## Facts

- George L. Riggs, Inc. was a parent corporation that held a majority of its subsidiary’s common stock and a minority position in the subsidiary’s preferred stock.
- In December 1967, the subsidiary’s shareholders approved the sale of substantially all operating assets to an unrelated third party and later changed the subsidiary’s name to Riggs-Young Corp.
- Shareholder materials for the asset sale stated that a tender offer to minority shareholders was contemplated, but no formal liquidation plan was adopted at that time.
- In February 1968, the subsidiary redeemed all outstanding preferred stock.
- On April 26, 1968, the subsidiary made a tender offer for minority-held common stock, stating that if successful the directors would consider liquidation.
- By early May 1968, the parent’s ownership of the subsidiary’s voting common stock exceeded 80%; by late May it owned about 96% of the subsidiary’s stock.
- On June 20, 1968, the subsidiary’s directors and shareholders formally adopted a plan of complete liquidation and dissolution.
- The subsidiary distributed more than $2.2 million to the parent in liquidation.
- The parent reported the liquidation under I.R.C. § 332 as a nonrecognition transaction; the IRS asserted a deficiency on the theory that a liquidation plan had been adopted before the parent reached 80% ownership.

## Issues

1. Whether a plan of complete liquidation for I.R.C. § 332 purposes was adopted before the parent owned at least 80% of the subsidiary’s stock.
2. Whether earlier steps (asset sale, preferred redemption, and tender offer) constituted adoption of a liquidation plan so as to disqualify § 332 nonrecognition treatment.

## Decision

- The Tax Court held that the liquidation plan was adopted on June 20, 1968, when the subsidiary’s shareholders formally approved complete liquidation and dissolution.
- Because the parent owned at least 80% of the subsidiary’s stock by that date, the liquidation satisfied I.R.C. § 332.
- The court declined to treat tentative references to possible liquidation or pre-liquidation restructuring steps as adoption of a liquidation plan.
- The deficiency premised on recognizing gain from the liquidating distributions was not sustained.

## Legal Principles

- I.R.C. § 332 provides nonrecognition to a parent corporation receiving property in a complete liquidation of an 80%-owned subsidiary, conditioned on meeting the ownership thresholds at the time the liquidation plan is adopted.
- For § 332, a liquidation plan is adopted upon a definitive corporate decision to liquidate, typically shown by formal director and shareholder action, not by contingent or preliminary statements that liquidation may be considered.
- Pre-liquidation transactions consistent with a possible future liquidation do not, without a definitive decision, establish plan adoption for § 332 timing purposes.
- Taxpayers may structure bona fide transactions to satisfy statutory conditions for § 332, absent sham or a basis to disregard the form of the corporate acts.

## Conclusion

The Tax Court treated the formal shareholder approval date as the adoption of the liquidation plan and held that § 332 nonrecognition applied because the parent satisfied the 80% ownership requirement when the plan was adopted, despite earlier restructuring steps and tentative references to potential liquidation.


George L. Riggs, Inc. v. Commissioner, 64 T.C. 474 (1975)