SERVICE NOTES GUIDANCE ON CORPORATE DOMESTICATION; SAYS REGULATIONS WILL BE REVISED ACCORDINGLY.

Notice 88-50

This notice announces that, through publication of Rev. Rul. 88-25, page 8, this Bulletin, the Internal Revenue Service will provide guidance concerning the application of section 368(a)(1)(F) of the Internal Revenue Code to the "domestication" of a foreign corporation pursuant to a state domestication statute. State domestication statutes (which are also known as corporate migration or corporate continuance statutes) allow an entity to transfer its place of incorporation without requiring the incorporation of a new legal entity. The Revenue Ruling concludes that there is a transfer of assets and liabilities from the foreign corporation to the domesticated U.S. corporation and a distribution by the foreign corporation to its shareholders of the stock in the domesticated corporation.

In addition, the ruling holds that a domestication constitutes a reorganization under section 368(a)(1)(F) of the Code. Generally, applicable reorganization provisions of the Code will provide nonrecognition treatment to the foreign corporation and its shareholders. In certain circumstances, however, nonrecognition treatment will be contingent upon compliance with section 367(b), which generally govern international reorganizations, or section 897(d) or (e), which affect international reorganizations involving U.S. real property interests.

The regulations under section 367 of the Code will be revised to require the closing of the taxable year in all reorganizations of a foreign corporation into a domestic corporation (or vice versa) and to clarify that there is an actual or constructive transfer of assets and exchange of stock in all inbound, outbound and foreign to foreign reorganizations. See Notice 87-29, 1987-15 I.R.B. 34. The closing of the taxable year requirement will not generally apply to reorganizations under section 368(a)(1)(F) within the same Country.

This document serves as an "administrative pronouncement" as that term is described in section 1.6661-3(b)(2) of the Income Tax Regulations and may be relied upon to the sames extent as a revenue ruling or revenue procedure. See Rev. Rul. 87-138, 1987-52 I.R.B. 17.

The principal author of this notice is Jerilynn V. Chapman of the Corporation Tax Division. For further information regarding this notice contact Howard Staiman on (202) 566-3342 (not a toll-free call).

Finally, the Service is willing to provide further guidance on additional issues raised by the domestication of a foreign corporation. Written questions and comments should be addressed to:

     Associate Chief Counsel (International and Technical)