Sub C Rev Ruls

Front 1

Rev. Rul. 59-259

Back 1

368(c) Control: 80% of Each Class of Nonvoting

The "at least 80% of all nonvoting shares" test of 368(c) is applied on a class by class basis. Thus, to satisfy this test, ownership of at least 80% of the total number of shares of each class of outstanding non-voting stock is required.

Front 2

Rev. Rul. 67-274

Back 2

B Reorganization plus Target Liquidation equals C Reorganization

Often cited for the principle that a stock transfer followed by a liquidation is treated as an asset reorganization.

Front 3

Rev. Rul. 68-298

Back 3

351 Exchange & Distribution to Shareholder

Where P formed S with a contribution of property in exchange for S stock and then immediately thereafter P redeemed one of its shareholders ("A") with S stock, P's transfer to S was still protected under 351(a). The distribution to A did not break P's 368(c) control because 351(c) allows the distribution of S's stock to A to be ignored.

Now, 311(b) would cause the distribution to P to be taxed. (A was always taxable on the dividend.)

Front 4

Rev. Rul. 68-357

Back 4

Section 351 Exchange Combined with C Reorganizations

Transfer of property by three corporations and one individual "A" to an existing corporation in exchange for 80 percent control, followed by the liquidation of the corporate transferors (mainly into their primary shareholder, A). This transaction qualifies as both a tax-free 351 exchange and a “C” reorg.

Front 5

Rev. Rul. 68-526

Back 5

Under Bausch & Lomb, you can't have a "C" reorg when Acquiror already holds stock of Target. This RR provided that you can have a valid C reorg where an unrelated operating corporation acquired all of the assets of parent and its 60 percent subsidiary corporation in a single exchange, after which the transferor corporations were liquidated. (B&L Doc killed by Reg. 1.368-2(d)(4)(i))

Front 6

Rev. Rul. 68-602

Back 6

Pre-Liquidation Debt Cancellation of Insolvent Subsidiary Gets 331 (Not 332)

Distribution of all of sub's assets to parent corp. in cancellation of indebtedness which exceeded FMV of assets isn't liquidation under 332 entitling parent to succeed to sub's NOL carryover.

Note: An insolvent sub can't take advantage of 332 because no liquidating distribution is made. See 1.332-2(b); Rev Rul 59-296, 1959-2 CB 87 as amplified by Rev Rul 2003-125

Front 7

Rev. Rul. 61-191

Back 7

The De Facto Liquidation

For the purpose of NOL carrybacks a de facto dissolution occurs when a corporation has disposed of all or most of its operating assets, terminated its regular business activities, and become a mere shell, a corporation in name and semblance only, without real corporate substance, serving no real corporate purpose, and having no valid or compelling business reason for continuing its existence, even though not formally dissolved.

Front 8

Rev. Rul. 69-265

Back 8

Voting stock that converts into Grandfather corp's stock could blow your "C" reorg because you could be treated as exchanging voting stock and a conversion right.

Where a parent (S1) of an acquiring corporation (S2) in a triangular Type C reorganization uses stock convertible into stock of its parent (P) after five years, and P contributes sufficient stock to S1 to satisfy the obligation, the conversion right is not treated as nonvoting stock consideration that could cause the transfer to fail to qualify as a Type C reorganization, since it is merely a right to redeem granted by S1. However, IRS takes the position that where P doesn't transfer stock to S1, but merely grants it the right to cause P to issue the required amount of P stock, the right is treated as other property that could cause the transfer to fail to qualify as a Type C reorganization.

Front 9

Rev. Rul. 69-294

Back 9

Applying a form of the Bausch & Lomb doctrine to a “B” reorg.

Acquiring got the balance of the Target stock in a liquidation of its subsidiary. Therefore, the "solely for voting stock" rule was not met because Acquiring got Target stock in exchange for stock of its subsidiary in the liquidation.

Front 10

Rev. Rul. 69-6

Back 10

Merger of Target into Acquirer for cash is an asset sale followed by a liquidation.

(This is the S&L Assoc. RR where the stock was also a passbook that was unable to be undergo a tax- free reorganization because only minimal value could be attributed to the equity represented by the passbook account.)

Front 11

Rev. Rul. 69-608

Back 11

Constructive dividend when your corporation fulfills your obligation.

(Corporation bought stock of a departing shareholder that remaining shareholder had agreed to buy - constructive dividend only if the remaining shareholder was primarily and unconditionally obligated to buy the shares.)

Front 12

Rev. Rul. 69-617

Back 12

Liquidation-Reincorporation doctrine

Upstream Merger Followed by a contribution to a new sub Is not a Section 332 Liquidation - its an "A" reorg followed by an (a)(2)(C) drop.

Front 13

Rev. Rul. 70-140

Back 13

Putative 351 to Newco followed by putative B reorg for Newco fails 351 (you lack control immediately after).

Front 14

Rev. Rul. 70-223

Back 14

Downstream Merger

A merger of a parent into a subsidiary is treated as a Type A reorganization, rather than as a liquidation.

Note: An Upstream Merger is usually treated as a §332 liquidation. See I.R.C. § 332(b) – last sentence and Treas. Reg. § 1.332-2(d), (e) (Merger of a subsidiary into parent treated as a liquidation).

Front 15

Rev. Rul 70-240

Back 15

Dividend in a Cash D Reorg

In a Cash D reorg, the dividend paid by Target comes from E&P of Target and Acquiring. (Davant follows, Tax Court in Atlas Tool only looks to Target's E&P)

Front 16

Rev. Rul. 70-496

(Now Obsolete)

Back 16

The Classic 304 Transaction

S1 sells its sub to S2 (both Subs of P). Standard 304 ensues with contribution followed by dividend equivalent redemption. Basis of redeemed stock disappears because the selling corporation does not own any stock of the sold corporation to which it could attach the leftover basis. Thus the problem of disappearing basis is created.

But cf. Coyle v. US, 415 F2d 488 (4th Cir. 1968) (“[i]n any event it is clear that taxpayer's basis will not disappear”).

Front 17

Rev. Rul. 70-65

Back 17

No Debt Assumption in a B Reorg

You can't have a "B" Reorg where the consideration is both voting stock and debt assumption. (Violates "solely for voting stock" requirement). However, you could have a "C" reorg because the debt assumption is ignored.

Front 18

Rev. Rul. 71-336

Back 18

Substance Over Form: Conduit Corporation

Corporation X redeemed stock held by a minority shareholder in exchange for contributed stock of another corporation. Because the shareholders were just using X as a conduit, the transaction was recast as a taxable exchange between the minority and contributing shareholders.

Front 19

Rev. Rul. 72-405

Back 19

Forward Triangular Merger (T into S) Followed by Liquidation (S into P) is a "C" Reorganization

(Contrast with 2001-46) (Reverse triangular merger followed by liquidation of T into P treated as an "A" reorganization)

Front 20

Rev. Rul. 2001-46

Back 20

Reverse triangular merger (Sub into T) followed by upstream merger (T into P) treated as an "A" merger.

(Contrast with 72-405)

Front 21

Rev. Rul. 73-16

Back 21

Successive Stock-For-Stock Exchanges Treated a "B" and "Triangular B" Reorganizations

Y acquires stock of X corporation solely for shares of Y voting stock.

Z acquires stock of Y solely for shares of Z voting stock. Although Z did acquire Y in a “B” reorganization, the substance of Y's acquisition of X is that it was a triangular “B” reorganization. In other words, the ruling concludes that the transaction should be viewed as if Y acquired X, not for shares of Y voting stock, but rather, for shares of Z voting stock, while Z was in control of Y.

Front 22

Rev. Ru. 73-233

Back 22

Disproportionate Exchanges in a Reorg

Majority shareholder gives up part of his interest to minority shareholders to get them to agree to the reorg. If Majority goes from 60 to 50 and 2 minorities each go from 20 to 25, Majority treated as getting 60 and then exchanging 10 with the minorities for their affirmative vote (minorities have 1001).

Front 23

Rev. Rul. 73-427

Back 23

"Squeeze Out" Merger

P buys 97.9% of Target's stock for cash, get's remaining 2.1% through putative triangular "B" reorg with P's sub, S. IRS ignores S, treats P as if it acquired T stock for cash and P stock. No gain/loss to P under 1032; gain/loss to the minority shareholders under 1001/1002. (Compare with 67-448)

Front 24

Rev. Rul. 67-448

Back 24

Reverse Triangular Merger Was, in Substance, a B Reorganization

P, issues its voting stock to its new sub. S, and S immediately merges into unrelated corp. Y, so that Y's shareholders receive shares of P and P receives 80% or more of Y's shares, transaction qualifies as “B” reorg. (Compare with 73-427)

Front 25

Rev. Rul. 74-503

(Revoked and under study)

Back 25

Section 351/1032 Overlap “Zero Basis” Problem

Treasury stock has a zero basis to the corporation because it was no different than its previously unissued stock.

Rev. Rul. 2006-2 revoked and said the zero basis issue is under study.

Front 26

Rev. Rul. 74-544

Back 26

332 Does Not Apply to Partial Liquidation

Transaction in which parent corp. ceased operations, sold all operating assets to unrelated party for cash and within 12 months after adoption of plan, paid its liabilities and distributed cash from sale to its shareholders in exchange for all but nominal amount of parent's stock doesn't as a 332 qualify since immediately thereafter wholly owned sub was liquidated into parent which continued operating sub business.

Front 27

Rev. Rul. 74-573

Back 27

When Sub Deals Directly with Shareholder, IRS Will Sometimes Recast as if Sub Dealt Directly with Parent and then Parent Deals Directly with Shareholder

Domestic parent redeems individual shareholder in exchange for shares of wholly owned foreign subsidiary. Foreign sub then redeemed shareholder for cash. IRS said transaction must be treated as though Sub made cash distribution to Parent (taxable as dividend) in exchange for part of its stock held by Parent and then as cash redemption by Parent of shares held by individual.

Front 28

Rev. Rul. 74-605

Back 28

Upstream Sale is not a 304.

Under the constructive ownership rules (see 318), a corporation cannot be treated as owning its own stock. Similarly, a corporation cannot be treated as owning its parent's stock since it would then be treated as owning its own stock. Thus, where X owns all the stock of Y, Y owns all the stock of Z, and Z owns all the stock of S, the brother-sister redemption rules do not apply to Y's purchase of S stock held by Z. The Code Sec. 304 brother-sister redemption rules would apply only if Z (the seller) controlled both Y (the acquiring corporation) and S (the issuing corporation). Since Z is not treated as owning the Y stock, Z is not in control of Y, with the result that the brother-sister redemption rules do not apply.

Front 29

Rev. Rul. 76-385

Back 29

If your share of a corporation is microscopic, any change will usually get sale treatment (rather than dividend equivalent).

Redemptions of voting stock from holders whose voting power was so small that they could exercise no control over the corporation's affairs either before or after the redemption result in a meaningful reduction in the redeemed shareholder's proportionate interest in the distributing corporation as long as there is some reduction in the redeemed shareholder's voting rights, right to participate in current earnings and accumulated surplus, and right to share in net assets on liquidation.

Front 30

Rev. Rul. 76-454

Back 30

Disproportionate Distribution of Stock in a 351

Where an individual (A) and his wholly-owned corporation (X) transfer property to a newly-formed corporation (Y) and A receives a disproportionate amount of the stock of Y, the transaction is treated as tax-free transfer of the property to Y followed by a dividend distribution of a portion of the Y stock received by X to A.

Front 31

Rev. Rul. 77-449

Back 31

The double-drop-down (two successive 351s) is ok as long as each transfer meets the 351 tests.

Front 32

Rev. Rul. 78-130

Back 32

Outbound 351 & Asset Reorg Recast as a Triangular C Reorg

P owns S1 and S2. As part of an overall plan S2 forms N, P contributes its S1 stock to S2 in exchange for additional S2 stock, and N acquires all of S1's assets in exchange for N voting stock. S1 is then liquidated and the N shares it received are distributed to S2. This transaction is treated as if N directly acquired S1's assets in exchange for stock of S2 (N's parent).

Front 33

Rev. Rul. 78-397

Back 33

Circular Flow of Cash Doctrine

If a transfer of cash is undertaken for a nonfederal income tax purpose, and the cash follows a path that leads it back to its place of origin, the substance of the transaction is that there has been a so-called "circular flow of cash" that should be ignored, such that no federal income tax consequences ensue. (Formation cash of transitory sub that is returned to original parent through liquidation.)

Front 34

Rev. Rul. 80-228

Back 34

Boot on Contribution of Division into a Subsidiary

Where a corporation transfers one of its divisions to a controlled corporation for stock but retains a pre- transfer account receivable owed by the transferred division to another one of its divisions, and the controlled corporation treats the indebtedness as an account payable, IRS claims the receivable is boot received on the transfer. IRS reasons that a corporation cannot owe money to itself (which is in fact the case when one division owes money to another) so that there was no debt due the transferor before the transfer.

Front 35

Rev. Rul. 84-30

Back 35

Continuity of interest is not adversely affected if the continuity-bearing stock is passed upstream to Target's grandparent.

Corporation X owned all of the stock of corporations Y and Z. In turn, Z owned all of the stock of corporation N. As part of an integrated plan with a good business purpose, Y acquired all of the assets of N solely in exchange for shares of Y voting stock and the assumption by Y of N's liabilities. Thereafter, N liquidated and the Y stock received by N was distributed up the chain to Z and then to X. The IRS ruled that notwithstanding the fact that the Y stock ended up in X's hands, the continuity of proprietary interest requirement was satisfied because X was an indirect owner of N.

Front 36

Rev. Rul. 56-613

Back 36

No 318 attribution for 351.

But see 1.1502-34 (attribution allowed for 351s made by consolidated group members).