### Question
How does the law define corporate acquisition indebtedness?


### Answer
Under *26 U.S.C. § 279*, **corporate acquisition indebtedness** is defined as:

> any obligation evidenced by a bond, debenture, note, or certificate or other evidence of indebtedness issued by a corporation (hereinafter in this section referred to as "issuing corporation") if—



(1) such obligation is issued to provide consideration for the acquisition of—



(A) stock in another corporation (hereinafter in this section referred to as "acquired corporation"), or



(B) assets of another corporation (hereinafter in this section referred to as "acquired corporation") pursuant to a plan under which at least two-thirds (in value) of all the assets (excluding money) used in trades and businesses carried on by such corporation are acquired,


  


(2) such obligation is either—



(A) subordinated to the claims of trade creditors of the issuing corporation generally, or



(B) expressly subordinated in right of payment to the payment of any substantial amount of unsecured indebtedness, whether outstanding or subsequently issued, of the issuing corporation,


  


(3) the bond or other evidence of indebtedness is either—



(A) convertible directly or indirectly into stock of the issuing corporation, or



(B) part of an investment unit or other arrangement which includes, in addition to such bond or other evidence of indebtedness, an option to acquire, directly or indirectly, stock in the issuing corporation, and


  


(4) as of a day determined under subsection (c)(1), either—



(A) the ratio of debt to equity (as defined in subsection (c)(2)) of the issuing corporation exceeds 2 to 1, or



(B) the projected earnings (as defined in subsection (c)(3)) do not exceed 3 times the annual interest to be paid or incurred (determined under subsection (c)(4))

#### Citation:
  - *26 U.S.C. § 279*
  - Heading: **Subtitle A-Income Taxes > CHAPTER 1-NORMAL TAXES AND SURTAXES > Subchapter B-Computation of Taxable Income > PART IX-ITEMS NOT DEDUCTIBLE**

