Rev. Rul. 56-387

An equity receivership proceeding was instituted against a certain corporation in a United States District Court in 1930, and an involuntary petition under section 77B of the Bankruptcy , act (since superseded by Chapter X) was filed in the same court in 1935. This corporation is still under the jurisdiction of the court. With the approval of the court, all of the fixed assets of the corporation will be sold for cash; all other assets will be reduced to cash; certain expenses will be paid by the trustee; and the remaining cash will be distributed to certain creditors of the corporation according to their priority as determined by the court. The corporation will be dissolved within twelve months after the sale of assets is approved by the court. Not all creditors will be paid and the shareholders will receive nothing. Held, Section 337 of the Internal Revenue Code of 1954 (relating to nonrecognition of gain to a corporation upon a sale of its assets followed by a complete liquidation within a twelve-month period) will not be applicable to the gain on the proposed sale since all of the assets will be distributed to creditors. Therefore, there will be no distribution of assets to the shareholders in complete liquidation of their stock as required by section 1.337-2(b) of the Income Tax Regulations on Subchapter C of the 1954 Code. Congress intended through section 337 of the 1954 Code to eliminate the double tax on gains realized from sales of corporate assets during a period of liquidation, but did not intend to eliminate entirely the tax on such gains. Where the shareholders are to receive nothing in the liquidation in payment for their stock, there is no possibility of a tax to both the corporation and the shareholders on the gains resulting from the sale.