Rev. Rul. 72-435

A domestic partnership, X, engaged in business as a "dealer," as that term is defined in section 4912(c)(2) of the Internal Revenue Code of 1954, timely filed the election provided in section 4920(a)(5)(E) of the Code to have its branch office located abroad treated as a foreign partnership. X and its branch at all times since the inception of the interest equalization tax had the qualifications necessary to make the election or to maintain the election, as provided under section 4920(a)(5)(A) through (D) of the Code. The effect of the election under section 4920(a)(5)(E) is to permit the foreign branch office to acquire stock or debt obligations of foreign issuers or obligors free of tax but to treat, under section 4912(b)(2) of the Code, any transfer of money or other property by a domestic partnership or corporation to such foreign branch office (or borrowing by such branch from banks in the United States) as a taxable acquisition of stock of a foreign corporation or partnership to the extent of such transfer or borrowing.

Subsequent to the election the partners of X proposed to form a domestic corporation, Y, and transfer to it the assets, business, and employees of X in return for the stock of Y and Y's assumption of the liabilities of X in a transaction described in section 351 of the Code. The partners of X will own Y in the same proportion as their interests in X. Y will continue to conduct the same business activities presently conducted by X and will continue to operate through the same foreign branch office as before.

Held, solely for purposes of applying section 4920(a)(5)(E) of the Code, Y will be considered a domestic corporation that timely filed the election provided therein to have its branch office treated as a foreign corporation.