for Sunchaser's assets,

the liabilities of Sunchaser that Marley assumes are not viewed as boot,

which helps it acquire substantially all the assets.

However, liabilities are viewed as boot if Sunchaser

receives property other than voting stock of Marley,

which if large enough can destroy type C reorganization status.

Lesson 8.2.3 Type B and C Reorganizations