Rev. Rul. 86-21

1986-1 C.B. 349, 1986-7 I.R.B. 17.

CORPORATIONS; ODD-LOT PURCHASES OF OWN STOCK; BROKER REPORTING

REQUIREMENTS

Published: February 18, 1986

Section 6045.-Returns of Brokers, 26 CFR 1.6045-1: Returns of information of brokers and barter exchanges.

  Corporations; odd-lot purchases of own stock; broker reporting requirements. A corporation that purchases odd-lot shares from its stockholders on an irregular basis is not a broker for purposes of the reporting requirements of section 6045(a) of the Code.

ISSUE

  Is a corporation's one time purchase of its own stock on an 'odd-lot' basis  

(fewer than 100 shares) subject to the broker reporting requirements of section

6045(a) of the Internal Revenue Code?

FACTS

  X corporation made a one time offer to purchase the entire 'odd- lot' stock holdings of its stockholders, that is, holdings of less than 100 shares of X's common stock and holdings of 50 shares or less of its preferred stock. X's offer applied to shares tendered during a two month period. The purpose was to reduce the number of stockholder accounts it had to maintain and, thereby, reduce X's stockholder servicing expenses.

  The tendered shares were purchased by X for a price equal to the mean average market price on the day X received the customer's acceptance of X's offer, plus a bonus if less than one dollar per share. Stockholders who tendered their odd- lot shares were required to sell all of their shares including shares held of record and shares held in a broker's or nominee's name. The stockholders were not required to pay brokerage commissions, transfer taxes, or any other fees. All of the purchased shares were retained by X as treasury shares which X, at the time of the purchase, had no intention to reissue.

LAW AND ANALYSIS

  Section 6045(a) of the Code provides that every person doing business as a broker shall, when required by the Secretary, make a return, in accordance with such regulations as the Secretary may prescribe, showing the name and address of each customer, with such details regarding gross proceeds and such other information as the Secretary may by forms or regulations require with respect to such business.

  Section 6045(c)(1) of the Code defines the term 'broker' to include dealer, a barter exchange, and any other person who (for a consideration) regularly acts as a middleman with respect to property or services.

  The term 'broker' is further defined by section 1.6045-1(a)(1) of the Income Tax Regulations to mean a person that, in the ordinary course of a trade or business during the calendar year, stands ready to 'effect' sales to be made by others. Section 1.6045-1(a)(10) provides that the term 'effect' includes acting as a principal in a sale.

  Section 1.6045-1(b), Example (2)(vi), of the Income Tax Regulations provides that a  corporation that issues and retires long-term debt on an irregular basis is not a broker within the meaning of section 1.6045-1(a)(1) in the absence of additional facts that indicate the corporation is a broker.

  The one time offer by X to purchase the off-lot shares of stock was intended to reduce X's stockholder servicing costs. Such a purchase was not in the corporation's ordinary course of business nor was it a transaction that occurs on a regular basis. A corporation that retires its long term debt on an irregular basis is not a broker. Similarly, a corporation purchasing off-lot shares from its stockholders on an irregular basis is not a broker for purposes of section 6045(a) of the Code, where, as here, there are no additional facts that indicate otherwise. On the other hand, a corporation is a broker for purposes of section 6045(a) if it regularly stands ready to redeem its stock or to retire its debt.

HOLDING

  X's one time odd-lot purchases of its own stock are not subject to the broker reporting requirements of section 6045(a) of the Code.

Rev. Rul. 86-21, 1986-1 C.B. 349, 1986-7 I.R.B. 17.