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IRS Proposes New Continuity of Interest Regulations that Relax the Qualifications for Tax-Free Treatment in Certain M&A Transactions

September 01, 2004

By M&A Practice Group

On August 9, 2004, the Internal Revenue Service issued proposed regulations addressing the “continuity of interest” requirement. The continuity of interest requirement basically mandates that, to qualify as a tax-free merger, a substantial portion of the consideration received by the target shareholders in exchange for their stock consists of an equity interest in the acquiring company.