U.S. Parent owned FS1, which owned DRE1, which owned DRE2. FS1 was domiciled in Country A but DRE1 and 2 were domiciled in Country B. It is likely that this separation of domiciles originally served some tax planning purpose. However, it became advantageous to migrate FS1 to Country B. This was done in two steps: (1) DRE1 and 2 checked the box to be corporations for U.S. tax purposes, and (2) FS1 migrated to Country B and merged down into DRE1. Presumably FS1 and DRE1 could not have merged under Country B law without being both organized in Country B.

As a result, it is likely that FS1 has ceased being a holding company and has become an operating company in Country B, with a Country B subsidiary, for U.S. tax purposes.


The ruling that the transaction is a F reorganization is remarkable only because the transferee corporation, DRE1, had assets of its own at the instant of the merger. Prop. Reg. 1.368-2(m) would not allow DRE to have any significant assets before the F reorganization. However, it is apparent that the ruling viewed both steps as comprising the reorganization: the deemed incorporation of DRE1 and the merger of FS1 into DRE1.

The ruling states no opinion on the earnings and profits of DRE1. This is somewhat odd because there is no reason why its earnings and profits should not be the same as that of FS1. There was no distribution to U.S. Parent in the transaction, or other reason for change in the earnings and profits.


Planning for the most efficient foreign and U.S. taxation of foreign income frequently requires moving corporate domiciles. The F reorganization is the method of choice.