Rev. Proc. 73-35

SECTIONS 302 AND 311

CHECKLIST QUESTIONNAIRE

CONTENTS

1. Purpose

2. Background

3. Information To Be Included In Requests For Rulings Under Sections 302 And 311 Of The Internal Revenue Code

.01 Information Regarding The Corporation That Is Redeeming Its Stock (The Corporation)

1. Identification

2. Business

3. Jurisdiction

4. Financial Statement

02. Description And Ownership Of Stock

1. Description Of Outstanding Stock

2. Ownership Of Stock Before The Redemption

(a) Shares actually owned

(b) Shares constructively owned

(c) Percent of stock owned

3. Stock To Be Redeemed

4. Ownership Of Stock After The Redemption

03. Information To Determine Whether The Redemption Is An Exchange Or A Dividend

1. Substantially Disproportionate Redemption

2. Termination Of Shareholder's Interest

(a) Complete termination of shareholder's stock interest

(b) Termination of shareholder's interest except for constructive ownership under section 318(a)(1) of the Code

3. Stock Issued By Railroad Corporation In Certain Reorganizations

4. Distribution In Redemption To Pay Death Taxes

5. Redemption Not Essentially Equivalent To A Dividend

6. Interests In The Corporation After The Redemption

7. Other Information To Determine Whether The Redemption Is An Exchange, A Dividend Or Other Ordinary Income Transaction To The Redeemed Shareholder Or Any Other Person

(a) Transaction in which stock to be redeemed was acquired if acquired within last 10 years

(b) "Section 306 stock"

(c) Declared but unpaid dividends

(d) Transactions in addition to the redemption

(e) Distribution a partial liquidation in whole or in part

(f) Sales of stock

(g) Additional issuance of stock

(h) Agreements between shareholders and the Corporation with respect to the stock to be redeemed

(i) Related steps or transactions

(j) Indebtedness of the Corporation and Redeemed Shareholder

04. Property Distributed In Redemption Of Stock

1. Cash

2. Property Other Than Cash

(a) Description

(b) Recognition of gain or income to the Corporation

(1) Inventory

(2) Liability in excess of basis

(3) Appreciated property

(4) Unreported and anticipatory assignment of income

(5) Other property

(6) Reserve for bad debts

(7) Sale, lease or other disposition of property

(8) Cross-redemption

3. Notes Or Other Obligations Of The Corporation

05. Redemption Price

1. Loss To Redeemed Shareholder

2. Redemption Price And Fair Market Value Of The Stock

3. Contingent Payout

06. Assumptions Or Representations

4. Inquiries

Section 1. Purpose.

The purpose of this Revenue Procedure is to set forth in a convenient checklist questionnaire the information necessary to be included in a request for a ruling under sections 302 and 311 of the Internal Revenue Code of 1954 which relate to distributions in redemption of stock.

Sec. 2. Background.

The Internal Revenue Service receives many requests for rulings in which the information furnished as to the proposed transaction is not complete enough to permit a determination to be made. In such cases it is necessary to secure additional facts from the taxpayer before the ruling request can be considered. This procedure is time consuming for both Service personnel and taxpayers and delays issuance of the final ruling letter. This checklist will facilitate the filing of requests for rulings under sections 302 and 311 of the Code by showing specific information which should be included so that the application will be as complete as possible when originally filed. However, since the information necessary to rule on a particular transaction depends upon all the facts and circumstances of that case, information in addition to that suggested in this Revenue Procedure may be required. Nevertheless, careful use of the checklist should avoid much needless delay and permit the issuance of rulings in the most expeditious fashion possible.

The authority and general procedures of the National Office of the Service and of the Office of the District Directors of Internal Revenue with respect to the issuance of advance rulings and determination letters are outlined in Rev. Proc. 72-3, 1972-1 C.B. 698. See also Rev. Proc. 72-9, 1972-1 C.B. 718. Careful attention to all the requirements of those Revenue Procedures will also serve to minimize needless delays in processing requests for rulings.

Sec. 3. Information to Be Included in Requests for Rulings under Sections 302 and 311 of the Code.

Each of the items included in this section should be specifically dealt with in the application even though apparent nonapplicability exists. Presentation of the information required should follow the format of this Revenue Procedure as closely as possible with the appropriate descriptive headings. If an item is not applicable, the letters "N.A." may be inserted after that section or subsection to so indicate.

.01 Information regarding the corporation that is redeeming its stock.

1. Identification.--Name, taxpayer identification number, and place and date of incorporation of the corporation that is redeeming its stock (the Corporation).

2. Business.--Brief description of the business of the Corporation.

3. Jurisdiction.--The location of the District Office that will have audit jurisdiction over the return of the Corporation and a statement whether, to the best knowledge of the taxpayer or his representative, the identical issue is being considered by any field office of the Service in connection with an active examination or audit of a tax return already filed or is being considered by a branch office of the Appellate Division. See Rev. Proc. 72-3.

4. Financial Statement.--Submit the most recent balance sheet of the Corporation.

02. Description and ownership of stock.

1. Description of outstanding stock.--Furnish a complete description of each class of the Corporation's stock outstanding, setting forth the rights and privileges of each class.

2. Ownership of stock before the redemption. (a) Shares actually owned.--The total actual number of shares of each class of stock outstanding immediately before the redemption, and the actual number of shares of each class owned by each shareholder immediately before the redemption. However, if the stock is widely held, the number of shares owned by each shareholder may be limited to those shareholders whose stock is being redeemed ("Redeemed Shareholder") and those shareholders whose stock is attributed, under section 318(a) of the Code, to a Redeemed Shareholder.

(b) Shares constructively owned.--State the number of shares constructively owned by each Redeemed Shareholder and the relationship within section 318(a) of the Code of the person or entity whose stock is attributed to the Redeemed Shareholder. In determining stock constructively owned by each redeemed Shareholder under section 318(a) ownership may be attributed any number of times from one individual or entity to another as provided in section 318(a)(5)(A). However, observe the exception in section 318(a)(5)(B) with respect to double attribution among members of the family under section 318(a)(1) and the exception in section 318(a)(5)(C) with respect to so-called sidewise attribution to (under section 318(a)(3)) and from (under section 318(a)(2)) a partnership, estate, trust, or corporation.

Also observe the exceptions to constructive ownership to (under section 318(a)(3) of the Code) and from (under section 318(a)(2)) an employees' trust described in section 401(a) which is exempt from tax under section 501(a) and to a trust (under section 318(a)(3)) when the beneficiary's interest is a remote contingent interest. If it is contended a trust is such an employees' trust or a beneficiary's interest is a remote contingent interest, submit information to support such contention.

(1) Section 318(a)(1) of the Code: family attribution.--When the Redeemed Shareholder is an individual, indicate the number of shares of stock of the Corporation owned actually and constructively under section 318(a) by members of the family of the Redeemed Shareholder described in section 318(a)(1).

(2) Section 318(a)(2) of the Code: attribution from a partnership, estate, trust, or corporation.--Indicate the number of shares of stock of the Corporation owned actually and constructively under section 318(a) by any partnership, estate, trust, or corporation in which the Redeemed Shareholder has an interest and the interest of the Redeemed Shareholder in each of these entities (including constructive ownership under section 318(a) when the entity is a corporation).

(3) Section 318(a)(3) of the Code: attribution to a partnership, estate, trust or corporation.--Indicate the number of shares of stock of the Corporation owned actually and constructively under section 318(a) by any of the partners if the Redeemed Shareholder is a partnership, or by any of the beneficiaries if the Redeemed Shareholder is a trust or estate, or by any of the shareholders, who owns actually or constructively, under section 318(a), 50 percent or more of the stock of the Redeemed Shareholder, if the Redeemed Shareholder is a corporation.

(4) Section 318(a)(4) of the Code: options to acquire stock of the Corporation.--Identify the holder of any options (including those in the form of convertible debentures and stock rights or warrants) to acquire stock of the Corporation and the relationship, direct or indirect, under section 318(a) of the holder of such options to each of the Redeemed Shareholders.

(c) Percent of stock owned.--Indicate the percent of each class of stock of the Corporation owned actually and constructively, as determined in 3.02-2(a) and (b) above, by each shareholder of the Corporation immediately before the redemption.

3. Stock to be redeemed.--State the number of shares of each class of stock to be redeemed from each shareholder of the Corporation listed in 3.02-2(a) above.

4. Ownership of stock after the redemption.--Indicate the number of shares of each class of stock of the Corporation owned actually and constructively by each shareholder and the total number of shares and the percentage of each class of stock owned actually and constructively by each Redeemed Shareholder immediately after the redemption determined in the same manner and including the same information as required in 3.02-2(a) and (b).

.03 Information to determine whether the redemption is an exchange or a dividend.

1. Substantially disproportionate redemption.--If it is contended the redemption is substantially disproportionate to one or more of the Redeemed Shareholders furnish the information required in section 302(b)(2) of the Code with respect to each of those shareholders.

(a) Fifty-percent rule.--State the percent of the total combined voting power of all classes of stock entitled to vote owned actually and constructively by the Redeemed Shareholder as determined in 3.02-4 above.

(b) Eighty-percent rule.--Submit computations to show that the Redeemed Shareholder owns actually and constructively immediately after the redemption (as determined under 3.02-4 above) less than 80 percent of the percentage of the outstanding voting stock owned by him immediately before the redemption and less than 80 percent of the percentage of the outstanding common stock (voting and nonvoting) owned by him immediately before the redemption in accordance with the requirements in section 302(b)(2)(C) of the Code.

(c) Series of redemptions.--Give all facts relating to any prior redemptions of stock of the Corporation and state whether it is contemplated that any additional stock of the Corporation will be redeemed. This information is needed in order that a determination can be made whether the present redemption is part of a series of redemptions which (in the aggregate) would result in the present redemption not being substantially disproportionate. See section 302(b)(2)(D) of the Code. In addition, if prior redemptions have occurred and/or future redemptions are contemplated, state whether these redemptions are pursuant to a plan of complete liquidation of the Corporation.

2. Termination of shareholder's interest.

(a) Complete termination of shareholder's stock interest.--Indicate those Redeemed Shareholders who will not own any stock of the Corporation either actually or constructively as determined in 3.02-2(a) and (b) above immediately after the redemption.

(b) Termination of shareholder's interest except for constructive ownership under section 318(a)(1) of the Code.--If it is contended there has been a complete termination of an individual Redeemed Shareholder's interest except for constructive ownership from a family member under section 318(a)(1) and therefore section 302(b)(3) should apply by reason of the provisions of section 302(c)(2), furnish the following with respect to each of those Redeemed Shareholders:

(1) Redeemed Shareholders qualifying under sections 302(b)(3) and (c)(2) of the Code.--Identify those Redeemed Shareholders from the list and information contained in 3.02-4 above who own stock of the Corporation only by reason of attribution under section 318(a)(1).

(2) Acquisitions or dispositions of stock of the Corporation within the last 10 years.

(A) Acquisitions by Redeemed Shareholder within the last 10 years.--A statement that none of the stock to be redeemed was acquired by the Redeemed Shareholder, within 10 years preceding the date of redemption, from a person whose stock would be attributed under section 318(a) of the Code to the Redeemed Shareholder at the time of the redemption.

(B) Dispositions by Redeemed Shareholder within the last 10 years.--A statement that at the time of redemption no person whose stock would be attributed to the Redeemed Shareholder under section 318(a) of the Code owns stock of the Corporation which was acquired from the Redeemed Shareholder within 10 years preceding the redemption or if so acquired such stock will be redeemed in the same transaction.

(C) Avoidance of Federal income tax.--If the statements in (A) and (B) immediately above cannot be furnished because of an acquisition or disposition described therein but it is contended that such acquisition or disposition did not have as one of its principal purposes the avoidance of Federal income tax, furnish whatever facts are deemed relevant to support such a contention.

3. Stock issued by railroad corporation in certain reorganizations.--State whether the stock to be redeemed is the type described in section 302(b)(4) of the Code.

4. Distribution in redemption to pay death taxes.--If the redemption is from an estate, see section 303 of the Code which treats such redemptions under certain circumstances as in full payment in exchange for the stock so redeemed.

5. Redemption not essentially equivalent to a dividend.--If the redemption does not qualify as an exchange under 3.03-1 above (section 302(b)(2) of the Code) or 3.03-2 above (section 302(b)(3)) or 3.03-3 above (section 302(b)(4)) or 3.03-4 above (section 303), but it is contended "the redemption is not essentially equivalent to a dividend" within the meaning of section 302(b)(1), submit whatever facts are deemed relevant with respect to each Redeemed Shareholder which have not been furnished above to support such contention. See section 1.302-2 of the Income Tax Regulations and United States v. Davis, 397 U.S. 301 (1969), 1970-1 C.B. 62.

6. Interests in the Corporation after the redemption.

(a) Redemptions qualifying under sections 302(b)(3) and (c)(2) of the Code.

(1) No interests other than creditor and constructive owner under section 318(a)(1) of the Code.--Furnish a statement that the Redeemed Shareholder, after the redemption, will have no interest in the Corporation, including an interest as officer, director or employee, other than an interest as a creditor as described in section 1.302-4(d) of the regulations (and constructive ownership under section 318(a)(1)).

(2) Agreement as to future interests.--Submit a statement that the Redeemed Shareholder will execute and file the agreement required in section 302(c)(2)(A)(iii) of the Code with respect to the acquisition of any interests in the Corporation within 10 years from the date of the redemption.

(b) In redemptions pursuant to section 302(b) of the Code, other than those qualifying under sections 302(b)(3) and (c)(2).--State the relationship, if any, of each Redeemed Shareholder to the Corporation, both before and after the redemption.

7. Other information to determine whether the redemption is an exchange, a dividend, or other ordinary income transaction to the Redeemed Shareholder or any other person.

(a) Transaction in which stock to be redeemed was acquired if acquired within last 10 years.

(1) When acquired.--Give the dates on which the stock was acquired.

(2) From whom acquired.--Identify the person or entity from whom the stock was acquired and the relationship of the person within the meaning of section 318(a) of the Code to the Redeemed Shareholder.

(3) Consideration.--Describe the amount and kind of consideration paid or transferred for the stock.

(b) "Section 306 stock".--If it is contended none of the stock to be redeemed is section 306 stock within the meaning of section 306(c) of the Code, submit a statement to that effect. If the stock to be redeemed is preferred stock, furnish the following information:

(1) Issued for cash.--If issued for cash furnish a statement to that effect and state whether the stock was paid for in full.

(2) Issued upon incorporation.--If the stock was issued upon incorporation in exchange for property furnish a statement to that effect.

(3) Issued under other circumstances.

(A) When issued.--Give the date or dates on which such stock was issued.

(B) Transaction.--Describe the transaction in which the stock was issued (whether a stock dividend, a reorganization, or other transaction).

(C) Consideration to the Corporation.--Describe the kind of property, if any, the Corporation received in exchange for such stock.

(c) Declared but unpaid dividends.--State whether there are any declared but unpaid dividends on any of the stock to be redeemed.

(d) Transactions in addition to the redemption.

(1) Multiple transaction.--Describe any property the Redeemed Shareholder will transfer or surrender in the transaction other than stock of the Corporation and the consideration to be received in exchange therefor.

(2) Redeemed Shareholder and the Corporation in dual capacity.--State whether all or any part of the consideration from the Corporation will be received by a Redeemed Shareholder as a debtor, creditor, employee, or in some capacity other than a shareholder of the Corporation whose stock is being redeemed pursuant to sections 317(b) and 302 of the Code.

(e) Distribution a partial liquidation in whole or in part.--If it is contended any part of the distribution will qualify as a partial liquidation under section 346 of the Code, state the amount and reasons why it qualifies under section 346.

(f) Sales of stock.--If any stock of the Corporation will be sold or otherwise disposed of other than in the redemption by any shareholder of the Corporation simultaneously with or shortly before or after the redemption, state the number of shares of each class, identify the parties to the transaction, the relationship of such parties and their relationship to any Redeemed Shareholder within the meaning of section 318(a) of the Code, and the consideration to be received in exchange therefor. State whether the sale or disposition of such stock has been considered consummated in computing the ownership of stock before and after the redemption in 3.02-2 and 3.02-4 above. State whether the Corporation will be liable, directly or indirectly, for a part or all of the buyer's obligation in any such purchase of stock.

(g) Additional issuance of stock.--State whether the Corporation proposes to issue additional shares of stock in the near future. If so, describe the transaction, the number of shares, the relationship of the acquiring party to any Redeemed Shareholder within the meaning of section 318(a) of the Code, and the consideration to be received in exchange for the stock.

(h) Agreements between shareholders and the Corporation with respect to the stock to be redeemed.

(1) Buy-sell agreements.--If there are any existing, or recently terminated, agreements between a Redeemed Shareholder and other shareholders as to the acquisition or disposition of the stock to be redeemed, such as buy-sell agreements, options, etc., give full particulars.

(2) Financing of redemption.--State the source of the cash or other property to be distributed in the redemption. If cash has been or will be obtained for the redemption by loans, give full particulars as to the parties to, and terms of, the loan agreement.

(3) Stock not to be cancelled, retired, or held as treasury stock.--If a party other than the Corporation will hold the stock to be redeemed, give all facts concerning such an arrangement and the conditions, if any, under which the stock may be returned to the Redeemed Shareholder or any person other than the Corporation, and the relationship under section 318(a) of the Code of that person to the Redeemed Shareholder.

(4) Other agreements between Redeemed Shareholder and the Corporation.--Give details of any other agreements between the Redeemed Shareholder and the Corporation such as an employment contract, covenant not to compete, etc., and state whether such agreements had an effect upon the amount of property to be distributed in the redemption.

(i) Related steps or transactions.--Describe any distributions, redemptions of stock of any related corporation, sales of stock by the Redeemed Shareholder, or other transactions, other than those occurring at arm's length in the normal course of business, that will occur or are contemplated, whether or not considered as related to or in connection with the redemption. State whether the redemption is one step in a two or more step transaction. If so, explain all steps in the transaction or plan. See Rev. Rul. 57-114, 1957-1 C.B. 122; Rev. Rul. 70-296, 1970-1 C.B. 62; and Rev. Rul. 71-336, 1971-2 C.B. 299.

(j) Indebtedness of the Corporation and Redeemed Shareholder.

(1) Outstanding indebtedness of the Corporation.--Describe in detail the terms of any indebtedness outstanding, other than that incurred in the ordinary course of business, the circumstances under which incurred and the relationship, within the meaning of section 318(a) of the Code, between such creditors and shareholders of the Corporation.

(2) Debt owed by Redeemed Shareholder to the Corporation. If a Redeemed Shareholder owes any amount to the Corporation, state the circumstances under which the debt arose, the terms of the debt and when and how it will be discharged.

04. Property distributed in redemption of the stock.

1. Cash.--Indicate the amount of cash to be distributed to each Redeemed Shareholder in redemption of his stock.

2. Property other than cash.

(a) Description.--Describe fully all types and categories of property, tangible and intangible, other than cash, to be distributed by the Corporation to each Redeemed Shareholder.

(b) Recognition of gain or income to the Corporation.--If it is contended that neither gain nor income will be recognized to the Corporation upon the distribution of property, state the reasons and nonapplicability of the exceptions to section 311(a) of the Code including the following:

(1) Inventory.--A statement whether any inventory will be distributed, and if distributed, whether the Corporation is on the LIFO method of inventory.

(2) Liability in excess of basis.--The amount of liabilities, if any, to be assumed by the Redeemed Shareholder and the amount of liability, if any, to which the property distributed is subject, and the adjusted basis of such property in the hands of the Corporation.

(3) Appreciated property.--If any appreciated property is distributed by the Corporation to a Redeemed Shareholder as part of the redemption, state any exceptions or limitations in section 311(d)(2) of the Code which may be applicable to prevent recognition of gain to the Corporation and give reasons for their application.

(4) Unreported and anticipatory assignment of income.--State whether the Corporation will distribute any assets which represent unearned income to the Redeemed Shareholder such as receivables being reported on a cash basis, unfinished construction contracts, commissions due, or other assets resulting in an anticipatory assignment of income.

(5) Other property.--State whether the Corporation will distribute to a Redeemed Shareholder in the redemption any installment obligations (section 453(d) of the Code), or property described in sections 48, 341(f), 617(d), 1239(b), 1245(a), 1250(c), 1251(e), or 1252(a) (see section 1.311-1(a) of the regulations) or other assets the cost of which has been deducted for Federal income tax purposes.

(6) Reserve for bad debts.--If the Corporation will distribute to a Redeemed Shareholder any receivables, state the amount of any reserve for bad debts related to the receivables.

(7) Sale, lease, or other disposition of property.--State whether the Redeemed Shareholder will sell, lease, or otherwise dispose of any property received in redemption of his stock and give full particulars as to the circumstances and agreement with respect to such sale, lease, or other disposition. If property will be leased back to the Corporation, submit a copy of the lease and indicate whether the rental will be at prevailing rates for the geographical location.

(8) Cross-redemption.--If the Redeemed Shareholder is a corporation and the property to be distributed by the Corporation is stock of the Redeemed Shareholder, submit a statement concerning treatment of such cross-redemption upon each of the corporations together with a statement of relevant authorities to support such treatment.

3. Notes or other obligations of the Corporation.--If notes or other obligations of the Corporation will be distributed to a Redeemed Shareholder, furnish the following:

(a) Copy.--Provide a copy or prototype of the instrument which sets forth its terms.

(b) Period of payments.--Give the beginning and ending payment dates. See Sec. 4.01-3 of Rev. Proc. 72-9.

(c) Financial statements.--Submit profit and loss statements and balance sheets for the latest three years.

(d) Subordination.--Submit a statement as to whether the note or instrument is subordinate to the claims of general creditors.

(e) Default.--Indicate whether, in event of default of the note or other instrument, the stock of the Corporation will revert to the Redeemed Shareholder. See Sec. 3.01-5 of Rev. Proc. 72-9.

(f) Installment method.--If a Redeemed Shareholder intends to report gain from the redemption on the installment method under section 453 of the Code, furnish information to support the contention that the requirements in section 453(b)(2) will be met with respect to the Redeemed shareholder.

.05 Redemption Price.

1. Loss to Redeemed Shareholder.--If it is contended that any Redeemed Shareholder will realize a loss on the redemption of his stock, state reasons to establish why section 267 of the Code will not apply.

2. Redemption price and fair market value of the stock.--State whether the redemption price will equal the fair market value of the stock. If it will not, give a complete explanation.

3. Contingent payout.--If all or part of the consideration from the Corporation to the Redeemed Shareholder is contingent upon the future earnings of the Corporation over a period of years or some other presently indeterminate factor, furnish all the terms of the contingent payments and reasons why they should not be considered an equity interest in the Corporation.

.06 Assumptions or representations, if applicable.

Sec. 4. Inquiries.

Inquiries in regard to this Revenue Procedure should refer to its number and should be addressed to Assistant Commissioner (Technical), Attention: T:I:R, Internal Revenue Service, Washington, D.C. 20224.