Taxability of Reissued Treasury Stock

July 19, 1967 BIR RULING NO. 026-67 Mr. Antonio A. Veloso 1319 Jose Abad Santos M a n i l a S i r : This refers to your letter dated March 28, 1967 requesting information on a query stated as follows: "If a corporation decides to reissue its treasury stock as stock dividends to its stockholders, will said shares be considered as taxable income only at the time that the shareholders received them or will it be considered as taxable income only at the time that the stockholders sell them?" In reply thereto, I have the honor to inform you that distributions of treasury stocks are just like distributions of newly issued stocks. (IT 2449, CB VIII-I, p. 101 cited in Mertens' Vol. 1, p. 163). A corporation which has acquired its own stock may cancel the same, or hold it as treasury stock, or distribute it among the shareholders, without changing its financial situation. (James Kay vs. CIR, 28 BTA 331). Stock dividends distributed to the stockholders of a corporation are either taxable or non-taxable to the distributee. A dividend in stock is taxable unless it worked no change in the corporate entity, the same interest in the same corporation being represented after the distribution by more shares of precisely the same character. (Mertens, Fed. Income Taxation, Vol. 1, S. 9.91, p. 145). In other words, a stock dividend that changes the proportionate interest of a stockholder after distribution in taxable income to him in the year paid or accrued; otherwise, the stockholder may realize income only upon subsequent sale thereof. Accordingly, when a corporation reissues its treasury stocks to its stockholders as stock dividends, as a result of which the proportionate interests of the stockholders are changed, the dividends thus received are taxable as ordinary income in the year paid or accrued. (See James Jay vs. CIR, supra; David Bruchheimer vs. CIR, 46 BTA 234). aisadc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue