Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 66-33

1966-1 C.B. 183

Sec. 1033

Sec. 1071

IRS Headnote

The purchase by a taxpayer of stock of a corporation which does not operate broadcasting stations, but which owns all the stock of a subsidiary corporation which owns and operates such stations, is not a purchase of stock of a corporation `operating a radio broadcasting station' within the meaning of section 1071 of the Internal Revenue Code of 1954. Consequently, the transaction cannot be treated as a replacement of the property involuntarily converted which qualifies for nonrecognition of gain under sections 1033 and 1071 of the Code.

Full Text

Rev. Rul. 66-33

Advice has been requested whether the purchase by a taxpayer of the stock of a corporation owning all of the stock of a subsidiary corporation which operates radio broadcasting stations qualifies as a purchase of stock of a corporation `operating a radio broadcasting station' within the meaning of section 1071 of the Internal Revenue Code of 1954.

A taxpayer sold his stock of a corporation which owned and operated a radio station. The sale was certified by the Federal Communications Commission for purposes of section 1071 of the Code. The taxpayer elected to treat such sale as an involuntary coversion under section 1033 of the Code, and, within the prescribed time under section 1033(a)(3)(A) of the Code, he purchased stock of another corporation which, although it does not directly operate radio broadcasting stations, owns all of the stock of a subsidiary corporation which does operate radio stations.

Section 1071 of the Code, relating to gain from a sale or exchange to effectuate policies of the Federal Communications Commission, provides, in part, as follows:

(a) NONRECOGNITION OF GAIN OR Loss.-If the sale or exchange of property (including stock in a corporation) is certified by the Federal Communications Commission to be necessary or appropriate to effectuate a change in a policy of, or the adoption of a new policy by, the Commission with respect to the ownership and control of radio broadcasting stations, such sale or exchange shall, if the taxpayer so elects, be treated as an involuntary conversion of such property within the meaning of section 1033. For purposes of such section as made applicable by the provisions of this section, stock of a corporation operating a radio broadcasting station , whether or not representing control of such corporation, shall be treated as property similar or related in service or use to the property so converted. * * * Emphasis added.

Section 1.1071-2(b)(1) of the Income Tax Regulations states, in part, that for the purposes of section 1071 of the Code and the regulations thereunder, stock of a corporation operating a radio broadcasting station shall be treated as property similar or related in service or use to the property sold or exchanged. However, securities of such a corporation other than stock, or securities of a corporation not operating a radio broadcasting station, do not constitute property similar or related in service or use to the property sold or exchanged.

Section 1033 of the Code requires, in order that stock qualify as a replacement for business property, that such stock constitute a controlling interest in a corporation owning property which is similar or related in service or use to the property involuntarily converted. However, section 1071 of the Code permits any stock interest, whether or not controlling, in a corporation operating a radio station to so qualify. But, where the stock acquired is not in a corporation which, itself, operates a radio station, the taxpayer has replaced business properties with unrelated property.

Accordingly, the purchase by the taxpayer of stock of a corporation which does not operate broadcasting stations, but which owns all the stock of a subsidiary corporation which owns and operates such stations, is not a purchase of stock of a corporation `operating a radio broadcasting station' within the meaning of section 1071 of the Code. Consequently, the transaction cannot be treated as a replacement of the property involuntarily converted which qualifies for nonrecognition  of gain under sections 1033 and 1071 of the Code.