As my time at the graduate tax program at the University of Florida draws to an end, I am about to finalize my comprehensive paper. The thesis of this article is that our tax laws should promote tax neutrality by treating the mergers of dissimilar entities (or, cross-entity) as if they are similar. The Code has codified nonrecognition treatment for the merging of two corporations, and the Treasury Regulations provide for, essentially, nonrecognition treatment for the merger of two partnerships. But why do our tax laws not provide nonrecognition when a corporation merges into an LLC, or when an LLC merges into a partnership? (Under certain circumstances, it is possible to merge an LLC into a corporation using section 351, but only if the section 368(c) control requirements are met.).
Does this de facto prohibition make policy sense in light of nonrecognition treatment provided to corporate mergers, or partnership mergers? I argue no, especially in light of state statues and the ULLCA which provide for cross-entity mergers. This is a very important issue because of the growing popularity of LLCs and the historical popularity of the partnership form.
In the upcoming weeks, I will post excerpts from this paper and establish my argument that our tax laws should provide nonrecognition treatment for cross-entity mergers.
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