Rev. Rul. 74-522

Advice has been requested whether, under the circumstances described below, the holding period under section 1223(1) of the Internal Revenue Code of 1954 includes the period that the stock of the liquidating corporation was owned by the taxpayer.

M, a domestic corporation, purchased all of the capital stock of R, a domestic corporation, on October 30, 1970. The stock was a capital asset in the hands of M under section 1221 of the Code. One year later, on October 30, 1971, M liquidated R in a liquidation qualifying for treatment under the provisions of section 332 which pertains to the complete liquidation of subsidiaries. The basis of the property received in liquidation qualified for treatment under section 334(b)(2) and the regulations thereunder that provide rules for determining the basis of property received in liquidation of a subsidiary based upon the adjusted cost of the stock purchased. All of the property received by M from R had been acquired by R prior to October 30, 1970. On November 1, 1971, M sold one of the assets acquired in the liquidation of R.

The specific question is whether M's holding period for the asset sold begins on October 30, 1970, the date M purchased R stock or on October 30, 1971, the date M received the assets in the liquidation of R.

Section 1.332-1 of the Income Tax Regulations provides, in part, that for the treatment of distributions in liquidation of a corporation, amounts received by one corporation in complete liquidation of another corporation are treated as in full payment in exchange for stock in such other corporation.

Section 1.334-1(c) of the regulations provides that if section 334(b)(2) of the Code applies to a complete liquidation to which section 332 is applicable, then property received by a parent corporation in such complete liquidation shall have a basis determined by reference to the adjusted basis of the stock of the subsidiary corporation with respect to which it is received.

Section 1223(1) of the Code provides that in determining the period for which the taxpayer has held property received in an exchange, there shall be included the period for which he held the property exchanged if, under chapter 1 of the Code, the property has, for the purpose of determining gain or loss from a sale or exchange, the same basis in whole or in part in his hands as the property exchanged, and in the case of such exchanges after March 1, 1954, the property exchanged was a capital asset as defined in section 1221 or property described in section 1231.

The assets of R received by M are treated as full payment received in exchange for its stock in R, and the basis of such assets is determined by the adjusted basis of R's stock in the hands of M.

Accordingly, under the provisions of section 1223(1) of the Code the holding period of the assets acquired in the liquidation of R shall include the period that M held the stock of R. Thus, M's holding period with respect to the property received upon the liquidation of R began on October 30, 1970, the date M purchased the capital stock of R. See Cabax Mills, 59 T.C. 401 (1972) acq., 1973-2 C.B. 1.