Rev. Rul. 56-171

Advice has been requested as to the acquisition date of stock acquired in connection with a statutory merger.

Both M and N corporations were engaged in the business of supplying similar equipment through subsidiaries and affiliates. M 's outstanding capital stock consisted of participating common stock and common stock. N 's outstanding capital stock consisted of convertible preferred stock, cumulative preferred, and common stock.

M corporation merged with and into N corporation believing that the combined operations of the two corporations would effect economies of operation and substantial savings in overall operating costs. The merger was carried out as a statutory merger under the laws of the states in which the two corporations were organized. Under the plan, the holders of participating common stock and common stock of M corporation received two shares of voting common stock of N corporation in exchange for each share of M 's stock held. The holders of the preferred and common stock of N were not affected by the exchange. The merger presented an adequate corporate business purpose and constituted a `reorganization' within the meaning of section 368(a)(1)(A) of the Internal Revenue Code of 1954. The exchange by the stockholders of M corporation was nontaxable under section 354 of the Code.

At issue in the instant case is the date of acquisition of N corporation's stock received in the merger by certain corporate stockholders of M corporation which acquired their stock of M corporation prior to December 31, 1953, and which may wish to liquidate under section 333 of the Code.

Based upon the facts in the instant case, it is held that, for the purpose of section 333(a)(2) and 333(f)(1) of the Code, the acquisition date of N corporation's stock acquired by a corporate stockholder of M corporation in exchange for M corporation's stock pursuant to the merger is the date of acquisition of M corporation's stock surrendered in the exchange.

An exchange of preferred and common stock between two corporations pursuant to a merger. See Rev. Rul. 56-116, page 164.

Exchange of first preference stock for bonds and common stock pursuant to a plan of reorganization. See Rev. Rul. 56-179, page 187.

The treatment of stockholders in exchange pursuant to a reorganization. See Rev. Rul. 56-184, page 190.

Exchanges made by a corporation to its shareholders for new preferred and common shares in lieu of old common stock now outstanding. See Rev. Rul. 56-223, page 162.