Rev. Proc. 80-14

Section 1. Purpose

The purpose of this Revenue Procedure is to set forth guidelines that will be used by the Internal Revenue Service in considering requests for rulings under section 367(a)(1) of the Internal Revenue Code where tangible property is transferred by a United States person to a foreign corporation in a transaction described in section 351 and the tangible property transferred is leased by the foreign corporation to other persons who will not use it in the United States.

Sec. 2. Background

Rev. Proc. 68-23, 1968-1 C.B. 821, sets forth the guidelines used by the Internal Revenue Service in considering requests for rulings under section 367 of the Code in respect of certain types of transactions involving foreign corporations.

Section 3.02(1) of Rev. Proc. 68-23 provides that favorable consideration under section 367 of the Code will ordinarily be given to an exchange described in section 351 where property is transferred to a foreign corporation controlled by the transferor, and such property is devoted by the transferee foreign corporation to the active conduct, in any foreign country, of a trade or business. Section 3.02(1) further provides that it is contemplated that the transferee foreign corporation, in addition to the active conduct of a trade or business, will have need for a substantial investment in fixed assets in such business.

Section 3.02(1)(b)(ii) of Rev. Proc. 68-23 limits section 3.02(1) by providing that a favorable ruling under section 367 of the Code generally will not be issued for an exchange described in section 351 where the property to be transferred to the foreign corporation will be licensed or leased by the transferee foreign corporation after the transfer.

However, section 2.02 of Rev. Proc. 68-23 provides that notwithstanding a contrary statement or implication contained in the guidelines a taxpayer may establish that a favorable ruling under section 367 of the Code should be issued based on all the facts and circumstances of the case.

Sec. 3. Guidelines

Where tangible property is transferred to a foreign corporation by a United States person, in a transaction described in section 351 of the Code, and the tangible property transferred will be leased by the foreign corporation to other persons, who will not use it in the United States, a favorable ruling under section 367(a)(1) ordinarily will be issued if the taxpayer establishes, based on all the facts and circumstances, that the leasing of the tangible property by the foreign corporation will represent the active conduct of a trade or business in the foreign country, that the foreign corporation will have need for a substantial investment in fixed assets (the tangible property transferred) in such business, and that the lessee will not use the tangible property in the United States. The active conduct of a trade or business requires that the employees of the foreign corporation will perform substantial marketing, customer servicing, repair and maintenance and other substantial operational activities with respect to the leased tangible property.

Sec. 4. 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. 5. Effect on Other Documents

Rev. Proc. 68-23 is amplified.