All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

US Inbound: IRS private ruling 201328003



Jim Fuller and David Forst, Fenwick & West

IRS private ruling 201328003 describes the restructuring of a US consolidated group owned by a foreign parent involving a number of dual resident entities. The presence of the dual resident entities made the restructuring more complicated than an equivalent transaction with entities organised solely in the US. Nevertheless, the Service looked to the end result, which was a simple reorganisation under section 368(a)(1)(F).

Foreign parent is the parent corporation of a number of subsidiaries, including target, an entity incorporated in country X (target X). This entity had filed certificates of domestication and incorporation in state Y pursuant to a state Y domestication statute (target). Target was the common parent of a US consolidated group of corporations.

Target owned all of the stock of sub 1, which was incorporated in country X (sub 1X) and had also filed certificates of domestication and incorporation in state Y pursuant to a state Y domestication statute (sub 1). The only asset held by target and sub 1 was equity in sub 2, a state Y entity, which was presumably a partnership, that had elected to be treated as a corporation for US federal income tax purposes and is treated as a partnership for country X tax purposes.

Sub 2 owned equity in other subsidiaries, all of which were part of the target consolidated group.

In a restructuring transaction, target and sub 1 liquidated. Given the dual residency of these entities, the liquidations were more complicated that usual. Both target and sub 1 were dissolved under state Y law, and in addition, under Treasury regulation section 301.7701-3(c)(1)(i), target X and sub 1X filed protective elections to be classified as disregarded for federal income tax purposes. Foreign parent apparently considered the check-the-box elections to be prudent because of the dual incorporation of target and sub1X. Check-the-box elections would not have been a consideration had the entities solely been organised in the US.

Sub 2 also liquidated for US tax purposes, and to do so simply made a check-the-box election, reversing its previous election to be treated as a corporation. (Sub 2's check-the-box election occurred after sub 1's liquidation.) As a non-corporate entity, a state law liquidation was not necessary. Further, it was represented that sub 2 was not subject to the 60-month limitation of section 301.7701-3(c)(1)(iv).

The end result of the transactions was that a newly formed state Y LLC that elected to be treated as a corporation for US tax purposes held all of the assets formerly held by target. As a result, the restructuring was treated as a reorganisation under section 368(a)(1)(F). It would appear that none of the transactions had any effect on the entities' foreign characterisation. In addition, it can be presumed that neither target nor sub 1 had losses or else foreign parent likely also would have requested rulings under the dual consolidated loss rules.

Jim Fuller (

Tel: +1 650 335 7205

David Forst (

Tel: +1 650 335 7274

Fenwick & West


more across site & bottom lb ros

More from across our site

The Italian government published plans to levy capital gains tax on cryptocurrency transactions, while Brazil and the UK signed a new tax treaty.
Multinational companies fear the scrutiny of aggressive tax audits may be overstepping the mark on transfer pricing methodology.
Standardisation and outsourcing are two possible solutions amid increasing regulations and scrutiny on transfer pricing, say sources.
Inaugural awards announces winners
The UN’s decision to seek a leadership role in global tax policy could be a crucial turning point but won’t be the end of the OECD, say tax experts.
The UN may be set to assume a global role in tax policy that would rival the OECD, while automakers lobby the US to change its tax rules on Chinese materials.
Companies including Valentino and EveryMatrix say the early adoption of EU public CbCR rules could boost transparency of local and foreign MNEs, despite the short notice.
ITR invites tax firms, in-house teams, and tax professionals to make submissions for the 2023 ITR Tax Awards in Asia-Pacific, Europe Middle East & Africa, and the Americas.
Tax authorities and customs are failing multinationals by creating uncertainty with contradictory assessment and guidance, say in-house tax directors.
The CJEU said the General Court erred in law when it ruled that both companies benefitted from Italian state aid.