[Code of Federal Regulations]
[Title 26, Volume 4]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.304-4T]

[Page 22]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.304-4T  Special rule for use of a related corporation to acquire 
for property the stock of another commonly owned corporation (temporary).

    (a) In general. At the discretion of the District Director, for 
purposes of determining the amount constituting a dividend, and source 
thereof, under section 304(b)(2), a corporation (deemed acquiring 
corporation) will be considered to have acquired for property the stock 
of a corporation (issuing corporation) acquired for property by another 
corporation (acquiring corporation) that is controlled by the deemed 
acquiring corporation, if one of the principal purposes for creating, 
organizing, or funding the acquiring corporation, through capital 
contributions or debt, is to avoid the application of section 304 to the 
deemed acquiring corporation. The following example illustrates the 
application of this paragraph (a).

    Example. P, a domestic corporation, owns all of the stock of CFC1, a 
controlled foreign corporation with substantial accumulated earnings and 
profits. CFC1 is organized in Country X, which imposes a high rate of 
tax on CFC1's income. P also owns all of the stock of CFC2, another 
controlled foreign corporation, which has accumulated earnings and 
profits of $200x. CFC2 is organized in Country Y which imposes a low 
rate of tax on CFC2's income. P wishes to own all of its foreign 
corporations in a direct chain and to effectuate a repatriation of 
CFC2's cash to P. In order to avoid having to obtain Country X approval 
for the acquisition of CFC1 (a Country X corporation) by CFC2 (a Country 
Y corporation) and to avoid a dividend to P out of CFC2's earnings and 
profits that would otherwise occur as a result of the application of 
section 304, P causes CFC2 to form RFC as a Country X wholly-owned 
subsidiary and to contribute $100x to RFC. RFC will purchase, for $100x, 
all of the stock of CFC1 from P. Because one of P's principal purposes 
for having CFC1 owned by RFC is to avoid section 304, under Sec. 1.304-
4T(a), CFC2 is considered to have acquired the stock of CFC1 for $100x 
for purposes of determining the amount constituting a dividend (and 
source thereof) for purposes of section 304(b)(2).

    (b) Availability to taxpayers. Nothing in this regulation shall be 
construed to provide a taxpayer the right to compel the Internal Revenue 
Service to disregard the form of its transaction for Federal income tax 
purposes.
    (c) Effective date. This section is effective June 14, 1988, with 
respect to acquisitions of stock occurring on or after June 14, 1988.

[T.D. 8209, 53 FR 22171, June 14, 1988]