280.1 Assets received by parent; liquidation
of subsidiary. A parent corporation’s holding
period for property received from its subsidiary in
a liquidation that qualified under section 332, and
to which section 334(b)(2) applied in determining
the parent’s basis of the assets received, began one
year prior to the liquidation on the date the parent
acquired all of the subsidiary’s stock. §§1.332–1,
1.334-1, 1.1223-1. (Secs. 332, 334, 1223; ’86
Rev. Rul. 74-522, 1974–2 C.B. 271.
280.2 Assets sold by controlling corporation.
In April, 1954, taxpayer purchased all of the stock
of a corporation owned by its controlling stock-
holder. By June, 1954, taxpayer had liquidated the
purchased corporation and sold its assets at a gain,
computed by using the liquidated corporation’s
basis in the assets. Held, taxpayer’s holding period
of the assets includes the period during which they
were held by the purchased corporation, and the
gain is a long-term capital gain. (Secs. 112(b)(6),
113(a)(15), ’39 Code; Secs. 332, 334, 1002, 1223,
Frederick Steel Co., 42 T.C. 13, Acq. in result,
1966-1 C.B. 2.
280.3 Book-entry Treasury securities; serial-
ly-numbered advice of transaction. Reference
to the serially-numbered advice of transaction fur-
nished by a Federal Reserve Bank is adequate
identification of book-entry Treasury securities to
establish cost and holding period of securities
sold, transferred or withdrawn. Amplified to be
made applicable to transactions to which the book-
entry Treasury security rules have been extended
by the amendment of reg. 1.1012-1(c)(7)(ii)(a). 280.10 Collapsible corporations; construc- dates from the date of the decedent’s death. The
§§1.1012-1, 1.1236-1. (Secs. 1012, 1236; ’86 tion activity; rezoning. Where rezoning of land is basis of the entire community is its fair market
Code.) an integral step in the construction of a shopping value at the date of the deceased spouse’s death or
Rev. Rul. 67-419, 1967–2 C.B. 265; Rev. Rul. center and the corporation had no other construc- at the appropriate valuation date. §§1.1014-1,
69-416, 1969-2 C.B. 159. tion activity with relation to the land subsequent to 1.1222-1, 1.1223–1. (Secs. 1014, 1222, 1223; ’86
the date the rezoning became final, the three-year Code.)
280.4 Business building destroyed by fire. holding period begins on the day following the Rev. Rul. 59–220, 1959–1 C.B. 210.
Determination of holding period and treatment of date rezoning became final. §1.341-4. (Sec. 341,
insurance proceeds received with respect to a busi- ’86 Code.) 280.17 Debentures. The holding period for
ness building partially destroyed by fire and Rev. Ru1. 56-137, 1956-1 C.B. 178. debentures acquired by purchase, whether on a
immediately restored, then totally destroyed by registered securities exchange or in the “over the
another fire within six months and not replaced. 280.11 Collapsible corporations; constric- counter” market, is to be determined by excluding
the “trade date” on which the debentures are
§§1.1223-1, 1.1231-1. (Secs. 1223, 1231; ’86 tion defined. Minor alterations and corrections to
Code.) a building are not “construction” within the acquired and including the “trade date” on which
Rev. Rul. 72-451, 1972-2 C.B. 480. meaning of section 341 for purposes of determin- they are sold. §§1.1221–1, 1.1223-1. (Secs. 1222,
ing whether a corporate liquidation occurred after 1223; ’86 Code.)
280.5 Business building sold after construc- the expiration of three years. The corporation is Rev. Rul. 66-97, 1960-1 C.B. 190.
tion. The holding period of an office building not a collapsible corporation to which section 280.18 Debentures converted to stock. Tax-
newly constructed for use in the taxpayer’s busi- 341(a) applies within the meaning of section payer, pursuant to a right purchased from a corpo-
ness, which was sold shortly after completion of 333(a). Amplified by Rev. Rul. 72-422. ration for $1.00, paid $99.00 to subscribe to a
an unrelated corporation, began progressively as §1.333-1, 1.341-1. (Secs. 333, 341; ’86 Code.) debenture, which contained a conversion privi-
the building was being constructed and that por- Rev. Rul. 63–114, 1963-1 C.B. 74. lege, requiring the payment of an additional
tion actually completed prior to 6 months before $50.00 for each share of common stock. Taxpayer
the date of sale is considered as held for more than 280.12 Collapsible corporations; property exercised the conversion privilege, converting the
6 months. §§1.1223-1, 1.1231-1. (Secs. 1223, acquired by exchange. A shopping center debenture into common stock of the corporation.
1231; ’86 Code.) received by a corporation, in a transaction qualify- Held, (1) no gain or loss was realized upon the con-
Rev. Rul. 75-524, 1975-2 C.B. 342. ing under section 1031(a), in exchange for a shop- version and (2) the acquired stock had a split hold-
ping center constructed by the corporation takes ing period for purposes of determining long-term
280.6 Capital assets; determination. When a the date of completion of construction of the shop- or short-term capital gain or loss. A table illus-
capital asset is acquired on the last day of any cal- ping center that was exchanged for purposes of trates the computation of gain or loss for each
endar month, regardless of whether the month has section 341(d)(3). §1.341-4. (Sec. 341, ’86 Code.) period. §1.1223-1. (Sec. 1223, ’86 Code.)
31 days, it must not be disposed of until on or after Rev. Rul. 79-235, 1979-2 C.B. 135. Rev. Rul. 62-140, 1962–2 C.B. 181.
the first day of the seventh succeeding month of
the calendar in order to have been “held for more 280.13 Collapsible corporations; unsuccess- 280.19 Employee stock options. The last day
than 6 months.” Applicable to dispositions of ful exploration after discovery of oil. A collaps- during which a qualified stock option granted an
property after April 10, 1966. §§1.1222–1, ible corporation which has engaged only in unsuc- employee on May 1, 1970, may be exercised with-
1.1223-1, 1.1231–1, 301.7805–1. (Secs. 1222, cessful exploratory activity after oil has been out exceeding the five year limitation prescribed
1223, 1231, 7805; ’86 Code.) discovered on an oil and gas lease during the three- in section 422(b)(3) is May 1, 1975. §1.422–2.
Rev. Rul. 66–7, 1966–1 C.B. 188. year period to its liquidation comes within the (Sec. 422, ’86 Code.)
exception provided in section 341(d)(3), since Rev. Rul. 70-412, 1970-2 C.B. 97.
280.7 Capital assets; determination; U.S. such activity does not constitute construction or 280.20 Gift in contemplation of death. Where
Treasury Notes and Bonds. In determining the production for determining the three-year holding a capital asset is acquired by valid gift, the holding
holding period for purposes of characterizing gain period. The gain realized by the distribute of the period of the donee commences on the date of the
or loss as long-term or short-term, the acquisition assets of such corporation will not be treated as gift even though the donor dies subsequent to
date of U.S. Treasury Notes and Bonds sold at auc- ordinary income under section 341(a). §1.341-4. making such gift and the asset is required to be
tion on the basis of yield is the date the Secretary (Sec. 341, ’86 Code.) included in his taxable estate as a gift made in con-
of the Treasury, through news releases, gives noti- Rev. Rul. 64-125, 1964-1 (Part 1) C.B. 131. templation of death, provided that none of the pro-
fication of acceptance to successful bidders. The visions of section 1223 is applicable to the acquisi-
acquisition date of U.S. Treasury Notes sold 280.14 Common shares exchanged for pre- tion. §§1.1014-1, 1.1222-1, 1.1223-1. (Secs.
through an offering on a subscription basis at a ferred and common. Prior to a nontaxable reor- 1014, 1222, 1223; ’86 Code.)
specified yield is the date the subscription is sub- ganization in which new preferred stock and com- Rev. Rul. 59-86, 1959-1 C.B. 209.
mitted. §§1.1222–1, 1.1223–1. (Secs. 1222, 1223; mon stock were issued in exchange for the
’86 Code.) outstanding common stock, an employees’ trust 280.21 Livestock; beld for breeding. The
Rev. Rul. 78–5, 1978-1 C.B. 263. agreed to purchase the stock of certain retiring holding periods for cattle and other livestock spe-
employees over a six-year period. Sales of the new cified in section 1231(b)(3)(A) and (B), pur-
280.8 Coal disposal; “successor to the inter- preferred stock to the employee’s trust by the retir- chased on March 1, 1973, to be used as breeding
est of” defined. The phrase “successor to the ing employees are not within the purview of sec- stock by a decedent who died on May 1, 1973, and
interest of,” as used in connection with gain or loss tion 306(a), and the resultant gain or loss will be sold July 2, 1973, by the decedent’s estate which
from the disposal of coal with a retained economic treated as capital gain or loss. The period for which continued the decedent’s farming business, are not
interest, is held to include, among others, (1) a a retiring employee held the old common shares affected by the provisions of section 1223(11).
devisee, (2) a purchaser of the whole or an undi- will be included in determining the holding period The cattle and other livestock fail to qualify as
vided interest of the original owner or sublessor, of the new preferred and common shares. property used in the trade or business under sec-
(3) a donee, and (4) a shareholder whose interest §§1.306-1, 1.354-1, 1.368-2. (Secs. 306, 354, tion 1231 or as capital assets under section 1221
is acquired on the liquidation of a corporation. 368; ’86 Code.) and the gain recognized from the sale by the estate
Guides are set forth for determining the length of Rev. Rul. 56-223, 1956-1 C.B. 162. is ordinary income. §§1.1223–1, 1.1231–2. (Secs.
holding periods and the treatment of in come as a 1223, 1231; ’86 Code.)
capital gain rather than ordinary income subject to 280.15 Common stock withdrawn from prof- Rev. Rul. 75-361, 1975-2 C.B. 344.
depletion. §§1.631–3, 1.1223–1, 1.1231–1. (Secs. it-sharing plan. The holding period of common 280.22 Livestock; race horses. A race horse
631, 1223, 1231; ’86 Code.) stock withdrawn by a taxpayer from a contributory owner may not offset the gain from the sale of a
Rev. Rul. 59–416, 1959–2 C.B. 159. profit-sharing plan qualified under section 401(a) race horse that had been owned and raced for less
begins on the date following the date the plan than 24 months against a long term capital loss
280.9 Collapsible corporations. Where a cor- trustee delivered the stock to the transfer agent resulting from the sale of common stock held for
poration acquires property in a nontaxable with instructions to reissue the stock in the taxpay- investment purposes. §§1.61-1, 1.1211-1,
exchange, the three-year period following the er’s name. §§1.401–1, 1.402(a)-1, 1.1223–1. 1.1221-1, 1.1231-2. (Secs. 61, 1211, 1221, 1231;
completion of manufacture, construction, produc- (Secs. 401, 402, 1223; ’86 Code.) ’86 Code.)
tion or purchase of such property includes the Rev. Rul. 82-75, 1982-1 C.B. 116. Rev. Rul. 76-70, 1976-1 C.B. 225.
period during which it was held by the predeces-
sor. Where more than three years have elapsed fol- 280.16 Community property; surviving 280.23 Milk bases; Puget Sound, Washing-
lowing the manufacture, etc. of the property, the spouse. The holding period of a surviving ton. In determining the “six months holding
corporation is not a collapsible corporation to spouse’s share of community property dates from period” under section 1222(3), the holding period
which section 341(a) applies. The benefits of sec- the date of acquisition by the community, where of assigned and purchased “Class 1” milk bases
tion 333 may be available upon liquidation of the the surviving spouse’s interest vests at the time of in the Puget Sound, Washington, milk marketing
corporation. §§1.333–1, 1.341-4. (Secs. 333, 341; such acquisition. The holding period of property area begins on the day following the date of
’86 Code.) which is a deceased spouse’s share of the commu- acquisition. §§1.1 223-1. (Sec. 1223, ’86 Code.)
Rev. Rul. 57-491, 1957–2 C.B. 232. nity property, inherited by the surviving spouse, Rev. Rul. 72-384, 1972-2 C.B. 479.
280.24 Milk bases; Puget Sound, Washing- own choice, and for his own account, results in a term capital gain or loss. Rev. Ruls. 62–140 and
ton. The holding period of a Class 1 milk base in reduction in the basis of his partnership interest; 68-55 amplified. §§1.351-1, 1.358-2, 1.1223-1.
the Puget Sound, Washington, milk marketing the basis of the securities to the member-taxpayer (Secs. 351, 358, 1223; ’86 Code.)
area, that was first assigned to the taxpayer by the is the cost to the partnership and their holding Rev. Rul. 85-164, 1985–2 C.B. 117.
market administrator under the Agricultural Mar- period is computed from the date of purchase.
keting Agreement Act of 1937, as amended, is not §39.117(h)-1, 39.183-1. (Secs. 117(h), 183, ’39 280.38 Stock; acquired on condition of gift
affected by the 1965 amendment to the Act. Code; Secs. 702, 1223, ’86 Code.) tax payment. A donor transferred stock on the
§1.1223-1. (Sec. 1223, ’86 Code.) Rev. Rul. 55-39, 1955-1 C.B. 403. condition that the recipients pay the gift tax. Held,
Rev. Rul. 73-429, 1973-2 C.B. 305. the transfer was not in part a sale, but a net gift to
280.31 Property; division under divorce each recipient whose holding period includes that
280.25 Milk bases; Puget Sound, Washing- settlement; noncommunity property state. An of the donor. (Sec. 1223, ’86 Code.)
ton. The Service will follow the Van DeSteeg deci- approximately equal division of the total value of Richard H. Turner, 49 T.C. 356, Nonacq.,
sion, which held that the Class I milk bases issued jointly owned property under a divorce settlement 1971-1 C.B. 3.
under the Puget Sound Order authorized by Title agreement in a noncommunity property state is a 280.39 Stock; distributed to parent by subsid-
I of the Food and Agriculture Act of 1965 and pur- nontaxable division. The basis and holding period iary. The provisions of section 1223(2) apply in
chased by taxpayers were depreciable assets hav- of each asset is the same as when the property was determining holding period where the basis of
ing determinable useful lives, but only with jointly owned. §§1.100–1, 1.1011–1, 1.1223-1. portfolio stock distributed to a parent corporation
respect to those milk base plans issued in the milk (Secs. 1001, 1011, 1223; ’86 Code.) by its subsidiary is the same as the adjusted basis
marketing area prior to modification of the Puget Rev. Rul. 81-292, 1981-2 C.B. 158. in the hands of the subsidiary. Thus, where stock
Sound Class I milk base plan on July 1, 1971, pur-
suant to the Agricultural Act of 1970. Rev. Rul. 280.32 Real property. The holding period of was held by the subsidiary since 1962, distributed
70-644 revoked. §§1.167(a)-1, 1.1221–1. (Secs. real property which is the subject of an uncondi- in March 1969 to its parent who sold it in July
167, 1221; ’86 Code.) tional contract of sale begins on the day following 1969, the gain realized is reportable as long-term
Rev. Rul. 75-466, 1975–2 C.B. 74. that on which title passes, or on the day following capital gains. §1.1223–1. (Sec. 1223, ’86 Code.)
that on which delivery of possession is made and Rev. Rul. 70-6, 1970–1 C.B. 172.
280.26 Milk bases and pool quotas; Califor- the burdens and privileges of ownership are 280.40 Stock; purchased under dividend
nia. A producer’s holding period of a Class 1 milk assumed by the purchaser, whichever comes first. reinvestment plan. The cost basis per share of
production base and milk pool quota in California A delivery of possession under a mere option is stock purchased under an automatic dividend rein-
established under the Gonsalves Milk Pooling Act without significance until a contract of sale comes vestment plan established by a bank acting as
(sections 62700 through 62731 of the California into being through the exercise of the option, so agent for participating shareholders of publicly
Agricultural Code of 1967) begins on the day fol- that the holding period of the seller cannot end owned corporations is the price paid by the bank
lowing the date the original Class 1 milk base was prior to that date. §§39.117(a)–1, 39.117(h)–1, for the allocable portion of the stock purchased for
acquired by the producer under the California 39.117(j)-1. (Secs. 117(a), 117(h), 117(j), ’39 each shareholder plus his proportionate share of
Agricultural Code of 1933. The termination by a Code; Secs. 1221, 1223, 1231, ’86 Code.) the brokerage commission. The holding period of
distributor of a contract for the purchase of a pro- Rev. Rul. 54-607, 1954-2 C.B. 177. fractional shares is a split holding period with an
ducer’s milk at Class 1 prices does not create a allocable percentage of the stock considered to
deductible loss to the producer since under the act 280.33 Real property; purchased at tax sale. have been purchased on each date stock was pur-
he retains his right to sell milk at Class 1 prices to The purchaser’s holding period of real property chased with the proceeds of a particular dividend.
other distributors in the pool area. §1.1223–1. acquired at a tax sale commences upon expiration The service charge paid to the bank by the share-
(Sec. 1223, ’86 Code.) of the owner’s 120 day redemption period and the holder is deductible in the year paid. Moreover, the
Rev. Rul. 73-416, 1973-2 C.B. 304. execution of a deed to the purchaser rather than arrangement by the bank is not classified for tax
upon the receipt of a certificate of sale. purposes as a trust, a partnership, or an association
280.27 Package stock rights. Where a corpora- §§1.1222-1, 1.1223-1. (Secs. 1222, 1223; ’86 taxable as a corporation. §§1.212-1, 1.1012–1,
tion distributes to its common stockholders pack- Code.) 1.1223-1. (Secs. 2l2, 1012: 1223; ’86 Code.)
age rights to acquire one share of common stock Rev. Rul. 72-200, 1972-1 C.B. 233. Rev. Rul. 70-627, 1970–2 C.B. 159.
and one stock purchase warrant in exchange for
each three shares of common stock, the holding 280.34 Real property; undivided interests 280.41 Stock; purchased under investment
period of such rights which are sold by the share- acquired at different times. The basis to be used plan. The date a bank acquires shares of stock for
holder will be measured from the date of acquisi- in determining gain or loss on the sale of an undi- participants in its automatic investment service is
tion of the stock with respect to which the rights vided interest in certain real property, and the considered the purchase date to be used by partici-
were issued. If the package rights are exercised, holding period thereof, by a taxpayer who owned pants in determining their holding period in the
the holding period of the stock and the stock pur- an undivided one-half interest in the property, pur- whole shares purchased on their behalf. The hold-
chase warrants thereby acquired will begin with chases the other one-half interest, and subse- ing period for fractional or whole shares pur-
the date the rights are exercised. §1.305-1. (Secs. quently sells an undivided one-half interest. chased in fractions is a split holding period with an
305, 1223; ’86 Code.) §§1.1012-1, 1.1223-1. (Secs. 1012, 1223; ’86 allocable percentage of each whole or fractional
Rev. Rul. 56-572, 1956-2 C.B. 182. Code.) share being considered to have been purchased on
Rev. Rul. 67-309, 1967-2 C.B. 263. each date that stock was purchased and credited to
280.28 Partnership; assets; purchase by part- the participant in a fractional amount. §§1.61-1,
ner. Where one partner buys out all other partners, 280.35 Section 1248 stock; less developed 1.212-1, 1.1012-1, 1.1223-1. (Secs. 61, 212,
the holding period of the assets attributable to their country corporation. The ten-year continuous 1012, 1223; ’86 Code.)
interests begins from the date of such purchase; ownership requirement of section 1248(d)(3) can- Rev. Rul. 75-548, 1975-2 C.B. 331.
since the acquisition of assets attributable to his not be met in the sale of stock of a less developed
interest constitutes an in kind distribution, the country corporation that has been in existence for 280.42 Stock; short sales; regulated invest-
holding period of such assets is computed from the less than ten years. §§1.1223-1, 1.1248–5. (Secs. ment company. For purposes of section 851(b)(3)
time he acquired his partnership interest. 1223, 1248; ’86 Code.) a regulated investment company selling stock
§39.117(h)-1. (Sec. 117(h), ’39 Code; Sec. 1223, Rev. Rul. 76-128, 1976-1 C.B. 226. short that it had held for four months and closing
’86 Code.) the sale at a gain one month later by delivering the
Rev. Rul. 55-68, 1955-1 C.B. 372. 280.36 Securities. The holding period for pur- stock held is considered as delivering the stock not
chased securities is determined by excluding the held for less than three months. If the sale was
280.29 Partnership; assets; purchase of day of purchase and including the day of sale, and closed by delivering the stock held and identical
deceased partner’s interest. Where the surviving is not affected by intervening holidays during that stock was purchased after the short sale, while the
partner of a two-man partnership purchases the period. I.T. 3705 superseded. §1.1223-1. (Sec. sale was still open, a similar result would obtain
deceased partner’s interest from his estate, the 1223, ’86 Code.) and the purchased stock would have a holding
partnership terminates at the time the sale is con- Rev. Rul. 70-598, 1970-2 C.B. 168. period that begins on the closing date of the short
summated, and the surviving partner is deemed to sale. However, closing the sale by delivering iden-
have acquired by purchase the assets attributable 280.37 Securities and stock received in sec- tical stock purchased after the short sale is consid-
to the decedent’s interest in the partnership. The tion 351 exchange; different holding periods. ered as delivering stock held for less than three
holding period for the assets so purchased by the The aggregate basis of different assets transferred months and the holding period of the initial stock
surviving partner does not include the period such to a controlled corporation in an exchange that held begins on the closing date of the short sale.
assets were held in the partnership. §§1.708–1, meets the requirements of section 351 is allocated §§1.851-2, 1.1233-1. (Secs. 851, 1233; ’86
1.735-1. (Secs. 708, 735; ’86 Code.) among the stock and the securities received in the Code.)
Rev. Rul. 67–65, 1967–1 C.B. 168. exchange in proportion to the fair market value of Rev. Rul. 74-434, 1974-2 C.B. 195.
the stock and the securities, under sections
280.30 Partnership; securities purchased for 1.358–1 and 1.358–2(b)(2) of the regulations. The 280.43 Stock from various lots; single certifi-
member. The investment by a partnership of a stock and the securities have split holding periods cate; identification. A method is described with
member’s contributed capital in securities of his for purposes of determining long-term or short- respect to stock sales that will be acceptable as
“adequate identification” of the basis and holding 1963, has owned such timber for a period of more
period of shares purchased in more than one lot at than six months before the beginning of such tax-
different times and prices, and represented by one able year for purposes of section 631(a) of the
or more large denomination certificates. Code. §1.631-1. (Sec. 631, ’86 Code.)
§1.1012-1. (Sec. 1012, ’86 Code.) Rev. Rul. 66-6, 1966-1 C.B. 160.
Rev. Rul. 72-415, 1972-2 C.B. 463.
280.50 Timber; cutting contract merged into
280.44 Stock held by estate; redeemed three sales agreement. The holding period for timber
months after shareholder’s death. A corpora- held by a taxpayer under a cutting contract carries
tion that three months after the death of a share- over when the timber so held is acquired by out-
holder owning 50 percent of its outstanding stock right purchase by the same taxpayer. §1.631–1.
completely redeems the stock from his estate (Sec. 631, ’86 Code.)
using appreciated property and terminating the Rev. Rul. 61-57, 1961-1 C.B. 243.
estate’s interest must recognize gain under section
311(d)(1) for that portion of the stock to which sec- 280.51 Timber; quantity first determined. A
tion 303(a) does not apply. The estate did not hold taxpayer who acquired timber cutting rights under
the stock for the twelve-month period ending on a U.S. Forest Service cutting contract is consid-
the date of the distribution within the meaning of ered to have first definitely determined the quan-
section 311(d)(2)(A), notwithstanding section tity of timber cut, for purposes of the election to
1223(11). §§1.302-4, 1.311–2, 1.1223–1. (Secs. treat cutting of timber as a sale or exchange, when
302, 311, 1223; ’86 Code.) a truck scale was made using a bureau scaler at the
Rev. Rul. 74-430, 1974-2 C.B. 100. time the logs arrived at his sawmill even though a
mill deck scale was made later by a Forest Service
280.45 Stock held by trust; sold within six scaler. Distinguished by Rev. Rul. 73-489.
months of decendent’s death. The portion of §1.631-1. (Sec. 631, ’86 Code.)
stock acquired by family trusts from a decedent Rev. Rul. 73-267, 1973-1 C.B. 306.
that was sold within six months of the decedent’s
death is considered held for more than six months. 280.52 Timber; quantity first determined. A
The portion that was sold, the basis of which is the fiscal-year accrual-method taxpayer who
fair market value at the time of distribution by the acquired timber cutting rights under U.S. Forest
trust, is not considered held for more than six Service cutting contracts requiring that, for pay-
months. §1.1223–1. (Sec. 1223, ’86 Code.) ment purposes, logs be scaled by a Forest Service
Rev. Rul. 72-359, 1972–2 C.B. 478. scaler and who elects to treat the cutting of timber
as a sale or exchange is considered to have cut the
280.46 Stock rights; additional stock timber when the logs are scaled on the mill deck
acquired. Transferable rights issued to sharehold- by the Forest Service scaler in the ordinary course
ers entitling them to purchase a debenture and of business. Rev. Rul. 73–267 distinguished.
receive two warrants to purchase additional shares §1.631-1. (Sec. 631, ’86 Code.)
of common stock does not result in gross income. Rev. Rul. 73-489, 1973-2 C.B. 208.
Guidelines for determining basis, holding period,
and the amount of gain or loss recognized on sub- 280.53 Timber acreages; deeds inescrow. The
sequent sale or disposition of the rights, deben- holding period of each of several tracts in a timber
tures, warrants and stock are set forth. §§1.305–1, acreage purchased under a single indivisible con-
1.307-1, 1.1223-1. (Secs. 305, 307, 1223; ’86 tract with annual payments and release of deeds
Code.) from escrow based on tracts selected for cutting
Rev. Rul. 72-71, 1972–1 C.B. 99. begins on the day after the execution of the con-
tract. §1.631–1. (Sec. 631, ’86 Code.)
280.47 Substantially identical stuck; short Rev. Rul. 72-252, 1972-1 C.B. 193.
sales. Where a taxpayer sells short “when issued”
common stock of a corporation in which he holds, 280.54 Timber cutting rights; option agree-
or later acquires preferred stock which may be ment. The Service will not follow the Grover B.
used to obtain stock identical to that sold short, the Kelsay decision in applying section 631(a) to
conversion of the preferred stock prior to the clos- cases in which a right to cut timber is exercisable
ing of the short sale does not constitute, at that only after a future date or occurrence or is contin-
time, the acquisition of substantially identical gent upon an election or a transfer of additional
stock. Any gain realized will not be considered consideration by a taxpayer. In such cases the
gain realized upon the sale or exchange of a capital holding period of the right to cut commences only
asset held not more than six months, unless the when that right becomes exercisable. §1.631-1.
preferred stock and the “when issued” common (Sec. 631, ’86 Code.)
stock were substantially identical at the time of the Rev. Rul. 74-529, 1974-2 C.B. 185.
short sale or at the time of the acquisition of the
preferred stock where it is acquired after the short 280.55 Timber cutting rights; when acquired.
sale. §§1.1223–1, 1.1233–1. (Secs. 1223, 1233; Corporation liquidated a subsidiary that had been
’86 Code.) owned for over a year and distributed its assets,
Rev. Rul. 62–153, 1962-2 C.B. 186. including timber cutting contracts held by the sub-
sidiary for over 6 months, to the parent. The par-
280.48 Timber; cutting contract extensions. ent, exercising those contract rights, elected to
Two extensions of the expiration date of a contract treat the cutting as a sale or exchange under section
right to cut timber were orally requested and orally 631(a) and reported the profits as long-term capi-
granted before the termination of the prior tal gains. Held, the parent was allowed to tack its
removal period, but requested in writing and for- holding period of the subsidiary’s stock onto the
mally granted only after each expiration date. The subsidiary’s holding period of the contracts thus
new agreements, which incorporated minor allowing the 631(a) election; the parent’s basis in
changes to the original contract, retroactively the contracts was its adjusted basis in the subsid-
extended the existing contract, and title did not iary’s stock. (Secs. 631, 1223; ’86 Code.)
revert to the seller of the timber upon termination Cabax Mills, 59 T.C. 401, Acq., 1973-2 C.B. 1.
of the respective contract periods. For purposes of
section 631(a), the holding period is measured
from the date of the original contract. (Sec. 631,
Norman M. Buse, 71 T.C. 1129, Acq., 1980-1
280.49 Timber. A taxpayer who acquired tim-
beron December 31, 1962, and still owned it at the
beginning of his taxable year which began July 1,