Rev. Rul. 75-341

Advice has been requested concerning who is the proper United States shareholder of stock of a controlled foreign corporation for purposes of reporting subpart F income and making the minimum distribution election under the circumstances described below.

R, a domestic corporation, files its Federal income tax return on a calendar year basis. S, a domestic corporation unrelated to R, files its return on a fiscal year basis ending on October 31. On October 31, 1974, pursuant to a plan of reorganization, all of the assets of S were acquired by R in exchange solely for voting stock of R in a transaction qualifying as a reorganization under section 368(a)(1)(C) of the International Revenue Code of 1954. Under section 362(b), R's basis in the assets acquired from S is the same as the basis of such property in the hands of S immediately prior to the reorganization, and under section 1223(2) R's holding period of the property acquired from S includes the period such property was held by S. The assets transferred to R by S included all the outstanding stock of X, a controlled foreign corporation within the meaning of section 957(a), which uses a fiscal year ending October 31 as its taxable year.

For its taxable year ended on October 31, 1974, X had subpart F income as defined in section 952 of the Code. In accordance with section 951, such subpart F income is includible in the gross income of the United States shareholder that owns, within the meaning of section 958(a), the stock of X on October 31, 1974.

The questions presented are whether the subpart F income of X for its taxable year ended on October 31, 1974, is attributable to R or to S, and whether R or S is the proper corporate United States shareholder to exercise the minimum distribution election to secure an exclusion under section 963 of the Code with respect to such subpart F income.

Section 951(a)(1)(A)(i) of the Code provides, in part, that if a foreign corporation is a controlled foreign corporation for an uninterrupted period of 30 days or more during any taxable year beginning after December 31, 1962, every person who is a United States shareholder of such corporation and who owns stock in such corporation on the last day, in such year, on which such corporation is a controlled foreign corporation, shall include in its gross income, for its taxable year in which or with which such taxable year of the corporation ends, except as provided in section 963, its pro rata share of the corporation's subpart F income for such year.

Section 963(a)(1) of the Code, repealed as to taxable years of foreign corporations beginning after December 31, 1975, by the Tax Reduction Act of 1975, Pub.L. 94-12, 1975-1 C.B. 545, provides, in part, that in the case of a United States shareholder that is a domestic corporation, no amount shall be included in gross income under section 951(a)(1)(A)(i) for the taxable year with respect to the subpart F income of a controlled foreign corporation if the United States shareholder receives a minimum distribution of the earnings and profits for the taxable year of such controlled foreign corporation.

Section 1.951-1(f) of the Income Tax Regulations provides that for purposes of sections 951 through 964 of the Code, the holding period of an asset (including stock of a controlled foreign corporation) shall be determined by excluding the day on which such asset is acquired and including the day of disposition of such asset.

Section 1.963-1(c)(2) of the regulations provides, in part, that an election by a corporate United States shareholder under section 963 of the Code shall be made on a written statement attached to the shareholder's return. The statement shall indicate that such election is made for the taxable year, the names of the foreign corporations to which the election applies, the taxable year, country of incorporation, earnings and profits, foreign income tax, and outstanding capital stock of each such corporation.

The questions in the instant case are controlled by section 1.951-1(f) of the regulations and therefore, R did not acquire within the meaning of such regulation the X stock until November 1, 1974.

Accordingly, in the instant case, the subpart F income of X for its taxable year ended October 31, 1974, is includible in S's income for its taxable year ended October 31, 1974. Furthermore, S is the proper United States shareholder to exercise the minimum distribution election to secure the exclusion under section 963 of the Code with respect to such subpart F income for the taxable year ended October 31, 1974.