The IRS has concluded in field attorney advice (FAA 20124601F) that two corporations formed immediately prior to an asset sale were ignored for U.S. federal income tax purposes.
The field attorney advice addressed a corporation (the taxpayer) that owned a controlled foreign corporation (CFC) and a subsidiary (Sub 1). The taxpayer entered into an agreement to sell most of its property to an unrelated corporation (the buyer), including a certain property held by CFC (Property A). The taxpayer desired to receive proceeds from Property A outside the CFC's country, and the buyer desired to hold such property in a corporation formed in a different country than CFC's.
Prior to such asset sale, the taxpayer restructured as follows (the restructuring):
- CFC formed a new corporation (Newco 1) by contributing Property A in exchange for Newco 1 shares.
- The taxpayer's owner (the owner) formed a new corporation (Newco 2) on behalf of the taxpayer and transferred all of the stock of Newco 2 to Sub 1 in exchange for consideration.
- CFC then transferred the stock of Newco 1 to Newco 2 in exchange for the retirement of certain intercompany debt owed by CFC that was transferred to Newco 1 by the taxpayer.
After the restructuring, Sub 1 sold its Newco 2 stock to the buyer.
The IRS concluded that CFC sold Property A to the buyer in substance and disregarded Newco 2 and Newco 1, citing Rev. Rul. 70-140 and Comm'r v. Court Holding Company (324 U.S. 331).
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