Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 64-94

1964-1 C.B. 317

Sec. 368

Sec. 381

Sec. 1372

IRS Headnote

The merger of an electing small business corporation into another corporation, pursuant to a statutory merger within the meaning of section 368(a)(1)(A) of the Internal Revenue Code of 1954, does not terminate its election under section 1372 of the Code with respect to its final taxable year ending on the date of the merger.

Full Text

Rev. Rul. 64-94

Advice has been requested whether an election under section 1372 of the Internal Revenue Code of 1954 is terminated with respect to the taxable year when an electing small business corporation is merged into another corporation in a statutory merger within the meaning of section 368(a)(1)(A) of the Code.

A small business corporation, as defined in section 1371(a) of the Code, made a timely election under section 1372 of the Code which was not terminated prior to the taxable year when it was merged into another corporation in a statutory merger within the meaning of section 368(a)(1)(A) of the Code. The final taxable year of the electing small business corporation ended on the date of the merger, under section 381(b)(1) of the Code, and the surviving corporation was not an electing small business corporation.

None of the events specified in section 1372(e)(1) through section 1372(e)(5) of the Code occurred in the final taxable year of the electing small business corporation which would terminate its election under section 1372 of the Code for such year, unless it is determined that the merger falls within the intendment of section 1372(e)(3) of the Code.

Section 1372(e)(3) of the Code provides, in effect, that an election under section 1372(a) of the Code made by a small business corporation shall terminate if at any time the corporation ceases to be a small business corporation as defined in section 1371(a) of the Code. Such termination shall be effective for the taxable year of the corporation in which it ceases to be a small business corporation and for all succeeding taxable years of the corporation.

Section 1372(d) of the Code provides that an election under section 1372(a) of the Code shall be effective for the taxable year of the corporation for which it is made and for all succeeding taxable years of the corporation, unless it is terminated with respect to any such taxable year under section 1372(e) of the Code.

Section 1372(e)(3) of the Code applies to a corporation which ceases to be a small business corporation by virtue of an event which does not terminate its taxable year. Where, as in the instant case, the event which causes the corporation to be disqualified as a small business corporation also terminates its taxable year, the corporation remains a small business corporation, as defined in section 1371(a), throughout the entire taxable year so terminated.

On the basis of the foregoing, it is held that the election, under section 1372 of the Code, of the small business corporation in the instant case was not terminated with respect to its final taxable year ending with the date of the merger.