Rev. Rul. 78-350

Corporation Y, a personal holding company that has both individual and corporate shareholders and that files its federal income tax returns on the calendar year basis, had owned stock of corporation X since prior to 1954. In 1970, X was ordered, pursuant to an antitrust decree, to divest itself of all of the shares of stock it owned in another corporation, Z. The Z stock had been acquired by X prior to 1954. Pursuant to the decree X distributed the Z stock to its shareholders. The distribution of the Z stock to Y was taxed to Y as a dividend in the amount of the adjusted basis of such shares in the hands of X, pursuant to section 301(b)(1)(B) of the Internal Revenue Code of 1954. Pursuant to section 301(d)(2), the adjusted basis of the Z stock in the hands of Y was the same as it was in the hands of X. Therefore, under section 1223(2), Y is considered to have "held" the Z stock for the period such stock was owned by X. On June 30, 1977, Y adopted a plan of complete liquidation and distributed its property, including the X and Z stock, to its shareholders within the month of July 1977.

Held, the Z stock was acquired by Y after December 1953 within the meaning of section 333(e)(2) and (f)(1) of the Code. Rev. Rul. 58-92, 1958-1 C.B. 174, specifically states that the holding period under section 1223(2) is immaterial in determining when, for purposes of section 333, stock or securities are acquired. Furthermore, the exception for stock acquired in a nontaxable reorganization or distribution (see Rev. Rul. 56-171, 1956-1 C.B. 179, and Rev. Rul. 58-92) is not applicable because the Z stock was received in a taxable distribution.