IRS Mulling Tax-Free Treatment of SPAC Target Transactions

The IRS is considering whether an M&A transaction where a special purpose acquisition company is the target can be treated as tax-free, an official said.

Among the issues under consideration is COBE—continuity of business enterprise in the SPAC context. COBE is a requirement for a corporate reorganization to be deemed tax-free under Section 368 of the tax code.

The IRS is looking at whether the requirement can be satisfied through the use of historic business assets in a continuing business, as well as considering the SPAC’s historic business and if it continues, Kelly Madigan, assistant branch chief at the Office ...