Rev. Rul. 73-224

Advice has been requested whether the requirements of section 4920(b) of the Internal Revenue Code of 1954 are satisfied under the circumstances described below.

X, a domestic corporation, owns 75 percent and 80 percent of the outstanding stock of Y and Z corporations, respectively, organized under the laws of a foreign country. The issued and outstanding stock of Y and Z, pursuant to section 4920(b) of the Code, was not treated as stock of a foreign issuer for the purposes of the interest equalization tax.

Pursuant to the laws of the foreign country, during 1970 Y and Z were amalgamated and, thereafter, continued to operate in that country under the name of L. The stock of L was distributed to the shareholders of Y and Z.

Pursuant to section 4920(b)(1) of the Code, a foreign corporation (other than a company registered under the Investment Company Act of 1940) shall not be considered a foreign issuer with respect to any class of its stock if, as of the corporation's latest record date before July 19, 1963, (1) more than 65 percent of such class of stock was held of record by United States persons, or (2) more than 50 percent of such class of stock was held of record by United States persons, and the class of stock had its principal market during the calendar year 1962 on one or more national securities exchanges registered with the Securities and Exchange Commission. Section 4920(b)(2) of the Code defines the term "class of stock" to mean all shares of stock of a corporation issued and outstanding as of the corporation's latest record date before July 19, 1963, which are identical with respect to the rights and interests such shares represent in the control, profits, and assets of the corporation. Provided certain other conditions are met, such term also includes shares issued after November 10, 1964, if they possess rights and interests identical with the rights and interests of shares described in the preceding sentence. The issue in this case is whether the treatment of Y's and Z's stock as domestic issues carries over to the stock issued by L. Specifically, the question is whether the shares of stock issued by L constitute shares of stock which are identical with respect to the rights and interests that the shares of Y and Z represented in the control, profits, and assets of Y and Z.

Subsequent to the amalgamation that occurred in 1970, and for purposes of section 4920(b) of the Code, L is not the same corporate entity as Y and Z. Thus, the issued and outstanding shares of L do not possess rights and interests identical with the rights and interests which the previously issued and outstanding shares of stock of Y and Z represented in the control, profits, and assets of Y and Z.

Accordingly, it is held that the issued and outstanding shares of stock of L do not satisfy the requirements of section 4920(b) of the Code. Further, any acquisition of stock of L by a United States person will be subject to interest equalization tax unless some other exclusion or exemption from such tax is applicable.