PLR 200030017: Proposed regulations govern a foreign stock merger's C reorganization test

Plain-English summary

Two corporations organized in the same foreign country merged, and the target's shareholders exchanged their shares solely for voting common stock of the surviving corporation. The IRS said that, under Notice 2000-1, the proposed regulations published in June 1999 governing the solely for voting stock requirement should be applied when assessing a section 368(a)(1)(C) reorganization. It expressly gave no opinion on whether this merger actually qualified as a C reorganization. The letter therefore resolved which regulatory standard to apply, leaving the ultimate tax classification open.

Ruling snapshot

• Question: Which rules govern the solely for voting stock requirement for this proposed C reorganization?
• Outcome: Advice given on the applicable proposed regulations; qualification undecided.
• Key authorities: IRC § 368(a)(1)(C); Notice 2000-1; proposed regulations at 64 Fed. Reg. 31770.

Full text (IRS public release)

Internal Revenue Service      Department of the Treasury

Index Number: 368.03-00       Washington, DC 20224

Number: 200030017             Person to Contact:
Release Date: 7/28/2000       Telephone Number:

Refer Reply To:
CC:DOM:CORP:5 - PLR-106726-00
Date:
April 28, 2000

In Re:

Acquiring                 =

Target                    =

Shareholder A             =

Shareholder B             =

Business A                =

Business B                =

Country A                 =

Date A                    =

Date B                    =

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PLR-106726-00

Date C                    =

Date D                    =

Date E                    =

a                         =

b                         =

c                         =

d                         =

:

This is in reply to your letter dated March 16, 2000 requesting that we rule on
certain federal income tax consequences of a transaction. The information submitted in
that request and in subsequent correspondence is substantially as set forth below.

Target, a Country A corporation, was engaged in Business A. Target had
issued and outstanding a single class of voting common stock. As of Date A, Acquiring,
a Country A corporation engaged in Business B, owned approximately a percent of
Target’s outstanding shares. As of Date A, Shareholder A, a U.S. corporation, owned
approximately b percent of Target’s outstanding shares. As of Date B, Shareholder B,
a Country A corporation, owned c percent of Target’s outstanding shares. The
employees of Target owned approximately d percent of Target’s outstanding shares.
Target’s remaining shares were widely dispersed among hundreds of shareholders.
Shareholder A and Shareholder B were both customers of Target.

For what is represented to be a valid business purpose, Target merged into
Acquiring under the laws of Country A on Date C. In the merger, all of Target’s
shareholders were required to exchange their shares in Target solely in exchange for
voting common stock in Acquiring. Following the exchange of shares, Target dissolved,
and Acquiring succeeded to, and became the legal owner of, all of the assets of Target.
Target’s board of directors approved the merger on Date D and Target’s shareholders
approved the merger on Date E.

Based solely on the information submitted, it is held that, pursuant to Notice
2000-1, 2000-2 I.R.B. 288 (Jan. 10, 2000), the determination of whether the transaction
described above qualifies as a reorganization under § 368(a)(1)(C) of the Internal
Revenue Code is to be made by applying the proposed income tax regulations relating
to the solely for voting stock requirement in a reorganization under § 368(a)(1)(C)
published in the Federal Register on June 14, 1999 (64 Fed. Reg. 31770). No opinion

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is expressed, however, whether the transaction qualifies as a reorganization under §
368(a)(1)(C).

No opinion is expressed about the tax treatment of the proposed transaction
under other provisions of the Code and regulations or about the tax treatment of any
conditions existing at the time of, or effects resulting from, the proposed transaction that
are not specifically covered by the above rulings.

This ruling letter is directed only to the taxpayers who requested it. Section
6110(k)(3) provides that it may not be used or cited as precedent.

It is important that a copy of this letter be attached to the federal income tax
returns of the taxpayers involved for the taxable year in which the transaction covered
by this ruling letter is consummated.

Pursuant to the power of attorney on file in this office, copies of this letter have
been sent to the taxpayer and the taxpayer’s representative.

Sincerely yours,

Assistant Chief Counsel (Corporate)

By:
Charles Whedbee
Senior Technical Reviewer, Branch 5