Rev. Rul. 58-391

Advice has been requested whether the adoption of a plan to completely liquidate an unincorporated thrift club by its board of directors complies with the requirements of section 337(a) of the Internal Revenue Code of 1954. (The club is treated as a corporation for Federal income tax purposes.)

All matters relating to the conduct of the club's affairs, including determinations of whether, when, and how the club may be dissolved or liquidated, were governed wholly by contract between the members, since there was no applicable state statute relating to the liquidation of an association of this type. Such contract conferred no powers on the members except the right to elect a board of directors. All rights and authority, including the right to liquidate the club, were vested in the board of directors, the members having no right to concur in, pass on, veto, or modify and action of the board of directors.

On January 10, 1957, the board of directors adopted a resolution to dissolve the club as of January 31, 1957. In the following two months all loans were collected, all investment securities were sold (for an amount in excess of their basis), and the balances in the members' accounts as of December 31, 1956 (adjusted for subsequent deposits and withdrawals), were paid to the members. Thereafter, within the 12-month period beginning on January 10, 1957, all of the remaining assets of the club were distributed to the members.

Section 337 of the Code relating to the recognition of gain or loss on sales or exchanges in connection with certain liquidations provides, in part, as follows:

(a) GENERAL RULE.-If-

(1) a corporation adopts a plan of complete liquidation on or after June 22, 1954, and

(2) within the 12-month period beginning on the date of the adoption of such plan, all of the assets of the corporation are distributed in complete liquidation, less assets retained to meet claims, then no gain or loss shall be recognized to such corporation from the sale or exchange by it of property within such 12-month period.

Section 1.337-2(b) of the Income Tax Regulations states that, ordinarily, the date of the adoption of a plan of complete liquidation by a corporation is the date of adoption by the shareholders of the resolution authorizing the distribution of all the assets of the corporation (other than those retained to meet claims) in redemption of all of its stock. Then, after listing certain cases requiring special treatment, the regulations provide, `In all other cases, the date of adoption of the plan of liquidation shall be determined from all the facts and circumstances.' In the instant case, the board of directors of the club had sole power to liquidate such club, the members having no right to pass upon the plan of liquidation. Therefore, in this instance, the date of the adoption of the plan of complete liquidation is the date of adoption by the board of directors.

Accordingly, it is held that, pursuant to section 337(a) of the Code, no gain or loss is recognized to the club from the sale of property during the 12-month period beginning on the date of the adoption of a plan of complete liquidation by the board of directors, followed by the complete liquidation of the club within such 12-month period. The distributions to the club members are treated as full payment in exchange for their shares within the meaning of section 331(a)(1) of the Code.