Rev. Rul. 73-16

Advice has been requested whether the requirements of section 368(a)(1)(B) of the Internal Revenue Code of 1954 have been met in the transactions described below.

Pursuant to one overall plan, and for valid business reasons, Y corporation acquired all of the outstanding stock of X corporation solely in exchange for its voting common stock and, immediately thereafter, Z corporation acquired all of the stock of Y corporation solely in exchange for its voting common stock. As a result, the former shareholders of both X and Y held only stock of Z.

Section 368(a)(1)(B) of the Code defines as a reorganization the acquisition by one corporation, in exchange solely for all or part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation) of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation (whether or not such acquiring corporation had control immediately before the acquisition).

In the instant case, the two exchanges of corporate stock were part of a prearranged integrated plan, and may not be considered independently of each other for Federal income tax purposes. (See Rev. Rul. 54-96, 1954-1 C.B. 111.) The receipt by X shareholders of Y stock and their immediate surrender of such Y stock is disregarded since it is transitory and without substance.

Accordingly, the transaction will be treated as the acquisition by Z of all of the stock of Y in exchange for stock of Z and, simultaneously therewith, the acquisition by Y of all of the stock of X in exchange for stock of Z, each exchange qualifying as a reorganization within the meaning of section 368(a)(1)(B) of the Code. No gain or loss will be recognized to the shareholders of X or Y upon the exchange of their respective shares for shares of Z as provided in section 354 of the Code.