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Substantially All the Assets

This portion of the introduction to the basic principles of United States federal income taxation of corporate acquisitions is part of the Pillsbury Winthrop Shaw Pittman LLP Tax Page, a World Wide Web demonstration project. Comments are welcome on the design or content of this material.

The information presented is only of a general nature, intended simply as background material, is current only as of the latest revision date, October 15, 2007, omits many details and special rules and cannot be regarded as legal or tax advice.

"Substantially all the assets" of a target corporation (often referred to as the "substantially all test") is not defined in the Internal Revenue Code reorganization provisions. Rather, the concept has evolved through judicial decisions and IRS rulings and practice.

For advance ruling purposes, the IRS defines substantially all the assets of Target as assets having a fair market value of:

    At least 90% of the fair market value of all of Target's assets less liabilities


    At least 70% of the fair market value of all of Target's assets without regard to liabilities.

Case law suggests that smaller percentages of the target corporation's total assets can constitute substantially all of its assets. The courts tend to give greater weight to operating, as opposed to passive investment, assets in evaluating compliance with the substantially all test.

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