Rev. Rul. 56-160

Advice has been requested whether the provisions of section 117(m) of the Internal Revenue Code of 1939 are applicable to the gain realized on a sale of certain properly received in a corporate liquidation under section 112(b)(7) of the Code.

On October 15, 1952, a corporation was liquidated and gain was reported by the stockholders in accordance with the provisions of section 112(b)(7) of the Code. The three stockholders each of whom owned ten shares of the outstanding thirty shares of stock in the corporation, received all of the assets of the corporation in exchange for their stock. Among the assets distributed were land and a building constructed thereon by the corporation in 1950, which the corporation had leased to various tenants. On April 30, 1953, the former stockholders sold the land and building, which constituted section 117(j) property in their hands, at a gain of 180 x dollars.

Section 112(b)(7) of the Code governs the recognition of the amount and type of gain in a corporate liquidation. Section 117(m) of the Code converts any recognized long-term capital gain arising from the liquidation of a collapsible corporation into ordinary income. Since a corporate liquidation under section 112(b)(7) of the Code constitutes, in general, a complete and closed transaction, the instant corporation, which might have been considered a collapsible corporation under section 117(m), went out of existence. Section 117(m) has no application to a transaction completely independent of a corporation, since the provisions of that section apply only to a gain from the sale or exchange of stock of a collapsible corporation or to a gain from a distribution made by such corporation to its stockholders.

Accordingly, it is held that section 117(m) of the Code has no application to a gain realized in 1953 by the corporation's former stockholders from the ultimate sale of real estate received in a liquidation under section 112(b)(7) of the Code. The gain realized on the sale is subject to the provisions of section 117(j) of the Code.