IRS Applies Substance Over Form in Foreign Lending Transaction

Third Party Communication: None

This is in response to your request for advice regarding whether a series of transfers of funds by multiple, related entities should be respected for Federal income tax purposes. This advice may not be used or cited as precedent.

In one series of transfers (in form): (i) a foreign corporation (FC1) wholly-owned by a U.S. corporation (Parent) loaned funds to another foreign corporation (FC2), which in turn was wholly-owned by a U.S. subsidiary of Parent (USSub); (ii) FC2 distributed those funds to USSub; and (iii) USSub distributed those funds to Parent (no reference is made to any disregarded entities). Based on the facts, the series of transfers may be treated as a transfer of the funds by FC1 to Parent based on substance-over-form principles.

We do not have any other recommendations or arguments at this time.

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