Rev. Rul. 73-389

Advice has been requested whether, under the circumstances described below, a firm may issue an interest equalization tax (IET) clean confirmation pursuant to section 4918(d)(1)(B) of the Internal Revenue Code of 1954.

In 1972, M, a domestic corporation, transferred stock of Y, a foreign corporation, to United States persons in exchange for stock of Z, a domestic corporation.

X, a firm that qualified as a participating firm under section 4918(c) of the Code, effected the physical exchange of the stock between M and the United States persons on a single day in 1972.

M established to the satisfaction of the District Director of Internal Revenue that it acquired the Y stock without liability for payment of the IET, was a United States person throughout the period of its ownership thereof, was not ineligible to dispose of such stock as a United States person, and was a person described in section 4918(a) of the Code. Therefore, prior to M's transfer of the shares of Y, the District Director's office issued a Form 4322, Validation Certificate of Prior American Ownership and Interest Equalization Tax Compliance, to M covering the shares of Y to be transferred by M.

M delivered to X a statement upon which X relied in good faith. The statement, executed under penalty of perjury, established that M was a United States person and the owner of all the stock of foreign issuers and debt obligations of foreign obligors held for M's account by X. M also delivered to X the validation certificate covering certificates for Y stock to be transferred to the United States shareholders of Z.

X properly completed and filed the validation certificates and issued IET clean confirmations to the United States shareholders who acquired the Y stock from M.

Section 4918(b)(1)(B) of the Code provides, in part, that for purposes of establishing the exemption of prior American ownership, a written confirmation (referred to as an IET clean confirmation) received by the person acquiring such stock from a participating firm acting as a broker in effecting the acquisition which contains no reference to liability for the IET shall be conclusive proof that such exemption applies.

Section 4918(d)(1)(B) of the Code provides that a participating firm may issue an IET clean confirmation in connection with an acquisition of stock of a foreign issuer by a United States person if such participating firm acted as a broker in effecting both the sale and acquisition and would have been entitled to issue a written comparison or broker-dealer confirmation under section 4918(e) which indicates that the exemption for prior American ownership and compliance provided in section 4918(a) applies to such acquisition if such acquisition had been effected by another participating firm.

In effecting the physical exchange on a single day in 1972, X performed functions comparable to those of a broker described in section 4918(d)(1)(B) of the Code.

Accordingly, X was entitled to issue an IET clean confirmation (as defined in section 4918(b)(1)(B) of the Code) with respect to the acquisition by United States shareholders of Y stock from M. As provided in section 4918(b)(1)(B), such confirmation was conclusive proof that the exemption for prior American ownership and compliance applied with respect to such acquisition. Thus, no IET liability was incurred by a United States shareholder of Z with respect to the acquisition of Y stock in the transaction described.