Davis Polk partner Michael Mollerus discussed new tax legislation proposed by Senators Sheldon Whitehouse and J.D. Vance that would eliminate tax-free corporate mergers with the Wall Street Journal. Under the bill, shareholders who receive stock through tax-free mergers would owe capital-gains taxes immediately rather than being able to defer those taxes until their shares are sold.

Michael explained that if the Whitehouse-Vance bill became law, he would expect many mergers to proceed as taxable stock transactions rather than stop altogether.

“Shareholder-level tax considerations are often second-order considerations to all of the other rationales, synergies and the like, for doing a corporate transaction,” he said.

Big Corporate Mergers Get Fresh Tax Scrutiny in Washington,” Wall Street Journal (March 21, 2024) (subscription required)