Rev. Rul. 62-60

Advice has been requested as to the effect of a statutory merger or consolidation upon an absorbed corporation and the resultant entity with respect to liability for the tax imposed under the Federal Unemployment Tax Act (Chapter 23, subtitle C, Internal Revenue Code of 1954).

In the past, in cases involving a statutory merger or consolidation, the Internal Revenue Service has treated the absorbed corporation as distinct from the resultant entity for Federal employment tax purposes. See S.S.T. 199, C.B. 1937-2, 405, at 406, Question 6 and the answer thereto. See also S.S.T. 188, C.B. 1937-2, 377.

Upon reconsideration, the Service has concluded that where a corporation is absorbed by another corporation in a statutory merger or consolidation the resultant corporation should be regarded as the same taxpayer and the same employer for Federal unemployment tax purposes. In this regard see Senate Report No. 868, dated September 5, 1961, 87th Congress, 1st Session, C.B. 1961-2, 447, and Congressional Record for August 31, 1961, Vol. 107, No. 152, at page 16656. Also see Revenue Ruling 54-31, C.B. 1954-1, 212, modifying S.S.T. 199, supra , as to the continuation of a partnership as the same taxpayer and employer notwithstanding a change in its membership.

Accordingly, it is held that in the case of a statutory merger or consolidation the resultant entity is subject to the tax imposed by the Federal Unemployment Tax Act by reason of the premerger or preconsolidation employment of individuals by the corporation or corporations absorbed. That is to say, if individuals are employed in the business for the appropriate 20-week period during the calendar year, liability for the Federal unemployment tax is incurred by the resultant corporation whether it employed them for 20 weeks or that period was divided between the absorbed corporation and the resultant corporation.

The effect of the foregoing is to impute the employment, by the absorbed corporation, to the resultant corporation, in which the corporate life of the absorbed corporation is deemed to continue. Accordingly, the credits against the Federal unemployment tax provided by section 3302 of the 1954 Code for contributions made by the absorbed corporation into State unemployment funds with respect to such employment are allowable to the resultant corporation.

The above conclusion that the continuing corporation resulting from a statutory merger or consolidation is the same employer and taxpayer as the absorbed corporation, is also applicable for purposes of the taxes imposed under the Federal Insurance Contributions Act and the Withholding of Income Tax at Source on Wages (chapters 21 and 24, respectively, subtitle C of the 1954 Code).

In cases involving employment taxes, the resultant corporation should furnish one Form W-2, Withholding Tax Statement, to each employee showing as one total the wages paid in the year of the merger by one of both corporations. A single Form W-3, Reconciliation of Income Tax Withheld from Wages, should be filed by the resultant corporation; the amount of income tax withheld by each corporation need not be separately identified. One Form 941, Employer's Quarterly Federal Tax Return, for the quarter in which the merger occurred and one Form 940, Employer's Annual Federal Unemployment Tax Return, for the calendar year in which the merger occurred should be filed by the resultant corporation coverning the wages paid by both corporations during those periods.

The first return filed by the resultant corporation subsequent to the merger or consolidation should be accompanied by information indicating the change which has taken place, the date of the change, the name and address of the absorbed corporation and the identification number assigned to the absorbed corporation.

For calendar years beginning after 1960, a successor employer who acquires the business and employees of a predecessor, who is not an `employer' for purposes of the Federal unemployment tax, is permitted, under section 3302(e) of the Federal Unemployment Tax Act, to credit against his Federal unemployment tax the credits for State contributions which would have been allowable to the predecessor with respect to the acquired employees if the predecessor had qualified as an `employer' during the calendar year. Section 3302(e) does not apply to a corporation acquiring the trade or business and employees of another corporation in a statutory merger or consolidation since, as indicated herein, there is no predecessor-successor relationship in a statutory merger or consolidation but one continuing taxpayer or employer.

S.S.T. 188, C.B. 1937-2, 377, is modified to remove the conclusions that the provisions thereof are applicable to statutory mergers or consolidations.

S.S.T. 199, C.B. 1937-2, 405, is modified to remove the inference that Question 6 and the answer thereto is applicable in the case of a statutory merger or consolidation.