Rev. Rul. 76-213

A trust and one of its beneficiaries, A, own all of the stock in corporation X. None of the X stock owned by A is constructively owned by the other beneficiaries of the trust under the rules set forth in section 318(a) of the Internal Revenue Code of 1954. Therefore, since no other beneficiary owned X stock either directly or indirectly (other than X stock owned directly by the trust), no X stock can be attributed to the trust from the remaining beneficiaries by reason of section 318(a)(3)(B). The trust agreement provides that the corpus of the trust is to be held for the grantor's wife for life, with a remainder interest in A which under state law will terminate if A predeceases the life tenant. The value of A's interest in the trust, computed actuarily, is 4.16 percent of the value of the total trust property.

The trust desires to have all its X stock redeemed in a transaction which will qualify as a complete termination of interest under section 302(b)(3) of the Code, so that the redemption will be treated as an exchange under section 302(a). For purposes of determining whether the redemption qualifies under section 302(b), the trust is considered as owning, under section 318(a)(3)(B)(i), the X stock owned by A unless A's interest in the trust is a remote contingent interest. Pursuant to the test under section 318(a)(3)(B)(i), A's interest is remote because the value of A's interest, computed actuarily, is 5 percent or less of the value of the trust property.

Held, A's interest in the trust is contingent within the meaning of section 318(a)(3)(B)(i) of the Code because it will terminate if A does not survive the life tenant. Since A's interest is contingent and remote, the X stock owned by A will not be considered as owned by the trust under section 318(a)(3)(B)(i). Therefore, the redemption will be a complete termination of the trust's interest in X under section 302(b)(3) and will be treated as an exchange under section 302(a).

Held further, for the sole purpose of section 318(a)(3)(B)(i) of the Code, a beneficiary's interest in a trust is contingent if it is conditioned on survivorship without regard to whether survivorship is a condition precedent or subsequent.