Rev. Rul. 73-85

X, a domestic corporation, entered into an agreement with Y, a foreign corporation, whereby each corporation agreed to acquire shares of stock in the other.

Under the agreement, Y, on March 1, 1971, acquired 20 percent of the total outstanding voting stock of X. Simultaneously, X acquired on the open market 12 percent of the total outstanding voting stock of Y, with no intent to sell, or to offer to sell, any part of the stock acquired to United States persons.

Section 4911 of the Internal Revenue Code of 1954 provides, in part, that the interest equalization tax shall be imposed on each acquisition by a United States person of stock of a foreign issuer.

Section 4915(a)(1) of the Code provides, in part, that the tax imposed by section 4911 shall not apply to the acquisition by a United States person of stock of a foreign corporation if immediately after the acquisition such person (or one or more includible corporations in an affiliated group, as defined in section 1504, of which such person is a member) owns (directly or indirectly) 10 percent or more of the total combined voting power of all classes of stock of such foreign corporation.

Held, the acquisition of stock of X by Y is not relevant in determining whether X has acquired more than 10 percent of the total outstanding voting stock of Y for purposes of section 4915(a)(1) of the Code. Therefore, the acquisition by X of Y stock in the instant case is excluded from the interest equalization tax pursuant to section 4915(a)(1) of the Code.