Today we published 16 new situational tax charts to AndrewMitchel.com.  We have over 1300 charts for FREE on our website.  The recently published charts include:

• TBL Licensing LLC  (Gain Recognized on the Transfer of Intangible Property in an Oubound F Reorganization)
• Rev. Rul. 67-12  (Business Expenses Paid In a Year After the Termination of the Business Were Deductible)
• Reg. 1.861-9 and -9T  (Interest Expense Allocation Example With An Individual Owning Partnerships)
• Cheat Sheet: 1.861-9 and 9T  (Partnership Interest Expense Allocation Rules for Individuals)
• Reg. 1.903-1(d)(3), Example 3  (Withholding Tax On Royalties; Attribution Requirement (IP Used Worldwide))
• Reg. 1.903-1(d)(3), Example 4  (Withholding Tax On Royalties; Attribution Requirement (IP Only Used In-Country))
• Reg. 1.1239-1(c)(5), Example 1  (Gain on Sale From Shareholder to Corp Is Ordinary Income)
• Reg. 1.1239-1(c)(5), Example 2  (Gain on Sale From Parent to Subsidiary Is Ordinary Income)
• Reg. 1.1295-1(d)(3)(ii), Example  (A QEF Election Only Applies to the Foreign Corporation For Which the Election is Made)
• Reg. 1.1295-1(i)(3), Example  (QEF Election Automatically Terminated With MTM Election)
• Reg. 1.1361-1(g)(1)(ii), Example 1  (U.S. Corp Was Not an S Corp Because NRA Spouse Owned Shares Under Community Property Laws)
• Reg. 1.1361-1(g)(1)(ii), Example 2  (U.S. Corp Was an S Corp Because Foreign Spouse Elected to be Treated as a US Resident)
• Reg. 1.6013-6(a)(2)(v), Example  (If You Make a 6013(g) Election, You Can't Claim You Are a Nonresident Under a Treaty)
• Reg. 1.6013-6(c), Example 1  (US Citizen & NRA Spouse Make 6013(g) Election)
• Reg. 1.6013-6(c), Example 2  (New US Resident Alien & NRA Spouse Make 6013(g) Election)
• Reg. 1.6013-6(c), Example 3  (6013(g) Election Suspended During Intervening NRA Years)

Click for all charts listed in topical order and charts listed in alpha-numeric order.

Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today’s tax quote is:

[A]s a logical matter, [the taxpayer’s] receipt of the TBL GmbH stock in exchange for the transferred intangible property was a precondition to [the taxpayer’s] distribution of that stock * * *.  The distribution could not have occurred until the exchange of property for stock had been completed: One cannot distribute what one does not have.

TBL Licensing LLC v. Commr., 158 T.C. No. 1 (2022)

Today we published 13 new situational tax charts to AndrewMitchel.com (charts listed in topical order and charts listed in alpha-numeric order).  We have over 1300 charts for FREE on our website.  The recently published charts include:

• Rev. Rul. 68-289  (Merger of Partnerships: Deemed Transactions (Assets-Over Form))
• Rev. Rul. 76-364  (Stock Redemption: Lost Control Where Acting In Concert With One Other Shareholder)
• Rev. Rul. 80-240  (Shareholder Treated As AgentTo Borrow Funds For Corp)
• Rev. Rul. 85-198  (COBE - Merger of Bank Holding Companies)
• Rev. Rul. 2001-25  (Substantially All Properties In Reverse Triangular Merger)
• Reg. 1.708-1(c)(5), Example 1  (Tax Returns for Merged Partnerships)
• Reg. 1.708-1(c)(5), Example 2  ("Assets-Over" Partnership Merger (Deemed Steps Differed From Actual Steps))
• Reg. 1.708-1(c)(5), Example 3  ("Assets-Up" Partnership Merger (Form Respected))
• Reg. 1.708-1(c)(5), Example 4  (Interests-Over Form of Partnership Merger Treated As Assets-Over Form)
• Reg. 1.879-1(a)(7), Example 1  (Community Income - Wages and Separate Property Dividends)
• Reg. 1.879-1(a)(7), Example 2  (Community Income - Sole Proprietorship and Partnership)
• Reg. 1.879-1(a)(7), Example 3  (Community Income - Wages, Sep. Prop. Div.s & Comm. Prop. Div.s)
• PLR 200551016  (Exempt Dividends Included in "Gross Income" For Derivative Benefits Test)

Click for all charts listed in topical order and charts listed in alpha-numeric order.

Today we added 15 new situational charts to andrewmitchel.com dealing with a variety of topics.

1. Am. Metallurgical Coal Co. v. Commr. T.C. Memo 2016-139:  Transfer Was For Equity And Not For Debt; Post Transfer Payments Were Dividends
2. In Re DeCoro USA Ltd U.S. Bankruptcy Court, M.D.N.C., Case No. 09-10846C-11G:  Inbound Furniture Sales: Sales Comm. Model vs. Distributor Model
3. Revenue Ruling 67-202:  Contribution & Liquidation Was An Asset Reorganization & Section 269 Did Not Apply
4. Revenue Ruling 91-6:  Accumulated Distribution After Domestication of Foreign Trust
5. Prop. Reg. 1.355-2(d)(4) Example 1:  Sale After Distribution (Device)
6. Prop. Reg. 1.355-2(d)(4) Example 2:  Disproportionate Division of Nonbusiness Assets (Device)
7. Prop. Reg. 1.355-2(d)(4) Example 3:  Proportionate Division of Nonbusiness Assets (Nondevice)
8. Prop. Reg. 1.355-2(d)(4) Example 4:  Disproportionate Division of Nonbusiness Assets (Nondevice)
9. Prop. Reg. 1.355-2(d)(4) Example 5:  Nonbusiness Asset Percentage (50-Percent-Owned Group)
10. Prop. Reg. 1.355-2(d)(4) Example 6:  Nonbusiness Asset Percentage: Partnership Interest
11. Prop. Reg. 1.355-2(d)(4) Example 7:  Nonbusiness Asset Percentage: Borrowing From Partnership
12. Reg. 1.1001-2(c), Example 1:  Sales Proceeds Include Liabilities Assumed By Purchaser
13. PLR 9142032:  Gain on Sale of Foreign Partnership Was Attributed to a Foreign Office For 865 Sourcing Rule If 10% Foreign Tax Paid
14. PLR 200803005:  Inbound F Reorganization With U.S. Branch & USRPIs
15. PLR 201336012:  Spin-Off of QSub

Over the last month we have published videos on our YouTube channel Andrew Mitchel Tax discussing several of our situational charts, linked to below.

• Rev. Rul. 2004-59, Partnership Conversion to Corporation
• Rev. Rul. 2004-77, Disregarded Entity With Two Owners
• Rev. Rul. 2004-83, Related Stock Purchase & Liquidation Treated as a D Reorganization
• Rev. Rul. 2004-85, "F" Reorganization of an S Corp Did Not Terminate Qsub Election for Subsidiary
• Plantation Patterns - Shareholder/Guarantor Treated as Borrower

You can view the situational charts and associated videos, on AndrewMitchel.com.

Over the last month we have published videos discussing several of our situational charts along with IRS Form 5471 Schedule M and Form 926, linked to below.

• Rev. Rul. 78-401 - No Meaningful Reduction in Proportionate Interest Upon Redemption
• Rev. Rul. 76-454 - Constructive Dividend as Part of 351 Exchange
• Rev. Rul. 78-281 - Non-Functional Currency Borrowing
• Form 5471 Schedule M - Transactions Between CFCs and Related Persons
• Rev. Rul. 79-70 - Bust 351 Via Prearranged Sale of Stock
• Rev. Rul. 79-150 - Conversion of SA to Limitada
• Rev. Rul. 79-194, Situation 1 - 351 Exchange With Stock Sale Among Transferors
• Rev. Rul. 80-154 - Capitalization of Corporate Earnings Treated As Stock Dividend
• Form 926 - Filing Requirement for U. S. Transferors of Property to a Foreign Corporation

You can view these videos and many others on our YouTube channel Andrew Mitchel Tax.

Over the last month we have published videos discussing several of our situational charts along with IRS Form 8938, linked to below.

• Rev. Rul. 72-420 - Conversion of NV to BV
• Rev. Rul. 73-2 - Section 304/351 Overlap
• Rev. Rul. 75-521 - Stock Purchase & Liquidation - 332
• Rev. Rul. 76-192 - CFC Created to Avoid Section 956
• Rev. Rul. 75-383 - Inbound D Reorganization
• Form 8938, Statement of Specified Foreign Financial Assets
• Rev. Rul. 72-522 - Good B Reorganization with Post-Acquisition Cash Contribution into Target

You can view these videos and many others on our YouTube channel Andrew Mitchel Tax.

Over the last month we have published videos discussing several of our situational charts along with IRS Form W-8BEN, linked to below.

• Rev. Rul. 54-105 - Individual Purchase & Sale of Prop. in Foreign Currency
• Rev. Rul. 70-373 - Deemed Paid Credits After Lower Tier Liq'n
• Rev. Rul. 72-354 - Sale of Stock to Qualify as a B Reorganization
• Rev. Rul. 72-197 - Foreign Taxes Paid By Reverse Hybrid Entity
• IRS Form W-8BEN
• Rev. Rul. 72-57 - Reverse Stock Split Was a Recapitalization
• Rev. Rul. 73-442 - DISC Did Not Have a Single Class of Stock
• Rev. Rul. 74-605 - Upstream Sale of Shares Not a Section 304 Transaction

You can view these videos and many others on our YouTube channel Andrew Mitchel Tax.

Today we published a new video discussing Rev. Rul. 56-613.  In the ruling, the acquisition of shares in a corporation did not qualify as a B reorganization because the acquiring corporation did not directly own the necessary shares in the target corporation.

For free charts of other revenue rulings, see: Charts By Topic

Last week the IRS released Rev. Rul. 2015-09 and Rev. Rul. 2015-10. 

In Rev. Rul. 2015-09, (1) a domestic corporation transferred all of the stock of its foreign operating subsidiary to its foreign holding company subsidiary in exchange for additional stock, (2) the foreign operating subsidiary and three foreign subsidiaries of the foreign holding company transferred substantially all of their assets to a newly-formed foreign subsidiary of the foreign holding company in exchange for stock of the new subsidiary, and (3) the subsidiaries that transferred their assets were liquidated.  The IRS held that the transactions are properly treated for federal income tax purposes as a transfer of the foreign operating subsidiary’s stock in an exchange governed by Code §351 followed by reorganizations under Code §368(a)(1)(D). 

Rev. Rul. 2015-09 revokes Rev. Rul. 78-130, where the same transaction was recast in part as a triangular C reorganization.  When Rev. Rul. 78-130 was issued, Code §367(a) generally triggered gain on an outbound transfer of property to a foreign corporation, unless the taxpayer received a ruling from the IRS that the transaction was not undertaken for tax avoidance reasons.  Recasting the transaction as a triangular C reorganization removed the U.S. person transferring property to a foreign corporation from the transaction (as well as the applicability of Code §367(a)).  Later, in 1984, Code §367 was amended to allow for gain recognition agreements.  With more relaxed taxation of outbound transfers of property, part of the impetus of Rev. Rul. 78-130 was removed.  Rev. Rul. 2015-09 now respects the form of similar transactions.

In Rev. Rul. 2015-10, the IRS addressed a "triple drop and check" transaction.  The steps included: (1) a parent corporation transferred all of the interests in its limited liability company that is taxable as a corporation to the first subsidiary in exchange for additional stock, (2) the first subsidiary transferred all of the interests in the limited liability company to the second subsidiary in exchange for additional stock, (3) the second subsidiary transferred all of the interests in the limited liability company to the third subsidiary in exchange for additional stock, and (4) the limited liability company elected to be disregarded as an entity separate from its owner for federal income tax purposes effective after it is owned by the third subsidiary.  The IRS held that the transaction was properly treated for federal income tax purposes as two transfers of stock in exchanges governed by Code §351, followed by a reorganization under Code §368(a)(1)(D).

We have created situational charts that illustrate the new rulings.  Images of the charts are shown below and links to PDFs of the charts are also available:

• Rev. Rul. 2015-09
• Rev. Rul. 2015-10

Last week the IRS released PLR 201432002, where it applied the anti-inversion rules of Code §7874.

The IRS ruled that a newly formed foreign corporation was not a surrogate foreign corporation (i.e., there was no inversion) under Code §7874 where it acquired a U.S. corporation from a foreign corporation in a Code §368(a)(1)(F) reorganization that was followed by a private placement and an IPO.  The shares of the new foreign corporation were excluded from the numerator and the denominator of the ownership fraction (under the "internal group restructuring" exception) and the private placement and IPO shares were excluded from the denominator (under the "anti-stuffing" rules).  This produced an ownership fraction of zero over zero.  The ownership requirement was not met and there was no surrogate foreign corporation.

An image of the chart is shown below and the chart can be viewed as a PDF file here: PLR 201432002.

We will shortly add this chart to andrewmitchel.com, where you can find hundreds of similar situational charts.

For some recent commentary on inversions, visit Paul Caron's TaxProf Blog.

Last week the IRS published the following Private Letter Ruling and Chief Counsel Advice relating to international taxation.

PLR 201432002 - A newly formed foreign corporation was not a surrogate foreign corporation (i.e., there was no inversion) under Code §7874 where it acquired a U.S. corporation from a foreign corporation in a Code §368(a)(1)(F) reorganization that was followed by a private placement and an IPO.  The shares of the new foreign corporation were excluded from the numerator and the denominator of the ownership fraction (under the "internal group restructuring" exception) and the private placement and IPO shares were excluded from the denominator (under the "anti-stuffing" rules).  This produced an ownership fraction of zero over zero.  The ownership requirement was not met and there was no surrogate foreign corporation. 

CCA 201432020 - Failure to file a Form 5471 keeps the period of limitations for assessment of tax open for the entire tax return. 

For a discussion of the statute of limitations and international reporting requirements, see our post here.

Last week the IRS published PLR 201411006, where a foreign parent operated two different consolidated groups in the U.S. and proposed a series of transactions which would combine the two consolidated groups into one.  The IRS applied the allocation of basis rules under Code §358 to the transaction.

One of the first transactions involved making entity classification ("check-the-box") elections for the foreign holding corporations to treat them as disregarded entities, which would trigger a deemed liquidation of those entities.  Treas. Reg. §301.7701-3(g)(1)(iii).  These deemed liquidations and subsequent transactions would involve distributions of U.S. corporations. 

Not mentioned in the PLR, and often overlooked by foreign shareholders of U.S. corporations, are the requirements of the Foreign Investment in Real Property Act ("FIRPTA").  Under FIRPTA, a U.S. corporation is presumed to be a U.S. real property holding corporation ("USRPHC"), and therefore U.S. real property interest ("USRPI").  Code §897(c)(1)(A)(ii).  The presumption can be rebutted if the transferor receives a statement from the U.S. corporation that it is not a USRPI.  Treas. Reg. §1.897–2(g)(1)(i)(A).  The U.S. corporation must also notify the IRS that a foreign shareholder made the USRPI inquiry.  Treas. Reg. §1.897–2(h)(2).  Distributions of USRPIs by foreign corporations can trigger a requirement to withhold 10% withholding under Code §1445(a). 

An image of the chart is shown below and the chart can be viewed as a PDF file here: PLR 201411006.

We will shortly add this chart to andrewmitchel.com, where you can find hundreds of similar situational charts.

Last week the IRS published the following Private Letter Ruling relating to international taxation.

PLR 201352007 - Code §355 spin-offs and reorganizations involving U.S. and foreign corporations.  Code §368(a)(1)(D).

As described earlier, this post may exclude PLRs dealing with typical international related elections.

Below is a chart of Rev. Rul. 66-365 in which the I.R.S. held that the receipt of cash in lieu of the issuance of fractional shares in a reorganization can be treated as a Code §302 redemption.

The chart can be viewed as a PDF file here: Rev. Rul. 66-365

Last week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201341004 - Code §355 spin-offs and reorganizations involving U.S. and foreign corporations.  Code §368(a)(1)(D).

PLR 201341007 - Late entity classification election for a foreign entity to be treated as a disregarded entity.  Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201341013 - Code §355 spin-offs and reorganizations involving U.S. and foreign corporations.  Code §368(a)(1)(D).

PLR 201341024 - Late entity classification election for a foreign entity to be treated as a disregarded entity.  Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201341031 - U.S. electric utlity company servicing foreign country may deduct under Code §162(a) incentives paid to customers to install renewable energy systems.

PLR 201341032 - Restructuring of U.S. real estate investment trust ("REIT") that holds properties in a foreign country.  Code §856(c). 

Last week the IRS published the following Private Letter Rulings and Chief Counsel Advice relating to international taxation.

PLR 201340007 - Late Canadian registered pension plan ("RPP"), registered retirement income fund ("RRIF"), and life income fund ("LIF") deferral elections.  Form 8891.  Rev. Proc. 2002-23.

PLR 201340008 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election.  Form 8621.  Treas. Reg. §1.1295-3(f).

PLR 201040010 - Production activities included growing activities for purposes of determining whether a CFC "produced" products for purposes of Treas. Reg. §1.954-3(a)(4)(i) - (iv) and Code §954(d), dealing with foreign base company sales income ("FBCSI").  The income was not FBCSI because the CFC (and its disregarded entities) satisfied the "manufacturing exception."

CCA 201340016 - Restructuring of foreign corporations owned by U.S. parent qualified as a Code §368(a)(1)(F) reorganization followed by a Code §368(a)(1)(C) reorganization.  Rev. Rul. 96-29.

Below is a chart of PLR 201328003 in which the I.R.S. held that a circular flow of cash was disregarded and a deemed distribution and contribution occured. 

The chart can be viewed as a PDF file here: PLR 201328003

Below is a chart of Rev. Rul. 89-103 in which the I.R.S. held that a stapling of foreign and domestic stock interests triggers a deemed inbound "F" reorganization for the foreign entity.

The chart can be viewed as a PDF file here: Rev. Rul. 89-103

Below is a chart of Rev. Rul. 58-422 in which the I.R.S. held that a merger of a parent corporation and its two subsidiaries into a new corporation was an "F" reorganization and two section 332 liquidations.

The chart can be viewed as a PDF file here: Rev. Rul. 58-422

Below is a chart of Rev. Rul. 70-434 in which the I.R.S. held that a stock-for-stock exchange qualified as a "B" reorganization even though it occurred after a spin-off.

The chart can be viewed as a PDF file here: Rev. Rul. 70-434

Below are three new situational charts regarding the treatment of S corporation elections and QSub elections as a result of "F" reorganizations.  The first chart is Rev. Rul. 64-250, where the merger of an S corporation into a newly formed out of state corporation was treated as an “F” reorganization.  The new corporation was treated as a continuation of the original, and therefore the “S” election did not terminate.

The second chart is Rev. Rul. 2004-85, where an S corporation with a QSub merged into a newly formed out of state corporation in an "F" reorganization.  Citing Rev. Rul 64-250, the "S" election remained in effect, and therefore the election to treat its subsidiary as a QSub did not terminate.

Lastly, PLR 201007043 involved an S Corporation merging downstream into one of its QSubs.  The private letter ruling held that the merger should be treated as an "F" reorganization, and citing the above revenue rulings, the "S" election and the QSub election remained in effect.

The charts can be viewed as PDF files here: Rev. Rul 64-250, Rev. Rul. 2004-85, PLR 201007043.

For the 28th week of 2013, the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201328003 - Multiple cash transfers disregarded as a circular flow of cash (cash contribution by Foreign Parent into Newco, followed by Newco cash purchase of Oldco Subsidiaries, followed by Oldco distribution of cash to Foreign Parent).  Transaction treated as though Oldco distributed shares of Subsidiaries to Foreign Parent and Foreign Parent then contributed Subsidiaries into Newco.  Foreign Parent then formed Newco 2, contributed shares of Oldco into Newco 2 and liquidated Oldco.  Contribution and liquidation treated as a 368(a)(1)(F) reorganization.

PLR 201328021 - Late entity classification election for a foreign entity to be treated as a corporation.  Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201328024 - Code §355 spin-offs involving U.S. and foreign corporations that are directly or indirectly owned by a foreign parent company.

For the 24th week of 2013, the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201324003 - After a foreign corporation's acquisition of a domestic company through a C reorganization, the payment of a cash settlement to former  shareholders of the domestic company did not invalidate the reorganization.  Code §368(a)(1)(C).  The boot relaxation rule of Code §368(a)(2)(B) was inapplicable because Acquirer assumed Target debt that exceeded 20 percent of the value of Target.

PLR 201324005 & PLR 201324006 - Domestic partnership's depreciable property to be used in a United States possession will not be treated as property that is used predominately outside the United States.  Consequently, the alternative depreciation system ("ADS") under Code §168(g) does not apply to the property and MACRS depreciation can be taken on the property.  The statute did not include the term "domestic partnership" but did include the term "domestic corporation" and the domestic partnership in the PLRs had only domestic corporations as partners.

Below are two situational charts of Examples 8 and 9 of Treas. Reg. §1.1361-5(b)(3). The first chart is Example 8, where the merger of an S corporation into its Qsub (with the subsidiary surviving) was treated as an “F” reorganization. Although the Qsub election for the subsidiary terminates, under Rev. Rul. 64-250 the “S” election does not terminate upon an “F” reorganization.

The second chart is Example 9, where the sale of a Qsub by an S corporation is treated as a sale of assets by the S corporation and is treated as a purchase of assets by the acquiring corporation, followed by a deemed contribution of the assets into a newly formed corporation.

The charts can be viewed as PDF files here: 1.1361-5(b)(3), Example 8 and 1.1361-5(b)(3), Example 9.

For the 16th week of 2013, the IRS published the following Private Letter Ruling and Chief Counsel Advice relating to international taxation.

PLR 201316014 - Extension of time granted to a U.S. real estate investment trust with a foreign parent to amend a Code §565 consent dividend election.  Treas. Reg. §§ 301.9100-1 and -3.

CCA 201316017 - Re-registration of a foreign company as a Societas Europaeas treated as an F reorganization.  Code §368(a)(1)(F).

We have fallen months behind in publishing our weekly summary of private letter rulings with international considerations. We are in the process of getting caught up. Over the next several weeks we plan to publish posts of the missing weeks.

For the 12th week of 2013, the IRS published the following Private Letter Rulings and Chief Counsel Advice relating to international taxation.

PLR 201312017 – Code §355 spin-off and reorganizations of controlled foreign corporations. Code §368(a)(1)(D).

PLR 201312022 – Code §355 spin-off and reorganizations of controlled foreign corporations. Code §368(a)(1)(D).

PLR 201312024 - Consent was granted to change methods for measurement and timing of employee stock options, restricted shares, or restricted share units pursuant to Treas. Reg. § 1.482-7(d)(3)(iii)(B) and Notice 2005-99, for purposes of determining the amount the taxpayer must include in its cost sharing arrangement as intangible development costs.

CCA 201312033 - With the creation of the check the box regulations, the filing of the 1120F as a partner in the partnership does not guarantee that the partner will be treated as a C corporation for purposes of TEFRA.

CCA 201312045 - Judicial doctrines, including the economic substance doctrine, can be used to challenge a foreign tax credit claim that otherwise meets the technical requirements of the Code and relevant regulations.

Yesterday the IRS published the following Private Letter Rulings relating to international taxation. 

PLR 201252002: Two Code §368(a)(1)(A) reorganizations, three Code §368(a)(1)(D) reorganizations, and two Code §351 exchanges involving foreign corporations.

PLR 201252008: Multiple cross-chain sales of foreign corporations to which Code §304 applied and a Code §331 liquidation of a foreign corporation resulting from a check-the-box election in which loss was recognized.

PLR 201252011: Amalgamation of a foreign newco and a foreign target was treated as a Code §368(a)(1)(F) reorganization followed by a Code §338 qualified stock purchase for which a Code §338(g) election could be made.

Last week the IRS published the following Private Letter Rulings relating to international taxation. 

PLR 201250001 - A nonresident alien (“NRA”) who was an income beneficiary of trusts created by her father proposed to release her income interests to the remainder beneficiaries (her descendants).  The NRA’s income interests in the trusts constituted intangible property (within the meaning of Code §2501(a)(2)), not tangible or real property.  Consequently, the transfer was not subject to U.S. gift tax.  In addition, the release of the income interests was not a “qualified disclaimer” as defined in Code §2518(b), and it was not subject to the generation-skipping transfer (GST) tax.

PLR 201250004 - Inbound "F" reorganization and foreign to foreign "D" reorganizations (complex fact pattern - 18 pages long).

PLR 201250016 - Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

This week the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201248002 - Granted request  to revoke a Code §1504(d) election to treat a contiguous country corporation as a domestic corporation.  The revocation was treated as an outbound F reorganization, with a termination of the year under Treas. Reg. §1.367(a)-1T(e) and deemed exchanges under Treas. Reg. §1.367(a)-1T(f).  

Although the ruling provided that the transaction would be "tax free" under Code §368(a)(1)(F), it explicitly did not express an opinion as to how Code §§367(a) and (d), 987, 1503(d), 904(f), and the regulations thereunder, would apply to the transaction.

PLR 201248005 - Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201248009 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election.  Form 8621.  Treas. Reg. §1.1295-3(f).

PLR 201248010 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election.  Form 8621.  Treas. Reg. §1.1295-3(f).

Several weeks ago the IRS published the following Private Letter Rulings and Chief Counsel Advice relating to international taxation.

PLR 201238005 - Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

PLR 201239003 - Code §368(a) reorganizations involving foreign subsidiaries.

PLR 201239005 - Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

PLR 201240017 - Code §355 spin-offs involving foreign corporations with foreign parent company.

CCA 201240019 - Code §§114 and 951, the extraterritorial income ("ETI") exclusion for purposes of computing Subpart F income is zero (i.e., ETI cannot be excluded from Subpart F income).

Last week the IRS published the following Private Letter Ruling relating to international taxation for the 33rd week of 2012.

PLR 201233016 - Spin-off and reorganizations of controlled foreign corporations.

Recently the IRS published the following Private Letter Rulings relating to international taxation for the 32nd week of 2012.

PLR 201232010 - Late entity classification election for a foreign entity to be treated as a disregarded entity. Form 8832. Treas. Reg. §301.7701-3(c).

PLR 201232014 - Spin-off, including whether gain is recognized under Code §367(a) as part of a reorganization.

PLR 201232025 - Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.

PLR 201232033 - Spin-offs and reorganizations of controlled foreign corporations.

Last week the IRS published the following Private Letter Rulings relating to international taxation for the 29th week of 2012.

PLR 201229002 - Spin-off by a controlled foreign corporation followed by reorganizations.

PLR 201229006 - Late entity classification election for a foreign entity to be treated as a partnership.  Form 8832.  Treas. Reg. §301.7701-3(c). 

PLR 201229009 - Late relief for a foreign entity treated as a partnership to make a Code §754 election.

Several weeks ago the IRS published the following Private Letter Rulings and Chief Counsel Advice relating to international taxation for the 28th week of 2012.  There were no international related Private Letter Rulings for the 27th week of 2012.

PLR 201228013 - Taxpayer is a resident alien and will become a nonresident alien, and then again a resident alien.  Taxpayer’s unused net operating losses that were generated while he was taxed as a U.S. resident, and that would have been allocated and apportioned, in accordance with the rules in Treas. Reg. § 1.861-8(e)(8), to the gross income of the U.S. business had he been taxed on such income as a nonresident alien for such years, may be used to the extent provided in Treas. Reg. § 1.861-8 to offset gross income effectively connected with the conduct of the U.S. business while he is a nonresident alien.  Taxpayer may carry over any unused net operating losses from the U.S. business allocated and apportioned to income effectively connected with the conduct of the U.S. business while he is taxed as a nonresident alien, and may apply such losses against gross income from the U.S. business after he reacquires U.S. resident status.  Taxpayer may carry over any unused net operating losses from the U.S. business generated while he was taxed as a U.S. resident, if still available, against his gross income after he reacquires U.S. resident status.

PLR 201228020 - Gain from the disposition of carbon credits allocated to a controlled foreign corporation were not foreign personal holding company income.

PLR 201228021 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election.  Form 8621.  Treas. Reg. §1.1295-3(f).

PLR 201228030 - Spin-off and reorganizations of controlled foreign corporations.

PLR 201228031 - Late entity classification election for foreign entity to be treated as a disregarded entity.  Form 8832.  Treas. Reg. §301.7701-3(c).

PLR 201228032 - Late entity classification election for foreign entity to be treated as a disregarded entity.  Form 8832.  Treas. Reg. §301.7701-3(c).

PLR 201228033 - Multi-tiered spin-offs, including spin-off by a controlled foreign corporation.

CCA 201228035 - Code §267(a)(3) applies to the patronage dividends paid by a cooperative to its related foreign patrons, so the cooperative will not be able to deduct the patronage dividends under Code §1382 until the amounts are includible in the foreign patrons’ gross income, subject to the exceptions and special rules set forth in § 267(a)(3)(B) and Treas. Reg. §1.267(a)-3(c).

The IRS published the following Private Letter Rulings relating to international taxation for the 20^th week of 2012. 

PLR 201220006: Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election.  Form 8621.  Treas. Reg. §1.1295-3(f).

PLR 201220009: Complex reorganization and redemption of shares between foreign corporations.

PLR 201220010: Complex reorganization of foreign corporations.

PLR 201220014: Late Canadian registered retirement savings plan ("RRSP") deferral election.  Form 8891.  Rev. Proc. 2002-23.

PLR 201220017: Extension of time pursuant to file Form 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts, to notify and certify to the I.R.S. that a spouse, who is the beneficiary of the QDOT, has become a United States citizen.  Code §2056A.

PLR 201220020: Upstream sale of the U.S. corporation to an indirect foreign parent was a qualified stock purchase and a Code §338(h)(10) election can be made.

Last week we published a video of Example 15 of Temp. Treas. Reg. §1.358-2T(c).  Today we published a video of Example 16 of the same regulation.  This example shows how basis can be lost in an all cash D reorganization.  The video also shows how to avoid the loss of basis.

Today we uploaded a video of the all cash D reorganization in Example 15 of Treas. Reg. §1.358-2T(c).

Today we uploaded a video demonstrating a section 368(a)(1)(B) reorganization.

Continuing our series on Famous Tax Quotes, (quotes from court opinions with language that is colorful or that concisely states an important tax principle), today's tax quote is:

The motives of the stockholders are immaterial if there has been, in fact, a reorganization.

Lesser v. Commissioner, 26 T. C. 306 (1956)

Famous Tax Quotes includes quotations from court opinions with language that is colorful or that concisely states an important tax principle. Readers are encouraged to send suggestions for upcoming Famous Tax Quotes.

Continuing our series on Famous Tax Quotes, today's Famous Tax Quote is:

Where a redemption of stock is one of a series of steps in a reorganization, the tax treatment is governed by the provisions of law relating to reorganizations.

Grubbs v. Commissioner, 39 T.C. 42 (1962)

On December 17, 2009, the I.R.S. and the Treasury Department issued final regulations (Treasury Decision 9475) dealing with “cash D” reorganizations.  In drafting the regulations, the IRS and Treasury Department analyzed whether the “meaningless gesture doctrine” is inconsistent with the distribution requirement in Code §§ 368(a)(1)(D) and 354(b)(1)(B), especially in situations in which the cash consideration received equals the full fair market value of the property transferred.  In this circumstance, the regulations adopt a rule where a nominal share of stock of the transferee corporation is transferred to the transferor corporation.

The preamble to the regulations includes a summary of the meaningless gesture doctrine:

Notwithstanding the requirement in section 368(a)(1)(D) that “stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356,” the IRS and the courts have not required the actual issuance and distribution of stock and/or securities of the transferee corporation in circumstances where the same person or persons own all the stock of the transferor corporation and the transferee corporation. In such circumstances, the IRS and the courts have viewed an issuance of stock by the transferee corporation to be a “meaningless gesture” not mandated by sections 368(a)(1)(D) and 354(b). See James Armour, Inc. v. Commissioner, 43 T.C. 295, 307 (1964); Wilson v. Commissioner, 46 T.C. 334 (1966); Rev. Rul. 70-240, 1970-1 CB 81.

Code § 368(a)(1)(D) reorganizations are a common type of reorganization in the restructuring of foreign entities of U.S. based multinationals.  The meaningless gesture doctrine is often relied upon in these reorganizations.

Andrew Mitchel is an international tax attorney who advises businesses and individuals with cross-border activities.

On June 23, 2008, the IRS and the Treasury Department published Treasury Decision 9402 which includes new regulations under section 956.  The government has stated that it is aware that certain taxpayers are engaging in certain nonrecognition transactions in which a controlled foreign corporation (CFC) acquires certain United States property (within the meaning of section 956(c)) without resulting in an income inclusion to the United States shareholders of the CFC under section 951(a)(1)(B).

In one such transaction, for example, USP, a domestic corporation and the common parent of an affiliated group that files a consolidated tax return, owns 100- percent of the outstanding stock of US1 and US2, both domestic corporations that join USP in the filing of a consolidated tax return. US1 owns 100 percent of the stock of CFC, a controlled foreign corporation.  CFC holds cash that would be taxable as a dividend to US1 if it were to distribute the cash to US1. 

In a transaction intended to bring the cash to the U.S., but to avoid dividend treatment, US2 issues $100x of its stock to CFC in exchange for $10x of CFC stock and $90x cash.

USP takes the position that :

1. US2's transfer of its stock to CFC in exchange for $10x of CFC stock and $90x cash is an exchange to which section 351 applies;
2. US2 recognizes no gain on the receipt of $10x of CFC stock and $90x cash in exchange for its stock pursuant to section 1032(a);
3. CFC recognizes no gain on the issuance of its stock to US2 under section 1032(a);
4. CFC's basis in the US2 stock is zero pursuant to section 362(a); and
5. US1 and US2 do not and will not have an income inclusion under section 951(a)(1)(B) as a result of CFC holding the US2 stock (which constitutes United States property under section 956(c)).

At first blush, one would expect that CFC’s acquisition of US2 stock should trigger an inclusion because of the investment in U.S. property.  However, inclusions under section 956 are keyed to the basis of the property.  Because the US2 stock held by CFC has a zero basis, there would be no inclusion under section 951(a)(1)(B).

The government indicated these transactions raise significant policy concerns because the transactions may have the effect of repatriating earnings and profits of a CFC without a corresponding dividend inclusion, or an income inclusion under section 951(a)(1)(B) by reason of the CFC's investment in United States property.

As a result, the new regulations provide that when a CFC acquires stock or obligations of a domestic issuing corporation, that constitute United States property under section 956(c), from such corporation pursuant to an exchange in which the controlled foreign corporation's basis in such property is determined under section 362(a), the CFC's basis in such United States property (solely for purposes of section 956) shall be no less than the fair market value of the property transferred by the controlled foreign corporation in exchange for such property.