Rev. Rul. 54-518

Advice is requested as to whether it is necessary that a corporation formally dissolve in order to comply with the provisions of section 112(b)(7) of the Internal Revenue Code of 1939.

Section 112(b)(7)(A)(ii) of such Code provides that the liquidating corporation must be completely liquidated and all of its property transferred in complete cancellation or redemption of all of its outstanding stock within some one calendar month. Section 39.112(b)(7)-1(b) of Regulations 118 states in part that, although it is not necessary that the corporation dissolve in the month of liquidation, it is essential that a status of liquidation exist at the time the first distribution is made under the plan of liquidation and that such status continue to the date of dissolution of the corporation.

There is no provision in section 112(b)(7) of the Code, and the regulations promulgated thereunder, which requires the formal or legal dissolution of a corporation. However, for the purpose of this section, where, as in the instant case, a corporation ceases business operations, has retained no assets, has no income, and has actually liquidated within the calendar month, there is in effect a de facto dissolution even though the corporation has not been formally dissolved. See I.T. 3871, C.B. 1947-2, 62; Rev. Rul. 215, C.B. 1953-2, 149; A B C Brewing Corporation Commissioner , 20 T.C. 515.

Accordingly, it is held that the mere retention of the charter of the liquidating corporation, for a purpose such as the protection of the corporate name, does not prevent the liquidation from coming under the provisions of section 112(b)(7) of the Internal Revenue Code of 1939.