PLR 200850024: the same safe harbor consent, granted to a group that had moved its operating company and then made it disappear

Plain-English summary

A three page private letter ruling from the Office of Associate Chief Counsel (International), "CC:INTL:B03", control number "PLR-135905-08", dated September 11, 2008 and released 12/12/2008. Corp A asked for consent to revoke its election to use the safe harbor method under Treas. Reg. §1.901-2A(c)(3) for determining foreign income tax paid to Country L, effective for Tax Year Y and all later years. Consent is granted.

This is the same ruling as docs/2008/0850023.md, issued the same day by the same signer on a control number four apart, answering a request letter of the same date. The two letters track each other almost sentence for sentence: the same description of the dual capacity problem, the same two methods, the same conditions for consent, the same closing caveats. What differs is the group being described, and that difference is the reason to read this one.

In the sibling ruling the operating company sat still. Here it moved. Before a redacted Date P, Corp B owned all of Corp D, "which conducts operations in Country L." On Date P, "Corp B transferred the stock of Corp D to Corp C in exchange for additional stock of Corp C." Then "Corp D filed a check-the-box election to be treated as disregarded as an entity separate from Corp C for U.S. tax purposes." So the dual capacity taxpayer was first handed to a sister company and then stopped existing as a separate entity for United States tax purposes altogether, its operations folding into Corp C. The chain now runs through four lettered corporations rather than three, and the legend carries nine defined terms rather than seven, including a second lettered date to mark the restructuring.

The striking thing is that none of this affects the answer. The letter recites the transfer and the check-the-box election in the facts and then never mentions them again. The analysis turns on two things only: that the application arrived "not later than 30 days before Date O", the due date for the group's consolidated return for Tax Year Y, and that the election had been in effect for at least Corp A's last three taxable years before Tax Year Y, which §1.901-2A(d)(4)(vi) identifies as a circumstance where consent is normally given. A reader looking for a rule about what happens to a safe harbor election when the electing group reorganises underneath it will not find one here. The election was made by Corp A for levies paid by members of the Corp A Group, and the moving parts below that level simply did not come up.

As in the sibling, the letter grants a change of method while refusing to say anything about the substance: "No opinion was requested, and no opinion is expressed, as to whether, based upon all of the relevant facts and circumstances, the amount (if any) paid pursuant to a levy or levies imposed by Country L is not an amount paid in exchange for a specific economic benefit." Whether Country L's levy buys a specific economic benefit, which is the entire point of the dual capacity rules, remains open and reviewable on audit.

Two small textual differences from the sibling are worth recording, because together they show a template being edited by hand rather than generated. First, this letter says the representations were "accompanied by your penalty of perjury statement executed", while docs/2008/0850023.md ends the same sentence at "penalty of perjury statement." with no closing word. Second, this letter writes "Corp D is and has been a dual capacity taxpayer" without commas, while the sibling writes "Corp C is, and has been, a dual capacity taxpayer" with them. Neither changes any meaning. Both indicate that someone was retyping or adjusting the sentences case by case.

One defect is carried over from the shared template and reproduced as released. The quotation mark opening the phrase "safe harbor" is a closing mark rather than an opening one, so the sentence reads "either a “facts and circumstances” method or a ”safe harbor” method", with the first phrase correctly set and the second not. The identical defect appears in docs/2008/0850023.md, which establishes that it belongs to the source template rather than to the handling of this particular file. The document came from a clean text layer, nothing has been corrected, and the mark stands as released.

Signed "Richard L. Chewning, Senior Counsel, Branch 3 (International)", with the required notice that "Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent" and an "Enclosure: Copy for 6110 purposes". The index entry, UILC 901.00-00 and 901.01-04 under Taxes of Foreign Countries and of Possessions of U.S. and Dual Capacity Taxpayers, fits the document.

Every authority cited is a Treasury regulation; no case and no Code section other than the 6110 disclosure appears. The citation check this corpus normally runs could not be performed because the legal research tool is unavailable in this session, so the regulation cites are reproduced exactly as released and none has been supplied or corrected from memory.

Ruling snapshot

• Question: May Corp A revoke, for Tax Year Y and later years, its safe harbor method election for foreign income tax paid to Country L, where the operating company was transferred between subsidiaries and then elected to be disregarded?
• Outcome: Approved. Consent granted on the timing of the application and the three year history of the election. The restructuring is recited in the facts and plays no part in the analysis, and no opinion is expressed on whether any Country L levy buys a specific economic benefit.
• Key authorities: Treas. Reg. §1.901-2A(c)(1), §1.901-2A(c)(3), §1.901-2A(d), §1.901-2A(d)(4), (d)(4)(i) through (vi) and specifically (d)(4)(vi); dual capacity taxpayer defined in Treas. Reg. §1.901-2(a)(2)(ii)(A).

Full text (IRS public release)

```text
Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200850024 Third Party Communication: None
Release Date: 12/12/2008 Date of Communication: Not Applicable
Index Number: 901.00-00, 901.01-04
Person To Contact:
---------------------------------- ------------------------, ID No. ------------------
---------------------------------------- ----------------------------------------------------
------------------------ Telephone Number:
---------------------------------------- ---------------------
---------------------------------- Refer Reply To:
CC:INTL:B03
PLR-135905-08
Date:
September 11, 2008

              TY: -------

Legend

Corp A = -----------------------
------------------------
Corp B = -----------------------------------------------
Corp C = ------------------------------------------
Corp D = --------------------------------
Country L = ------------
Date O = ---------------------------
Date P = ---------------------------
Tax Year X = -------
Tax Year Y = -------

Dear ----------------:

This is in response to your letter dated August 15, 2008, in which you request consent
for Corp A to revoke, effective for Tax Year Y and for all subsequent taxable years, its
election, effective beginning for Tax Year X, to use the safe harbor method described in
Treas. Reg. §1.901-2A(c)(3) in determining the amount of foreign income tax paid or
accrued (or deemed paid or accrued) to Country L. The information submitted for
consideration is substantially as set forth below.

The ruling contained in this letter is based upon information and representations you
submitted and accompanied by your penalty of perjury statement executed. While this
office has not verified any of the material submitted in support of the request for rulings,
it is subject to verification on examination.

Corp A is a domestic corporation that is the common parent of an affiliated group of
corporations (“Corp A Group”) that has filed a U.S. consolidated federal income tax
return for Tax Year X and for all subsequent tax years. The due date (including
PLR-135905-08 2

extensions) for Corp A’s U.S. consolidated federal income tax return for Tax Year Y is
Date O, which is more than 30 days after August 15, 2008.

Corp A Group owns, directly and indirectly, 100 percent of Corp B, a controlled foreign
corporation (CFC) for U.S. tax purposes. Corp B owns 100 percent of Corp C, another
CFC. Prior to Date P, Corp B owned 100 percent of Corp D, which conducts operations
in Country L. On Date P, Corp B transferred the stock of Corp D to Corp C in exchange
for additional stock of Corp C. Following the transfer, Corp D filed a check-the-box
election to be treated as disregarded as an entity separate from Corp C for U.S. tax
purposes. Corp D is and has been a dual capacity taxpayer, as defined in Treas. Reg.
§1.901-2(a)(2)(ii)(A), with respect to its operations in Country L.

Treas. Reg. §1.901-2A(c)(1) permits dual capacity taxpayers in computing foreign tax
credits for qualifying levies of each country to use either a “facts and circumstances”
method or a ”safe harbor” method to determine the amount of a levy that is not paid in
exchange for a specific economic benefit.

Corp A filed a safe harbor method election under Treas. Reg. §1.901-2A(c)(3) with
respect to Country L levies paid or accrued (or deemed paid or accrued) by members of
Corp A Group effective for Tax Year X and for subsequent years. That safe harbor
method election has not been revoked under §1.901-2A(d)(4).

Treas. Reg. §1.901-2A(d) describes the manner in which taxpayers may elect and
revoke the safe harbor method. Treas. Reg. §1.901-2A(d)(4) provides that the safe
harbor method election may not be revoked without the consent of the Commissioner.
Consent is normally given, provided the conditions set forth in the regulation are
satisfied. The regulation provides that an application for consent to revoke the election
must be made not later than 30 days before the due date (including extensions) for the
filing of the income tax return for the first taxable year for which the revocation is sought
to be effective, with certain exceptions not applicable to this situation. The
Commissioner may make his consent to any revocation conditioned upon adjustments
being made in one or more taxable years so as to prevent the revocation from resulting
in a distortion of the amount of any item relating to tax liability in any taxable year. The
Commissioner will normally consent to a revocation under the circumstances described
in §1.901-2A(d)(4)(i) through (vi).

Treas. Reg. §1.901-2A(d)(4)(vi) provides that the Commissioner will normally consent to
a revocation of a safe harbor method election if the election has been in effect with
respect to at least three taxable years prior to the taxable year for which the revocation
is to be effective.

Based solely on the information and representations submitted, Corp A’s application for
consent to revoke the safe harbor method election with respect to qualifying levies of
Country L was made not later than 30 days before Date O, the due date (including
PLR-135905-08 3

extensions) for Corp A’s U.S. consolidated federal income tax return for Tax Year Y,
and the applicable safe harbor method election has been in effect with respect to at
least Corp A’s last three taxable years prior to Tax Year Y. Accordingly, consent is
granted to Corp A to revoke the safe harbor method election with respect to qualifying
levies of Country L effective for Tax Year Y and for all subsequent taxable years.

No opinion was requested, and no opinion is expressed, as to whether, based upon all
of the relevant facts and circumstances, the amount (if any) paid pursuant to a levy or
levies imposed by Country L is not an amount paid in exchange for a specific economic
benefit.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

                                   Sincerely,



                                   Richard L. Chewning
                                   Senior Counsel, Branch 3
                                   (International)

Enclosure:
Copy for 6110 purposes
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