Related-corporation stock redemption is not essentially equivalent to a dividend

Plain-English summary

A taxpayer transferred stock it owned in a corporation in a taxable exchange governed by section 304(a)(1). That provision treated the property received for the stock as a redemption subject to section 302. The taxpayer supplied its constructive ownership percentages for voting power and economic interests immediately before and after the transaction, but the IRS release redacted those percentages. Based on the submitted information and representations, the IRS ruled that the taxpayer's receipt of property was not essentially equivalent to a dividend under section 302(b)(1). The ruling did not address any other tax consequences of the transaction.

Ruling snapshot

• Question: Was the property received in a section 304(a)(1) related-corporation transaction not essentially equivalent to a dividend under section 302(b)(1)?
• Outcome: approved
• Key authorities: IRC §§ 302(b)(1) and 304(a)(1)

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201805007                                              Third Party Communication: None
Release Date: 2/2/2018                                         Date of Communication: Not Applicable
Index Number: 304.00-00, 302.00-00
                                                               Person To Contact:
                                                               -----------------------, ID No. -------------------
---------------------                                          ---------------------------------------------------
--------------------------                                     Telephone Number:
------------------------------------------------------------   --------------------
-----------------------------------------                      Refer Reply To:
-----------------------------------                            CC:CORP:B05
------------------------                                       PLR-116338-17
                                                               Date:
-------------------------                                      November 07, 2017




 Date                           = ------------------------

 Taxpayer                       = -----------------------------------------------------
                                  ---------------------------------

 Corporation                    = -------

 %A                             = ----------

 %B                             = ----------

 %C                             = ----------

 %D                             = ----------

Dear ------------ -

       This letter responds to your authorized representative’s letter dated May 18,
2017, requesting a ruling under section 302 of the Internal Revenue Code (the “Code”)
with respect to a transaction to which section 304(a)(1) applied. The information
provided in that request and in subsequent correspondence is summarized below.

      The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a “penalties of perjury” statement
executed by an appropriate party. This Office has not verified any of the materials

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submitted in support of the ruling request. Verification of the facts, representations, and
other information may be required as part of the audit process.

                                           FACTS

      On Date, Taxpayer disposed of stock it owned in Corporation in a taxable
exchange to which section 304(a)(1) applied to treat the receipt of property for stock as
a redemption subject to section 302 (the Transaction).

        Taking into account applicable constructive ownership rules, immediately before
the Transaction Taxpayer’s percentage interest in the (i) vote and (ii) current earnings,
accumulated surplus, and net assets upon liquidation in Corporation was %A and %B,
respectively, and immediately after the Transaction Taxpayer’s percentage interest in
the (i) vote and (ii) current earnings, accumulated surplus, and net assets upon
liquidation in Corporation was %C and %D, respectively.

                                          RULING

       Based solely on the information submitted and the representations made, we rule
that Taxpayer’s receipt of property in the Transaction was not essentially equivalent to a
dividend under section 302(b)(1).

                                         CAVEATS

       Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

                              PROCEDURAL STATEMENTS

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

         In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to your authorized representative.

      A copy of this letter must be attached to any income tax return to which it is
relevant. Alternatively, taxpayers filing their returns electronically may satisfy this

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requirement by attaching a statement to their return that provides the date and control
number of the letter ruling.

                                  Sincerely,


                                  T. Ian Russell
                                  Branch Chief, Branch 1
                                  Office of Associate Chief Counsel (Corporate)



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