Rev. Rul. 69-15

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in O.D. 781, C.B. 4, 28 (1921).

The question presented is the treatment of the sale of fractional shares received as a result of the declaration of a stock dividend that was nontaxable within the provisions of section 305 of the Internal Revenue Code of 1954.

The resolution of the board of directors of a corporation declaring a stock dividend provided that no fractional shares of stock would be issued, but that all fractions of shares would be united into whole shares and sold by the treasurer on the open market and the proceeds of the sale paid to the shareholders entitled thereto. The resolution was approved by the shareholders.

It is held that by approving the action of the board of directors, the shareholders approved and authorized the action of the treasurer in uniting and selling the fractional shares and paying over the proceeds to those shareholders entitled to the fractional shares. The transaction will be treated as though the fractional shares were distributed as part of the stock dividend that is nontaxable as provided by section 305 of the Code. Gain or loss is recognized to the shareholders entitled to the fractional shares on the sale of the fractional shares measured by the basis allocated to such fractional share and their share of the proceeds of the sale.

O. D. 781 is superseded, since the position set forth therein is restated under current law in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.