Rev. Proc. 78-23

Rev. Proc. 77-30, 1977-2 C.B. 539, contains operating rules for the issuance of an advance ruling by the Internal Revenue Service that a proposed sale of employer stock to a related qualified defined contribution employee plan of deferred compensation will be a sale of the stock rather than a distribution of property, taxable under section 301 of the Internal Revenue Code of 1954 to the selling shareholder.

Section 4 of Rev. Proc. 77-30 sets forth several conditions that must be satisfied before an advance ruling will be issued. Section 4.01 requires that the combined beneficial interest in the employee plan of the selling shareholder and all related persons not exceed 20 percent. In determining whether this condition is met, it is stated in section 4.01(3) that this requirement will not be satisfied if the combined interest (vested and non-vested) of the selling shareholder and related persons in any separately managed fund or account within the plan exceeds 20 percent of the total net assets in that fund or account. The reason for this requirement is to assure that a change in ownership of the stock of the selling shareholder will result from the sale of such stock to the employee plan and that the change will be substantial. Accordingly, for purposes of applying section 4.01(3), a separately managed fund or account within the plan that at no time may be credited with employer stock will not be taken into account in determining whether the combined beneficial interest in the employee plan of the selling shareholder and all related persons exceeds 20 percent.

Rev. Proc. 77-30 is clarified.