Packard, Inc., a domestic corporation, operates a branch in Mexico. Over the last 10 years, this branch has generated $30 million in losses. For the last 3 years, however, the branch has been profitable and has earned enough income to entirely offset the prior losses. Most of the assets are fully depreciated, and a net gain would be recognized if the assets were sold.

Packard's CFO believes that Packard should incorporate the branch now, so that this potential gain can be transferred to a foreign corporation, thereby avoiding U.S. tax and, as an added benefit, avoiding U.S. taxes on future income. Draft a memo to Samuel Henderson, the CFO, addressing the tax issues involved in the proposed transaction.