Rev. Rul. 55-745

Advice has been requested whether Revenue Ruling 54-458, C.B. 1954-2, 167, which was issued under the provisions of section 115(g) of the Internal Revenue Code of 1939, is equally applicable under the provisions of section 302(a) of the Internal Revenue Code of 1954.

In Revenue Ruling 54-458, supra , the Service stated that under the 1939 Code it will follow the decision in Fern R. Zenz v. Quinlivan , 213 Fed.(2d) 914, in cases where similar facts and circumstances are presented. At issue in the Zenz case was a situation involving a sole stockholder of a corporation selling part of her stock to a competitor and shortly thereafter selling the remainder of her stock to the corporation for an amount of cash and property approximately equal to its earned surplus. The court held that the purchase of the stock by the corporation was not a dividend to the selling stockholder under the terms of section 115(g)(1) of the 1939 Code and that the amount received was treated as in payment for the stock surrendered under the provisions of section 115(c) of the Code of 1939, since the taxpayer was separated from all interest in the corporation.

It is held that Revenue Ruling 54-458, supra , is equally applicable under the 1954 Code. Thus, in a transaction such as the one described, the money received by the stockholder from the corporation will be treated as received in payment for the stock surrendered under section 302(a) because of section 302(b)(3). It should be noted however that there has been a change in nomenclature. Section 302(b)(3) is entitled `Termination of shareholder's interest.' A transaction within that section is not a `partial liquidation,' as specifically defined in section 346