Rev. Rul. 83-116

ISSUE

Is the requirement of section 302(c)(2)(A)(ii) of the Internal Revenue Code violated by reason of section 7503 in the situation described below?

FACTS

X, a domestic corporation, had outstanding voting stock all of which was owned by A and A's child, B, who are family members within the meaning of section 318(a)(1) of the Code. On January 17, 1973, X redeemed all of its stock held by B. B filed the agreement specified in section 302(c)(2)(A)(iii) and reported the distribution received from X as being in full payment in exchange for X stock. On January 17, 1983, B again purchased stock in X corporation. The 10-year period referred to in section 302(c)(2)(A) expired on Sunday, January 16, 1983.

LAW AND ANALYSIS

Section 302(a) of the Code provides that if a corporation redeems its stock and if section 302(b)(1), (2), (3) or (4) applies, the redemption will be treated as a distribution in part or full payment in exchange for the stock. Section 302(b)(3) applies where there is a complete redemption of all of the stock of the corporation owned by the shareholder. Section 302(c)(1) provides that section 318(a), relating to ownership of stock, will apply in determining the ownership of stock for purposes of section 302. However, section 302(c)(2) provides that the family attribution rules of section 318(a)(1) will not apply to a distribution described in section 302(b)(3) if, besides meeting certain other requirements, within 10 years from the date of the distribution the distributee does not acquire an interest in the corporation (including an interest as officer, director or employee) other than an interest as a creditor. Section 302(c)(2)(A)(ii).

Section 7503 of the Code provides that when the last day prescribed under the authority of the internal revenue laws for performing any act falls on Saturday, Sunday, or a legal holiday, the performance of the act is considered timely if it is performed on the next succeeding day that is not a Saturday, Sunday, or legal holiday.

Under section 301.7503-1(a) of the Regulation on Procedure and Administration, section 7503 of the Code applies only when an act is required under authority of any internal revenue law to be performed on or before a prescribed date or within a prescribed period. Examples in the regulations and committee reports indicate that the term "acts" refers to procedural steps in connection with the determination, collection, or refund of taxes. Section 301.7503-1(a) of the regulations; H.R. Rep. No. 1337, 83d Cong., 2d Sess. 109 (1954); and S. Rep. No. 1622,83d Cong., 2d Sess. 149 (1954).

Rev. Rul. 72-541, 1972-2 C.B. 645, relying on these examples, holds that section 7503 of the Code applies only to acts required to be performed as procedural steps in connection with the determination, collection or refund of taxes, and that it does not extend the 2'-month payment period required by section 267(a)(2) for the deductibility of certain unpaid expenses and interest.

Applying the principle set forth in Rev. Rul. 79-3, 1979-1 C.B. 143, the 10-year period described in section 302(c)(2)(A) of the Code expires on the day preceding the corresponding date, ten calendar years later.

In Snyder v. Commissioner, T.C.M. 1981-216, the court disagreed with the rationale of Rev. Rul. 72-541 and held that section 7503 of the Code is not limited to acts required to be performed in connection with the determination, collection, or refund of taxes. Specifically the court held that section 7503 applies to the 12 month period for liquidating corporate distributions under section 337(a).

Subsequent to the publication of Rev. Rul. 72-541, section 2(a) of Pub. L. 96-628, 1978-2 C.B. 435, added section 267(e) of the Code, effective for payments made after November 10, 1978. This section extends the 2'-month period prescribed in section 267(a)(2) when the last day falls on a Saturday, Sunday, or a legal holiday to the next succeeding day that is not a Saturday, Sunday or a legal holiday.

The fact that Congress limited the reversal of Rev. Rul. 72-541 to the 2-month period of section 267 of the Code and did not amend section 7503 to explicitly provide that the provision applies to all time limitations prescribed by the Code indicates that Congress agreed with the Service's limited interpretation of section 7503. The Committee Reports to section 267(e) explain the reason for the amendment:

The committee believes that the general procedural rule for timely performance when the last day for performance falls on a Saturday, Sunday, or legal holiday, should apply to the period for payment of accrued expenses owed to related parties. This will permit deductions for payments of expenses on the succeeding business day in the ordinary course of business.

H.R. Rep. No. 95-645, 95th Cong. 1st Sess. 3 (1977); S. Rep. No. 95-797, 95th Cong., 2d Sess. 3 (1978), 1978-2 C.B.439,440.

Thus, it can be concluded that Congress did not intend the general procedural rule for timely performance in section 7503 to apply to all time limitations prescribed by the Code. Congress has indicated a preference to deal with time limitations in other than general procedural rules on an individual basis.

In the present case, in order to qualify the redemption as a complete redemption of all of the stock owned by B and, thereby, have the redemption treated as a distribution in full payment in exchange for stock under section 302(a) of the Code, B must not acquire an interest in corporation X within the meaning of section 302(c)(2)(A)(ii) within 10 years from the date of the distribution. The 10 year period expired on Sunday, January 16, 1983. If the rules under section 7503 were to apply, the period would not expire until the next succeeding day (Monday, January 17) and the purchase of the stock would violate section 302(c)(2)(A)(ii). However, section 7503 does not apply to such transactions.

HOLDING

The requirement of section 302(c)(2)(a)(ii) of the Code is not violated. The Service will not follow the decision in Snyder.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 72-541 is superseded.