Rev. Rul. 57-490

The excess of the fair market value of agricultural products over the cost thereof, which products constitute inventory times of a corporation and which are distributed as a dividend in kind to its stockholders, is not includible in the gross income of the corporation for Federal income tax purposes, except to the extent provided in section 311(b) of the Internal Revenue Code of 1954, relating to the gain reflected in the distribution of LIFO inventory. However, in order to prevent a double allowance, an adjustment must be made effecting the removal of the asset and any cost pertaining thereto from the opening inventory and/or subsequent cos records of the corporation for the year in which the distribution is made. Neither items of the current years' cost nor items of prior years' costs, which are applicable to the property distributed, are allowable deductions to the corporation. The above adjustments are required without regard to whom such distributions are made. Compare Revenue Ruling 55-138, C.B. 1955-1, 223, in which similar adjustments to inventory and costs are required where agricultural products were distributed by a taxpayer to a tax-exempt organization. See, also, Revenue Ruling 55- 531, C.B. 1955-2, 520. Furthermore, the amount of the distribution, to the extent provided in section 301 of the Code, must be included in the gross income of the recipients.