Stock put into escrow at closing can be considered stock and not other property, provided:

• Target shareholders must have voting rights
• Target shareholders must have dividend rights
• Amount of stock put into escrow cannot exceed the amount of stock issued outright

If escrowed shares are used to satisfy
an indemnity liability:

• No gain or loss is recognized by Target shareholders if the number of forfeited Buyer shares is determined based upon their fair market value at the time of the original acquisition
• Gain or loss is recognized if the number of forfeited shares is determined using fair market value at settlement

Contingent stock can be considered stock
and not other property, provided:

• Maximum amount of contingent stock cannot exceed the amount of stock issued outright in the merger, including any escrowed stock
• Thus, as little as 25% of the total amount of stock which can be issued must be issued outright

• An additional 25% can be issued into escrow
• The remaining 50% can be contingent stock

Contingent stock is treated as issued
only when the right to receive it matures:

• Receipt of contingent stock is considered receipt of
  a deferred payment
• A portion of the stock received is subject to tax

• Recharacterized as interest income
• Under the imputed interest or original issue discount rules

Earn-outs