Rev. Rul. 68-358

Advice has been requested whether the transaction described below qualifies as a reorganization within the meaning of section 368(a)(1)(C) of the Internal Revenue Code of 1954.

For valid business reasons Corporation X transferred all of its properties subject to its liabilities to Corporation Y which was an unrelated pre-existing corporation, in exchange for shares of the voting common stock of Y . As a result of the exchange X owned approximately 43 percent of the voting common stock and none of the preferred stock of Y . The 43 percent of the common stock received by X was more than twenty percent of the fair market value of all the outstanding stock of Y. X was not dissolved immediately but it did not engage in the conduct of any business and it was not anticipated that it would in the future engage in any business. The shareholders desired to keep X in existence solely to hold the stock of Y .

The acquisition by one corporation, in exchange solely for all or a part of its voting stock, or substantially all of the properties of another corporation is a reorganization as defined in section 368(a)(1)(C) of the Code. Since X transferred all of its assets to Y in exchange solely for voting stock of Y , the requirements of a reorganization under section 368(a)(1)(C) of the Code have been met.

Accordingly, the acquisition by Y of substantially all of the assets of X in exchange solely for shares of Y voting stock and the assumption of the liabilities of X will qualify as a reorganization within the meaning of section 368(a)(1)(C) of the Code. Provided that the principal purpose of the reorganization was not the evasion or avoidance of income tax under section 269 of the Code, and since all of the assets were transferred, Y will succeed to and take into account all of the items of X as described in section 381 of the Code subject to the limitations provided by section 381 and 382 of the Code. The items described in section 381 of the Code are, therefore no longer available to X .