F reorganization

Definition

A restructure letting an S corporation stock sale be taxed like an asset deal.

Why It Matters

Sellers' advisors propose it when the buyer wants asset-deal tax treatment but the company's contracts, licenses, or EIN would not survive an asset transfer. The seller reorganizes first, the buyer purchases the new entity's interests, and the tax result mirrors an asset purchase with the operating history intact. It adds legal cost and weeks to the timeline, so the LOI should say who runs it and who pays for it, and the lender needs to see the structure early because the borrower entity changes.

In numbers: On a $4,000,000 S corporation deal, an F reorg can give the buyer a stepped-up basis, so $3,000,000 of goodwill amortizes at $200,000 a year for 15 years, while the company's licenses and contracts stay in place.