## Facts

- Times Mirror Co. (TMC) owned 100% of Matthew Bender & Co., a profitable legal-publishing subsidiary, and sought to dispose of it with tax-favored treatment.
- Reed Elsevier pursued the acquisition through a multi-step structure designed to provide TMC with equity plus access to substantial cash.
- Reed formed a wholly owned merger subsidiary and contributed about $1.375 billion in cash to it.
- Reed formed an acquisition parent (MB Parent); voting stock interests were arranged so that, after the steps, TMC held 100% of MB Parent common stock and Reed held 100% of MB Parent preferred stock.
- The merger subsidiary merged into Matthew Bender, with Matthew Bender surviving as a subsidiary under MB Parent; TMC received MB Parent stock.
- MB Parent transferred the $1.375 billion to a wholly owned LLC and designated TMC as manager, giving TMC effective control over the cash.
- Tribune Co., as TMC’s successor, reported the transaction as a tax-free reorganization under I.R.C. § 368(a), asserting either a reverse triangular merger under § 368(a)(2)(E) or a “B” reorganization under § 368(a)(1)(B).
- The Commissioner issued a deficiency notice asserting the disposition was a taxable sale; Tribune petitioned the Tax Court.

## Issues

1. Whether the transaction qualified as a tax-free reverse triangular merger under I.R.C. § 368(a)(2)(E).
2. Whether the transaction alternatively qualified as a tax-free “B” reorganization under I.R.C. § 368(a)(1)(B), requiring acquisition “solely” for voting stock.
3. Whether, viewing the steps together, the transaction was in substance a taxable sale involving significant nonstock consideration.

## Decision

- The Tax Court entered decision for the Commissioner.
- The court held the transaction did not qualify as a tax-free reorganization under § 368(a).
- The court concluded the deal was neither a qualifying reverse triangular merger nor a qualifying “B” reorganization.
- The court sustained the deficiency on the ground that the disposition was a taxable transaction.

## Legal Principles

- Nonrecognition treatment under I.R.C. § 368(a) applies only if the transaction fits the statutory requirements for a specified type of reorganization.
- For a “B” reorganization under § 368(a)(1)(B), the “solely for voting stock” requirement is applied strictly; significant consideration other than voting stock generally disqualifies the transaction.
- Courts may integrate interdependent steps and evaluate the overall arrangement to determine the transaction’s substantive character rather than accepting formal labels.
- Transaction structures that effectively provide the seller both equity and access to large cash proceeds may be treated as taxable sales when the cash is part of the consideration for the disposition.

## Conclusion

The Tax Court treated Times Mirror’s disposition of Matthew Bender as a taxable sale because the integrated steps effectively delivered significant cash (through an LLC arrangement) along with equity, defeating the statutory requirements for both a reverse triangular merger and a “B” reorganization under § 368(a).


Tribune Co. v. Commissioner, 125 T.C. 110 (2005)