Rev. Proc. 81-68

SECTION 1. PURPOSE.

The purpose of this revenue procedure is to update Rev. Proc. 73-17, 1973-2 C.B. 465, which sets forth in a convenient checklist questionnaire the information necessary to be included in a request for a ruling under sections 332 and 334(b)(1) or (b)(2) of the Internal Revenue Code relating to complete liquidations of subsidiary corporations.

SEC. 2. BACKGROUND.

The Internal Revenue Service receives many requests for rulings in which the information furnished as to the proposed transaction is not complete enough to permit a determination to be made. In such cases it is necessary to secure additional facts from the taxpayer before the ruling request can be considered. This procedure is time consuming for both Service personnel and taxpayers and delays issuance of the final ruling letter. This checklist will facilitate the filing of requests for rulings under sections 332 and 334(b)(1) or (b)(2) of the Code by showing specific information that should be included so that the application will be as complete as possible when originally filed. However, since the information necessary to rule on a particular transaction depends upon all the facts and circumstances of that case, information in addition to that suggested in this revenue procedure may be required. Nevertheless, careful use of the checklist should avoid needless delay and permit rulings to be issued sooner.

The authority and general procedures of the National Office of the Service and of the Office of the District Directors of Internal Revenue with respect to the issuance of advance rulings and determination letters are outlined in Rev. Proc. 80-20, 1980-1 C.B. 633, as amended by Rev. Proc. 81-33, page 564, this Bulletin. See also Rev. Proc. 81-10, 1981-1 C.B. 647, relating to areas in which advance rulings generally will not be issued. Careful attention to all the requirements of those revenue procedures will also serve to minimize needless delays in processing requests for rulings.

SEC. 3. CHANGES TO REV. PROC. 73-17.

.01 Section 1 has been changed to indicate that the purpose of the proposed revenue procedure is to update Rev. Proc. 73-17.

.02 Section 2 has been modified by substituting Rev. Proc. 80-20 and Rev. Proc. 81-10 for Rev. Proc. 72-3, 1972-1 C.B. 698, and Rev. Proc. 72-9, 1972-1 C.B. 718, respectively. The latter have been superseded.

.03 Section 4.013 has been modified by substituting the language in section 9.06 of Rev. Proc. 80-20 for the language from section 3.01 of Rev. Proc. 72-3, which has been superseded.

.04 Section 4.022(b)(4) has been modified to clarify the statement requested regarding the stock ownership requirement of section 332(b)(1) of the Code.

.05 Section 4.023 has been modified to clarify the statement requested regarding redemptions for purposes of the 80 percent control requirement. See Rev. Rul. 70-106, 1970-1 C.B. 70.

.06 Section 4.033(b) has been modified to clarify the statement requested regarding retention of assets to satisfy section 1.332-2(c) of the Income Tax Regulations.

.07 Section 4.042(a)(5) has been added regarding liquidation-reincorporation to determine whether section 3.0117 of Rev. Proc. 81-10, applies.

.08 Section 4.042(b) has been modified to clarify the statement requested regarding factors indicating when the plan of liquidation was adopted.

.09 Section 4.052 has been modified to clarify the statement requested regarding intercorporate indebtedness. See Rev. Rul. 68-602, 1968-2 C.B. 135.

.10 Section 4.10 has been added to inform taxpayers that they must comply with section 9.08 of Rev. Proc. 80-20.

SEC. 4. INFORMATION TO BE INCLUDED IN REQUESTS FOR RULINGS UNDER SECTIONS 332 AND 334(b)(1) OR (b)(2) OF THE CODE.

Each of the items included in this section should be specifically dealt with in the application, even though some may not appear to be applicable. For example, if in section 4.02-2(a), below, the liquidating corporation has no minority shareholders, the application should say so. Whenever an item is believed not to be applicable, say so and briefly explain why it does not apply. Presentation of the information required should follow the format of this revenue procedure as closely as possible with appropriate descriptive headings. Processing ruling requests is significantly expedited by providing all the information requested in exactly the order in which it is requested herein.

.01 Information Regarding the Corporations.

1 Names, taxpayer identification numbers, and places and dates of incorporation of the liquidating corporation (subsidiary: S) and distributee corporation (parent: P).

2 Brief descriptions of the businesses of S and P.

3 Jurisdiction.--Identify the District Office that will have audit jurisdiction over the returns of S and P. State whether to the best of the knowledge of the taxpayer and the taxpayer's representative(s), if any, the identical issue is in a return of the taxpayer (or of a related taxpayer within the meaning of section 267 of the Code, or a member of an affiliated group of which the taxpayer is also a member within the meaning of section 1504) and, if so, whether the issue (1) is being examined by a District Director, (2) has been examined and the statutory period of limitation on assessment or refund of tax has not expired or a closing agreement covering the issue or liability has not been entered into by a District Director, (3) is being considered by an Appeals Office in connection with the taxpayer's return for an earlier period, or that issue has been considered by an Appeals Office and the statutory period of limitation on assessment or refund of tax has not expired or a closing agreement covering the issue or liability has not been entered into by an Appeals Office, or (4) is pending in litigation in a case involving the taxpayer or a related taxpayer. The request must contain a statement whether, to the best of the knowledge of the taxpayer and the taxpayer's representative(s), the identical or similar issue has been ruled on by the Service and issued to the taxpayer or to the taxpayer's predecessor and, if so, when and with what results. If after the request is filed but before a ruling is issued, the taxpayer knows that an examination of the issue by a District Director has been started, the taxpayer must notify the National Office of this action. If a return is filed before a ruling is received from the National Office concerning the return, a copy of the request must be attached to the return. This alerts the District Office and avoids premature action by that office on the issue.

.4 If the request deals with only one step of a larger integrated transaction, the facts, circumstances, etc., relating to the entire transaction must be submitted. See section 9.06 of Rev. Proc. 80-20.

.02 Stock of Subsidiary (Outstanding on Date of Adoption of Plan).

1 Description of each class of stock of S.

2 Ownership.--Shares and percentage of each class owned by:

(a) Minority shareholders.

(b) Parent.--Furnish the following information on these shares:

(1) Information on when these shares were acquired:

(A) The dates on which they were acquired.

(B) Option.--If acquired by exercise of an option, give the date the option was acquired, the party from whom it was acquired, and the date the option was exercised.

(2) Information on how these shares were acquired:

(A) The type of transaction (purchase, exchange, etc.) in which the stock was acquired, and the amount and kind of consideration given.

(B) State whether the basis of the stock in the hands of P is the same, in whole or in part, as the basis in the hands of the party from whom it was acquired.

(C) Ownership of Stock of Parent by Selling Shareholder.--At the time the stock of S was acquired by P, state whether any shares of P stock were owned actually or constructively, under the provisions of section 318(a) of the Code, by each S shareholder, the Selling Shareholder, from whom the stock of S was acquired. State the number of shares, the percentage of such shares, and the relationship, within the meaning of section 318(a), between P and the Selling Shareholder including the following:

(i) Actual ownership.--The number of shares of stock of P owned actually by each Selling Shareholder.

(ii) Constructive ownership.--In determining stock constructively owned by each Selling Shareholder under section 318(a), stock ownership may be attributed any number of times from one individual or entity to another, as provided in section 318(a)(5)(A). However, observe the exception in section 318(a)(5)(B) with respect to so-called "double" attribution among members of the family under section 318(a)(1), and the exception in section 318(a)(5)(C) with respect to so-called "sidewise" attribution to, and from, a partnership, estate, trust or corporation. See sections 318(a)(3) and 318(a)(2).

Also observe the exceptions in these sections to constructive ownership to, and from, an employee's trust described in section 401(a) that is exempt from tax under section 501(a) and to a trust under section 318(a)(3) when the beneficiary's interest is a remote contingent interest. If it is contended that a trust is such an employee's trust, or that a beneficiary's interest is a remote contingent interest, submit information to support this contention.

(.01) Section 318(a)(1).--When the Selling Shareholder is an individual, the number of shares of stock of P owned actually and constructively under section 318(a) by members of the family of the Selling Shareholder described in section 318(a)(1).

(.02) Section 318(a)(2).--The number of shares of stock of P owned actually and constructively under section 318(a) by any partnership, estate, trust, or corporation in which the Selling Shareholder has an interest and the interest of the Selling Shareholder in each of these entities (including constructive ownership under section 318(a) when the Selling Shareholder is a corporation).

(.03) Section 318(a)(3).--The number of shares of stock of P owned actually and constructively under section 318(a) by a partner if the Selling Shareholder is a partnership, or by a beneficiary if the Selling Shareholder is a trust or estate, or by the shareholders if the Selling Shareholder is a corporation, without regard to the 50 percent limitation in section 318(a)(3)(C).

(.04) Options to acquire stock of the parent.--Identify the holder of any options (including those in the form of convertible debentures and stock rights or warrants) to acquire stock of P and the relationship, direct or indirect, under section 318(a) of the holder of these options to the Selling Shareholder.

(3) State whether P will continue to own all this stock until the final liquidating distribution.

(4) State whether P on the date of adoption of the plan of liquidation, and at all times until receipt of the property, will be the owner of at least 80 percent of the total combined voting power of all classes of stock of S entitled to vote and the owner of at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock that is limited and preferred as to dividends).

3 Prior Redemptions.--State whether any shares of S stock will have been redeemed within three years of adoption of the plan of liquidation (or since the acquisition of the S stock by P). If so, state the number of shares of stock of S redeemed during the three year preceding the adoption of the plan, the dates of the redemptions, the number of shares of stock of both S and P owned by the redeeming shareholders at the time of the redemptions, and the property distributed in exchange for the stock.

.03 Plan of Complete Liquidation.

1 Dates.

(a) Adoption.--Give date of adoption by S and P. See section 1.332-6(a) of the regulations.

(b) Distributions.--Give dates of first and final liquidating distributions. If the final distribution will not be made within the year during which the first distribution is made, state when the liquidation will be completed. See section 1.332-4 of the regulations.

2 Status of Liquidation.--State whether S will cease to be a going concern and its activities limited to the winding up of its affairs, paying its debts, and distributing any balance to its shareholders after the first liquidating distribution.

3 Dissolution of Subsidiary.

(a) Redemption and Cancellation of All Stock.--State whether all stock of S will be redeemed and cancelled and S dissolved. If not, give reasons.

(b) Assets Retained.--State whether S will retain any assets following the final liquidating distribution. If any assets are to be retained, state the nature of the assets, their fair market value, and reason for retention.

4 Liquidation of Parent.--State whether P will be liquidated in the near future.

.04 Assets of Subsidiary.

1 Acquisition.--State whether any assets of S were acquired by P in a nontaxable transaction during the three years preceding the adoption of the plan of liquidation (or the acquisition by P of the stock of S, whichever is earlier) and give particulars if any have been acquired in this way.

2 Dispositions.

(a) Reincorporation issue.--If any assets have been or will be disposed of by either S or P other than in the ordinary course of business, furnish the following:

(1) Name of acquiring party.

(2) Description of the assets.

(3) Consideration to be received in exchange.

(4) Stock ownership.--If the ultimate acquiring party is a corporation, the shares of stock owned actually and constructively by S or P and its shareholders and the shares of P owned actually and constructively by the acquiring corporation or its shareholders.

(5) State whether the liquidation will be preceded or followed by the reincorporation in, or transfer or sale to, a recipient corporation (Recipient) of any of the business or assets of S, if persons holding more than 20 percent in value of the stock in S also hold more than 20 percent in value of the stock in the Recipient.

(b) To parent other than by liquidation.--State whether any assets of S will have been distributed in kind or sold (other than in the ordinary course of business) by S to P during the three years preceding the date of adoption of the plan of liquidation (or since the acquisition by P of the stock of S if that is later). If so, describe any such assets, including their bases and fair market values.

3 Income.

(a) Unreported income.--State whether S will report all earned income, as represented by assets that will be distributed to P, such as receivables being reported on a cash basis, unfinished construction contracts, commissions due, etc.

(b) Certain assets and section 334(b)(2) of the Code.--If the basis of S's assets in the hands of P will be determined under section 334(b)(2), state whether S has a reserve for bad debts, installment obligations (section 453B), property described in sections 48, 341(f), 617(d), 1245(a), 1250(c), 1251(e), 1252(a), or 1254, or LIFO inventory distributed pursuant to a plan adopted after December 31, 1981 (See section 336(b)), or other assets the cost of which had previously been deducted for federal income tax purposes.

.05 Liabilities.

1 Solvency.--State whether the fair market value of S's assets will exceed its liabilities (including any amount owed to P) at the date of adoption of the plan of complete liquidation and at the time the first liquidating distribution is made.

2 Intercorporate Indebtedness.--State whether there is any intercorporate indebtedness between P and S at the time of the liquidation of S, and whether any indebtedness has been cancelled, forgiven or discounted in connection with the transaction. Also, state whether any indebtedness between P and S has been cancelled or forgiven within three years of adoption of the plan (or acquisition of S stock by P). State the amount of any debt owed by S to P or by P to S, how and when it was created, the cost and tax basis to the creditor, and how the debt will be discharged. If any such debts have been cancelled or otherwise forgiven during the three years preceding the adoption of the plan of liquidation (or since the acquisition by P of the stock of S if that is later), give particulars.

.06 Minority Shareholders.

a merger under state law.

.07 Copies of documents to be submitted with request.

1 Balance Sheets.--Latest of S and P.

2 Plan of complete liquidation.

.08 Foreign Corporation.--If P, S, or both are foreign corporations, see also section 367 of the Code and Rev. Proc. 68-23, 1968-1 C.B. 821.

1 Assets.--The amount and kind of assets to be distributed in exchange for their stock.

2 Statutory Merger.--If the basis of S's assets in the hands of P will not be determined under section 334(b)(2) of the Code and if the minority shareholders are to receive stock of P, state whether the transaction will constitute

.09 Other assumptions or representations that apply.

.10 Taxpayer's memorandum.--Submit the information required by section 9.08 of Rev. Proc. 80-20.

SEC. 5. INQUIRIES.

Inquiries in regard to this revenue procedure should refer to its number and should be addressed to the Assistant Commissioner (Technical), Attention: T:C:R, Internal Revenue Service, Washington, D.C. 20224.

SEC. 6. EFFECT ON OTHER DOCUMENTS.

Rev. Proc. 73-17 is superseded.