The following are the requirements for a tax-free reorganization---1) CONTINUITY OF BUSINESS ENTERPRISE. This is a test: The issuing corporation must either continue the target corporation's historic business or use a significant portion of the continuing corporation's assets in a business; 2) CONTINUITY OF INTEREST REQUIREMENT...The purpose of this is to prevent transactions that resemble sales from qualifying for nonrecognition treatment. Continuity of interest requires that in substance a substantial part of the proprietary interests in target corporation be preserved in the corporation; and 3)BUSINESS PURPOSE REQUIREMENT. A reorganization must have a legitimate business purpose to qualify for tax-free treatment. This does not include "avoidance of federal income tax" as a legal purpose.