Rev. Proc. 77-5

Section 1. Purpose.

The purpose of this Revenue Procedure is to set forth procedures for the submission of requests for rulings to the Internal Revenue Service under section 367 of the Internal Revenue Code of 1954, as amended by section 1042 of the Tax Reform Act of 1976 (the Act), Pub. L. No. 94-455, 94th Cong., 2nd Sess. (October 4, 1976), [1976-3 C.B. (Vol. 1) 110], and to set forth the administrative remedies available to a taxpayer within the Service on such rulings.

Sec. 2. Background.

.01 Section 367 of the Code, prior to its amendment by the Act, provided generally and in effect, that certain nonrecognition of gain provisions, involving exchanges relating to the organization, reorganization, and liquidation of a corporation (sections 332, 351, 354, 355, 356, or 361), would not be applicable where a foreign corporation was involved in the transaction, unless (except as provided in section 367(b)) prior to the exchange the Service ruled upon a request by the taxpayer that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes. Prior to the Act, there was no effective way a taxpayer could litigate an adverse determination by the Service under section 367.

.02 The necessity for obtaining a ruling in connection with an exchange to which section 367 of the Code, as amended, applies, depends upon the following circumstances:

1 Under section 367(a)(1) of the Code if, in connection with an exchange described in section 332, 351, 354, 355, 356, or 361 there is a transfer beginning after October 9, 1975 of certain property by a United States person to a foreign corporation, for purposes of determining the extent to which gain shall be recognized on such transfer, a foreign corporation shall not be considered to be a corporation unless a request for a ruling is filed not later than the close of the 183rd day after the beginning of such transfer, and pursuant to such request it is established to the satisfaction of the Secretary that such exchange is not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes.

2 Under section 367(a)(2) of the Code, an exception to this requirement for filing a request for a ruling will be made with respect to any transfer beginning after October 9, 1975 made in connection with an exchange described in section 367(a)(1), or with respect to any type of property, for which a ruling would otherwise be required under section 367(a)(1) if such an exchange or such property is so designated under regulations.

3 Under section 367(b) of the Code, in the case of an exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer of property described in section 367(a)(1), a foreign corporation shall be considered to be a corporation, except to the extent otherwise provided under regulations, provided the exchange begins after December 31, 1977. A ruling is not required in the case of such an exchange.

4 In the case of an exchange described in section 367(b) of the Code that begins before January 1, 1978, the requirement for obtaining a ruling under section 367(a)(1) applies. Thus, if, in connection with such an exchange there is a transfer of property beginning after October 9, 1975, for purposes of determining the extent to which gain shall be recognized on such transfer a foreign corporation shall not be treated as a corporation unless a request for ruling is filed not later than the close of the 183rd day after the beginning of such transfer, and the requisite lack of tax avoidance purpose is established to the satisfaction of the Secretary.

5 Under section 1042(e)(2) of the Act in the case of any exchange described in section 367 of the Code (as in effect on December 31, 1974) in any taxable year beginning after December 31, 1962, and before October 4, 1976 which does not involve the transfer of property to or from a United States person, a taxpayer shall have for purposes of such section until April 5, 1977 to file a request for ruling.

.03 Section 7477 of the Code, as added by the Act, permits a taxpayer, after the taxpayer has exhausted its administrative remedies and satisfied certain other requirements, to petition the United States Tax Court, under declaratory judgment procedures, to review: (1) a determination made by the Service with respect to an exchange described in section 367(a)(1) that such exchange was in pursuance of a tax avoidance purpose, or (2) a determination of the terms and conditions pursuant to which such an exchange will be determined not to be in pursuance of tax avoidance, or (3) the failure by the Service to make such determination. The provisions of section 7477 apply with respect to pleadings filed with the Tax Court after October 4, 1976, the date of enactment of section 7477, but only with respect to transfers beginning after October 9, 1975. For purposes of section 7477 an exchange "described in section 367(a)(1)" does not include one to which (1) section 367(a)(1) applies by reason of section 367(d) (that is, an exchange described in section 367(b) that begins before January 1, 1978), or (2) to which section 1042(e)(2) of the Act is applied.

.04 This Revenue Procedure does not apply to exchanges for which a ruling will not be required pursuant to regulations under section 367(a)(2) of the Code and to exchanges described in section 367(b) that begin after December 31, 1977.

Sec. 3. Requests For Rulings Under Section 367.

.01 A request for a ruling under section 367(a)(1) of the Code (including a request with respect to an exchange described in section 367(b) which begins before January 1, 1978), or section 1042(e)(2) of the Act must:

1 Set forth the facts and circumstances relating to the plan under which the exchange is to be made and be accompanied by a copy of such plan.

2 Be filed in accordance with all applicable procedural rules set forth in section 601.201 of the Statement of Procedural Rules (26 CFR Part 601) (including the amendments thereto published in the Federal Register on November 5, 1976 (41 FR 48740) concerning the implementation of section 6110 of the Code (public inspection of written determinations)), and in any revenue procedures which relate to submission to the Service of requests for ruling which are applicable with respect to the date that such request is filed. The penalties of perjury statement required by section 601.201(e)(1) of the Statement of Procedural Rules to be submitted with a request for ruling letter that is postmarked or hand delivered to the Service after October 31, 1976 cannot be signed by a representative of the taxpayer, such as an attorney, certified public accountant, or enrolled agent authorized to act on behalf of a taxpayer before the Service.

3 Be filed in compliance with sections 3.011 and 3.012 above at any time before or after, but not later than the close of the 183rd day after, the date of the beginning of (1) in the case of an exchange described in section 367(a)(1) of the Code, any transfer of property described in section 367(a)(1), or (2) in the case of an exchange described in section 367(b) that begins before January 1, 1978, any transfer of property made in connection with such exchange.

4 Be filed in compliance with sections 3.011 and 3.012 above, in the case of an exchange to which section 1042(e)(2) of the Act is applied, on or before April 5, 1977.

.02 Notwithstanding the provisions of section 3.01 above or of any other provision relating to procedures for the filing with the Service of a request for ruling, a request for ruling under section 367(a)(1) of the Code (including a request with respect to an exchange described in section 367(b) which begins before January 1, 1978), or section 1042(e)(2) of the Act shall not be deemed filed within the time specified in sections 3.013 or 3.014 (whichever is applicable) above, unless within such time limit the taxpayer files such a request which either complies exactly with the provisions of sections 3.011 and 3.012 above, or sets forth the facts and circumstances relating to the plan under which the exchange is to be made in sufficient detail to apprise the Service of the nature of the exchange and the purpose for which such request is filed and is executed under penalties of perjury as required in section 601.201(e)(1) of the Statement of Procedural Rules. In the event of a failure to comply exactly with the provisions of sections 3.011 and 3.012 above, the Service may decline to rule on such request until such time as there is such compliance.

.03 Rev. Proc. 68-23, 1968-1 C.B. 821, as amplified by Rev. Proc. 76-20, 1976-1 C.B. 560, describes guidelines used by the Service in considering requests for rulings under section 367 of the Code. Rev. Proc. 75-29, 1975-1 C.B. 754, as modified by Rev. Proc. 76-4, 1976-1 C.B. 543, and Rev. Proc. 76-44, 1976-2 C.B. 668, and as amplified by Rev. Proc. 76-24, 1976-1 C.B. 563, contains information on closing agreements which are available in the case of certain transactions for which clearance is sought under section 367. These guidelines and procedures, and any subsequent modifications and amplifications until superseded, will continue to be followed in issuing rulings under section 367, as amended.

Sec. 4. Administrative Remedies.

.01 A taxpayer may protest a ruling letter issued under section 367(a)(1) of the Code (including a ruling with respect to an exchange described in section 367(b) which begins before January 1, 1978), or section 1042(e)(2) of the Act, that holds that one of the principal purposes of the exchange is the avoidance of Federal income tax, or that sets forth the terms and conditions pursuant to which an exchange to which section 367 applies will be considered not to be in pursuance of tax avoidance. If the transfer to which a ruling relates began on or before October 9, 1975, this protest procedure is unavailable because the amendments to section 367 apply only with respect to transfers beginning after October 9, 1975. If the transfer to which the ruling letter relates began after October 9, 1975, or has not begun, and the ruling letter was issued before October 9, 1975 or before January 31, 1977, the protest must be made not later than the close of the 45th day after January 31, 1977. A taxpayer who protested a ruling letter issued before January 31, 1977 and who received an adverse decision from the Service on the protest may file another protest not later than the close of the 45th day after January 31, 1977 if the transfer to which the protest relates has not begun or began after October 9, 1975. If the ruling letter was issued on or after January 31, 1977, the protest must be made not later than the close of the 45th day after the date of the ruling letter. A protest is considered made on the date of the postmark of a letter of protest addressed to the Assistant Commissioner (Technical), or the date that such letter is hand delivered to the Service. The letter must include:

1 A copy of the ruling letter.

2 The reasons for the protest, including, where applicable, (a) the grounds for contending that none of the principal purposes for the exchange is the avoidance of Federal income tax, (b) the grounds for contending that the terms and conditions set forth in the ruling letter pursuant to which an exchange to which section 367 applies will be considered not to be in pursuance of tax avoidance are not reasonable, and (c) the arguments in support of a protest as to the validity of a ruling position published by the Service, such as a position set forth in the guidelines announced in Rev. Proc. 68-23. No factual material not previously submitted and considered by the Service should be included in the protest.

3 A statement whether a conference is desired.

4 Names of persons (including authorized representatives) expected to attend the conference, if granted.

.02 The Assistant Commissioner (Technical) will establish an ad hoc advisory board to consider each protest, whether or not a conference is requested. The taxpayer will be granted one conference upon request. Whether or not such a request is made the board may request one or more conferences or written submissions. The taxpayer will be notified of the time, date, and place of the conference, and of the names of the members of the board. The board will consider all materials submitted in writing by the taxpayer and oral arguments presented at the conference. The board will make its recommendation to the Assistant Commissioner (Technical) who will make a decision. Any oral arguments made at a conference by the taxpayer, which have not previously been submitted to the Service in writing, may, if desired, be submitted to the Service in writing if postmarked not later than the close of the 7th day after the day of the conference. The taxpayer will be informed of the decision of the Assistant Commissioner by certified or registered mail.

.03 The administrative remedies available to a taxpayer within the Service are set forth in sections 4.01 and 4.02 above. After the taxpayer protests the Service's ruling letter, under the procedures set forth therein, and the taxpayer is notified by certified or registered mail of the decision of the Assistant Commissioner (Technical), there will be no further administrative remedies available. It is not necessary for the taxpayer to request a conference in connection with the protest in order to exhaust the administrative remedies within the Service.

.04 The Service may decline to issue a ruling letter or a decision of the Assistant Commissioner (Technical) until a reasonable time after the taxpayer has taken all reasonable measures to secure such ruling or decision including the submission of prompt and complete responses to all requests for information.

.05 The taxpayer will be advised of the protest procedure set forth in section 4.01 above in the ruling letter issued to the taxpayer by the Service stating that the exchange to which section 367 of the Code applies is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes, or setting forth the terms and conditions pursuant to which an exchange to which section 367 applies will be determined not to be in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes.

.06 A decision by the Service relating to an exchange to which section 367 of the Code applies will be based solely upon the facts contained in the administrative record.

.07 The administrative record, which will be filed with the Tax Court in the event of litigation under section 7477 of the Code unless the Tax Court rules otherwise provide, will consist of the following:

1 The request for ruling and any written modifications or amendments thereof made by or on behalf of the taxpayer during the proceedings within the Service.

2 All other documents submitted to the Service by or on behalf of the taxpayer in respect of the request for or protest to the ruling.

3 All written correspondence between the Service and the taxpayer in respect of the request for or protest to the ruling and any other documents issued to the taxpayer from the Service.

.08 The Service will not make an independent verification of the facts submitted by or on behalf of a taxpayer in a request for ruling or protest thereof under section 367 of the Code.

.09 In addition to this Revenue Procedure, rules relating to the filing of a request for ruling pursuant to section 367 of the Code, will be set forth in regulations prescribed under such section and in amendments to the Statement of Procedural Rules.

Sec. 5. Inquiries.

Inquiries in regard to this Revenue Procedure should refer to its number and should be addressed to the Assistant Commissioner (Technical), Attention: T:C:R: Internal Revenue Service, Washington, D.C. 20224.

Sec. 6. Effect on Other Documents.

.01 Rev. Proc. 73-5, 1973-1 C.B. 751, which sets forth procedures for handling protests of adverse determinations under section 367 of the Code, is superseded with regard to determinations made under section 367 on or after October 4, 1976, the date of the enactment of the amendments thereto, because such procedures are set forth in sections 4.01 and 4.02 above.

.02 Rev. Proc. 76-2, 1976-1 C.B. 542, which sets forth language for the penalties of perjury statement required in connection with rulings under sections 367 and 1492 of the Code, is inapplicable to requests for rulings under sections 367 and 1492 postmarked or hand delivered to the Service after October 31, 1976 because of the amendment to section 601.201(e)(1) of the Statement of Procedural Rules that specifically prescribes the form that the penalties of perjury statement must take. Rev. Proc. 76-2 is applicable to requests for rulings under sections 367 and 1492 postmarked or hand delivered to the Service prior to November 1, 1976.