Rev. Rul. 66-2

Three questions have been presented to the Internal Revenue Service relative to the applicability of the decumentary stamp taxes imposed by sections 4321 and 4331 of the Internal Revenue Code of 1954 on the transfer of shares of stock and certificates of indebtedness, in the light of the repeal of these taxes by section 401 of the Excise Tax Reduction Act of 1965, Public Law 89-44, C.B. 1965-2, 568.

Question 1 .-Shares of stock and a corporate bond are sold through a stockbroker on December 31, 1965. The recording of the transfer and the delivery of the certificates accomplished during the month of January 1966. Are the transfers subject to the documentary stamp taxes imposed by sections 4321 and 4331 of the Code?

Question 2 .-In those instances where transfers of shares of stock or certificates of indebtedness are made other than pursuant to binding agreements to sell or transfer, is either (a) the date of delivery of the shares or certificates to a transfer agent for recording, or (b) the date of delivery of the securities to the transferee, determinative of whether documentary stamp tax is applicable to the transfer?

Question 3 .-A corporation issues a notice to its stockholders to surrender certain shares of stock in a nontaxable exchange for other shares of the corporation. Although the stockholders must surrender their shares before the end of December 1965, the new shares will not be issued until some time in January 1966. When surrendering his shares in December 1965, one stockholder requests that the new shares be issued in the name of a person other than the stockholder. Is any documentary stamp tax liability incurred in connection with the latter transaction?

Sections 4321 and 4331 of the Code impose stamp taxes on the sale or transfer of shares or certificates of stock, and on transfers of certificates of indebtedness issued by a corporation, respectively. Section 4321 also imposes a stamp tax on transfers of rights to subscribe for or receive shares or certificates of stock. Sections 47.4321-1(a) and 47.4331-1(a) of the Documentary Stamp Tax Regulations both provide that the tax on transfers attaches at the time of making the sale or transfer, regardless of the time or manner of the delivery of the certificate, agreement, or memorandum of sale.

Section 401 of the Excise Tax Reduction Act of 1965 repealed the documentary stamp taxes on transfers of securities imposed by sections 4321 and 4331 of the Code, effective January 1, 1966.

Answer to Question 1 .-The taxes imposed by sections 4321 and 4331 of the Code attach to binding agreements to sell or transfer entered into prior to January 1, 1966, regardless of when the transfer is recorded by the transfer agent, or when delivery is made to the transferee. Accordingly, the described transfer, having been made pursuant to sales agreements entered into prior to January 1, 1966, are subject to the taxes imposed by sections 4321 and 4331 of the Code.

Answer to Question 2 .-Transfers of shares or certificates made other than pursuant to binding agreements to sell or transfer, are subject to tax if legal title to the shares or certificates is transferred prior to January 1, 1966, regardless of when the transfer is recorded on the books of a transfer agent, or when delivery is made to a transferee. Doubtful questions as to the time of transfer of title should be submitted for a ruling.

Answer to Question 3 .-Among other transactions, section 4321 of the Code imposes a stamp tax on transfers of rights to receive shares or certificates of stock. When an issuing corporation is requested by the person who has the right to receive shares to issue the shares in the name of a person other than that of the person who has the right to receive the shares, there occurs a taxable transfer of the right to receive the shares, within the meaning of section 4321 of the Code. Since, in the case in question, the request for issuance of the shares in the name of someone other than the person who had the right to receive was made prior to January 1, 1966, a transfer resulted which is subject to the tax imposed by section 4321 of the Code.

¹ Also released as Technical Information Release 788, dated Dec. 22, 1965.