The acquirer must be careful that not too large a proportion of the purchase price be composed of cash, because this might not meet the IRS's requirement for continuity of interests of the target shareholders and disqualify the transaction as a Type A reorganization.

Question

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The statement is true. The IRS requires that a certain proportion of the purchase price be composed of stock or other securities to ensure continuity of interest for the target shareholders and qualify the transaction as a Type A reorganization. If too much of the purchase price is in cash, the transaction may not qualify as a Type A reorganization.

The Acquirer Must Be Careful That Not Too Large a Proportion