In a corporate reorganization described in Internal Revenue Code (IRC) §368, a shareholder may dispose of stock of the target corporation. If the sole consideration received by the shareholder is stock in the acquiring corporation, no gain is generally required to be recognized by the shareholder.
If a transferring shareholder receives, in addition to stock of the acquiror, cash or other property, the gain realized by the transferring shareholder—equal to the total stock and non-stock consideration received, minus the transferring shareholder’s basis in the shares transferred—is required to be recognized, but only to the extent of the amount of “boot” (that is, consideration (including cash) other than stock in the acquiror). On the other hand, if a shareholder realizes a loss in connection with an exchange of stock in connection with a reorganization, and any part of the consideration received by that shareholder consists of acquiror stock, the shareholder may not recognize that loss, regardless of whether boot was received by the shareholder in addition to the acquiror stock.
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