Rev. Rul. 76-489

The purpose of this Revenue Ruling is to modify certain provisions of Rev. Rul. 64-160, 1964-1 (Part 1) C.B. 306, dealing with the stock identification requirements of section 1.1236-1(d)(1)(ii) of the Income Tax Regulations.

Rev. Rul. 64-160 sets forth instructions to be followed by security dealers and clearing companies with whom such dealers deposit stocks, in order for the stock to be considered clearly identified as held for investment.

Rev. Rul. 64-160 applies only to stock as defined in instruction number 9 of the Revenue Ruling, which provides that the term "stock" includes only stock listed or traded on a national security exchange registered with the Securities and Exchange Commission and stock rights and warrants so listed and traded thereon.

Until recently a clearing company, as described in Rev. Rul. 64-160, held no securities other than stock listed or traded on a national security exchange registered with the Securities and Exchange Commission and stock rights and warrants so listed and traded thereon. Currently, however, through the development of new systems and techniques, securities held by a clearing company may include a large number of unlisted equity securities and listed and unlisted debt securities such as bonds, notes and other evidences of indebtedness.

Rev. Rul. 64-160 also contains language that may be reasonably construed to provide that the nominee in whose name securities are held must be the nominee of the participating dealers and brokers who deposit securities with the clearing company. At the time of publication of Rev. Rul. 64-160, the securities held by the clearing company in depository accounts were held in the name of the nominee of the participating dealers and brokers. Currently such securities are also held in the name of the nominee of the clearing company.

Section 1236(a) of the Internal Revenue Code of 1954 provides, in part, that gains by a dealer in securities from the sale or exchange of any security shall in no event be considered as gain from the sale or exchange of a capital asset unless the security was, before the expiration of the 30th day after the day of its acquisition, clearly identified as a security held for investment.

Section 1.1236-1(d)(1) of the regulations provides, in part, that a security is clearly identified in the dealer's records as a security held for investment when there is an accounting separation of the security from other securities, as by making appropriate entries in the dealer's books of account to distinguish the security from inventories and to designate it as an investment, and by (i) indicating with such entries, to the extent feasible, the individual series of or other characteristic symbol imprinted upon, the individual security, or (ii) adopting any other method of identification satisfactory to the Commissioner of Internal Revenue.

Section 1236(c) of the Code provides, in part, that the term "security" means any share of stock in any corporation, certificate of stock or interest in any corporation, note, bond, debenture, or evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the foregoing.

In the light of current clearing company securities transactions, the identification instructions of Rev. Rul. 64-160 can be utilized with respect to any security as defined in section 1236(c) of the Code in order to allow a clear identification of such security as an investment security. In addition, whether the nominee in whose name investment securities are held is that of the clearing company or the participating dealer is not critical to a clear identification of the securities held for investment.

Accordingly, Rev. Rul. 64-160 is modified to allow its instructions to be applied to any security as defined in section 1236(c) of the Code and to remove the implication in that Revenue Ruling that the nominee in whose name the securities are held must be the nominee of the participating securities dealer. The nominee in whose name securities are held may be the nominee of the clearing company or the nominee of the participating securities dealer.

Rev. Rul. 64-160 is modified.