Rev. Rul. 70-409

Advice has been requested whether, under the circumstances decribed below, the cancellation by a corporation of indebtedness of its debtor-shareholders pursuant to a complete liquidation is considered as the receipt of "money" within the meaning of section 333(e)(2) and section 333(f)(1) of the Internal Revenue Code of 1954.

The stock of X, a domestic corporation, was owned one-third by B, an individual, one-third by C, an individual, and one-third by M, a corporation. X's assets included two notes receivable which represented valid indebtedness owed by C and M, respectively, to X.

X adopted a plan of complete liquidation and distributed all its assets pro rata to B, C and M in complete cancellation and redemption of all of their shares of stock in X. The properties received by C and M included their respective notes owed to X which were thus cancelled in connection with the distribution. The distribution in liquidation of X qualified under section 333(a) of the Code. B, C and M were each a qualified electing shareholder as defined in section 333(c) of the Code. Section 333 of the Code provides, in general, that upon the liquidation of a corporation under certain specified conditions, the electing shareholders' taxable gain is limited to the greater of earnings and profits accumulated after February 28, 1913, and money and securities acquired after December 31, 1953.

The word "money" as used in section 333(e)(2) and section 333(f)(1) of the Code includes not only the receipt of cash but also the receipt of a cash equivalent (in this case, the indebtedness), for the gain on both can not be postponed since there is no opportunity for further realization at a future time as there would be on the receipt of other property. See Tom B. Walker v. Tomlinson, 10 AFTR 2d 6120, 63-1 USTC 9119 (1962).

Accordingly, the cancellation of the indebtedness of C and M pursuant to the distribution in liquidation of X is considered as the receipt of money by C and M within the meaning of section 333(e)(2) and section 333(f)(1) of the Code.