[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.269-5]

[Page 592-593]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.269-5  Time of acquisition of control.

    (a) In general. For purposes of section 269, an acquisition of 
control occurs when one or more persons acquire beneficial ownership of 
stock possessing at least 50 percent of the total combined voting power 
of all classes of stock entitled to vote or at least 50 percent of the 
total value of share of all classes of stock of the corporation.
    (b) Application of general rule to certain creditor acquisitions. 
(1) For purposes of section 269, creditors of an insolvent or bankrupt 
corporation (by themselves or in conjunction with other persons) acquire 
control of the corporation when they acquire beneficial ownership of the 
requisite amount of stock. Although insolvency or bankruptcy may cause 
the interests of creditors to predominate as a practical matter, 
creditor interests do not constitute beneficial ownership of the 
corporation's stock. Solely for purposes of section 269, creditors of a 
bankrupt corporation are treated as acquiring beneficial ownership of 
stock of the corporation no earlier than the time a bankruptcy court 
confirms a plan of reorganization.
    (2) The provisions of this section are illustrated by the following 
example.

    Example. Corporation L files a petition under chapter 11 of the 
Bankruptcy Code on January 5, 1987. A creditors' committee is formed. On 
February 22, 1987, and upon the request of the creditors, the bankruptcy 
court removes the debtor-in-possession from business management and 
operations and appoints a trustee. The trustee consults regularly with 
the creditors' committee in formulating both short-term and long-term 
management decisions. After three years, the creditors approve a plan of 
reorganization in which the outstanding stock of Corporation L is 
canceled and its creditors receive shares of stock constituting all of 
the outstanding shares. The bankruptcy court confirms the plan of 
reorganization on March 23, 1990, and the plan is put into effect on May 
25, 1990. For purposes of section 269, the creditors acquired control of 
Corporation L than March 23, 1990. Similarly, the determination of 
whether the creditors acquired control of Corporation L no earlier with 
the principal purpose of evasion or avoidance of Federal income tax is 
made by reference to

[[Page 593]]

the creditors' purposes as of no earlier than March 23, 1990.

[T.D. 8388, 57 FR 346, Jan. 6, 1992]