Rev. Rul. 73-473

Advice has been requested as to the applicability of section 351(a) of the Internal Revenue Code of 1954 to the exchanges described below.

All of the outstanding stock of a domestic corporation is owned equally by individuals A, B, C, and D. The corporation has been an operating company for a number of years. Pursuant to a plan, individuals A, B, C, and D each transferred property of equal value to the corporation solely in exchange for bona fide indebtedness that constituted securities of the corporation. The face amount of the securities equaled the fair market value of the property transferred.

Section 351(a) of the Code provides, in part, that no gain or loss will be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation.

Section 368(c) of the Code provides that the term "control" means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.

For purposes of section 351(a) of the Code, each transferor must have a proprietary interest in the transferee corporation immediately after the transfer represented by the ownership of stock in the transferee corporation. See Revenue Ruling 73-472, page 114, this Bulletin. In Parkland Place Company v. United States, 354 F.2d 916 (5th Cir. 1966), the court held that where the corporation acquired property from its stockholders solely in exchange for a security no gain or loss was recognized under the provisions of section 351 of the Code, since the transferor stockholders were in control of the corporation immediately after the exchange.

Accordingly, no gain or loss is recognized to A, B, C, and D upon the transfer of their property to the corporation solely in exchange for securities of the corporation since each transferred property to the corporation which together they controlled immediately after the exchange.