Rev. Rul. 70-172

Advice has been requested whether the transaction described below satisfies the "solely for voting stock" requirement of section 368(a)(1)(B) of the Internal Revenue Code of 1954.

Corporation X acquired all of the stock of corporation S from S's sole shareholder, corporation P, in exchange for voting stock of X. Immediately prior to this exchange, S distributed certain property to P.

Section 368(a)(1)(B) of the Code provides in part that a reorganization includes the acquisition by one corporation, in exchange solely for all or a part of its voting stock, of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation.

The specific question presented is whether the distribution by S to P of property is to be taken into account in determining whether the acquisition by X of the S stock is solely for voting stock of X.

In the circumstances set forth above, the consideration given by X and received by P in exchange for S stock consisted exclusively of voting stock of X. The distribution of property by S to P was not part of the consideration given by X in connection with the exchange of stock.

Accordingly, since only voting stock of X was utilized by X as consideration in the acquisition of the stock of S, the "solely for voting stock" requirement contained in section 368(a)(1)(B) of the Code was met. This exchange of stock is a reorganization within the meaning of section 368(a)(1)(B) of the Code.

The distribution by S to P of property is a distribution to P under section 301(a) of the Code in the amount determined under section 301(b)(1)(B) of the Code.