Reverse Morris Trust

KPMG demystifies Reverse Morris Trust (RMT) structures, which companies increasingly use to dispose of a business in a tax efficient manner. KPMG explores an RMT’s financial reporting effects as well as relevant IRS and SEC filing requirements.

Applicability

• Company that is considering a business divestiture

Relevant dates

• Effective immediately

Key impacts

• An RMT is a structure in which a company spins off a business to its shareholders, and the divested business is then acquired by another company
• For the transaction to remain non-taxable, the shareholders of the divested business must retain more than 50% of the value and voting rights of the combined entity
• Because the transaction may receive beneficial tax treatment compared with other dispositions, companies are using these structures with greater frequency

Report contents

• What is a Reverse Morris Trust?
• What should companies consider when using RMTs?
• Structure of a Reverse Morris Trust
• Typical steps to create RMT transactions
• Parent Co’s accounting
• Acquirer Co’s accounting
• Tax considerations
• SEC requirements
• Financial statements