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basis. Finance subsidiaries were also sanctioned by a
number of published rulings.5
5 Rev. Rul. 73-110, 1973-1 C.B. 454; Rev. Rul. 72-416,
1972-2 C.B. 591; Rev. Rul. 70-645, 1970-2 C.B. 273;
Rev. Rul. 69-501, 1969-2 C.B. 233; Rev. Rul. 69-377,
1969-2 C.B. 231. [Id. at 9.]
The published rulings cited in the footnote were issued in
connection with various issues raised by the Interest
Equalization Tax, but a central conclusion in each was that
indebtedness issued by a finance subsidiary in circumstances
similar to those just described would be treated as its own and
not the parent’s, provided the ratio of the subsidiary’s
outstanding debt to its equity did not exceed 5 to 1. After
expiration of the Interest Equalization Tax, the Commissioner in
Rev. Rul. 74-464, 1974-2 C.B. 46, revoked four of the foregoing
revenue rulings12 on the grounds that expiration of the Interest
Equalization Tax
eliminated any rationale for treating finance
subsidiaries any differently than other corporations
with respect to their corporate validity or the
validity of their corporate indebtedness. Thus, the
mere existence of a five to one debt to equity ratio,
as a basis for concluding that debt obligations of a
finance subsidiary constitute its own bona fide
indebtedness, should no longer be relied upon. [Id.,
1974-2 C.B. at 47.]
As further recounted in the legislative history,
notwithstanding the Commissioner’s unwillingness to issue rulings
12 The remaining ruling, Rev. Rul. 72-416, 1972-2 C.B. 591,
was revoked by Rev. Rul. 74-620, 1974-2 C.B. 380, on the basis of
the same rationale as in Rev. Rul. 74-464, 1974-2 C.B. 46.
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