Under the facts of this ruling, a parent corporation owned all of the stock of two foreign subsidiaries. One of the subsidiaries was an operating company and the other a holding company. The holding company owned all of the stock of three other operating companies that were also foreign companies. The proposal was that all of the operating companies would be combined into a new subsidiary in the foreign country. A new foreign corporation would be formed with the parent transferring all of the stock it held in the two subsidiaries in exchange for additional shares of voting common stock of the new corporation. Then, the other operating subsidiaries will transfer all of their assets to the new corporation in exchange for additional shares of the new corporation's stock. Then the subsidiaries and the operating company subsidiary will liquidate and distribute their stock to the holding company subsidiary. Then the new corporation will continue to conduct the business that was formerly conducted by the operating subsidiary and the three subsidiaries that had been owned by the holding company subsidiary. A gain recognition agreement will be entered into. The IRS determined that the transaction would qualify for Sec. 1031 treatment as a Sec. 351 exchange followed by a type D reorganization. Rev. Rul. 2015-9, 2015-21 I.R.B., revoking Rev. Rul. 78-130, 1978-1 C.B. 114.
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