REVISED CHECKLIST FOR CORPORATE LIQUIDATION RULING REQUESTS

Rev. Proc. 86-16

                              CONTENTS

The purpose of this revenue procedure is to update Rev. Proc. 81-52, 1981-2 C.B. 625, which sets forth in a checklist questionnaire the information that must be included in a request for a ruling under section 337 of the Internal Revenue Code (and its related provision, section 331 of the Code) relating to the nonrecognition of gain or loss on sales or exchanges in connection with a complete liquidation of a corporation (Distributor). This checklist questionnaire does not deal with the special rules of section 337(e), relating to involuntary conversions, or of section 337(g), relating to cases under title 11 of the United States Code, or a receivership, foreclosure, or similar proceeding in a federal or state court.

SEC. 2. BACKGROUND

The Internal Revenue Service receives many requests for rulings in which the information relating to the proposed transaction is not sufficient to permit a determination to be made. In those cases, it is necessary to obtain additional facts from the taxpayer before the request for a letter ruling can be considered. Obtaining these additional facts is time consuming for both Service personnel and taxpayers and delays issuance of the ruling letter.

This checklist will facilitate the filing and processing of requests for rulings under sections 331 and 337 of the Code by showing specific information and representations to be included so that the requests will be as complete as possible when initially filed. Because the information and representations necessary to rule on a particular transaction depend upon all the facts and circumstances, information or representations in addition to those set forth in this revenue procedure may be required.

The authority and general procedures of the National Office of the Internal Revenue Service and of the Office of the District Directors of Internal Revenue with respect to the issuance of letter rulings and determination letters are outlined in Rev. Proc. 86-1, 1986-1 I.R.B. 6. See also, Rev. Proc. 86-3, 1986-1 I.R.B. 2, relating to areas in which advance rulings generally will not be issued. These revenue procedures, along with the present checklist revenue procedure, are subject to periodic updating by the Service. Therefore, careful attention should be given to ensure usage of the most current revenue procedures.

Careful attention to all requirements of these revenue procedures will aid in the timely processing of letter ruling requests.

SEC. 3. CHANGES

01 Section 1 is modified to indicate that the purpose of the revenue procedure is to update Rev. Proc. 81-52.

02 Section 2 is modified to state that representations are now required, and to update references to revenue procedures cited.

03 Section 4 is substantially altered, with numerous sections being renumbered and relocated in the interest of simplification. The taxpayer must now submit standard representations using the precise language specified herein, or submit an explanation why the representations cannot be made in the requested form. Sections 4.021, 4.023, 4.025, 4.026, 4.027, 4.031, 4.032, 4.041 and 4.045 are modified accordingly. To properly reflect applicable changes, some citations to Code sections and to revenue rulings and procedures have been added or deleted. Changes include:

1 Section 4.012 now requires taxpayers to submit information concerning any prior ruling requests submitted by the taxpayer (or predecessor) that were withdrawn in which the identical or similar issue was present.

2 Section 4.022 is added to request information concerning the liquidation of a subsidiary formerly requested in section 4.037(a). Reference to Rev. Rul. 69-172, 1969-1 C.B. 99, is deleted.

3 Section 4.023(a)(1)(B) is added to request information concerning covenants not to complete.

4 Section 4.033 has been modified to show changes in the recapture provisions.

5 Section 4.035 has been added to request information regarding advance payments received by Distributor.

6 Section 4.046 requires taxpayers to state whether the liquidation of Distributor will be carried out by the use of a statutory merger.

7 Section 4.05 requires taxpayers to list the specific rulings being requested and the authorities supporting the rulings.

04 Section 5 is modified to substitute Associate Chief Counsel (Technical) for Assistant Commissioner (Technical), and CC:C:R for T:C:R.

05 Section 6 is modified to state that Rev. Proc. 81-52 is superseded.

SEC. 4. INFORMATION TO BE INCLUDED IN REQUESTS FOR RULINGS UNDER SECTIONS 331 AND 337 OF THE CODE

Each of the items in this section should be specifically dealt with in the letter ruling request. If an item is not applicable, so state and briefly explain why. Standard representations are set forth throughout this section and are highlighted by the word "representation" in boldface type. These representations are of equal importance with the other factual information requested herein. The representations function to ensure that specific statutory and judicial requirements and administrative ruling guidelines are satisfied. Each representation set forth in this section should be submitted precisely in the language requested. If a representation cannot be submitted as requested, an explanation must be given. Variations of the language of the representations may delay processing the ruling request and will not be accepted unless reasons satisfactory to the Service are submitted. Submission of the information and representations should follow the format of this revenue procedure as closely as possible, with appropriate descriptive headings. Care must be taken to ensure that all the facts relating to the transaction are submitted.

01 Information regarding the liquidating corporation (Distributor).

1 Identification.--Name, taxpayer identification number, and place and date of incorporation of Distributor.

2 Jurisdiction.--Identify the District Office that will have audit jurisdiction over the return of Distributor (referred to below as "taxpayer). State whether, to the best knowledge of the taxpayer and the taxpayer's representatives, if any, the identical issue is in a return of the taxpayer (or of a related taxpayer within the mean of section 267 of the Code, or a member of an affiliated group of which the taxpayer is also a member within the meaning of section 1504) and, if so, whether the issue (1) is being examined by a District Director, (2) has been examined by a District Director and (a) the statutory period of limitation either on assessment or for filing a claim for refund or credit tax has not expired and (b) a closing agreement covering the issue or liability has not been entered into by a District Director, (3) is being considered by an Appeals Office in connection with the taxpayer's return for an earlier period, (4) has been considered by an Appeals Office and (a) the statutory period of limitation either on assessment or for filing a claim for refund or credit of tax has not expired and (b) a closing agreement covering the issue or liability has not been entered into by an Appeals Office, or (5) is pending in litigation in a case involving the taxpayer or a related taxpayer. The request must contain a statement whether, to the best knowledge of the taxpayer and the taxpayer's representatives, the identical or a similar issue has been (i) submitted to the Service, but withdrawn before a ruling was issued, or (ii) ruled on by the Service to the taxpayer or the taxpayer's predecessor and, if so, when and with what result. If, after the request is filed but before a ruling is issued, the taxpayer knows that an examination of the issue by a District Director has been started, the taxpayer must notify the National Office of this action. If a return is filed before a ruling is received from the National Office concerning the issue that is the subject of the request for ruling, a copy of the request must be attached to the return. This alerts the District Office and avoids premature District action on the issue.

3 Business.--Provide the following information about the Distributor: (i) a brief description of its businesses, (ii) its overall method of accounting, and (iii) its tax year.

4 Description of Distributor's capital structure and ownership of Distributor's stock.

(a) Description of capital structure.--Furnish a complete description of each class of Distributor's outstanding stock (or other evidence of equity ownership) setting forth the rights and privileges of each class, including voting or nonvoting rights, dividend and liquidation preferences or limitations, and whether classified as common or preferred stock. Also, describe all other outstanding interests (bonds, debentures, notes, warrants, options, etc.), and briefly explain why each of these items should or should not be considered a stock interest.

(b) Ownership of stock.--State the total number of shares outstanding for each class of stock (or other equity) in Distributor, and the number of shares and percentage of each class of stock (or other equity) owned by each shareholder. However, if there are more than 25 shareholders, the statement in the preceding sentence may be limited by listing only those shareholders owning, directly or indirectly (within the meaning of section 318 of the Code), 5 percent or more of any class of stock and then stating the total number of remaining shareholders together with the total number of shares and percentages which these remaining shareholders own of each class of stock. State whether 80 percent or more of the voting power and stock in Distributor (within the meaning of section 332(b)(1) is held by a corporate shareholder (see section 337(c) of the Code and section 1.1502-34 of the Income Tax Regulations).

5 Filing status.--State whether distributor is a member of an affiliated group of corporations making a consolidated return and, if so, identify the common parent of the group.

02 Information regarding plan of liquidation

1 The plan of liquidation

(a) Formal plan.--State whether the plan has been, or will be, adopted by Distributor's directors and shareholders and give the date, or expected date, of approval or adoption. See Rev. Rul. 57- 140, 1957-1 C.B. 118.

(b) Prior informal plan.--Furnish any information which indicates that a plan of liquidation may have been informally adopted prior to the date set forth in 4.021(a) above. The information is not restricted to, but might include, facts indicating an informal agreement to liquidate by a significant number of shareholders, or the sale or distribution of a substantial portion of Distributor's assets prior to the formal date of adoption of the plan. See section 1.337-2(b) of the regulations and Rev. Rul. 65-235, 1965-2 C.B. 88. Describe any distributions to Distributor's shareholders during the 2-year period prior to the adoption of the plan of liquidation. State whether Distributor sold or otherwise disposed of any assets at a loss for federal income tax purposes, other than in the ordinary course of business, within the 2-year period preceding the date of adoption of the plan of liquidation. If so, furnish details, including the cost basis of each item and the amount for which each item was sold. If no sale or distribution of Distributor's assets has occurred, submit the following REPRESENTATION: During the 2-year period prior to the adoption of the plan of liquidation, Distributor will not have sold any of its property of the type defined in section 337(b) of the Code, except in the ordinary course of business.

(c) Recission of a prior plan.--State whether Distributor has ever adopted a plan of liquidation, and if so, provide full particulars regarding the abandonment or recission of the plan. In this regard, indicate when Form 966, Corporate Dissolution or Liquidation, was filed in connection with the adoption of the plan, and provide pertinent dates and reasons for abandoning or rescinding the prior plan. If no prior plans were adopted submit the following REPRESENTATION: No formal or informal plan of liquidation has ever been adopted by Distributor, except for the present plan which was (or will be) adopted on (date).

2 Liquidation of Distributor's subsidiary. -- State whether any subsidiary of Distributor was, or will be, liquidated in connection with the liquidation of Distributor. If so, submit details. If a ruling is requested that such liquidation will qualify under section 332 of the Code, see Rev. Proc. 81-68, 1981 C.B. 723.

3 Sales or other dispositions of assets pursuant to the plan.

(a) Sales pursuant to the plan.

(1) General description. -- Describe the assets to be sold pursuant to the plan of liquidation and the consideration to be received for the assets. If a sales agreement has not yet been entered into, approximate the assets to be sold and the consideration to be received (if reasonably possible to do so). For sales pursuant to the plan, submit copies of sales contracts (or agreements in principal regarding these sales). State whether sales contracts are executory, contingent, or consummated.

(A) Stock in trade. -- Briefly describe the stock in trade or inventory (as defined in section 1.337-3(a) of the regulations) of Distributor, and state whether it will be sold. If substantially all the stock in trade or inventory of Distributor will be sold to one person in one transaction, furnish details concerning this sale. See section 337(b) of the Code and section 1.337-3 of the regulations.

(B) Covenants not to compete. -- If consideration is being received by Distributor or its shareholders for an agreement not to compete, provide full details concerning the agreement and the reporting of proceeds.

(2) Method of payment. -- State the expected method of payment for the assets being sold. Summarize all pertinent portions of existing sales contracts (or agreements in principal regarding sales) relating to the method of payment.

(3) Information regarding each purchaser of Distributor's assets (Purchaser). -- Identify each Purchaser, if known, and indicate whether Purchaser is an individual, partnership, corporation, or other entity. State whether there was, or will be, any transfer or sale of Distributor's assets to an entity that is wholly or partly owned by Distributor or Distributor's shareholders. If so, furnish full details concerning the transaction, including the type and percentage of the ownership interests involved. In this regard, note that section 4.0117 of Rev. Proc. 86-3 indicates the Service will not ordinarily issue rulings on the application of section 337 of the Code to a corporation upon the sale of property (in connection with its liquidation) to another corporation, where more than a nominal amount of the stock (that is, more than 20 percent in value) of both the selling corporation and the purchasing corporation are owned by the same shareholders. Submit the following REPRESENTATION: The liquidation of Distributor will not be preceded or followed by the reincorporation in, or transfer or sale to, a recipient corporation (Recipient) of any of the business or assets of Distributor, if persons holding more than 20 percent in value of the stock in Distributor also hold more than 20 percent in value of the stock in Recipient. For purposes of this representation, ownership has been determined by application of the constructive ownership rules of section 318, as modified by section 304(c)(3). Compare Rev. Ruls. 84-2, 1984-1 C.B. 92, and 61-156, 1961-2 C.B. 62.

(b) Other dispositions of assets pursuant to the plan. -- Describe any other disposition of assets (for example, involuntary conversions), which will occur during the prescribed liquidation period, which the Distributor intends to treat as sales or exchanges pursuant to section 337 of the Code. Furnish complete details concerning these items.

4 Distribution of assets.

(a) Assets distributed directly to shareholders.

(1) Description of assets. -- Describe the assets to be distributed directly to Distributor's shareholders.

(2) Dates. -- Indicate when this distribution will be made.

(b) Assets distributed to an escrow or partnership on the liquidation of Distributor.

(1) Description of assets. -- Describe the assets to be distributed to the escrow or partnership.

(2) Description of escrow or partnership. -- Fully describe any escrow or partnership, including its partners and operation, receiving assets on Distributor's liquidation.

(3) Dates. -- Indicate when this distribution will be made.

(c) Assets distributed to a liquidating trust. -- State whether the plan of liquidation requires the use of a liquidating trust, or if the use of a liquidating trust is otherwise contemplated. See Rev. Ruls. 80-150, 1980-1 C.B. 316, and 72-137, 1972-1 C.B. 101.

(1) Description of assets. -- Describe the assets to be distributed to the liquidating trust.

(2) The trust. -- Describe whether the use of the trust is permitted under applicable law, the powers and identity of the trustee, and the time period during which the trust will remain in existence.

(3) Dates. -- Indicate when this distribution will be made.

(4) Reasons. -- Give the reasons for using a liquidating trust.

(5) Classification of the trust. -- In issuing a ruling under sections 331 and 337 of the Code in a situation where a liquidating trust is used, it is the practice of the Service to state in the ruling letter that the ruling is valid only if the trust is not an association taxable as a corporation under section 301.7701 of the Procedure and Administration Regulations. However, if Distributor desires a ruling concerning the classification of the trust under section 301.7701, the ruling request should so indicate and it should include an additional copy of the entire ruling request. See Rev. Proc. 82-58, 1982-2 C.B. 847.

5 Assets retained.

(a) Description of assets. -- Fully describe any assets to be retained by Distributor subsequent to the 12-month period beginning on the date of adoption of the plan of liquidation. See section 1.337-2(b) of the regulations. If no assets will be retained, submit the following REPRESENTATION: All assets of Distributor will be distributed in complete liquidation of Distributor within the 12- month period beginning on the date of adoption of the plan of liquidation.

(b) Reason for retention. -- If assets will be retained beyond the 12-month period, set forth the reasons for their retention. Specifically, state whether any assets will be retained to satisfy claims of any shareholders with respect to their stock.

(c) Description of claims. -- Describe the claims to be satisfied with the retained assets.

(d) Period of retention. -- State whether the balance of the assets retained will be distributed as soon as all claims are satisfied.

6 Redemption and cancellation of Distributor's stock.

(a) Redemption of all stock. -- State whether all the outstanding stock of Distibutor will be redeemed and cancelled.

(b) Non pro rata redemption. -- If the property to be used in redemption of Distributor's stock will not be distributed in exact proportion with the percentage of shares owned by each shareholder, submit reasons and details. See Rev. Rul. 79-10, 1979-1 C.B. 140.

(c) Shareholder and Distributor in dual capacity. -- Submit the following REPRESENTATION: No part of the consideration to be received by any shareholder of Distributor will be received by the shareholder as a creditor, employee, or in some capacity other than that of a shareholder of Distributor.

7 Status of liquidation.

(a) Status. -- Submit the following REPRESENTATION: Pursuant to the plan of complete liquidation. Distributor will cease to be a going concern and its activities will be limited to the winding up of its affairs, paying its debts, and distributing any balance of its assets to its shareholders. (See Rev. Rul. 60-50, 1960-1 C.B. 150). If there is more than one liquidating distribution, furnish the following REPRESENTATION: The status of liquidation will exist at the time of the first liquidating distribution and will continue until the final liquidating distribution is made.

(b) Fair market value of assets. -- Submit the following REPRESENTATION: The fair market value of Distributor's assets will exceed its liabilities both on the date of adoption of the plan of liquidation and at the time the first liquidating distribution is made.

(c) Corporate charter. -- State whether Distributor intends to abandon its corporate charter. See Rev. Ruls. 60-50, 1960-1 C.B. 150, and 54-518, 1954-2 C.B. 142.

03 Recognition of gain or income to Distributor.

In order to determine whether gain or income will be recognized to Distributor upon the distribution of property, submit statements or representations with respect to the following:

1 Unreported or anticipatory assignment of income. -- State whether Distributor has any assets which represent earned but unreported income to Distributor, such as receivables being reported on a cash basis, unfinished construction contracts, commissions due, or other similar assets. If Distributor has any assets representing earned but unreported income, state whether Distributor will distribute these assets to its shareholders or dispose of them in some other manner. If none of these assets are being distributed, submit the following REPRESENTATION: No distribution of assets representing earned but unreported income will be made by Distributor to its shareholders in the liquidation.

2 Reserve for bad debts. -- Submit the following REPRESENTATION: Distributor does (or does not) maintain a reserve for bad debts. See Rev. Rul. 78-279, 1978-2 C.B. 135.

3 Installment obligations and recapture provisions. -- State whether Distributor is selling, distributing to its shareholders, or otherwise disposing of (i) any installment obligations (section 453B of the Code), (ii) any property described in the recapture provisions of the Code including, but limited to, sections 47, 291(a), 337(f), 341(f), 617(d), 897(d), 904(f), 1245(a), 1248(f), 1250(c), 1252(a), 1254, or 1255, (iii) any property for which the taxpayer obtained a deduction (See Hillsboro National Bank v. Commissioner, 460 U.S. 370 (1983); Rev. Rul. 74-396, 1974-2 C.B. 106; Rev. Rul. 61-214, 1961-2 C.B. 60), or (iv) any property described in sections 1256 or 1276.

If installment obligations will be distributed, describe the nature and terms of the obligations. State how the shareholders intend to treat payments received on the installment obligations. State the effect of sections 453(h) and 453B(d)(2) of the Code on Distributor's distribution.

4 Partnership interests. -- State whether Distributor will distribute to the shareholders any partnership interests representing property specified in sections 4.031, 4.032 or 4.033, above. See section 386 of the Code.

5 Advance payments. -- State whether Distributor has any items constituting prepaid subscription income, prepaid dues income, advance payments for goods, or payments received for services to be performed in the future. See sections 455 and 456 of the Code, section 1.451-5 of the regulations, and Rev. Proc. 71-21, 1971-2 C.B. 549.

.04 GENERAL

1 Other transactions. -- Submit the following REPRESENTATION: The liquidating distribution(s) described in this ruling request is an isolated transaction and is not related to any other past or future transaction. Alternatively, state whether there have been, or will be, any related transactions, and, if so, briefly describe these other transactions and fully explain their relationship to, and impact on, the present transaction. See section 9.06 of Rev. Proc. 86-1.

2 Financial statements. -- Submit a copy of the most recent balance sheet of Distributor.

3 Copy of plan. -- Submit a copy of the plan of liquidation adopted, or to be adopted.

4 Collapsible corporation. -- In issuing a ruling under sections 331 and 337 of the Code, it is the practice of the Service to state in the ruling letter that the ruling under section 331 is valid only if section 341(a) is not applicable and that the ruling under section 337 is valid only if Distributor is not a collapsible corporation as defined in section 341(b) (or is not considered a collapsible corporation pursuant to section 341(e)(4)). See Rev. Proc. 86-3, 1986-1 I.R.B. 26, section 4.0118.

5 Section 333 of the Code. -- Submit the following REPRESENTATION: The shareholders of Distributor will not elect to have section 333 of the Code apply to this liquidation. See section 337(c)(1)(B).

6 Applicability of merger statutes. -- State whether the liquidation of Distributor will be carried out by the use of a statutory merger.

7 Additional statements. -- See Rev. Proc. 86-1 for additional information and statements that must be submitted with all ruling requests, including statements required under sections 9.02 and 9.09 (relating to instructions to taxpayers).

8 Requested Rulings. -- List the rulings being requested in the exact wording desired, and provide statutory, regulatory, or other authority for their issuance.

9 Taxpayer's memorandum. -- Submit the information required by section 9.08 of Rev. Proc. 86-1 (relating to relevant authorities regarding to tax results of the transaction).

SEC. 5. INQUIRIES

Inquiries in regard to this revenue procedure should refer to its number and should be addressed to the Associate Chief Counsel (Technical), Attention: CC:C:R, Internal Revenue Service, Washington, D.C. 20224.

SEC. 6. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 81-52 is superseded.