Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 57-29

1957-1 C.B. 519

Sec. 1221

Full Text

Rev. Rul. 57-29

I.T. 3721, C.B. 1945, 164, sets forth the treatment, for Federal income tax purposes, of transactions in connection with the purchase and sale, on a `when, as and if issued' basis, of securities of corporations. In explaining how the amount of a loss sustained by a taxpayer on the disposition of a contract to buy or sell securities on a `when, as and if issued' basis should be determined where such a contract did not cost him anything, the third, fourth, fifth, and last paragraphs beginning of page 171 of C.B. 1945, have been incorrectly construed to mean that such a contract may have a basis other than zero. In computing the cost basis of assets for any purpose, the Internal Revenue Service does not recognize an obligation of a taxpayer reflected in an executory contract prior to the performance of the contract. Such an executory contract to buy or sell securities which has cost the taxpayer nothing has a basis of zero to him, for Federal income tax purposes, in computing his gain or loss on a subsequent sale or disposition thereof prior to performance on the contract.

In order to clarify the position of the Service on this matter I.T. 3721, supra , is hereby modified by eliminating therefrom the paragraphs referred to above.