Internal Revenue Service
Revenue Ruling
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smRev. Rul. 59-86
1959-1 C.B. 209
Sec. 1014
Sec. 1222
Sec. 1223
IRS Headnote
Where a capital asset is acquired by valid gift, the holding period of the donee commences on the date of the gift even though the donor dies subsequent to making such gift and the asset is required to be included in his taxable estate as a gift made in contemplated of death, provided that none of the provisions of section 1223 of the Internal Revenue Code of 1954 is applicable to the acquisition.
Full Text
Rev. Rul. 59-86
Advice has been requested as to the commencement date of the holding period of a capital asset, for capital gain or loss purposes, in the hands of a person who acquired the asset by gift under the circumstances described below.
In September 1957, the taxpayer received shares of stock as a gift from a relative. In March 1958, the donor died and the stock was required to be included in his taxable estate for Federal estate tax purposes as a gift made in contemplation of death. Four months after the death of the donor, the taxpayer sold the stock.
The specific issue in this case is whether the taxpayer's holding period is to be computed from the date he received the gift of stock, thereby qualifying the subsequent sale for long-term capital gain or loss treatment, or from the date of the donor's death, which would qualify the sale for short-term capital gain or loss treatment.
Section 1222 of the Internal Revenue Code of 1954 provides, in part, that the term `short-term capital gain' means gain from the sale or exchange of a capital asset held for not more than six months. The term `long-term capital gain' means gain from the sale or exchange of a capital asset held for more than six months.
Section 1223 of the Code provides several instances in which, under specified circumstances, the actual holding period of property may be extended by `tacking on' additional holding periods.
In Nancy K. McFeely v. Commissioner , 296 U.S. 102, Ct. D. 1040, C.B. XIV-2, 209 (1935), the Supreme Court of the United States, in determining the holding period of a certain property in the hands of a legatee, construed the word `held' to mean `acquired and held,' and concluded that the date of acquisition is the date from which to compute the duration of ownership or length of holding period of a capital asset. The Court stated, in part, as follows:
In common understanding to hold property is to own it. In order to own or hold one must acquire. The date of acquisition is then, that from which to compute the duration of ownership or the length of holding. * * *
In the instant case, the stock was acquired by valid gift in September 1957, when all incidents of ownership of the stock were relinquished to the taxpayer. Under the rationale of the McFeely case, the taxpayer's holding period of the stock commenced on the date of the gift. None of the provisions of section 1223 of the Code is applicable here. Therefore, the proceeds from the subsequent sale of the stock by the taxpayer constitute gain or loss from the sale of a capital asset held for more than six months.
The provisions of law which govern the instant question are to be distinguished from those contained in section 1014 of the Code, relating to the factors to be considered in determining the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent. The commencement date of a donee's holding period of a capital asset, for capital gain or loss purposes, need not coincide with the basis valuation date of the property as determined under section 1014 of the Code.
Accordingly, it is held that where a capital asset is acquired by valid gift, the holding period of the donee commences on the date of the gift even though the donor dies subsequent to making such gift and the asset is required to be included in his taxable estate as a gift made in contemplation of death, provided that none of the provisions of section 1223 of the Code are applicable to the acquisition.