Rev. Rul. 63-245

Advice has been requested whether, under the circumstances described below, all of the assets of a corporation are distributed in complete liquidation for purposes of section 337 of the Internal Revenue Code of 1954.

In order to take advantage of the benefits of section 337 of the Code, the directors of a corporation adopted a plan of complete liquidation. Following the approval of this plan by the stockholders, the corporation sold all its assets except a claim for refund of Federal taxes which was not reasonably susceptible of sale or division among the stockholders. Within the 12-month period specified in section 337 of the Code, the proceeds from the sale of the assets were distributed to the stockholders. Also during this period the affairs of the corporation were wound up and the tax refund claim was transferred, pursuant to the plan of liquidation, to an independent trustee for the benefit of the stockholders. The applicable local law authorizes a trustee so appointed to receive a liquidating distribution for the benefit of shareholders and, when reduced to cash, pay it over to the shareholders.

Section 337(a) of the Code states the general rule that, if a corporation adopts a plan of complete liquidation on or after June 22, 1954, and, within the 12-month period beginning on the date of the adoption of such plan, all of the assets of the corporation are distributed in complete liquidation, less assets retained to meet claims, then no gain or loss shall be recognized to such corporation from the sale or exchange by it of property within such 12-month period.

Section 1.337-2(b) of the Income Tax Regulations provides, in part, that the nonrecognition provisions of section 337 of the Code shall not be applicable unless all the assets of the corporation (other than those retained to meet claims of creditors) are distributed to the shareholders within 12 months after the date of the adoption of the plan of complete liquidation. Further, an amount merely set aside by the corporation to meet the claims of shareholders with respect to their stock will not satisfy the distribution requirement.

However, distribution in complete liquidation of all of the assets of a corporation is not prevented by the existence of an asset, such as a tax refund claim, which is not reasonably susceptible of sale or distribution among the stockholders within the 12-month period, if the corporation divests itself of the asset during such period, in a manner equivalent to a distribution of the asset to the stockholders. Such divestment will result upon a complete transfer of the asset to the stockholders, to a trustee for the stockholders appointed by a court of competent jurisdiction, or to an independent trustee selected by the stockholders. A transfer to a trustee for the benefit of the stockholders pursuant to a plan of complete liquidation approved by them will be considered a transfer to a trustee selected by the stockholders, provided such transfer is permissible under the applicable law. Compare Revenue Ruling 56-286, C.B. 1956-1, 172; Acampo Winery & Distilleries Inc. v. Commissioner , 7 T.C. 629, at 635-637 (1946), acquiescence, C.B. 1949-1, 1, nonacquiescence on another issue, C.B. 1961-2, 6; and Central National Bank, Trustee v. Commissioner , 25 B.T.A. 1123 (1932), acquiescence, C.B. XI-2, 2 (1932).

Accordingly, it is held that, for purposes of section 337 of the Code, all the assets of the instant corporation were distributed in complete liquidation within the 12-month period.