Rev. Rul. 72-144

Corporation P, a life insurance company which is a United States person within the meaning of section 4920(a)(4) of the Internal Revenue Code of 1954, purchased foreign mortgage loans from its wholly owned foreign subsidiary, S, which is also a life insurance company. P and S had previously entered into a written agreement under which S acted as P's mortgage loan correspondent in making, purchasing, and servicing such loans. The loans had a maturity of more than one year. P was not engaged in business in any foreign country.

Section 4915(a) of the Code provides, in pertinent part, that the interest equalization tax imposed by section 4911 of the Code shall not apply to the acquisition by a United States person of a foreign debt obligation from a foreign corporation which received such debt obligation in the ordinary course of its trade or business as a result of the sale or rental of products manufactured or assembled by it or of the performance of services by it, if immediately after the acquisition such person (or one or more includible corporations in an affiliated group, as defined in section 1504 of the Code, of which such person is a member) owns (directly or indirectly) 10 percent or more of the total combined voting power of all classes of stock of such foreign corporation.

Held, the foreign mortgage loans purchased by P from S were not acquired by S in the ordinary course of its business as a result of services performed by it (as a life insurance company) within the meaning of section 4915(a)(1) of the Code. Therefore, the acquisition of such loans by P from S are not excluded, by virtue of section 4915(a) of the Code, from the interest equalization tax imposed by section 4911 of the Code.