Rev. Rul. 67-436

Rev. Rul. 67-436

Advice has been requested whether the stock identification procedure described below will be considered within the provisions of section 1.1012-1(c)(3)(i) of the Income Tax Regulations.

A corporation is an investment holding company trading in, and holding for investment, marketable stocks and other securities. Its portfolio of marketable stock is left in the custody of a broker. These stocks are registered in the name of the broker and commingled with identical securities held for the account of other customers of the broker. The corporation has authorized the broker to make certain sales and purchases of stock, under the normal industry rule allowing four business days for delivery of securities sold and the payment of securities purchased, without specific, individual approvals by the corporation. As a consequence, these sales cannot be identified on the date of sale, that is, the trade date. However, the stocks are identified prior to settlement in the manner stated below:

The broker is required to immediately advise the corporation of all sales of stock. Upon receipt of such advice from the broker, the corporation determines from its records what acquisitions of this stock it desires to use for delivery. If the selection is identical with the identification that would result from the `first-in, first-out' rule, no specific identification is made. However, if some other selection is made, the corporation, before the settlement date (four business days after the trade date), notifies the broker by letter as to the specific stock it wishes to be considered delivered. The broker then signs and dates, not later than the date of settlement, a confirmation which is printed at the bottom of the letter of notification. A copy of the letter or notification so confirmed is sent to the corporation not later than five days after settlement. The broker submits monthly statements showing the cash transactions, the receipts and deliveries of the stock of which it has custody and the cash balance and stocks on hand as of the statement date. Changes in the balance of cash or securities on hand are reflected on the statement as of the settlement date.

It is impossible under the broad agency relationship in existence in the instant case for the corporation as required under section 1.1012-1(c)(3)(i) of the regulations to specify `at the time of the sale or transfer' the particular stock it wishes to be considered delivered.

However, the corporation, under the described stock identification procedure is immediately notified of the sale of stock and it does advise the broker within the four-day period before the stock is delivered to the buyer.

Accordingly, the Service will consider the identification procedure within the provisions of section 1.1012-1(c)(3)(i) of the regulations.