Rev. Rul. 69-18

Advice has been requested as to the application of sections 337 and 852 of the Internal Revenue Code of 1954 in connection with the receipt of dividends from regulated investment companies by a corporate taxpayer under the circumstances described below.

The taxpayer adopted a plan of liquidation under the provisions of section 337 of the Code. The assets owned by the taxpayer included stock in certain regulated investment companies. After the adoption of the plan of liquidation, and prior to the sale of such stock, the taxpayer received capital gain dividends from the regulated investment companies.

Section 337(a) of the Code provides that if a corporation adopts a plan of complete liquidation on or after June 22, 1954, and, within the 12-month period beginning on the date of the adoption of such plan, all the assets of the corporation are distributed in complete liquidation, less assets retained to meet claims, then no gain or loss shall be recognized to such corporation from the sale or exchange by it of property within such 12-month period.

Section 852 of the Code relates to the taxation of regulated investment companies and their shareholders. Section 852(b)(3)(B) of the Code provides that a capital gain dividend shall be treated by the shareholders as a gain from the sale or exchange of a capital asset held for more than 6 months.

While section 852 of the Code permits shareholders of regulated investment companies to treat gain from sales made by such companies as though the shareholders had made the sales, the provisions of section 337(a) of the Code are applicable to gains or losses from sales or exchanges by a corporation in process of liquidation of its property. Where a regulated investment company makes a sale of its assets and passes through the gain attributable to the sale to a corporate shareholder that is in the process of liquidation pursuant to section 337(a) of the Code, such sale by the regulated investment company is not considered to be a sale by the liquidating corporation coming under the provisions of section 337(a) of the Code.

Accordingly, the capital gain dividends received by the taxpayer in the instant case from the regulated investment companies are not excludable under section 337(a) of the Code.