Rev. Rul. 69-131

A corporation notified the holders of its six percent preferred stock that it elected in accordance with the terms of the stock to redeem all of this issue of stock as of August 31, 1968, by the payment to the record holders on that date of the par value of the stock plus all dividends accrued and unpaid including the dividend accruing on August 31, 1968. Notice was also given that any shareholder who desired to redeem his shares after June 15, 1968, and in advance of the redemption date of August 31, 1968, would be paid the par value of his stock plus an amount designated by the corporation as interest. This amount was computed at the rate of six percent per annum computed from June 1, 1968, to the date of delivery of the stock for redemption. There were no declared and unpaid dividends on the preferred stock. The preferred stock was originally issued for cash.

Held, no part of the amount distributed in redemption of the preferred stock is being paid in satisfaction of any declared dividend or of any interest obligation. The total amount paid by the corporation in redemption of its stock, including the amount designated as accrued and unpaid dividends with respect to the stock redeemed on August 31, 1968, or including the amount designated as interest with respect to the stock redeemed prior to August 31, 1968, is considered as received in full payment in exchange for the stock surrendered under section 302(a) of the Internal Revenue Code of 1954 provided section 302(b)(1), (2), (3), or (4) of the Code applies. Gain or loss is realized by each redeeming shareholder measured by the difference between the total amount paid in exchange for his stock and the cost or other basis of such stock to him. Such gain or loss will constitute capital gain or loss subject to the provisions and limitations of Subchapter P of Chapter 1 of the Code if the stock is a capital asset in the hands of the shareholder. No part of the amount paid by the corporation to a shareholder in exchange for his stock is an operating expense or is a deductible item to the corporation.

S.M. 4181, C.B. IV-2, 12 (1925), is hereby superseded, since the position stated therein is set forth under the current statute and regulations in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.