Rev. Proc. 76-22

Rev. Proc. 74-26, 1974-2, C.B. 478, as amplified by Rev. Proc. 75-11, 1975-1 C.B. 652, sets forth operating rules pertaining to issuing ruling letters in certain requests handled by the Reorganization Branch of the Income Tax Division, now the Corporation Tax Division, of the Internal Revenue Service. The purpose of this Revenue Procedure is to announce operating rules pertaining to section 1.351-1(a)(1)(ii) of the Income Tax Regulations.

Section 351(a) of the Internal Revenue Code of 1954 provides, in general, for the nonrecognition of gain or loss upon the transfer by one or more persons of property to a corporation solely in exchange for stock or securities in such corporation, if immediately after the exchange, such person or persons are in control (as defined in section 368(c)) of the corporation to which the property was transferred.

Section 1.351-1(a)(1)(ii) of the regulations provides that stock or securities issued for property which is of relatively small value in comparison to the value of the stock and securities already owned (or to be received for services) by the person who transferred such property, shall not be treated as having been issued in return for property if the primary purpose of the transfer is to qualify under this section the exchanges of property by other persons transferring property.

Rev. Proc. 74-26 is further amplified by the addition of the following new subsection .07 to section 3 thereof:

.07 When a person transfers property to a corporation in exchange for stock or securities of such corporation and the primary purpose of the transfer is to qualify under section 351 of the Code the exchanges of property by other persons transferring property, the property transferred will not be considered to be of relatively small value, within the meaning of section 1.351-1(a)(1)(ii) of the regulations, if the fair market value of the property transferred is equal to, or in excess of, 10 percent of the fair market value of the stock and securities already owned (or to be received for services) by such person.

Rev. Proc. 74-26 is amplified.