Rev. Rul. 66-284

Rev. Rul. 66-284 ¹

In determining the applicability of Revenue Ruling 57-276, C.B. 1957-1, 126, relating to the requirements for filing Federal income tax returns in cases involving certain reorganizations described in section 368(a)(1) of the Internal Revenue Code of 1954, advice has been requested whether the statutory merger described below qualifies as a reorganization within the meaning of section 368(a)(1)(F) of the Code.

For a valid business purpose, X Corporation, a publicly held State A Corporation, desired to reincorporate in State B . Accordingly, X organized a new X Corporation in State B and then merged itself into new X pursuant to the laws of States A and B .

Shareholders owning less than one percent of the outstanding shares of old X voted against the plan of merger. These dissenting shareholders elected to have their shares appraised under State law and they received payment representing the fair value of their shares. All other shareholders participated in the merger and received one share of new X stock for each share of old X stock surrendered.

Pursuant to the plan of merger, new X received the assets and assumed the liabilities of old X and continued the same business without interruption.

Section 368(a)(1)(F) of the Code provides, in part, that a mere change in place of organization is a reorganization. Revenue, ruling 58-422, C.B. 1958-2, 145, states, in part, that section 368(a)(1)(F) of the Code is applicable to all reorganizations where there is no change in existing shareholders or in the assets of the corporation involved. A question has been raised whether the instant transaction, which qualifies as a reorganization described in section 368(a)(1)(A) of the Code, also qualifies as a reorganization described in section 368(a)(1)(F) of the Code in view of the action taken by the dissenting shareholders.

Where, as in the instant case, a plan of merger is designed only to effect a change in the corporation's place of organization, the Internal Revenue Service considers the failure of dissenting shareholders owning a total of less than 1 percent of the outstanding shares to participate in the plan of merger to be such a de minimis change in the corporation's shareholders and its assets as not to disqualify the merger as a reorganization under section 368(a)(1)(F) of the Code. Accordingly, pursuant to the provisions of section 381(b) of the Code, old X Corporation is not required to file a Federal income tax return for that portion of the taxable year prior to the effective date of the reorganization, but that portion of the taxable year prior to the effective date of the reorganization and that portion of the taxable year after such effective date constitute a single taxable year for new X Corporation. See Revenue Ruling 57-276, supra.

Revenue Ruling 58-422, C.B. 1958-2, 145, amplified.

¹ Also released as Technical Information Release 844, dated Sept. 2, 1966.