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Stock Transfer Not Needed for Close Reorganizations

WASHINGTON (CN) - The Internal Revenue Service has determined that corporations reorganizing among the same group of owners need not issue stock to transfer assets, as long as the original owners get fair market value for the assets.

The IRS will deem the issuance of nominal stock to have occurred as a marker of ownership to subsequent owners or subsidiary corporations in such transactions and when additional compensation is included over and above the fair market value of the assets being transferred.

The IRS was concerned that such transactions could be used to hide transfers of wealth that would otherwise be taxable, but has determined through public comment that the risk of tax avoidance is so minimal that it would not be worth the administrative costs to change existing rules to require actual issuance of stock or securities.

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