Rev. Proc. 77-30

Section 1. Purpose.

The purpose of this Revenue Procedure is to set forth the circumstances under which the Internal Revenue Service will issue an advance ruling that a proposed sale of employer stock to a related qualified defined contribution employee plan of deferred compensation will be a sale of the stock rather than a distribution of property, taxable under section 301 of the Internal Revenue Code of 1954 to the selling shareholder.

Sec. 2. Background.

The operating rules published in this Revenue Procedure are intended only to assist taxpayers and their representatives in preparing ruling requests. These operating rules do not define, as a matter of law, the circumstances under which a sale of stock can be treated as a corporate distribution of property under section 301 of the Code.

A requested ruling under this Revenue Procedure will usually be issued if the operating rules in Section 4 of this Revenue Procedure are complied with and if all other pertinent provisions of the Internal Revenue Code, Income Tax Regulations, Revenue Procedures, and Revenue Rulings are complied with.

The authority and general procedures of the National Office and the Offices of the District Directors of the Internal Revenue Service for the issuance of advance rulings and determination letters are outlined in Rev. Proc. 72-3, 1972-1 C.B. 698, and section 601.201 of the Statement of Procedural Rules (26 CFR section 601.201 (1977)). See also Rev. Proc. 72-9, 1972-1 C.B. 718. Careful attention to all of the requirements of these documents will also serve to minimize delays in processing requests for rulings.

Sec. 3. Definition of Terms

For purposes of this Revenue Procedure only, the following definitions shall apply:

.01 The "employer" is the corporation that is maintaining the related qualified defined contribution employee plan of deferred compensation to which employer stock is to be sold.

.02 A "related qualified defined contribution employee plan of deferred compensation" is a defined contribution plan that is maintained by the employer for the exclusive benefit of the employer's employees and is qualified under section 401(a) of the Code.

.03 "Covered compensation" of an employee is the employee's compensation upon which allocations of employer contributions to the employee's account are based.

.04 The "account balance" of an employee consists of the amounts contributed to the employee's account in the plan and the employee's allocable share of forfeitures, income, and gains, less the employee's allocable share of expenses and losses.

.05 "Related persons" are the spouse, parents, grandparents, children, and grandchildren of the selling shareholder.

Sec. 4. Operating Rules.

A ruling will usually be issued that a proposed sale of employer stock to a related qualified defined contribution employee plan of deferred compensation will be a sale of the stock, rather than a distribution of property, taxable to the selling shareholder under sction 301 of the Code, if the following conditions are satisfied:

.01 The combined beneficial interest in the employee plan of the selling shareholder and all related persons does not exceed 20 percent. This requirement will not be satisfied if: (1) the combined covered compensation of the selling shareholder and related persons exceeds 20 percent of total covered compensation under the plan; (2) the total of the account balances (vested and nonvested) of the selling sharehohlder and related persons exceeds 20 percent of the total of all employee account balances (vested and nonvested) in the plan; or (3) the combined interest (vested and nonvested) of the selling shareholder and related persons in any separately managed fund or account within the plan exceeds 20 percent of the total net assets in that fund or account.

.02 Any restrictions on disposition of the employer stock held by the employee plan and on employer stock received by employees from the employee plan (other than restrictions imposed by Federal or state securities laws) are no more onerous than the disposition restrictions on at least a majority of the shares of employer stock held by other shareholders of the employer.

.03 It is represented that there is no plan, intention or understanding for the employer to redeem any of the stock from the employee plan.

Sec. 5. Inquiries.

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