Rev. Rul. 72-261

M, a domestic commercial bank, has a branch office, M-F operating as a commercial bank in a foreign country. M-F, in January 1970, acquired for M, an aggregate face amount of 100x dollars of guaranteed floating rate loan notes issued by S, a foreign corporation engaged in business in a foreign country. The notes were issued and acquired under the following conditions:

(a) they had maturities of 10 years or less,

(b) they were not convertible.

(c) they were acquired either from S as a part of an original or new issue or from other banks under circumstances where the notes had been held by banks since they were originally issued by S,

(d) they were acquired in an acquisition or acquisitions consistent with foreign banking practices in the jurisdiction where M-F has its principal place of business, and

(e) such acquisition was subsidiary to the regular commercial banking business of M-F.

Section 4914(b)(2)(A) of the Internal Revenue Code of 1954, as currently applicable under section 4931(a) of the Code and Executive Orders issued and in effect thereunder (Executive Order 11328, dated February 20, 1967, C.B. 1967-1, 316, modifying Executive Order 11198, dated February 10, 1965, C.B. 1965-1, 513), provides an exclusion from the interest equalization tax imposed by section 4911(a) of the Code for the acquisition of debt obligations of a foreign obligor by a commercial bank at any of its branches located outside the United States in making loans in the ordinary course of its commercial banking business.

Held, the floating rate notes acquired by M-F for M, issued and acquired under the conditions specified above, are considered as acquired by M in making loans in the ordinary course of its commercial banking business for the purpose of section 4914(b)(2)(A) of the Code and M is not liable for interest equalization tax with respect to such acquisition.