Rev. Rul. 70-106

Minority shareholders owned twenty-five percent of the capital stock of corporation X. The remaining seventy-five percent of the capital stock of X was owned by Corporation Y. Y desired to liquidate X in a transaction to which section 332 of the Internal Revenue Code of 1954 would apply in order that Y would recognize no gain on the transaction. The minority shareholders agreed to have their stock of X redeemed. Following the distribution to the minority shareholders, Y owned all the stock of X. Y then adopted a formal plan of complete liquidation of X and all of the remaining assets of X were distributed to Y.

Held, all of the shareholders of X received a distribution in liquidation under the provisions of section 331 of the Code, and the gain is recognized to Y and gain or loss is recognized to the minority shareholders under section 331 of the Code. The liquidation fails to meet the eighty percent stock ownership requirements of section 332(b)(1) of the Code since the plan of liquidation was adopted at the time Y reached the agreement with the minority shareholders and at such time, Y owned seventy-five percent of the stock of X.