SERVICE PROVIDES GUIDANCE ON REINCORPORATION OF DUAL RESIDENT COMPANY IN A FOREIGN COUNTRY TO ISOLATE 'DUAL CONSOLIDATED LOSS.'

Notice 87-29

This Notice announces that, through publication of Rev. Rul. 87-27, the Internal Revenue Service will provide an example of the application of section 368(a)(1)(F) of the Internal Revenue Code to a corporate reorganization in which a U.S. corporation is changing its place of organization to a foreign country. This ruling provides that the assets of the U.S. company (the stock in its foreign subsidiary) are transferred to the newly created foreign corporation pursuant to section 361(a) of the Code.

Section 1.367(a)-3T(d)(3) of the Income Tax Regulations will be revised to provide that section 367(a)(1) of the Code will not apply to a transfer of stock or securities of a foreign corporation to another corporation organized in the same country in a section 361 exchange, provided that the conditions set forth in section 1.367(a)- 3T(d)(3) are met. This revision will also provide that, only for purposes of reincorporating a domestic corporation which, on January 1, 1987, was described in section 1503(d)(2)(A) ("dual resident corporation") in a foreign country, if the foreign corporation whose stock is transferred is a holding company, the requirement under section 1.367(a)-3T(d)(3)(ii) will be satisfied if at least 50 percent of the combined total of all of the assets used in the trades or businesses of all of the companies whose stock is held by the transferred corporation are located in the same country in which the transferee and transferred corporations are located.

Further, where a dual resident United States holding company reincorporates in a foreign country, no ranch loss recapture, under section 1.367(a)-6T of the regulations, will be imposed on any losses incurred by that company solely as a result of its holding company activity. In addition, the regulations under section 367 of the Code will be revised to require the closing of the taxable year in a reorganization of a U.S. corporation into a foreign corporation (or vice versa) and to clarify that there is an actual or constructive transfer of assets in all inbound or outbound reorganizations.

Finally, the Service is willing to provide further guidance on additional issues raised by the reincorporation of a dual resident corporation in a foreign country. Questions and comments should be addressed to:

                      ASSOCIATE CHIEF COUNSEL