Rev. Proc. 76-26

Sec. 3 of Rev. Proc. 74-26, 1974-2 C.B. 478, which provides operating rules pertaining to issuing ruling letters by the Reorganization Branch of the Income Tax Division, now the Corporation Tax Division, is amplified by the addition of the following subsection:

.06 In reorganizations under sections 368(a)(1)(A), (B), and (C) of the Code where the requisite stock or property has been acquired, a portion of the stock of the acquiring corporation, or a corporation in "control" thereof, that is issued in the exchange may be placed in escrow by the exchanging shareholders, or may otherwise be made subject to a condition pursuant to the agreement or plan of reorganization, for possible return to the acquiring corporation under specified conditions provided (1) there is a valid business reason for establishing the arrangement: (2) the stock subject to such arrangement appears as issued and outstanding on the balance sheet of the acquiring corporation and such stock is, in fact, legally outstanding under applicable state law; (3) all dividends paid on such stock will be distributed currently to the exchanging shareholders; (4) all voting rights of such stock (if any) are exercisable by or on behalf of the shareholders or their authorized agent; (5) no shares of such stock are subject to restrictions requiring their return to the issuing corporation because of death, failure to continue employment or similar restrictions; (6) all such stock is released from the arrangement within 5 years from the date of consummation of the reorganization (except where there is a bona fide dispute as to whom the stock should be released to); and (7) at least 50 percent of the number of shares of each class of stock issued initially to the shareholders (exclusive of shares of stock to be issued at a later date as described in .03 above) is not subject to the arrangement.

Rev. Proc. 75-11, 1975-1 C.B. 652, amplifies Rev. Proc. 74-26, by setting forth the same provisions, as above, under which a portion of the stock of an acquiring corporation, or a corporation in control thereof, issued in a reorganization under section 368(a)(1)(A), 368(a)(1)(B), or 368(a)(1)(C) of the Code may be placed in escrow by the exchanging shareholders for possible return to the acquiring corporation.

Rev. Proc. 75-11 is superseded since the provisions set forth therein are restated in this Revenue Procedure, which also makes these provisions applicable to situations where a portion of the stock of an acquiring corporation, or a corporation in control thereof, issued in a reorganization under section 368(a)(1)(A), 368(a)(1)(B), or 368(a)(1)(C) of the Code, is not placed in escrow but is nevertheless required under the terms of the agreement or plan of reorganization to be returned by the shareholders of the acquired corporation to the acquiring corporation under specified circumstances.