Certain types of corporate acquisitions, divisions, and other restructurings which are generally not taxable at the corporate or stockholder level. The transaction must meet strict statutory and non-statutory requirements (see IRC § 368 and Treasury Regulations ). To qualify as a tax-free reorganization, stock of the buyer (or buyer's affiliate) generally must be used as a significant portion of the consideration (varying from about 40% to 100% of the consideration, depending on the type of tax-free reorganization) and, in certain tax-free reorganizations, the stock must be voting stock. Tax is generally deferred rather than eliminated, because the basis of stock or assets received in a tax-free reorganization generally is a carryover basis.

If consideration other than qualifying stock is received by a selling stockholder (often referred to as "boot"), the stockholders generally are taxed on the receipt of the boot.

Transactions structured to qualify as tax-free reorganizations for US federal income tax purposes can also have the effect of decreasing state income tax, particularly in states that mirror the US federal income tax or use US federal taxable income as their base.

For more information about tax-free reorganizations, see Practice Notes, Tax-Free Reorganizations: Acquisitive Reorganizations and What's Market: Tax-Free Transactions.