Rev. Rul. 59-308

Advice has been requested as to the proper tax treatment of the sale of amortized emergency facilities where the sale is made by a corporation under a plan of liquidation in which no gain or loss is recognized under section 337 of the Internal Revenue Code of 1954.

Among the assets sold by a corporation during its liquidation were emergency facilities, as defined in section 168(d) of the Code. Deductions, under the provisions of section 168 of the Code, had been taken over a period of 60 months amortizing the corporation's entire adjusted basis in such assets. The corporation had adopted a plan of complete liquidation prior to the sale of the emergency facilities. Within the 12-month period following the date of the adoption of the plan, all the assets of the corporation were distributed to its shareholders in complete liquidation.

Section 168 of the Code allows a taxpayer to amortize, by deductions over a period of 60 months, its adjusted basis in emergency facilities. In the case of the sale or exchange of emergency facilities, section 1238 of the Code provides that, to the extent that the adjusted basis of such property is less than it would have been if only deductions for depreciation under section 167 of the Code had been taken, any gain shall constitute ordinary income.

Section 337 of the Code provides, in part, as follows:

(a) GENERAL RULE.-If-

(1) a corporation adopts a plan of complete liquidation * * *, and

(2) within the 12-month period beginning on the date of the adoption of such plan, all the assets of the corporation are distributed in complete liquidation, * * * 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 337(b) of the Code excludes from the definition of `property,' as used in section 337(a) of the Code, (1) stock in trade or inventory items of the corporation, (2) installment obligations acquired at any time from the sale or exchange of inventory items, and (3) installment obligations acquired from the sale or exchange of property prior to the adoption of the plan of liquidation. Section 1.337-3 of the Income Tax Regulations provides that, with certain exceptions, not here material, the term `property' includes all assets owned by a corporation.

There is no provision in section 1238 of the Code which requires gain to be recognized. That section only classifies part or all of the gain, when recognized, as ordinary gain rather than capital gain. Section 337 of the Code provides for the non-recognition of gain from the sale of property of a corporation in connection with a liquidation meeting the requirements of that section. Emergency facilities, not having been specifically excluded from the definition of `property' as used in section 337(a) of the Code, are included in that term.

This does not mean that gain from the sale or exchange of the property excepted from the operation of section 337(a) of the Code, by section 337(b) of the Code, constitutes the only taxable income of a corporation liquidating under the provisions of section 337 of the Code. Revenue Ruling 57-482, C.B. 1957-2, 49, holds that a liquidating corporation realizes income to the extent of its reserves for bad debts since that reserve is no longer needed by the corporation even though section 337 of the Code applies to the liquidation. The gain in that case, unlike the instant case, is not gain from the sale or exchange of an asset.

Accordingly, it is held that no taxable gain is recognized by a corporation, under section 337 of the Code, from the sale, during the period of liquidation, of emergency facilities amortized under section 168 of the Code.