Rev. Rul. 67-274

Advice has been requested whether the transaction described below qualifies as a reorganization within the meaning of section 368(a)(1)(B) of the Internal Revenue Code of 1954.

Pursuant to a plan of reorganization, corporation Y acquired all of the outstanding stock of corporation X from the X shareholders in exchange solely for voting stock of Y . Thereafter X was completely liquidated as part of the same plan and all of its assets were transferred to Y which assumed all of the liabilities of X. Y continued to conduct the business previously conducted by x . The former shareholders of X continued to hold 16 percent of the fair market value of all the outstanding stock of Y .

Section 368(a)(1)(B) of the Code provides in part that a reorganization is the acquisition by one corporation, in exchange solely for all or a part of its voting stock, of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control (as defined in section 368(c) of the Code) of such other corporation. Section 368(a)(1)(C) of the Code provides in part that a reorganization is the acquisition by one corporation, in exchange solely for all or a part of its voting stock, of substantially all of the properties of another corporation, but in determining whether the exchange is solely for stock the assumption by the acquiring corporation of a liability of the other, or the fact that property acquired is subject to a liability, is disregarded.

Under the circumstances of this case the acquisition of X stock by Y and the liquidation of X by Y are part of the overall plan of reorganization and the two steps may not be considered independently of each other for Federal income tax purposes. See Revenue Ruling 54-96, C.B. 1954-1, 111, as modified by Revenue Ruling 56-100, C.B. 1956-1, 624. The substance of the transaction is an acquisition of assets to which section 368(a)(1)(B) of the Code does not apply.

Accordingly, the acquisition by Y of the outstanding stock of X will not constitute a reorganization within the meaning of section 368(a)(1)(B) of the Code but will be considered an acquisition of the assets of X which is this case is a reorganization described in section 368(a)(1)(C) of the Code. Moreover, since the transaction is one to which section 381(a)(2) of the Code applies, the provisions of section 382(b) of the Code and the regulations thereunder relating to the limitation on the carryover of a net operating loss where a change of ownership occurs as a result of a reorganization are also applicable. See section 1.382(b)-1(a)(6) of the Income Tax Regulations.