PLR 200850025: the same consent granted over the most tangled of the three chains, in the copy that lost a word from its perjury sentence

Plain-English summary

A three page private letter ruling from the Office of Associate Chief Counsel (International), "CC:INTL:B03", control number "PLR-135904-08", 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 foreign income tax paid to Country L, effective for Tax Year Y and all later years. Consent is granted.

This is the third of three. docs/2008/0850023.md is PLR-135901-08, docs/2008/0850024.md is PLR-135905-08, and this is PLR-135904-08. All three answer request letters dated August 15, 2008, all three are signed by Richard L. Chewning on September 11, 2008, and all three reach the same one sentence grant on the same two facts: the application arrived more than 30 days before the due date of the group's consolidated return, and the election had already run for at least three taxable years, which Treas. Reg. §1.901-2A(d)(4)(vi) identifies as a circumstance where consent is normally given. Everything from the citation of §1.901-2A(c)(1) onward is word for word identical across the set.

What this one contributes is the ownership chain, which is by far the most elaborate of the three. The other two letters name three and four lettered corporations. This one names seven, Corp A through Corp G, plus four separately redacted percentages. Corp A Group owns Corp B, Corp B owns Corp C, and then the structure fans out: in Tax Year Y, Corp C owned all of Corp D, "a foreign company treated as an entity disregarded from Corp C for U.S. tax purposes"; P percent of Corp E, "a foreign corporation"; and P percent of Corp F, "a foreign company treated as a partnership for U.S. tax purposes." Those three then held the operating vehicle jointly: "Corps D, E, and F owned Q Percent, R Percent, and S Percent, respectively, of Corp G, a Country L company treated as a partnership for U.S. tax purposes." Corp G is the dual capacity taxpayer.

So the entity whose Country L levies are at issue is a partnership sitting two levels below the controlled foreign corporations, held by three different vehicles of three different characters, one disregarded, one a corporation, one another partnership, with an unrelated third party owning part of two of them. The safe harbor election that is being revoked was nonetheless made by Corp A, the domestic common parent, and made once, for "Country L levies paid or accrued (or deemed paid or accrued) by members of Corp A Group." Read across the set, that is the practical point these three letters make together: the election operates at the top of the group and covers the whole group's Country L levies, so the shape of the structure underneath it does not change the analysis. The simple chain in docs/2008/0850023.md, the mid stream reshuffle in docs/2008/0850024.md and the seven entity fan out here all get the identical grant.

Four textual points, recorded because the document came from a clean text layer and nothing here has been corrected.

First, a word is missing. This letter reads "accompanied by your penalty of perjury statement . While this office has", with a space standing where a word was. Its two siblings settle what the word was: docs/2008/0850023.md ends the phrase at "penalty of perjury statement." and docs/2008/0850024.md reads "penalty of perjury statement executed." The space before the full stop here is the gap the missing word left behind. This is not a scanning artifact being guessed at, it is a drafting slip provable from two documents issued the same day by the same signer.

Second, a word is doubled: "The remaining P percent of of each of Corp E and F was owned by an unrelated third party."

Third, the same redaction token does three different jobs. P percent is the interest in Corp E, the interest in Corp F, and also "the remaining P percent" of both. Taken literally that forces P to be 50, and forces the outside holdings in Corp E and in Corp F to be identical. Whether the underlying figures actually were identical cannot be recovered from the released text; what is visible is that the redaction collapsed them into one label.

Fourth, the legend is ragged. Three of the four percentage entries are set as "P Percent =", "R Percent =" and "S Percent =" with two spaces before the equals sign, while the fourth is set as "Q Percent =" with one, so the column of equals signs does not line up.

One further defect is shared with both siblings and belongs to the template rather than to this file. The quotation mark opening the phrase "safe harbor" is a closing mark: "either a “facts and circumstances” method or a ”safe harbor” method". The first phrase is correctly set and the second is not, in all three letters.

As in the siblings, the grant is procedural and the substance is left untouched: "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." Signed "Richard L. Chewning, Senior Counsel, Branch 3 (International)", with the 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, matches the document.

Every authority cited is a Treasury regulation. 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 dual capacity taxpayer is a Country L partnership held by a disregarded entity, a foreign corporation and a foreign partnership?
• Outcome: Approved. Consent granted on the same two grounds as its siblings, the timing of the application and the three year history of the election. The seven entity structure is recited 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: 200850025 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-135904-08
Date:
September 11, 2008

              TY: -------

Legend

Corp A = -----------------------
------------------------
Corp B = -----------------------------------------------
Corp C = ------------------------------------------
Corp D = --------------------------------------------
Corp E = ------------------------------------------
Corp F = -------------------------------------------------
Corp G = ---------------------------------------------
Country L = ---------
Date O = ---------------------------
P Percent = --------------
Q Percent = --------------
R Percent = -----------------
S Percent = -----------------
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 . While this office has
PLR-135904-08 2

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
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. In Tax Year Y, Corp C owned 100 percent of Corp D, a foreign company treated
as an entity disregarded from Corp C for U.S. tax purposes; P percent of Corp E, a
foreign corporation; and P percent of Corp F, a foreign company treated as a
partnership for U.S. tax purposes. The remaining P percent of of each of Corp E and F
was owned by an unrelated third party. Corps D, E, and F owned Q Percent, R
Percent, and S Percent, respectively, of Corp G, a Country L company treated as a
partnership for U.S. tax purposes. Corp G conducts operations in Country L. Corp G 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).
PLR-135904-08 3

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
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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