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Continuity of Business Enterprise (COBE)

Ann Velez


Generally, any gain recognized on the sale or exchange of property is taxable, but the Internal Revenue Code (IRC) provides that certain sales or exchanges are not federally taxable events. One example is a § 368 corporate reorganization. The rationale for allowing § 368 corporate reorganizations to be non-taxable events is that they are, pursuant to Treas. Reg. 1.368-1(b): “… required by business exigencies and… effect only a readjustment of continuing interest in property under modified corporate forms.”

“Continuity of business enterprise,” or “COBE,” is one of the requirements that a reorganization must fulfill in order to be “tax-free” pursuant to I.R.C. § 368.


After reviewing key concepts and legislation relating to the COBE requirement for tax-free reorganizations, this primer identifies and discusses relevant considerations in the determination of whether COBE exists in a particular reorganization.

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