Rev. Rul. 83-34: Successive section 351 transfers

In Rev. Rul. 99-6, the IRS provides that certain transfers of partnership interests cause termination of a partnership.

Rev. Rul. 83-34: Successive section 351 transfers

In Rev. Rul. 99-6, the IRS provides that certain transfers of partnership interests cause termination of a partnership.

Citations: Rev. Rul. 83-34; 1983-1 C.B. 79

Rev. Rul. 83-34

ISSUE

Whether the transfer of assets by P to its 80 percent owned subsidiary (S-1), which in turn transfers the assets to its 80 percent owned subsidiary (S-2) is governed by section 351 of the Internal Revenue Code.

FACTS

P corporation has an 80 percent owned subsidiary, S-1. An unrelated corporation owns the other 20 percent. Both corporations are operating corporations. P transferred assets used in its business to S-1 solely in exchange for additional shares of S-1 stock. No liabilities of P were assumed by S-1 and the assets transferred were not subject to liabilities. As part of the same plan, S-1 transferred the same assets to S-2, a newly formed corporation in which S-1 will be an 80 percent shareholder. An unrelated corporation will own the other 20 percent interest in S-2. S-2 retained the assets received from S-1 for use in its business and P and S-1 retained the stock received by them in the exchanges.

LAW AND ANALYSIS

Section 351(a) of the Code provides that no gain or loss will be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation, and immediately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation. Section 368(c) defines the term "control" to mean the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.

In Rev. Rul. 77-449, 1977-2 C.B. 100, a corporation transferred assets to a wholly owned subsidiary, which in turn transferred, as part of the same plan, the same assets to its own wholly owned subsidiary. The transfers were viewed as separate transactions, each of which satisfied the requirements of section 351 of the Code. Under the circumstances described above, the transfers are also viewed separately.

HOLDING

Since the transfers from P to S-1 and from S-1 to S-2 each satisfy the requirements of section 351 of the Code, no gain or loss is recognized by the transferors.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 77-449 is amplified.

‍

Product heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.

Get Started

Related Diagrams

10 Min Read

Rev. Rul. 70-224: Cause to be directed; § 368(a)(2)(C)

Rev. Rul. 70-224: It is held that the transaction in the instant case is an acquisition by X, solely in exchange for its voting stock and the assumption of Z's liabilities, of substantially all of the properties of Z, and is, therefore, a reorganization within the meaning of section 368(a)(1)(C) and section 368(a)(2)(C) of the Code. The fact that all the assets of Z were transferred directly to Y rather than through X to Y does not affect the reorganization.

Explore Diagrams
10 Min Read

Rev. Rul. 82-150: Deep-in-the-money options

In Rev. Rul. 82-150, the IRS holds that a sale of a deep-in-the-money option was, in substance, not an option but a completed sale of the referenced stock for purposes of the foreign personal holding company rules.

Explore Diagrams
10 Min Read

Rev. Rul. 2001-46, Sit. 2: Acquisition merger & upstream merger collapsed

Rev. Rul. 2001-46, Sit. 2: Under the facts presented, if, pursuant to an integrated plan, a newly formed wholly owned subsidiary of an acquiring corporation merges into a target corporation, followed by the merger of the target corporation into the acquiring corporation, the transaction is treated as a single statutory merger of the target corporation into the acquiring corporation that qualifies as a reorganization under section 368(a)(1)(A).

Explore Diagrams