Rev. Rul. 64-100

Further consideration has been given to Revenue Ruling 56-372, C.B. 1956-2, 187, which holds that the receipt of fire insurance proceeds from the complete destruction of a building by fire, resulting in an involuntary conversion, does not constitute a `sale' for the purpose of obtaining nonrecognition of gain or loss benefits, where liquidation of corporate assets is affected pursuant to section 337(a) of the Internal Revenue Code of 1954.

In the case of Towanda Textiles, Inc. v. United States , 180 Fed.Supp. 373 (1960), the taxpayer adopted a plan of complete liquidation which qualified under section 337 of the Code. Subsequently, its plant was destroyed by fire. The taxpayer's insurance recovery exceeded its adjusted basis of the destroyed property. The United States Court of Claims held that the gain realized upon the involuntary conversion was to be considered as gain from a sale or exchange of property which came within the provisions of section 337 of the Code and the gain was not required to be recognized to the corporation.

In the case of Kent Manufacturing Corporation v. Commissioner , 288 Fed.(2d) 812 (1961), the taxpayer's plant and equipment were destroyed by an explosion in July 1954. Insurance proceeds received in September 1954 exceeded the taxpayer's adjusted basis of the destroyed property. The taxpayer adopted a plan of complete liquidation and all of its assets, except for an amount retained to meet the claims of creditors, were distributed to its stockholders prior to January 1, 1955. The United States Court of Appeals for the Fourth Circuit held that the gain realized by the corporation upon the involuntary conversion of its property was gain realized upon a `sale or exchange' within the meaning of section 392 of the Code and, therefore, the gain was entitled to nonrecognition under that section of the Code.

Insofar as here pertinent, sections 392 and 337(a) of the Code differ primarily with respect to the period to which they are applicable.

In view of the above decisions, it is held that an involuntary conversion resulting from the complete destruction by fire of a building used in the taxpayer's trade or business, or of other property as defined in section 337 of the Code, constitutes a `sale or exchange' for purposes of section 337(a) of the Code. See, however, section 1245 of the Code.

Consistent with the Towanda Textiles, Inc. and Kent Manufacturing Corporation decisions, involuntary conversions of property of the type described in section 337 of the Code by reason of destruction by fire will be treated as sales or exchanges for purposes of that section where such conversions result in loss as well as gain, regardless of whether such property is the type described in section 1231 of the Code and regardless of whether such property has been held for more or less than six months.

Revenue Ruling 56-372, C.B. 1956-2, 187, is hereby revoked.