These regulations are effective October 27, 1995. These regulations are applicable to transfers of target assets that occur on or after October 26, 1995. This document contains final regulations under section 338 that govern the treatment of an intragroup merger or similar transaction following a QSP of target stock, if a section 338 election is not made for the target. Section 338 provides that, if a corporation makes a QSP of the stock of a target, the purchasing corporation may elect to have the target treated as having sold all of its assets at the close of the acquisition date in a single transaction and as a new corporation that purchased all such assets at the beginning of the following day. The IRS received comments from the public on the proposed regulations, and a public hearing was held on June 7, 1995.
Commentators generally support the proposed regulations.
Accordingly, the final regulations adopt the proposed regulations with minor technical changes. The principal comments on the proposed regulations are discussed below. Treatment of minority shareholders. The proposed regulations generally treat the purchasing corporation's target stock acquired in the QSP as an interest on the part of a person who is an owner of the target's business enterprise prior to the transfer that can be continued in a reorganization. Thus, if the purchasing corporation purchases the bulk of the stock of a target corporation in a QSP and subsequently merges the target into a subsidiary of the purchasing corporation in exchange for the subsidiary's stock, the continuity of interest requirement is treated as satisfied.