Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 57-39

1957-1 C.B. 198

Sec. 316

Sec. 331

Sec. 591

IRS Headnote

Undistributed earnings of a domestic building and loan association distributed in complete liquidation to the holders of withdrawable shares in the association are not deductible by the association as dividends paid within the meaning of section 591 of the Internal Revenue Code of 1954, in computing its taxable income for the year of liquidation. However, amounts paid or credited to shareholders prior to formal action to liquidate, if such amounts paid or credited are withdrawable on demand subject only to customary notice of intention to withdraw, may be deducted by the association in accordance with section 591 of the Code.

Full Text

Rev. Rul. 57-39

Advice has been requested whether undistributed earnings of a domestic building and loan association distributed in complete liquidation to the holders of withdrawable shares in the association may be deducted by the association as dividends paid within the meaning of section 591 of the Internal Revenue Code of 1954, in computing its taxable income for the year of liquidation.

A domestic building and loan association, which had outstanding several types of withdrawable shares of capital stock, liquidated in 1955. All of the undistributed earnings and profits of the association were distributed to its shareholders during that year. Such distributions were held to represent amounts received by the shareholders as full payment in exchange for their shares of stock in the association, as provided in section 331 of the Code, and the gain or loss on the liquidation was held to fall within the provisions of section 1001 of the Code.

Section 591 of the Code provides that mutual savings banks, cooperative banks, and domestic building and loan associations may deduct from gross income amounts which during the year are paid to or credited to the accounts of depositors or holders of accounts as dividends on their deposits or withdrawable accounts, if such amounts paid or credited are withdrawable on demand subject to customary notice of intention to withdraw. The term `dividends' is defined in section 1.316-1(a)(1) of the Income Tax Regulations as meaning any distribution of property made by a corporation to its shareholders in the ordinary course of business out of earnings and profits accumulated after February 28, 1913, or out of its earnings and profits of the taxable year. Such distributions, therefore, do not include distributions in liquidation under section 331 of the Code, which are to be treated by the shareholders as received in full payment in exchange for their stock.

Accordingly, it is held that undistributed earnings of a domestic building and loan association distributed in complete liquidation to the holders of withdrawable shares in the association are not deductible by the association as dividends paid within the meaning of section 591 of the Code in computing its taxable income for the year of liquidation. However, amounts paid or credited to shareholders prior to formal action to liquidate, if such amounts paid or credited are withdrawable on demand subject only to customary notice of intention to withdraw, may be deducted by the association in accordance with section 591 of the Code.