IRC 368(a)(1)(F) F-Reorganization: Identity, Form, and Place of Organization Changes, S-Corp Conversion, and QSBS Planning

Section 1: What Is an F-Reorganization and When Is It Used?

The Statutory Definition

An F-Reorganization is defined under IRC 368(a)(1)(F) as "a mere change in identity, form, or place of organization of one corporation, however effected." This definition is deliberately broad: Congress intended the F-Reorg to cover any transaction that results in the same corporation continuing in a different legal wrapper, without a substantive change in ownership, assets, or business. The modifier "however effected" signals that the form of the transaction (merger, conversion, domestication, or name change) is immaterial; what matters is the substance -- the same shareholders hold the same proportionate interests in the same underlying business, now held through a technically different corporate form or domicile.

The IRS codified the specific requirements in final regulations under Treas. Reg. 1.368-2(m), issued in 2015. Those regulations are the authoritative source for determining whether a given transaction qualifies as an F-Reorganization and should be the first reference for any practitioner analyzing a proposed restructuring.

Common Use Cases

The F-Reorganization is most frequently used in the following contexts:

• State-to-state reincorporation: A California corporation reincorporates in Delaware by merging into a newly formed Delaware corporation (Resulting). The shareholders exchange their California corporation stock for Delaware corporation stock on a one-for-one basis. Resulting retains all of the California corporation's tax attributes, EIN, and prior elections under IRC 381 and Rev. Rul. 73-526.
• Entity form conversion: A state LLC converts to a state corporation via a state-law statutory conversion. The LLC's single class of membership interests become common stock of the corporation. If the LLC was previously taxed as an S-corporation or a partnership, the conversion has different tax consequences depending on the pre-conversion tax classification -- practitioners should analyze carefully before proceeding.
• Name change combined with reincorporation: A corporation changes its legal name and simultaneously reincorporates in a different state in a single integrated transaction. Both changes are covered by IRC 368(a)(1)(F) as changes in "identity" and "place of organization," respectively.
• Holding company / Opco restructuring: An existing corporation (Transferor) merges into a newly formed clean shell corporation (Resulting/Holdco). The shareholders receive Holdco stock. Holdco then contributes the operating assets down to a newly formed LLC (Opco). This structure is described in detail in Section 5 below.
• S-corp to C-corp conversion for QSBS planning: An S-corporation that wants to issue qualified small business stock (QSBS) under IRC 1202 must first convert to C-corp status. The F-Reorg is the preferred conversion method because it preserves all tax attributes. See Section 4 below.

For practitioners evaluating a corporate restructuring that involves a deemed asset sale or a taxable basis step-up, see also the companion guide covering IRC 338 deemed asset sales, IRC 338(h)(10) elections, and IRC 336(e) elections, which covers alternatives where the parties prefer a taxable transaction to achieve a stepped-up basis in the target's assets.

What Distinguishes the F-Reorganization from Other Corporate Reorganizations

The F-Reorganization has three characteristics that are unique among the reorganization types defined in IRC 368(a)(1)(A) through (G):

Authority: IRC 368(a)(1)(F); Treas. Reg. 1.368-2(m); IRC 381(a)(2); IRC 382.

Section 2: The Six Requirements of Treas. Reg. 1.368-2(m)

To qualify as an F-Reorganization, a transaction must satisfy ALL six requirements set forth in Treas. Reg. 1.368-2(m)(1). Failure to satisfy even one requirement can disqualify the entire transaction, resulting in taxable gain recognition at both the corporate and shareholder levels. The six requirements are:

The "Clean Entity" Requirement in Practice

The "clean entity" requirement is the most commonly litigated and misunderstood element of the F-Reorganization. Resulting must not have conducted any business, accrued any tax liabilities, or accumulated any E&P prior to the reorganization. The IRS has ruled in several private letter rulings that nominal formation activities (paying attorneys' fees, filing articles of incorporation) do not disqualify Resulting, provided those expenses are reimbursed by Transferor after the reorganization closes. However, any prior business activity, contract rights, bank accounts funded with business proceeds, or outstanding tax liabilities at the Resulting entity level will fail the requirement.

One common planning approach is to form Resulting on Day 1 of the reorganization and complete the merger or conversion on Day 1 or Day 2, minimizing the window during which Resulting exists as a separate entity with the potential to accumulate activities or liabilities.

The "Same Shareholders" Requirement and Timing Risk

The "same shareholders" requirement creates a specific timing risk in multi-step restructurings. If the reorganization plan contemplates an intermediate step in which one shareholder briefly transfers shares to a third party (even a related party), the F-Reorg may be disqualified. The IRS and courts have scrutinized transactions in which an equity investor acquired shares in Resulting before the merger was complete, treating that intermediate ownership as evidence that the "same shareholders" requirement was not satisfied throughout. Practitioners should structure the reorganization as a single integrated transaction with no intermediate changes in ownership of either Transferor or Resulting.

Section 3: Tax Attribute Continuity -- the IRC 381 Advantage

The most significant practical benefit of the F-Reorganization is complete tax attribute continuity under IRC 381(a)(2). Unlike a check-the-box election (which is treated as a deemed liquidation and eliminates the entity's tax history), an F-Reorganization carries over every tax attribute from Transferor to Resulting. The following attributes carry over:

Net Operating Loss Carryforwards

Transferor's NOL carryforwards carry over to Resulting under IRC 381(a)(2) and can be used by Resulting in future tax years, subject to the ordinary limitations on NOL utilization (e.g., the 80% taxable income limitation under IRC 172 for post-2017 NOLs). Critically, the F-Reorganization does not trigger an IRC 382 ownership change, because the ownership of Resulting is 100% identical to the ownership of Transferor immediately before the reorganization. This means the NOL carryforwards are NOT subject to the annual IRC 382 limitation that would apply if, for example, a majority of the shares changed hands as part of the restructuring.

Authority: IRC 381(a)(2); IRC 382.

Earnings and Profits

Transferor's accumulated earnings and profits (E&P) and its current-year E&P carry over to Resulting under IRC 381(c)(2). For S-corporations converting to C-corps, this means any pre-conversion E&P (for example, if the S-corp previously operated as a C-corp and accumulated E&P during those years) carries into the new C-corp. Post-conversion distributions from Resulting are first treated as dividends out of E&P, not as returns of the accumulated adjustments account (AAA), once the S-corp election terminates. See Section 4 for additional discussion of the AAA and E&P interaction.

Authority: IRC 381(c)(2); IRC 1371.

Accounting Methods

Resulting continues Transferor's accounting methods (cash vs. accrual, inventory methods, depreciation methods) under IRC 381(c)(4). No new method elections or change-of-accounting-method filings are required as a result of the F-Reorganization alone. Resulting files its first tax return as a continuation of Transferor, reporting the tax year as if the reorganization had not occurred.

Authority: IRC 381(c)(4).

Elections: S-Corp Status, Fiscal Year, Depreciation, and Others

All prior entity-level elections carry over from Transferor to Resulting. The most significant elections in practice are:

• S-corporation election: If Transferor was an S-corp and Resulting is structured to continue as an S-corp, the S-corp election carries over under Treas. Reg. 1.368-2(m)(4) and Rev. Rul. 73-526. Resulting does not need to file a new Form 2553 to make a new S-corp election; the prior election is treated as continuous.
• Fiscal year: Transferor's fiscal year carries over to Resulting. Resulting does not start a new tax year as a result of the F-Reorg; it continues the existing fiscal year.
• Depreciation elections: All MACRS depreciation elections, bonus depreciation elections, and Section 179 elections made by Transferor carry over to Resulting. Resulting continues to depreciate the same assets on the same schedule, using the carryover basis received under IRC 362(b).
• Installment obligation elections: Elections made by Transferor to report gain on installment sales carry over to Resulting.

Authority: Rev. Rul. 73-526; Treas. Reg. 1.368-2(m)(4).

EIN Continuity

In an F-Reorganization, Resulting generally retains Transferor's Employer Identification Number (EIN). The IRS treats Resulting as a continuation of Transferor for administrative purposes, including EIN assignment, payroll tax reporting, and prior-year return obligations. Resulting does not need to apply for a new EIN as a result of the F-Reorg. Practitioners should confirm the EIN carryover procedure with the IRS directly (via IRS.gov or by calling the EIN assignment line) because the IRS may issue updated administrative guidance on this topic.

Section 4: S-Corp to C-Corp Conversion and QSBS Planning

Why Convert from S-Corp to C-Corp?

S-corporations provide pass-through taxation but impose structural constraints that C-corporations do not. The most significant limitations of S-corp status in the context of growth-stage businesses are:

• QSBS ineligibility: S-corp stock does not qualify as "qualified small business stock" (QSBS) under IRC 1202. The IRC 1202 exclusion (up to 100% of gain on the sale of QSBS held for more than 5 years) is available only to non-corporate shareholders holding stock in a domestic C-corporation. S-corp shareholders who anticipate a large gain event have a powerful incentive to convert to C-corp status and begin the 5-year QSBS clock as early as possible.
• One class of stock restriction: An S-corp may have only one class of stock (IRC 1361(b)(1)(D)). This restriction prohibits preferred equity structures (liquidation preferences, participating preferred, anti-dilution rights) that are standard in venture capital and private equity financings. C-corps can issue multiple classes of stock with different economic and voting rights.
• IRC 338(h)(10) elections: A purchaser of S-corp stock can make a joint IRC 338(h)(10) election with the S-corp shareholders to treat the stock purchase as a deemed asset purchase. However, this option is limited to S-corps in certain acquisition structures. A C-corp that undergoes a stock sale can use the IRC 338(g) election (without the seller's consent) or the IRC 336(e) election in different fact patterns. See the companion guide on IRC 338(h)(10) and IRC 336(e) for full analysis.

The F-Reorg Conversion Method: Step-by-Step

The standard F-Reorganization conversion of an S-corp to a C-corp involves the following steps:

1. Form a new, clean Resulting entity. Typically, a new state corporation (or state LLC that will elect to be treated as a corporation) is formed in the same state as Transferor (or the target state, if the reincorporation also involves a change of domicile). Resulting must have no prior tax history, assets, or liabilities at the time of formation. Resulting is owned by the same shareholders as Transferor in the same proportions.
2. Merge Transferor into Resulting. Transferor merges into Resulting under the applicable state merger statute. All of Transferor's assets and liabilities transfer to Resulting by operation of law. Transferor ceases to exist. Each Transferor shareholder receives Resulting stock in exchange for their Transferor stock on a pro-rata basis.
3. Resulting defaults to C-corp status. Resulting does NOT file a Form 2553 to make an S-corp election. Because Resulting has not made an S-corp election, it is taxed as a C-corp by default. The prior S-corp election (which would have carried over to Resulting under IRC 381 and Rev. Rul. 73-526 if Resulting had made the election) is effectively terminated when Resulting elects not to carry it forward. For purposes of IRC 1362, the termination occurs on the first day of the first C-corp tax year.
4. File all required post-conversion notices. Depending on the state and the pre-conversion S-corp election filing, practitioners may need to file a statement with the IRS notifying it of the termination of the S-corp election. Consult IRS.gov and applicable state revenue agency guidance for required post-conversion filings.

The QSBS 5-Year Holding Period Clock

After the S-corp converts to a C-corp via F-Reorganization, the C-corp can issue QSBS stock under IRC 1202. The 5-year QSBS holding period begins on the date the C-corp (post-conversion) issues the stock. Stock held by shareholders as S-corp stock does NOT count toward the QSBS holding period; the S-corp holding period is excluded entirely from the QSBS calculation, even though the underlying shares were continuously held by the same shareholders before and after the conversion.

Key QSBS qualification requirements that must be satisfied after conversion (hedge to IRC 1202 and IRS.gov, as the OBBBA may have modified these thresholds):

• The C-corp must have aggregate gross assets not exceeding $50 million at the time of issuance and immediately after (IRC 1202(d)(1)). Confirm the current threshold at IRS.gov; OBBBA may have modified the QSBS asset limit.
• The C-corp must be engaged in an eligible trade or business. Certain service businesses are excluded from QSBS eligibility under IRC 1202(e)(3), including health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, and any business where the principal asset is the reputation or skill of one or more employees.
• The stock must be acquired by the shareholder in an original issuance from the C-corp (not in a secondary market transaction).
• The shareholder must be a non-corporate taxpayer (individuals, trusts, and certain pass-through entities can hold QSBS; C-corps cannot).

For a detailed QSBS planning analysis, see the companion practitioner guide on IRC 1202 QSBS and the impact of the OBBBA.

Authority: IRC 1202; IRC 1202(d)(1); IRC 1202(e)(3); Treas. Reg. 1.1202-2. Confirm OBBBA modifications at IRS.gov.

The IRC 1374 Built-In Gains Trap

Converting from S-corp to C-corp status triggers the IRC 1374 built-in gains (BIG) recognition period. Under IRC 1374, if an S-corp that had a prior C-corp history (or converts from S to C) sells assets that were appreciated at the time of the conversion, the C-corp is subject to a corporate-level tax on the net recognized built-in gain at the highest corporate income tax rate, for a 5-year period beginning on the first day of the first C-corp tax year after the conversion.

Key BIG planning points:

• The 5-year BIG recognition period is set by IRC 1374(d)(7). The period begins on the first day of the C-corp's first tax year (i.e., the effective date of the S-to-C conversion). Confirm the current recognition period at IRS.gov; legislative changes could modify this period.
• The "built-in gain" is measured as of the conversion date. Assets that have appreciated above their tax basis as of the conversion date are subject to BIG tax if sold within the 5-year window. Assets acquired after the conversion date are not subject to BIG tax.
• The BIG tax is imposed at the C-corp level, in addition to the shareholder's regular income tax on the gain. If QSBS applies at the shareholder level, the IRC 1374 BIG tax is still imposed at the corporate level on the same gain; the QSBS exclusion does not shelter the corporate-level BIG tax.
• Common planning strategies to manage BIG exposure include: deferring asset sales until after the 5-year window closes; structuring post-conversion asset sales as installment sales with recognition spread beyond the 5-year window; or documenting the basis and fair market value of all assets as of the conversion date to minimize the built-in gain calculation.

The Accumulated Adjustments Account (AAA) After Conversion

An S-corp's accumulated adjustments account (AAA) represents the cumulative net income and loss of the S-corp that has passed through to shareholders and been taxed at the individual level. Distributions from the S-corp out of AAA are generally tax-free to shareholders (because the income was already taxed). On conversion to C-corp status via F-Reorganization, the S-corp's AAA balance does not disappear, but its character changes: post-conversion, the C-corp is no longer an S-corp, and distributions are no longer governed by the AAA rules. Instead, post-conversion distributions from the C-corp are treated as dividends out of the C-corp's E&P (to the extent of E&P), then as a return of capital, then as capital gain. The AAA balance converts to a capital account at the C-corp level. Hedge to IRC 1371 and IRS.gov for the specific interaction of AAA with post-conversion C-corp distributions.

Authority: IRC 1371; IRC 1368; IRS.gov.

Section 5: Holdco/Opco Structures and Drop-Down Planning

The Structure: F-Reorg into Holdco, Then Drop-Down to Opco

One of the most widely used applications of the F-Reorganization in business planning is the creation of a holding company / operating company (Holdco/Opco) structure. The typical steps are:

1. F-Reorganization into Holdco: The existing corporation (Transferor, which may be either a C-corp or an S-corp) undergoes an F-Reorganization into a newly formed, clean holding company corporation (Resulting/Holdco). The transaction is structured as a merger of Transferor into Holdco. The shareholders of Transferor receive Holdco stock in exchange for their Transferor stock. Holdco inherits all of Transferor's tax attributes (NOLs, E&P, elections, EIN) under IRC 381(a)(2).
2. Drop-down of operating assets to Opco: Holdco then transfers the operating assets and liabilities of the business "down" into a newly formed LLC subsidiary (Opco). The drop-down is structured as a contribution of assets from Holdco to Opco under IRC 351 (if Opco is treated as a corporation for tax purposes) or as a disregarded transaction (if Opco is a single-member LLC treated as a disregarded entity, in which case the transfer is treated as a contribution to a disregarded entity and is not a separate taxable event).
3. Opco's tax classification: Opco's tax classification (corporation, partnership, or disregarded entity) depends on its ownership structure and any check-the-box election made under Treas. Reg. 301.7701-3. A single-member LLC owned 100% by Holdco is a disregarded entity by default (taxed as a branch of Holdco) unless it elects to be treated as a corporation. A multi-member LLC is treated as a partnership by default. The choice of Opco's tax classification has significant implications for the allocation of income and loss, the treatment of distributions, and the availability of the QSBS exclusion at the Holdco level.

Why Use the Holdco/Opco Structure?

The Holdco/Opco structure achieved through an F-Reorganization provides several planning benefits:

• QSBS stock at the Holdco level: After the F-Reorg, Holdco is a C-corp (if the S-corp election was terminated). The shareholders hold Holdco stock, which can qualify as QSBS under IRC 1202 if the post-conversion requirements are satisfied. The 5-year QSBS holding period clock begins on the date of the F-Reorg conversion.
• Asset protection: By separating the operating business (Opco) from the holding company (Holdco), the structure limits the exposure of the shareholders' equity (held at the Holdco level) to the operating liabilities of the business. Opco's creditors can reach Opco's assets but generally cannot reach Holdco's assets or Holdco's equity in Opco (beyond Opco's own net assets). Hedge: state law varies on the efficacy of LLC liability protections; consult applicable state law.
• Preferred equity flexibility: After the F-Reorg, Holdco (as a C-corp) can issue preferred stock with liquidation preferences, anti-dilution protection, and other features that are prohibited for S-corps. Venture capital and private equity investors typically require preferred equity structures, which are only available at the Holdco level if Holdco is a C-corp.
• Future spin-off or partial sale flexibility: The Holdco/Opco structure facilitates a future divisive reorganization under IRC 355 (spin-off or split-off) or a partial sale of Opco without selling Holdco. For a detailed analysis of divisive reorganizations, see the companion guide on IRC 355 corporate spin-offs, split-offs, and the active business and device tests.
• Pass-through income at the Opco level: If Opco is a multi-member LLC treated as a partnership (or a disregarded entity), the operating income passes through to Holdco for tax purposes. If Holdco is also a pass-through (or if the shareholders are individuals who want pass-through treatment), the structure can be designed to achieve pass-through taxation at the operating level while maintaining a C-corp shell at the equity (QSBS) level. The interaction of these rules is complex; practitioners should model the full tax profile before recommending the structure.

Check-the-Box Election vs. F-Reorganization: When Does the Distinction Matter?

An LLC that is currently taxed as a partnership (or a disregarded entity) can convert to C-corp status either by making a check-the-box election under Treas. Reg. 301.7701-3(c) or by completing a state-law conversion followed by an F-Reorganization. The tax consequences of these two paths are fundamentally different:

Authority: Treas. Reg. 301.7701-3(c); Rev. Rul. 2004-59; IRC 381(a)(2).

Timing: The F-Reorg and Drop-Down as a Single-Day Transaction

In practice, the F-Reorganization and the subsequent drop-down of operating assets to Opco can typically be completed in a single day. The recommended sequencing is: (1) form Resulting (Holdco) and Opco on Day 1; (2) complete the merger of Transferor into Holdco on Day 1; (3) have Holdco contribute the operating assets to Opco on Day 1 (as a contribution to a disregarded entity or an IRC 351 contribution). Because the F-Reorg and the drop-down are treated as a reorganization followed by a contribution (both tax-free steps), the IRS generally respects the entire sequence as a single integrated transaction. Hedge to applicable Treasury Regulations and IRS guidance for the specific sequencing requirements in complex Holdco/Opco structures.

Section 6: State-Specific Mechanics and Implementation Methods

The F-Reorganization can be implemented through several different state-law mechanisms. The choice of mechanism depends on the states involved (Transferor's state, Resulting's state, and any states in which Transferor has nexus), the entity types (LLC, corporation), and the specific goals of the transaction. The three primary implementation methods are:

State-Law Merger

The most common implementation method is a state-law merger: Transferor merges into Resulting under the applicable state merger statute. Transferor's legal existence terminates by operation of law; all assets, liabilities, contracts, and permits transfer to Resulting automatically, without separate assignment or conveyance. The merger is documented by a plan of merger and articles of merger filed with both states (if the merger involves entities in different states, a cross-border merger statute applies). State filing fees, franchise taxes, and transfer taxes may apply; practitioners must confirm the state-level tax consequences in each state where Transferor has nexus.

State-Law Conversion

Several states permit a statutory conversion, in which Transferor changes its legal form or state of domicile (e.g., a Texas LLC converts to a Delaware corporation) without a merger. The entity's legal continuity is preserved under the conversion statute; Transferor does not "merge" into a new entity but rather transforms its legal form in place. For federal income tax purposes, a state-law conversion can qualify as an F-Reorganization if the six requirements of Treas. Reg. 1.368-2(m)(1) are satisfied, even though no "Resulting" entity is separately formed (the converted entity IS Resulting). Practitioners should confirm that the applicable state permits the desired conversion and that the conversion does not trigger state-level franchise tax or transfer taxes.

Domestication (Redomestication)

A domestication (also called a redomestication or a transfer of domicile) involves moving the entity's legal home from one state to another without changing its legal form. For example, a Delaware corporation can transfer its domicile to Nevada by filing articles of domestication in Nevada and withdrawing from Delaware. The entity remains the same corporation throughout; only its state of organization changes. A domestication generally qualifies as an F-Reorganization as a change in "place of organization" under IRC 368(a)(1)(F). Confirm that both the origin state and the destination state permit domestication; not all states have adopted the domestication provisions of the Model Business Corporation Act.

State Tax Consequences

The state-level tax consequences of an F-Reorganization depend on each state's income tax and transfer tax laws. Common state-level issues include:

• State income tax NOL carryover: Most states conform to the federal IRC 381 carryover for state income tax purposes, but state conformity varies. Confirm the applicable state's NOL carryover rules in the context of an F-Reorganization before advising clients with significant state NOL carryforwards.
• Real estate transfer taxes: If Transferor owns real property, the merger or conversion may trigger state or local real estate transfer taxes. Many states have exemptions for reorganizations that qualify as tax-free under federal law, but the exemptions are not universal.
• Franchise taxes and annual report fees: Resulting may be subject to franchise taxes and annual reporting fees in every state where it has nexus, in addition to the state of organization. The F-Reorganization does not change the underlying nexus profile of the business.

Hedge: All state tax consequences must be confirmed with practitioners admitted in, and experienced with, the applicable state's tax laws. Americas Tax does not provide state-specific legal opinions.

Section 7: Private Letter Rulings and IRS Practice

For complex or borderline F-Reorganization structures, practitioners may request a Private Letter Ruling (PLR) from the IRS to obtain certainty on the qualification of the F-Reorg and on the tax attribute carryover under IRC 381. The IRS routinely issues PLRs on F-Reorganization issues, including:

• Whether a particular transaction satisfies all six requirements of Treas. Reg. 1.368-2(m)(1);
• Whether a particular tax attribute (including the S-corp election, fiscal year, or specific depreciation election) carries over to Resulting under IRC 381;
• Whether the QSBS holding period begins on the conversion date in an S-to-C F-Reorg conversion;
• Whether a particular Holdco/Opco structure qualifies as a reorganization followed by a tax-free drop-down under IRC 351.

PLR submissions are governed by the current Revenue Procedure covering letter ruling submissions (typically updated annually as Rev. Proc. 20XX-1 or its successor). The submission must include a complete description of the proposed transaction, a statement of the relevant facts, an analysis of the applicable authorities, and the requested ruling. User fees for PLR submissions are set by the applicable revenue procedure and vary based on the complexity of the transaction and the size of the taxpayer. Practitioners should confirm the current user fees and procedural requirements in the most recent Rev. Proc. on rulings and determination letters (currently Rev. Proc. 2024-1 or its successor; confirm at IRS.gov).