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in Rev. Rul. 69-377, supra, for recognizing the indebtedness as
that of Y was Y’s maintenance of a ratio of outstanding debt to
equity no greater than 5 to 1. Y’s equity for this purpose was
measured by the $5,000x in cash contributed to it by X.
Significantly, however, Y’s cash equity was promptly lent to or
invested in X’s foreign affiliates. As the ruling makes clear:
Y invested the net proceeds from the sale of the
debt obligations and the cash contributed by X in
foreign corporations [i.e., foreign affiliates of X] by
acquiring the stock or debt obligations of such foreign
corporations. [Id., 1969-2 C.B. at 232; emphasis
added.]
Rev. Rul. 69-377 was subsequently amplified in Rev. Rul. 72-
416, 1972-2 C.B. 591.18 In the latter ruling, the Commissioner
held that it made no difference to the result reached in Rev.
Rul. 69-377, supra, whether the finance subsidiary was initially
18 Although Rev. Rul. 72-416, 1972-2 C.B. 591, is not one of
the four rulings listed in DEFRA sec. 127(g)(3)(B), it is an
amplification of one such ruling (Rev. Rul. 69-377, 1969-2 C.B.
231). According to the Commissioner, an amplification of a
revenue ruling
describes a situation where no change is being made in
a prior published position, but the prior position is
being extended to apply to a variation of the fact
situation set forth therein. Thus, if an earlier
ruling held that a principle applied to A, and the new
ruling holds that the same principle also applies to B,
the earlier ruling is amplified. * * * [“Definition of
Terms”, 1976-2 C.B. iv.]
Given the Commissioner’s policy on amplifications, Rev. Rul. 72-
416, supra, constitutes a further illustration of the principles
of Rev. Rul. 69-377, supra, and is appropriately employed to
delineate and clarify those principles.
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