Tax Consequence in the Change of the Status of "The Blue Network"

February 29, 1960 BIR RULING NO. 074-60 Mr. Al J. Wills c/o The Blue Network Davao City S i r : Reference is made to your letter dated February 23, 1960 requesting in effect information on the tax consequence of your plan changing the status of The Blue Network from single proprietorship to a corporation. In the proposed plan, you will transfer all your interests in The Blue Network including its goodwill to the corporation you will organize in exchange for the shares of stock of the latter. In reply thereto, I have the honor to inform you that, if in the proposed reorganization, you will in effect own entirely the capital stock of the corporation, except perhaps the qualifying shares of the other incorporators, the transfer to the corporation of your interests in The Blue Network, including its goodwill, apparently at fair market value, in exchange for the shares of stock of the corporation of equivalent value will not give rise to any gain, for purposes of income tax, because no gain will actually be realized on the transfer or exchange. However, the net book value (acquisition cost less depreciation claimed and allowed in prior years) should appear in the books of the corporation as basis. Should you subsequently dispose of the shares of stock you received in exchange to other parties, the excess of the selling price over the net book value of your transferred interest shall become taxable income to you. aisadc Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue