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meaning of section 1.346-1(a)(2) of the regulations.” Id.10
In Chief Counsel Memorandum (G.C.M.) 37,054 (Mar. 21,
1977),11 the IRS Chief Counsel described the position taken in
Rev. Rul. 75-223 and in G.C.M. 35,246 (Feb. 20, 1973), in which
the Chief Counsel gave advance approval to the position taken in
Rev. Rul. 75-223, as follows:
Under that Ruling [Rev. Rul. 75-223] and G.C.M. 35246 a
distribution by a parent corporation of the assets of a
subsidiary (or the proceeds of a sale of such assets)
received in a liquidation governed by Code sections 332
and 381 is to be treated no differently than a
distribution by a corporation of the assets of a branch
or division (or the proceeds of a sale of such assets).
10 The ruling contrasts the partial redemption distribution
in situation 3 and treats it as a corporate separation governed
by sec. 355 rather than as a corporate contraction qualifying as
a partial liquidation within the meaning of sec. 346(a)(2). Rev.
Rul. 75-223, 1975-1 C.B. 109, 110. Unlike situations 1 and 2,
situation 3 does not involve a sec. 332 liquidation entailing a
carryover of tax attributes under sec. 381. See also Rev. Rul.
79-184, 1979-1 C.B. 143, involving a parent’s sale of the stock
of its wholly owned subsidiary followed by a distribution (pro
rata) of the sales proceeds to the shareholders of the parent in
partial redemption of their stock. Analogizing the facts of that
ruling to the facts of situation 3 of Rev. Rul. 75-223, Rev. Rul.
79-184, 1979-1 C.B. at 144 holds that “the overall transaction
has the economic significance of the sale of an investment and
distribution of the proceeds” and “does not qualify as a
distribution in partial liquidation within the meaning of section
346(a)(2).”
11 Although under Treasury regulations G.C.M.s do not
establish precedent (see sec. 1.6661-3(b)(2), Income Tax Regs.),
they have been described as “an expression of agency policy”.
Taxation With Representation Fund v. IRS, 646 F.2d 666, 682 (D.C.
Cir. 1981). Moreover, the Court of Appeals for the Second
Circuit (the court to which an appeal of this decision most
likely would lie) has stated that, under certain circumstances,
it may be proper to rely on G.C.M.s for “interpretive guidance”.
Morganbesser v. United States, 984 F.2d 560, 564 (2d Cir. 1993).
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