Rev. Rul. 72-234

A question has been presented whether a managing "participating" underwriter may, under the provisions of section 4918(d)(1)(C) of the Internal Revenue Code of 1954, issue the so-called "IET clean confirmation" to United States persons with respect to stock of a foreign issuer which the managing underwriter has sold to such purchasers on behalf of members of an underwriting group without the necessity of obtaining, for itself or any of the member underwriters, a validation certificate of prior American ownership and Interest Equalization Tax Compliance described in section 4918(b)(1)(A) of the Code.

A group of underwriters are associated together under a managing underwriter for the purpose of underwriting an issue of stock of a foreign issuer. All of the members of the group, including the managing underwriter, are "participating" firms who are members of a national securities exchange or association registered with the United States Securities Exchange Commission and are subject to the record keeping requirements imposed on participating firms under section 4918(c)(2)(A)(i) of the Code. The managing underwriter, acting as a selling agent, sells stock of a foreign issuer owned by members of the underwriting group and issues a written confirmation (called the IET clean confirmation) described in section 4918(b)(1)(B) of the Code so as to exempt the purchasers from the Interest Equalization Tax with respect to the acquisition of such stock.

Section 4911(a) imposes a tax on acquisition by a United States person of stock of a foreign issuer. A United States person is exempt from the tax imposed under section 4911(a) of the Code with respect to acquisition of stock of a foreign issuer where prior American ownership and compliance by the seller is established under section 4918 of the Code.

Section 4918(d)(1)(C) of the Code allows a participating firm to sell stock of a foreign issuer "for its own account" and to issue the IET clean confirmation to purchasers, without obtaining the validation certificate of prior ownership and compliance under section 4918(b)(1)(A) of the Code.

It is held that a "participating" firm, under section 4918(c)(1) of the Code, which is a managing underwriter of an underwriting group selling stock of a foreign issuer owned by members of the underwriting group, as their authorized selling agent may also issue the "IET clean confirmation" to purchasers of such stock and will be regarded as having sold such stock for the underwriting member's account within the meaning of section 4918(d)(1)(C) of the Code. Neither the managing underwriter nor any of the members of the underwriting group are required to obtain the validation certificate of prior American ownership and compliance under section 4918(b)(1)(A) of the Code but must comply with the record keeping requirements applicable to participating firms under section 4918(c)(2)(A)(i) of the Code.