What Is an F-Reorganization? The Tax-Smart Way to Sell Your Florida Business

The F-reorganization can sound intimidating and overly technical, but at its core, it’s just a way to “change the wrapper” on your company to make the sale more tax-efficient for both the buyer and seller. Here’s how I’d explain it if I were the senior attorney walking a colleague and their client through it in a conference room.

What is an F-Reorganization: The Big Picture

An F-reorganization is simply a “legal reshuffle” allowed under Section 368(a)(1)(F) of the Internal Revenue Code. It’s officially called a “mere change in identity, form, or place of organization of one corporation.”

Put bluntly: you’re not changing what your business does or its business operations. You’re just changing what it looks like on paper so the buyer gets the tax advantages of an asset purchase, and you, the seller, still get the tax advantages of a stock sale. This tax efficiency makes F reorganizations offer tremendous value for both parties.

F-Reorg Step-by-Step in Plain English

Here’s what typically happens during an F-reorganization:

1. You form a new holding company, often nicknamed “Newco.”
Let’s say your current company is Sunshine Landscaping, Inc. (an S-Corp). You form Sunshine Holdings, Inc. as the resulting corporation (“Newco”).

2. You contribute (transfer) your stock in the operating company to Newco.
After this step:

• You own 100% of Sunshine Holdings, Inc.
• Sunshine Landscaping becomes a wholly owned subsidiary of Sunshine Holdings
• The original corporation maintains its status as an S corporation

3. The business keeps running exactly the same way
The employees, customers, bank accounts, and contracts stay with Sunshine Landscaping. The EIN and entity type remain unchanged. On a tax level, though, you’ve now created a structure that allows different sale options. For tax purposes, this subsidiary may be treated as a disregarded entity or a qualified subchapter S subsidiary, depending on the elections made.

4. Then, the buyer steps in and buys the subsidiary’s stock (or, in some cases, stock in the holding company with special elections).
From your perspective as a shareholder, you’re just selling “stock.” But with the right QSub election or an IRC Section 338(h)(10) election in place, the buyer can treat that purchase as if they bought the assets of Sunshine Landscaping, which is highly valuable for their future tax deductions.

Why the Buyer Cares

Buyers, particularly private equity firms and strategic acquirers, love this structure because:

• They get a “step-up” in tax basis, meaning they can depreciate or amortize the assets anew—huge future tax savings. This step-up in the tax basis of the target’s assets protects the buyer’s tax basis step-up for federal income tax purposes.

• They may not have to retitle contracts or licenses, avoiding a bureaucratic nightmare (for example, government permits, supplier agreements, or Medicare provider numbers can stay in place). The target company continues operating without disruption.

• It gives them more deal flexibility (mixing cash, equity, or rollover equity for management). Private equity buyers especially value the ability for the buyer to structure a greater mix of cash and equity purchase components.

Example

Suppose the buyer plans to pay $10 million for Sunshine Landscaping. If they structured it as a straight stock or equity purchase, they’d inherit your old asset basis. But with an F-reorg combined with an appropriate corporation election, they can reset asset values to $10 million and depreciate from that new number, which could save them hundreds of thousands in income tax over time while achieving significant tax benefits.

Why the Seller (You) Usually Likes It Too

It might sound like extra paperwork, but in many small and mid-size S-corp sales, F reorganization provides a win-win:

• Tax treatment: You get to report your sale as a stock sale, which usually means long-term capital gains tax rates instead of higher ordinary income or depreciation recapture. The tax-free reorganization aspect preserves favorable tax treatment.

• Price bump: Because the buyer gets those asset sale benefits from the step-up in the basis, they might be willing to pay a bit more. The seller’s LLC interest or corporation stock value increases.

• Flexibility: You can carve out assets you don’t want to sell (like real estate or vehicles) before the sale transaction. This is valuable under state law when you want to retain certain properties.

• Continuity: The operating company’s EIN, contracts, and licenses stay intact, avoiding disruption to the business. The corporation status and existing S corporation structure remain unaffected.

Example

Imagine you own the building Sunshine Landscaping operates from, and you want to keep that building. You can, via your restructuring, move the real estate out before the sale. The buyer buys the business through the wholly owned subsidiary that owns the operations, not the property. The original S corporation maintains its identity as a mere change in the organizational structure.

What to Watch Out For

It’s not all sunshine and rainbows. F reorganization requires careful attention:

• Complexity: Setting it up requires coordinating your CPA and legal teams—new entity formation, stock transfers, tax elections, and proper filings. The reorganization may involve multiple steps, including a corporation in exchange for stock.

• IRS scrutiny: You have to follow the technical steps exactly under the Internal Revenue Code and Section 368, or the IRS could later claim it wasn’t a valid “F-reorganization,” exposing you to tax liabilities or indemnity claims. Proper tax filings are essential.

• Buyer indemnities: Expect the purchase agreement to make you responsible if the F-reorg or S-corp status fails an audit later. Corporation shareholders often provide warranties about tax attributes and compliance.

• Professional guidance: Work with a tax professional experienced in merger and reorganization transactions. The structure must comply with subchapter rules and place of organization requirements to qualify.

So while F reorganizations offer a beautiful tool for tax planning, it’s also delicate. Think of it like rearranging a wedding cake layer by layer—when done right, it looks the same but is built to serve both the baker (you) and the new owner (the buyer) better. But if you rush it or skip the following steps, you can collapse the whole thing.

Quick Recap Analogy

If you owned a car titled in your name (the original corporation), an F-reorganization (sometimes called an F-reorg or reorg) is like first creating a new LLC or holding company (Newco), transferring the car title to it (Newco in exchange for ownership), and then selling that entity to the buyer—allowing at least one day between steps for proper structure.

The car (your business) never changes drivers mid-traffic; it just ends up owned by someone else under a different corporate structure that optimizes both sides’ tax results. The paid-for seller’s LLC interest or stock happens in a way that creates immediate tax and future tax advantages for the buyer, while you maintain favorable capital gains treatment on the sale.

Ready to Sell Your Florida Business?

At Crowne Atlantic Properties, we’ve successfully facilitated over 650 combined business transactions throughout Florida and the Southeast. Our founders—Jackie Ossin Hirsch (CBI certified with 360+ business valuations and 400+ transactions) and Lee Ossin (250+ transactions)—have the experience to guide you through complex sale structures, including F-reorganizations.

Unlike competitors who charge substantial upfront retainer fees, we operate on a success-fee-only basis. We only get paid when your deal closes successfully. Whether you’re selling a service business, restaurant, manufacturing company, or professional practice, our deep Florida market knowledge helps maximize your transaction value.

Contact Crowne Atlantic Properties today for a confidential consultation about selling your Florida business. We’ll work with your tax and legal advisors to structure the optimal sale—whether that’s an F-reorganization, asset purchase, or traditional stock sale—to achieve the best outcome for your specific situation.

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