Rev. Rul. 57-103

A publicly-held corporation, for bona fide business reasons, acquired all the assets of a closely-held corporation with only common stock outstanding in return for voting preferred and common stock constituting five percent of the acquiring corporation's outstanding stock, pursuant to a nontaxable reorganization qualifying under section 368(a)(1)(C) of the Internal Revenue Code of 1954. Held , although the preferred stock issued in the reorganization to the stockholders of the closely-held corporation constitutes section 306 stock, as defined in section 306(c)(1)(B) of the Code, the issuance of such stock was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income tax under section 306(b)(4) of the Code. See section 1.306-2(b)(3) of the Income Tax Regulations. Therefore, the provisions of section 306(a) of the Code, which treats the gain from the sale or other disposition of such stock by the shareholders as ordinary income (other than a redemption in which case the general rules of section 304 will apply), will not be applicable to the disposition of any portion of the preferred stock. See Revenue Ruling 56-116, C.B. 1956-1, 164.