A new foreign parent's year begins after redomiciliation for the small-redemption rule

Plain-English summary

A consolidated loss group was indirectly owned by a publicly traded foreign parent that redomiciled through a newly formed foreign corporation. Shareholders exchanged their old-parent shares one for one for new-parent shares in a section 351 exchange, and the new parent had previously held only nominal assets and conducted no unrelated business. The new parent later repurchased shares from one shareholder and, after an unexpected price decline, separately redeemed shares from public holders. The taxpayer represented that the two repurchases were not part of the same plan and were not separated to avoid an ownership shift. The IRS ruled that, for the small-redemption limitation under the section 382 segregation rules, the loss group could treat the new parent's taxable year as beginning immediately after the redomiciliation.

Ruling snapshot

• Question: When did the newly formed foreign parent's taxable year begin for computing the small-redemption limitation under the section 382 rules?
• Outcome: approved (the year could be treated as beginning immediately after the redomiciliation)
• Key authorities: IRC §§ 351, 382; Treas. Reg. §§ 1.382-3(j)(14), 1.1502-91(c)(1)

Full text (IRS public release)

 Internal Revenue Service                                          Department of the Treasury
                                                                   Washington, DC 20224

 Number: 202024013                                                 Third Party Communication: None
 Release Date: 6/12/2020                                           Date of Communication: Not Applicable
 Index Number: 382.07-05
                                                                   Person To Contact:
 -----------------------                                           -----------------------------, ID No. -------------
 ---------------------------------                                 -----------------
 ---------------------------------                                 Telephone Number:
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 In Re:                                                            Refer Reply To:
                                                                   CC:CORP:B4
                                                                   PLR-129128-19
                                                                   Date:
                                                                   March 13, 2020




Legend

LossCo                     =        ---------------------------------
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New Parent                 =         --------------------------
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Old Parent                 =         --------------------
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FSub1                      =         ------------------------------------------------
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FSub2                      =         -------------------------------------

Date 1                     =         ---------------------------

Date 2                     =         ---------------------

Time Period 3              =         -------------

Time Period 4              =         --------------------------

Year 1                     =         -------

Year 2                     =         -------
PLR-129128-19                                       2


Shareholder A             =   ------------------------------

State A                   =   -------------


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

This letter responds to a letter dated November 27, 2019, submitted on behalf of
LossCo, requesting a ruling under Section 382 of the Internal Revenue Code. The
material information submitted is summarized below.

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalties of perjury statement
executed by an appropriate party. This office has not verified any of the materials
submitted in support of the request for rulings. Verification of the information,
representations, and other data may be required as part of the audit process.

                                       Summary of Facts

LossCo is a State A corporation that is the common parent of a group of affiliated
corporations that has elected to file a consolidated U.S. federal income tax return (the
“LossCo Group”). As of the beginning of Year 2, the LossCo Group was a “loss group”
under Treas. Reg. § 1.1502-91(c)(1), and LossCo was wholly owned by FSub2, a non-
U.S. corporation, which was wholly owned by Old Parent, a non-U.S. corporation.
Shares of Old Parent were traded on a U.S. stock exchange.

In Year 1, Old Parent’s board of directors determined that it was in the best interest of
Old Parent’s worldwide group to re-domicile to another non-U.S. jurisdiction. New
Parent, a non-U.S. corporation, was incorporated on Date 1 (which is in Year 1) in
anticipation of and for the sole purpose of facilitating the re-domiciliation. From the time
of its formation until Date 2 (which is in Year 2), New Parent held only nominal assets
and liabilities and conducted no business activities other than those relating to the re-
domiciliation.

On Date 2, holders of Old Parent shares contributed their Old Parent shares to New
Parent for shares of New Parent on a one-for-one basis (the “Re-Domicile
Transaction”). For U.S. federal income tax purposes, the Re-Domicile Transaction
qualified as a section 351 exchange.

As a result of the Re-Domicile Transaction, Old Parent became a wholly owned
subsidiary of New Parent. For securities law purposes, New Parent became the
successor issuer to Old Parent and replaced Old Parent as the registrant with the
Securities and Exchange Commission. Old Parent and New Parent use the calendar
year for accounting and financial reporting purposes.
PLR-129128-19                                 3


Immediately after the Re-Domicile Transaction, New Parent transferred Old Parent to
New Parent’s newly formed, wholly owned subsidiary FSub1, a non-U.S. corporation, in
exchange for a note. Shortly thereafter, New Parent’s worldwide group carried out
additional internal restructurings, including the transfer of FSub2 (which owns LossCo)
from Old Parent to FSub1.

Following the Re-Domicile Transaction, New Parent repurchased some of its shares
from Shareholder A in Time Period 3 (the “Shareholder A Repurchase”). Following the
Shareholder A Repurchase, New Parent redeemed some of its shares from public
shareholders in Time Period 4 (the “Public Redemption”).

                                     Representations

LossCo has made the following representations:

   A. The Shareholder A Repurchase and the Public Redemption were not planned or
      undertaken pursuant to the same plan or arrangement, and were not separated
      from each other in order to minimize or avoid an owner shift under the rules of
      Treas. Reg. § 1.382-3(j)(14).

   B. At the time of the Shareholder A Repurchase, there was no plan or intention to
      undertake the Public Redemption. The Public Redemption was motivated by a
      sudden, unanticipated, and significant drop in the trading price of New Parent
      that occurred after the completion of the Shareholder A Repurchase.

   C. Old Parent did not redeem any of its shares between January 1 of Year 2 and the
      consummation of the Re-Domicile Transaction.

                                          Ruling

Based solely on the information submitted and the representations made, we rule as
follows:

       LossCo may treat New Parent’s taxable year as beginning immediately after the
       Re-Domicile Transaction for purposes of computing the small redemption
       limitation under Treas. Reg. § 1.382-3(j)(14).

                                          Caveats

Except as expressly provided herein, we neither express nor imply any opinion
concerning the tax treatment of any aspect of any transaction or item discussed or
referenced in this letter. We express no opinion about the tax treatment of the
transaction as described under other provisions of the Code or regulations, or the tax
treatment of any condition existing at the time of, or effect resulting from, the facts and
PLR-129128-19                                             4

circumstances described herein that is not specifically covered by the ruling set forth
above.

                                          Procedural Statements

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.

In accordance with a power of attorney on file with this office, copies of this letter are
being sent to your authorized representatives.



                                                   Sincerely,



                                                   Mark S. Jennings
                                                   Senior Techinician Reviewer, Branch 1
                                                   (Corporate)



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