Rev. Rul. 70-305

S, a wholly owned domestic subsidiary of domestic corporation P, purchased shares of P's stock on the open market and sold the stock to outside interests at a gain. S received dividends from P prior to the sale of the stock.

Held, the stock of P held by S is not treasury stock and the sale of such stock is not to be treated as a sale by the corporation of its own capital stock pursuant to the provisions of section 1032 of the Internal Revenue Code of 1954. The sale of such stock to outside interests is a transaction resulting in a gain or loss.

The dividends, however, will be treated as prescribed by section 243 of the Code, pertaining to dividends received by corporations.

S.M. 2205, C.B. III-2, 244(1924), is hereby superseded since the position stated therein is set forth under the current statute and regulations in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-7, C.B. 1967-1, 576.