Internal Revenue Service
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 Rev. Rul. 78-73

1978-1 C.B. 265

Sec. 1234
Sec. 7805

Full Text

Rev. Rul. 78-73

Rev. Rul. 72-198, 1972-1 C.B. 223, holds, in part, that a corporation that has issued warrants for the purchase of its stock recognizes ordinary income upon the lapse of the warrants in an amount equal to the fair market value of the consideration it received in exchange for the warrants.

Rev. Rul. 77-40, 1977-1 C.B. 248, states that, under the authority contained in section 7805(b) of the Internal Revenue Code of 1954, the holding of Rev. Rul. 72-198 described above will not be applied to warrants issued on or prior to April 24, 1972, the date of publication of Rev. Rul. 72-198. Thus, if on or prior to April 24, 1972, a corporation issued warrants to purchase its stock, no tax consequences will result to the issuing corporation as a result of the expiration of the warrants.

Held, no tax consequences will result to an issuing corporation upon the expiration of warrants that it issued after April 24, 1972, if the warrants were issued pursuant to a legally enforceable contract under which the corporation was obligated on April 24, 1972 and at all times thereafter until the warrants were issued.

Rev. Rul. 77-40 is amplified.