The Treasury Department and the IRS recently released T.D. 9760
. These final regulations generally adopt temporary regulations (T.D. 9615
) and proposed regulations (REG-132702-10
) issued in 2013. The final regulations do not include substantive changes and do not change the tax consequences under the temporary and proposed rules, which were set to expire on March 18, 2016.
The final regulations were issued under Sections 367, 1248 and 6038B and primarily affect domestic corporations that transfer property to foreign corporations in certain outbound nonrecognition exchanges. The regulations finalize the elimination of one of two exceptions to the coordination rule between asset transfers and indirect stock transfers for certain outbound asset reorganizations. Among other things, the IRS and Treasury were concerned that asset reorganizations subject to this coordination rule may be used to facilitate corporate inversion transactions, which generally involve a U.S.-based multinational’s restructuring so that the U.S. parent is replaced by a foreign parent, to avoid U.S. taxes.
The exception eliminated is commonly referred to as the “Section 367(a)(5) exception.” This exception, in certain circumstances, allowed for nonrecognition treatment in an outbound asset reorganization to the extent that basis adjustments could be made to the stock received in the reorganization and provided certain conditions were satisfied. In T.D. 9615, the IRS noted the elimination of the Section 367(a)(5) exception was in response to certain transactions involving outbound asset reorganizations and repatriation of a foreign corporation’s earnings and profits without the recognition of gain or a dividend inclusion.
The final regulations also adopt modifications to the exception to the coordination rule for Section 351 exchanges. This change was made to harmonize the exception to the coordination rule for Section 351 exchanges with the remaining asset reorganization exception. In general, the coordination rule provides that if in connection with an indirect stock transfer, a U.S. person transfers assets to a foreign corporation in an exchange described in Sections 351 or 361, Section 367 applies first to the asset transfer and then to the indirect stock transfer. Finally, the regulations adopt modifications to the procedures for obtaining relief for failures to satisfy certain reporting requirements, and also finalize certain changes with respect to transfers of stock or securities by a domestic corporation to a foreign corporation in a Section 361 exchange.
The final regulations are generally effective on March 22, 2016; however, the regulations have varying applicability dates.
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.