Six years ago, NewCo, Inc., a domestic manufacturer of mold- injection systems, established a sales and service operation in Madrid, Spain. The Madrid office was structured as a Spanish corporation, but NewCo made a check-the-box election to treat the operation as a branch in order to obtain a U.S. tax deduction for the branch’s start-up losses. The Spanish operation has become quite profitable and NewCo wishes to change its U.S. tax classification from a branch to a subsidiary by filing a new check-the-box election (this is feasible since 5 years had passed since the first election). At the time of the conversion, the Spanish operation’s assets includes some local currency, accounts receivable from Spanish customers, an inventory of spare parts, and an extensive database of information regarding Spanish customers that the marketing personnel had painstakingly developed over the years. NewCo’s CFO has asked you to brief her regarding the U.S. tax consequences of the incorporation transaction.