Rev. Rul. 84-71: COI not required in a § 351 despite reorg overlap

In Rev. Rul. 84-71, the IRS states that a qualifying § 351 transfer does not need to satisfy the COI requirement even where the transfer is part of a larger acquisitive transaction. Rev. Rul. 80-234 and Rev. Rul. 80-285 are revoked.
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Rev. Rul. 84-71

The Internal Revenue Service has reconsidered Rev. Rul. 80-284, 1980-2 C.B. 117, and Rev. Rul. 80-285, 1980-2 C.B. 119, in which transfers that satisfied the technical requirements of section 351(a) of the Internal Revenue Code were nevertheless held to constitute taxable exchanges because they were part of larger acquisitive transactions that did not meet the continuity of interest test generally applicable to acquisitive reorganizations.

In Rev. Rul. 80-284, fourteen percent of T corporation's stock was held by A, president and chairman of the board, and eighty-six percent by the public. P, an unrelated, publicly held corporation wished to purchase the stock of T. All the T stockholders except A were willing to sell the T stock for cash. A wished to avoid recognition of gain.

In order to accommodate these wishes, the following transactions were carried out as part of an overall plan. First, P and A formed a new corporation, S. P transferred cash and other property to S in exchange solely for all of S's common stock; A transferred T stock to S solely in exchange for all of S's preferred stock. These transfers were intended to be tax-free under section 351 of the Code. Second, S organized a new corporation, D, and transfered to D the cash it had received from P in exchange for all the D common stock. Third, D was merged into T under state law. As a result of the merger, each share of T stock, except those shares held by S, were surrendered for cash equal to the stock's fair market value and each share of D stock was converted into T stock.

Rev. Rul. 80-284 concluded that if a purported section 351 exchange is an integral part of a larger transaction that fits a pattern common to acquisitive reorganizations, and if the continuity of shareholder interest requirement of section 1.368-1(b) of the Income Tax Regulations is not satisfied with respect to the larger transaction, then the transaction as a whole resembles a sale and the exchange cannot qualify under section 351 because that section is not intended to apply to sales. Rev. Rul. 80-285 reached a similar conclusion with respect to an asset, rather than stock, acquisition in which a purported section 351 exchange was also a part of a larger acquisitive transaction.

Upon reconsideration, the Service has concluded that the fact that "larger acquisitive transactions," such as those described in Rev. Rul. 80-284 and REv. Rul. 80-285, fail to meet the requirements for tax-free treatment under the reorganization provisions of the Code does not preclude the applicability of section 351(a) to transfers that may be described as part of such larger transactions, but also, either alone or in conjunction with other tranfers, meet the requirements of section 351(a).


Rev. Rul. 80-234 and Rev. Rul. 80-285 are revoked.


Pursuant to the authority contained in section 7805(b) of the Code, the conclusion of this revenue ruling will not be applied adversely to taxpayers who want to treat their transactions in accord with the position set forth in Rev. Rul. 80-284 or Rev. Rul. 80-285 and who either have consummated transactions before May 7, 1984, the date of publication of this revenue ruling in the Internal Revenue Bulletin, or consummate transactions after that date pursuant to terms of a binding written contract entered into before that date when such terms remain in effect on that date.

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