IRS Concludes Corporations Were Ignored For Asset Sale

The IRS has concluded in field attorney advice (FAA 20124601F) that two corporations formed immediately prior to an asset sale were ignored for U.S. federal income tax purposes.

The field attorney advice addressed a corporation (the taxpayer) that owned a controlled foreign corporation (CFC) and a subsidiary (Sub 1). The taxpayer entered into an agreement to sell most of its property to an unrelated corporation (the buyer), including a certain property held by CFC (Property A). The taxpayer desired to receive proceeds from Property A outside the CFC's country, and the buyer desired to hold such property in a corporation formed in a different country than CFC's.

Prior to such asset sale, the taxpayer restructured as follows (the restructuring):

CFC formed a new corporation (Newco 1) by contributing Property A in exchange for Newco 1 shares. The taxpayer's owner (the owner) formed a new corporation (Newco 2) on behalf of the taxpayer and transferred all...