Rev. Proc. 76-20

Section 1. Purpose.

The principal purpose of this Revenue Procedure is to explain the effect of Rev. Rul. 75-561, 1975-2 C.B. 129, on transactions described in section 3.03(1)(c) of Rev. Proc. 68-23, 1968-1 C.B. 821, 827.

Sec. 2. Background.

Rev. Rul. 75-561 revokes Rev. Rul. 69-185, 1969-1 C.B. 108, and sets forth criteria under which certain reorganizations, including those involving the combination of two or more operating corporations owned directly by the same shareholders may qualify as reorganizations under section 368(a)(1)(F) of the Internal Revenue Code of 1954.

Rev. Proc. 68-23 establishes guidelines in connection with requests for advance rulings required under section 367 of the Code. Section 3.03(1)(c) thereof provides that a favorable ruling will generally be issued pursuant to section 367 in situations where assets of a controlled foreign corporation are acquired by another foreign corporation if the shareholders of the acquired corporation agree to include in their gross income, as a dividend deemed paid in money for their taxable year in which the exchange of stock occurs, the portion of the earnings and profits, if any, of the acquired foreign corporation properly attributable under section 1248 to such shareholders' stock in such corporation, which would have been included in their gross income under section 1248 if at the time of such acquisition the stock of such corporation was exchanged in a taxable exchange.

When the acquiring corporation is a controlled foreign corporation, the shareholders of the acquired corporation have the alternative of entering into a closing agreement specified in Rev. Proc. 75-29, 1975-1 C.B. 754, as modified by Rev. Proc. 76-4, page 543, this Bulletin, in lieu of currently including in income the amount required by section 3.03(1)(c) of Rev. Proc. 68-23.

Section 3.03(1)(c) of Rev. Proc. 68-23 does not apply to transactions where the acquiring foreign corporation is organized for the purpose of merely reincorporating the business of a single foreign corporation in the same or another foreign country, or where the acquiring foreign corporation used for such purpose is a dormant corporation without any assets, business, or earnings and profits. In such transactions a favorable ruling will generally be issued pursuant to section 367 of the Code.

Sec. 3. Transactions Under Section 3.03(1)(c) of Rev. Proc. 68-23.

Transactions involving the combination of two or more foreign operating corporations owned directly by the same shareholders and that satisfy the requirements of Rev. Rul. 75-561 will continue to be subject to the provisions of section 3.03(1)(c) of Rev. Proc. 68-23. Sec. 4. Inquiries.

Inquiries in regard to this Revenue Procedure 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.

Section 3.03(1)(c) of Rev. Proc. 68-23 is amplified by this Revenue Procedure.