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Abstract: 

Although would-be buyers in middle market M&A transactions continue to face challenges in what generally remains a seller’s market, there are sometimes opportunities to take advantage of an often-overlooked planning method that can offer tax and non-tax benefits for both buyers and sellers. A significant number of target companies in the middle market are organized as S corporations, and a buyer’s strategic use of an “F reorganization” in an M&A transaction involving an S corporation can generate substantial tax benefits for the buyer and, in some cases, more flexibility for the seller. Despite a decidedly non-glamorous name, the “F reorganization” can be a powerful tool in a buyer’s M&A toolkit that should not be ignored.

Keywords: F reorganization, S corporation, step-up, tax shield, IRC Sec. 368(a)(1)(F), IRC Sec. 338(h)(10)

Affiliations:  1: Calfee, Halter & Griswold LLP.