February 16, 1977

You inquire as to the procedure to be followed where a Massachusetts Realty Trust, which is a corporate trust as defined in M.G.L. c. 62, s. 1(j), is liquidated pursuant to the provisions of Section 333 of the Internal Revenue Code of the United States (Code).

The information furnished is limited to the tax consequence of such a liquidation. An attorney should be consulted to advise you as to procedure.

Dividend income will be realized by the shareholders to the extent that they receive a distribution of any earnings and profits accumulated by the corporate trust prior to taxable years commencing after December 31, 1970, and during an period, if any, that such corporate trust was not subject to taxation under M.G.L. c. 62 solely by reason of the fact that it has elected not to file an agreement to pay a tax.

Under Massachusetts law, the transfer of corporate trust property to its shareholders, pursuant to the provisions of Code Section 333, constitutes a taxable exchange. (M.G.L. c. 62, s. 8(a), as amended by St. 1973, c. 723. See: B.W. Company et al v. State Tax Commission, Mass. Adv. Sh. (1976) 836, 840, footnote 4).

The amount realized by the corporate trust on the exchange would be the fair market value of any property distributed in liquidation.

The corporate trust's basis for determining gain or loss would be determined in accordance with the provisions of M.G.L. c. 62, s. 7. If the corporate trust had not filed the agreement to be taxed prior to January 1, 1971, initial Massachusetts basis would be determined as federal adjusted basis (M.G.L. c. 62, s. 7(c)(1)(B)). If the corporate trust had filed an agreement to be taxed prior to January 1, 1971, the Massachusetts initial basis will be determined in accordance with the provisions of M.G.L. c. 62, s. 7(c)(1)(A). The initial basis, as so determined, would then be adjusted pursuant to M.G.L. c. 62, s. 7(d)(1) by applying any adjustments as are made to federal basis.

The amount by which the amount realized by the corporate trust exceeds its adjusted basis is includible in the Massachusetts gross income of the corporate trust.

The shareholders of the corporate trust will not realize capital gain or loss on receipt of a distribution in liquidation.

The basis of the property received by the shareholder would be the greater of (1) the basis of his shares in the corporate trust, or, (2) the fair market value of the property distributed.

Very truly yours,

/s/Owen L. Clarke

Owen L. Clarke
Commissioner of Corporations
and Taxation

LR 77-3