Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 66-96

1966-1 C.B. 180

Sec. 1012

Full Text

Rev. Rul. 66-96

A corporation owned several pieces of real property, all of which had a fair market value greatly in excess of the corporation's basis for the property. The estate of a deceased shareholder desired to have the stock it held in the corporation redeemed. In accordance with an agreement between the parties, the corporation redeemed all of its stock held by the estate by distributing in exchange for the stock real property with a fair market value equal to the value of the estate's stock and then repurchased the real property from the estate for cash.

Held , the substance rather than the form of the transaction is controlling; therefore, cash rather than real property is regarded as having been distributed by the corporation in redemption of its stock. The basis of the real property distributed and reacquired will be the same as it was in the hands of the corporation prior to the distribution.