Rev. Rul. 65-147

The officers of X corporation, a shirt manufacturer, own its outstanding shares of stock and participate in the employees' pension plan and trust. The trust has been held to meet the requirements of section 401(a) of the Internal Revenue Code of 1954 and to be exempt from tax under section 501(a) of the Code. X sold substantially all of its assets to an unrelated corporation which took over the shirt business and certain employees of X. The assets of X, including the sales proceeds, were transferred to Y, an operating real estate company, in accordance with a statutory merger under section 368(a)(1)(A) of the Code. Prior to the merger, the officer-stockholders of X were also the officer-stockholders of Y. These officer-stockholders will continue their relationship with Y and some of the clerical personnel formerly employed by X will be employed by Y, but their duties will now be related solely to the real estate business. A lump-sum distribution was made of the total amounts standing to the credit of the participants in the pension plan, including the officer-stockholders and the clerical personnel.

Held, under these circumstances, the ownership of both X and Y by the same officer-stockholders is not such a relationship of the companies that would prevent the officers and clerical personnel employed by Y from being "separated from the service" of X within the meaning of section 402(a)(2) of the Code and Revenue Ruling 58-383, C.B. 1958-2, 149. Therefore, a distribution to any of the employees, within one taxable year, of the total amount due them under the trust is considered to be a long-term capital gain, to the extent it exceeds the amount contributed by the employees.