Rev. Rul. 83-34: Successive section 351 transfers

In Rev. Rul. 83-34, the IRS held that each successive transfer of assets to a 80% owned subsidiary in exchange for shares satisfied the requirements of § 351
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Citations: Rev. Rul. 83-34; 1983-1 C.B. 79

Rev. Rul. 83-34


Whether the transfer of assets by P to its 80 percent owned subsidiary (S-1), which in turn transfers the assets to its 80 percent owned subsidiary (S-2) is governed by section 351 of the Internal Revenue Code.


P corporation has an 80 percent owned subsidiary, S-1. An unrelated corporation owns the other 20 percent. Both corporations are operating corporations. P transferred assets used in its business to S-1 solely in exchange for additional shares of S-1 stock. No liabilities of P were assumed by S-1 and the assets transferred were not subject to liabilities. As part of the same plan, S-1 transferred the same assets to S-2, a newly formed corporation in which S-1 will be an 80 percent shareholder. An unrelated corporation will own the other 20 percent interest in S-2. S-2 retained the assets received from S-1 for use in its business and P and S-1 retained the stock received by them in the exchanges.


Section 351(a) of the Code provides 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) defines the term "control" to mean 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.

In Rev. Rul. 77-449, 1977-2 C.B. 100, a corporation transferred assets to a wholly owned subsidiary, which in turn transferred, as part of the same plan, the same assets to its own wholly owned subsidiary. The transfers were viewed as separate transactions, each of which satisfied the requirements of section 351 of the Code. Under the circumstances described above, the transfers are also viewed separately.


Since the transfers from P to S-1 and from S-1 to S-2 each satisfy the requirements of section 351 of the Code, no gain or loss is recognized by the transferors.


Rev. Rul. 77-449 is amplified.

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