Rev. Rul. 75-521

Shareholders, who were all individuals, owned 50 percent of the capital stock of corporation X. The remaining 50 percent of the capital stock of X was owned by corporation Y for more than two years. Y desired to liquidate X in a transaction to which section 332(a) of the Internal Revenue Code of 1954 would apply in order that Y would recognize no gain on the liquidation. In accordance with section 332(b)(1), 332(a) applies if the corporation receiving the property was, on the date of the adoption of the plan of liquidation, and has continued to be until the receipt of the property, the owner of stock of the other corporation possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock (except preferred nonvoting stock). Y purchased all the X stock owned by the individual shareholders for cash. Following the purchases from the individual shareholders, Y owned all of the stock of X. Immediately thereafter, Y adopted a plan of complete liquidation of X and all of the property of X was distributed to Y in complete cancellation of all of its stock in X within the taxable year.

Held, no gain or loss is recognized to Y upon its receipt of the property of X distributed in complete liquidation of X pursuant to section 332(a) of the Code. The liquidation meets the 80-percent stock ownership requirement of section 332(b)(1).

Rev. Rul. 70-106, 1970-1 C.B. 70, holds that the liquidation of a subsidiary fails to meet the 80-percent control requirement under section 332(b)(1) of the Code where a corporate shareholder owning 75-percent of the subsidiary's stock causes the subsidiary to redeem the minority shareholders' 25-percent interest before formally adopting a plan of liquidation. The redemption was deemed to be a distribution in liquidation instead of a distribution in redemption preceding a distribution in liquidation because the plan of complete liquidation was adopted at the time the corporate shareholder reached an agreement with the minority shareholders to have the subsidiary redeem their stock. The entire distribution came from the subsidiary pursuant to that plan. In the instant case, the purchase of X stock by Y cannot be viewed as part of the distribution in liquidation of X because a mere sale of stock between shareholders does not constitute an adoption of a plan of liquidation.

Rev. Rul. 70-106 is distinguished.