Rev. Rul. 72-61

With respect to distribution of property made on or before November 8, 1971, to a shareholder which is a foreign corporation, the Internal Revenue Service will follow the decisions of the United States Court of Appeals for the Second Circuit in the case of Newman & Company v. United States, 423 F.2d 49 (1970), reversing 290 F.Supp. 170 (1968), and of the United States Court of Claims in the case of Domtar Newsprint Sales Limited v. United States, No. 48-69, entered December 11, 1970, to the extent they hold that section 301(b)(1)(B) of the Internal Revenue Code of 1954 also applies to a corporate stockholder which is a foreign corporation not engaged in United States business.

Section 301(b)(1)(B) of the Code provides that in the case of a corporate stockholder receiving a distribution of property, the amount of the distribution is the lesser of the fair market value of the property, or the adjusted basis of the property in the hands of the distributing corporation immediately before the distribution, increased in the amount of gain to the distributing corporation which is recognized under certain specified sections of the Code.

In view of the above decisions, the amount of a distribution in kind made on or before November 8, 1971, to a corporate stockholder which is a foreign corporation not engaged in United States business that is subject to withholding under section 1442 of the Code and section 1.1441-2 of the Income Tax Regulations is determined under section 301(b)(1)(B) of the Code.

Revenue Ruling 57-470, C.B. 1957-2, 608, which held that section 301(b)(1)(B) of the Code is not applicable to a nonresident foreign corporation and, therefore, that a distribution of a taxable stock dividend to such corporation is subject to withholding at its fair market value, is hereby revoked.

For rules relating to distribution of property after November 8, 1971, to a shareholder which is a foreign corporation where such distribution received by the foreign corporation is not effectively connected with the conduct by it of a trade or business within the United States, see section 301(b)(1)(D) of the Code as added by Section 312 of the Revenue Act of 1971, Public Law 92-178, 85 Stat. 526, page 443, this bulletin.