Rev. Rul. 73-552

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

For valid business reasons corporation X transferred "substantially all" of its assets (as that term is used in section 368(a)(1)(C) of the Code) to corporation Y, which was an unrelated preexisting corporation in which neither X nor its shareholders owned any stock, in exchange for 500x shares of voting common stock of Y and the assumption by Y of 200x dollars of X's liabilities. X remained in existence and distributed the Y shares to its shareholders in exchange for a proportionate part of their shares of X stock. The 500x shares of Y stock received by the shareholders of X represented 25 percent of the fair market value of all the outstanding stock of Y. X retained sufficient liquid assets and intended to enter into an active trade or business.

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 is a reorganization as defined in section 368(a)(1)(C) of the Code. It has been established that this type of reorganization is not dependent upon dissolution of the transferor corporation. See Commissioner v. Minnesota Tea Co., 296 U.S. 378 (1935), XV-1 C.B. 189 (1935), and The G. & K. Manufacturing Co. v. Commissioner, 296 U.S. 389 (1935), XV-1 C.B. 188 (1935).

See Rev. Rul. 68-358, 1968-2 C.B. 156, which holds similarly where the transferor corporation did not engage in the conduct of any business after the transaction but remained in existence solely to hold the stock of the acquiring corporation.

Accordingly, the acquisition by Y of substantially all of the assets of X in exchange solely for shares of Y voting stock and the assumption of liabilities of X qualifies as a reorganization within the meaning of section 368(a)(1)(C) of the Code. Y will succeed to, and take into account, all of the items of X as described in section 381, subject to the limitations provided by sections 381 and 382. The items of X described in section 381(c) are, therefore, no longer available to X after the reorganization. Thus, for example, a net operating loss of X is no longer available to X but could be carried over to Y. As a further example, the accumulated earnings and profits (or deficit in earnings and profits) of X are no longer identified with X but become attached to Y under prescribed rules contained in section 1.381(c)(2)-1 of the Income Tax Regulations.