IRS Rules That Merger After 1042 Transaction is Tax-Fee Reorganization

In Private Letter Ruling 200052023, the Internal Revenue Service (IRS) ruled on a merger between two ESOP companies. The target company was owned partly by an ESOP and an individual shareholder; the acquiring company was a 100% ESOP. The target's owner sold his remaining shares to the target's ESOP; then the target merged with the acquisition company. The IRS ruled that neither the company nor the ESOP would realize any gain or loss on the exchange of stock, the basis and holding periods for the target's company stock would carry forward, and there would be no excise tax.