An acquirer offers mixed consideration of $30 cash and 0.5 shares of acquirer stock per target share. The acquirer's stock trades at $40. If the transaction must qualify as a tax-free reorganization under IRC Section 368, what concern might arise?

Why B — The cash component may cause the transaction to fail the continuity of interest requirement

For a transaction to qualify as a tax-free reorganization under Section 368, the continuity of interest doctrine generally requires that a substantial portion (historically at least 40-50%) of the consideration be stock of the acquirer. Here, the stock component is $20 (0.5 x $40) out of total consideration of $50, representing only 40%, which is at the lower threshold. If the cash portion is too large, the IRS may determine that continuity of interest is not met, causing the entire transaction to be taxable to target shareholders.