Is an F reorg the same as an S corp converting to an LLC?

Not exactly. An F reorg is the broader tax-treatment concept; the S-to-LLC conversion is one common implementation. The F reorg framework provides the tax-deferred treatment when the change is purely a change of form, regardless of whether the resulting entity is an LLC, a new corporation, or a corporation in a different state.

Why are F reorgs so common in PE deals?

Because they let an S corp seller deliver the tax benefits of an asset purchase (step-up in basis) through what is documented as a stock-equivalent transaction. The 338(h)(10) election achieves a similar result but with different mechanics. F reorgs are often combined with 338(h)(10) elections in complex deals.

What's the timing for an F reorg before a sale?

Typically completed within 30-60 days before closing. Some practitioners do it immediately before signing the purchase agreement. Earlier is generally safer for ensuring the F reorg's tax treatment isn't questioned, but business reasons often dictate proximity to closing.

Can an F reorg trigger gain to the seller?

If properly structured, no — that's the point. Gain is deferred until the actual sale. Improperly structured F reorgs can trigger inadvertent gain or termination of S corp status, which is why these transactions almost always involve specialized tax counsel.

Compliance & tax

F reorganization

US tax-deferred restructuring through a mere change in identity, form, or place of organization. Common in PE pre-sale planning.

Definition

An F reorganization, under IRC § 368(a)(1)(F), is a tax-deferred corporate restructuring that involves "a mere change in identity, form, or place of organization of one corporation, however effected." Despite its narrow statutory definition, F reorgs are heavily used in M&A — particularly in private equity transactions — to restructure S corporations and other targets immediately before a sale. The F reorg preserves the tax attributes of the original corporation while changing its form (often from S corp to LLC, or from one state of incorporation to another).

Same concept, different references

US (IRC)	Section 368(a)(1)(F) — F reorganization
US (Treas. Reg.)	Treas. Reg. § 1.368-2(m) — F reorg requirements (2015)
Common use	Pre-sale S corp to LLC conversion in M&A
Canadian analog	Section 86 reorganization (different scope)

What qualifies as an F reorganization

Treas. Reg. § 1.368-2(m), finalized in 2015, sets out specific requirements for an F reorg. The transaction must satisfy six tests:

All consideration must be stock of the resulting corporation (with limited exceptions)
Identity of stock ownership must be maintained (subject to de minimis exceptions)
The transferor corporation must completely liquidate
The resulting corporation must hold only the assets of the transferor
Both corporations must be the same type for federal tax purposes
No other corporation can hold property of the transferor immediately after

Why F reorgs dominate PE pre-sale planning

Private equity acquirers strongly prefer to buy LLC interests rather than S corp stock. The reason: LLC interests get a step-up in tax basis at acquisition; S corp stock generally does not (absent a 338(h)(10) election). To bridge this, sellers convert their S corp to an LLC just before the sale via an F reorg, then sell the LLC interests.

Typical structure: S corp shareholders contribute stock to a new holding corp; new holdco elects S status; old S corp converts to LLC (becomes disregarded to new holdco)
Result: PE acquirer buys the LLC, getting step-up in basis on all assets
Timing: F reorg typically completed days or weeks before closing
Risk: poorly executed F reorgs trigger inadvertent S corp termination or recognition of gain

F reorg compared to other reorganizations

Subchapter C lists seven types of tax-free reorganizations (Types A through G). The F reorg is the most flexible for structural changes that don't affect business operations or ownership:

Type A: statutory merger or consolidation. Used for M&A combinations
Type B: stock-for-stock exchange. Used for stock acquisitions
Type C: stock-for-assets. Used for asset acquisitions for stock
Type F: mere change of form. Used for pre-sale planning and reincorporations
Other types (D, E, G) cover divisive reorganizations, recapitalizations, and bankruptcy

In Octelligence

F reorg transactions documented end-to-end.

Octelligence captures the share issuances, conversions, and resulting corporate structure of an F reorg, with audit-ready exports for tax counsel review.

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US tax structuring

Track every US tax structure at the share level.

Section 351, F reorganization, 338(h)(10), S corp election, AAA, 199A, 1244, BIG tax. Recorded against the corporation, surfaced when relevant.

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F reorganization

What qualifies as an F reorganization

Why F reorgs dominate PE pre-sale planning

F reorg compared to other reorganizations

Related terms