[Federal Register: January 26, 2006 (Volume 71, Number 17)]
[Rules and Regulations]
[Page 4276-4294]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ja06-12]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9243]
RIN 1545-BA65
Revision of Income Tax Regulations Under Sections 367, 884, and
6038B Dealing With Statutory Mergers or Consolidations Under Section
368(a)(1)(A) Involving One or More Foreign Corporations, and Guidance
Necessary To Facilitate Business Electronic Filing Under Section 6038B
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
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SUMMARY: This document contains final regulations amending the income
tax regulations under various provisions of the Internal Revenue Code
(Code) to account for statutory mergers and consolidations under
section 368(a)(1)(A) (including such reorganizations described in
section 368(a)(2)(D) or (E)) involving one or more foreign
corporations. These final regulations are issued concurrently with
final regulations (TD 9242) that define a reorganization under section
368(a)(1)(A) to include certain statutory mergers or consolidations
effected pursuant to foreign law. This document also contains final
regulations under section 6038B which facilitate the electronic filing
of Form 926 ``Return by a U.S. Transferor of Property to a Foreign
Corporation.''
DATES: Effective Date: These regulations are effective on January 23,
2006.
Applicability Dates: For dates of applicability, see Sec.
1.367(a)-3(e); Sec. 1.367(b)-6(a)(1); Sec. 1.367(b)-13(f); Sec.
1.884-2(g); and Sec. 1.6038B-1(b)(1)(i) and (g).
FOR FURTHER INFORMATION CONTACT: Robert W. Lorence, Jr., (202) 622-3918
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507(d))
under control numbers 1545-1478 and 1545-1617.
The collection of information in these final regulations is in
Sec. 1.367(a)-3(d)(2)(vi)(B)(1)(ii) and Sec. 1.6038B-1(b)(1)(i). The
information under Sec. 1.367(a)-3(d)(2)(vi)(B)(1)(ii) is required to
inform the IRS of a domestic corporation (domestic acquired
corporation) that is claiming an exception from the application of
section 367(a) and (d) for certain transfers of property to a foreign
corporation that is re-transferred by the foreign corporation to a
domestic corporation controlled by the foreign corporation (domestic
controlled corporation). The information is in the form of a statement
attached to the domestic acquired corporation's U.S. income tax return
for the year of the transfer certifying that if the foreign corporation
disposes of the stock of the domestic controlled corporation with a tax
avoidance purpose, the domestic acquired corporation will file an
income tax return (or amended return, as the case may be) reporting
gain. The collection of information is mandatory.
The information under Sec. 1.6038B-1(b)(1)(i) is required to
inform the IRS of transfers described in section 6038B(a)(1)(A) or
section 367(d) or (e) by filing Form 926 ``Return by a U.S. Transferor
of Property to a Foreign Corporation'' and any information attached to
the form with the U.S. transferor's income tax return for the taxable
year of the transfer. The collection of information is mandatory.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
On January 24, 2003, the IRS and Treasury issued proposed
regulations (REG-126485-01, 2003-1 C.B. 542, 68 FR 3477) and temporary
regulations (TD 9038, 2003-1 C.B. 524, 68 FR 3384), that would revise
the definition of a statutory merger or consolidation under section
368(a)(1)(A). On January 5, 2005, the IRS and Treasury issued proposed
regulations (REG-117969-00, 2005-7 I.R.B. 533, 70 FR 746) that would
revise the definition of a section 368(a)(1)(A) reorganization to
include transactions effected pursuant to foreign law and transactions
involving entities organized under foreign law. Final regulations
incorporating the temporary regulations and both sets of proposed
regulations, as modified to reflect comments, are being published
concurrently with this document.
On January 5, 2005, the IRS and Treasury also issued proposed
regulations under sections 358, 367 and 884 (the 2005 proposed
regulations) that would account for section 368(a)(1)(A)
reorganizations involving one or more foreign corporations. The
regulations also proposed changes to other aspects of the section
367(a) and (b) regulations that would address additional issues. This
document contains final regulations that incorporate the 2005 proposed
regulations amending sections 358, 367, and 884.
The public hearing with respect to the 2005 proposed regulations
was cancelled because no request to speak was received. However, the
IRS and Treasury received several written comments, which are discussed
below.
On December 19, 2003, the IRS and Treasury issued temporary and
final regulations (TD 9100, 2004-1 C.B. 297, 68 FR 70701) modifying
regulations under section 6038B to eliminate regulatory impediments to
the electronic submission of Form 926 ``Return by a U.S. Transferor of
Property to a Foreign Corporation.'' In the same issue of the Federal
Register, the IRS and Treasury issued a notice of proposed rulemaking
(REG-116664-01, 2004-1 C.B. 319, 68 FR 70747) cross-referencing the
temporary regulations under section 6038B. This document contains final
regulations incorporating certain provisions of the temporary
regulations under section 6038B. No public hearing regarding the notice
of proposed rulemaking was requested or held and no comments were
received.
[[Page 4277]]
Summary of Comments and Explanation of Provisions
A. Basis and Holding Period Rules
1. Section 354 Exchanges
On May 3, 2004, the IRS and Treasury published a notice of proposed
rulemaking (REG-116564-03) in the Federal Register (69 FR 24107) that
included regulations under section 358 that would provide guidance
regarding the determination of the basis of stock or securities
received in either a reorganization described in section 368 (e.g., in
a section 354 exchange) or a distribution to which section 355 applies.
The proposed section 358 regulations would adopt a tracing regime for
determining the basis of each share of stock or security received in an
exchange under section 354 (or section 356). Related provisions in the
2005 proposed regulations followed that general tracing regime, with
modifications. See Prop. Treas. Reg. Sec. 1.367(b)-13(b). Comments
were received in response to the proposed regulations under section
358. The IRS and Treasury have issued final regulations under section
358 that adopted the section 358 proposed regulations, with
modifications to reflect the comments received. See TD 9244.
The final section 358 regulations retained the general tracing
regime for determining basis in an exchange under section 354 (or
section 356). This tracing regime is consistent with the policies and
requirements underlying the international provisions of the Code,
including those under section 1248. As a result, these final
regulations do not include the rules set forth in Sec. 1.367(b)-13(b)
of the 2005 proposed regulations that would determine the basis and
holding period in stock as a result of certain exchanges under section
354 (or section 356) involving foreign corporations. Instead, the final
regulations cross-reference the regulations under section 358 to
determine the exchanging shareholder's basis in stock or securities
received in an exchange under section 354 (and section 356). Special
rules for certain triangular reorganizations are discussed below.
2. Triangular Asset Reorganizations
In contrast to the above, the application of the stock basis rules
of Sec. 1.358-6 in certain triangular asset reorganizations involving
foreign corporations does not accurately preserve a shareholder's
section 1248 amount (within the meaning of Sec. 1.367(b)-2(c)).
Therefore, the 2005 proposed regulations would provide special basis
and holding period rules for certain triangular asset reorganizations
involving foreign corporations that have section 1248 shareholders
(within the meaning of Sec. 1.367(b)-2(b)). See Prop. Treas. Reg.
Sec. 1.367(b)-13(c) through (e). These rules would apply to certain
reorganizations described in section 368(a)(1)(A) and (a)(2)(D)
(forward triangular merger), triangular reorganizations described in
section 368(a)(1)(C), and reorganizations described in section
368(a)(1)(A) and (a)(2)(E) (reverse triangular merger).
The 2005 proposed regulations would provide that, in determining
the stock basis of the surviving corporation in certain triangular
asset reorganizations, the exchanging shareholder's basis in the stock
of the target corporation will be taken into account, rather than
target corporation's basis in its assets. Further, where applicable,
the 2005 proposed regulations would provide for a divided basis and
holding period in each share of stock in the surviving corporation to
reflect the relevant section 1248 amounts, if any, in the stock of the
target corporation and the surviving corporation. If there are two or
more blocks of stock in the target corporation with section 1248
amounts, then each share of the surviving corporation would be further
divided to account for each block of stock. If two or more blocks of
stock are held by one or more shareholders that are not section 1248
shareholders, then shares in these blocks would be aggregated into one
divided portion for basis purposes. If none of the shareholders is a
section 1248 shareholder, then the asset basis rules of Sec. 1.358-6
would apply.
Commentators stated that the application of the special basis rules
would cause unjustified complexity. One commentator stated that such
complexity arises in cases where the shares of the target corporation
are widely held or where section 1248 shareholders hold less than 50
percent of the target corporation. The commentator recommended that if
the special basis rules are retained, Sec. 1.358-6 should continue to
apply where section 1248 shareholders hold less than 50 percent of the
stock of the target corporation. The commentator further recommended
that the controlling corporation be allowed to elect to apply the rules
under Sec. 1.358-6 in return for all exchanging section 1248
shareholders including in income the section 1248 amounts with respect
to their stock. The IRS and Treasury have considered these comments. On
balance, the IRS and Treasury have concluded that creating exceptions
to the application of the special basis rules (e.g., by election) would
create significant uncertainty for the IRS and would not meaningfully
reduce administrative complexity. While the IRS and Treasury recognize
the complexity of the rules, the IRS and Treasury nevertheless believe
it is important to preserve section 1248 amounts and avoid unnecessary
income inclusions that might otherwise be required. As a result, the
final regulations do not adopt this recommendation. However, the IRS
and Treasury will continue to study alternative methods for preserving
the section 1248 amounts in such transactions.
One commentator suggested that the IRS and Treasury consider
applying the special basis rules to section 368(a) asset
reorganizations followed by asset transfers to a corporation controlled
(within the meaning of section 368(c)) by the acquiring corporation
pursuant to the same transaction (controlled asset transfer), because
these transactions are similar to triangular reorganizations under
section 368(a)(1)(C) and section 368(a)(1)(A) and (a)(2)(D). If this
suggestion were adopted, the basis in the stock of the controlled
subsidiary would reflect the basis in the stock of the target
corporation and not the basis of the contributed assets. Because the
IRS and Treasury are continuing to study the application of section 358
to such transactions, and because such controlled asset transfers may
involve only a portion of the acquired assets, this comment is not
adopted at this time.
Finally, commentators noted that the special basis rules of Sec.
1.367(b)-13(c) of the 2005 proposed regulations would not apply, by
their terms, to a forward triangular merger or a triangular section
368(a)(1)(C) reorganization where no shareholder of the target
corporation is a section 1248 shareholder, but the parent of the
acquiring corporation is either a domestic corporation that is a
section 1248 shareholder of the acquiring corporation or a foreign
corporation that has a section 1248 shareholder that is also a section
1248 shareholder of the acquiring corporation. This result was not
intended, as illustrated by Example 3 of Sec. 1.367(b)-13(e) of the
2005 proposed regulations, which applies the special basis rules of
Sec. 1.367(b)-13(c) of the 2005 proposed regulations to such a
transaction. As a result, the text of the final regulations has been
modified to apply the special basis rules to this type of transaction.
[[Page 4278]]
B. Exceptions to the Application of Section 367(a)
1. Exchanges of Stock or Securities in Certain Triangular Asset
Reorganizations
A U.S. person recognizes gain under section 367(a) on the transfer
of property to a foreign corporation in an exchange described in
section 351, 354, 356, or 361, unless an exception applies. Under Sec.
1.367(a)-3(a), section 367(a) does not apply if, pursuant to a section
354 exchange, a U.S. person transfers stock of a domestic or foreign
corporation ``for stock of a foreign corporation'' in an asset
reorganization described in section 368(a)(1) that is not treated as an
indirect stock transfer.
Notwithstanding the language in the current regulations, this
exception is intended to apply to any section 354 (or section 356)
exchange made pursuant to an asset reorganization under section
368(a)(1) that is not treated as an indirect stock transfer under Sec.
1.367(a)-3(d). However, commentators noted that in certain triangular
asset reorganizations where a U.S. person transfers stock of a foreign
acquired corporation to such foreign corporation in a section 354 (or
section 356) exchange, but receives stock of the domestic parent of the
foreign acquiring corporation pursuant to such exchange, the transfer
by the U.S. person might be subject to section 367(a). This would be
the case because, under Sec. 1.367(a)-3(a), the U.S. person does not
receive ``stock of a foreign corporation.'' This result was not
intended. Accordingly, the final regulations clarify the application of
this rule by removing the phrase ``for stock of a foreign
corporation.'' Thus, section 367(a) will not apply to any section 354
(or section 356) exchange of stock or securities of a domestic or
foreign corporation pursuant to an asset reorganization under section
368(a)(1), unless the exchange is considered an indirect stock transfer
pursuant to Sec. 1.367(a)-3(d). A conforming change also is made to
the section 6038B reporting rules (see part J. of this preamble).
2. Exchanges of Securities in Certain Recapitalizations and Other
Reorganizations
Prior to the issuance of the 2005 proposed regulations, several
commentators noted that the exception to the application of section
367(a) contained in Sec. 1.367(a)-3(a) applied to exchanges of stock,
but not exchanges of securities, in section 368(a)(1)(E)
reorganizations and certain asset reorganizations. In response, the IRS
and Treasury issued Notice 2005-6 (2005-5 I.R.B. 448) concurrently with
the 2005 proposed regulations, and announced the plan to amend Sec.
1.367(a)-3(a) to apply the exception to exchanges of stock or
securities. These final regulations incorporate the rule announced in
Notice 2005-6, including the dates of applicability as discussed below
in part K.3. of this preamble.
Consistent with these changes, these final regulations also amend
the indirect stock transfer rules of Sec. 1.367(a)-3(d) to provide
that exchanges by a U.S. person of stock or securities of an acquired
corporation for stock or securities of the corporation that controls
the acquiring corporation in a triangular section 368(a)(1)(B)
reorganization will be treated as an indirect transfer of such stock or
securities subject to the rules of section 367(a). This amendment
conforms the treatment of triangular section 368(a)(1)(B)
reorganizations with the other indirect stock transfers described in
Sec. 1.367(a)-3(d). Although this amendment has a prospective
effective date, no inference is intended as to the application of
current law to such exchanges.
Other provisions of the section 367 regulations also contain
references to exchanges of stock but not to securities. See, e.g.,
Sec. 1.367(a)-8(e)(1)(i). The IRS and Treasury are studying these
references and intend to amend these provisions if these omissions are
not appropriate.
C. Concurrent Application of Section 367(a) and (b)
The 2005 proposed regulations would modify the concurrent
application of section 367(a) and (b) to exchanges that require the
inclusion in income of the exchanging United States shareholder's all
earnings and profits amount under section 367(b). The 2005 proposed
regulations would provide that the rules of section 367(b), and not
section 367(a), apply to such exchanges in cases where the all earnings
and profits amount attributable to the stock of an exchanging
shareholder is greater than the amount of gain in such stock subject to
section 367(a) pursuant to the indirect stock transfer rules. In such a
case, the shareholder would be required to include in income as a
deemed dividend the all earnings and profits amount pursuant to Sec.
1.367(b)-3, without regard to whether the exchanging shareholder files
a gain recognition agreement as provided under Sec. Sec. 1.367(a)-3(b)
and 1.367(a)-8. This change was proposed because the IRS and Treasury
determined that it was contrary to the policy of section 367(b) to
allow a shareholder effectively to elect to be taxed on the lesser
amount of gain under section 367(a) simply by failing to file a gain
recognition agreement.
Two comments were received with respect to this overlap rule. One
commentator questioned, as a general matter, the application of Sec.
1.367(b)-3 and the all earnings and profits rule to inbound asset
acquisitions and, more specifically, the broadening of the
circumstances under the 2005 proposed regulations where a taxpayer
would be required to include in income as a deemed dividend the all
earnings and profits amount. The commentator suggested an alternative
means to taxing the earnings and profits of the foreign acquired
corporation, such as reducing the basis of assets brought into the
United States to the extent of any previously untaxed earnings and
profits. The IRS and Treasury, at this time, do not believe that a
comprehensive revision of the all earnings and profits rule is
necessary or appropriate. Alternative approaches to the all earnings
and profits rule are beyond the scope of this regulation project,
because, for example, any such revision would have to take into account
recently enacted section 362(e). As a result, this comment is not
adopted.
The second comment stated that the overlap rule adds unnecessary
complexity to the section 367 regulations, because it is unlikely that
a transaction will occur that would invoke the rule (i.e., where a
foreign acquired corporation transfers its assets to a domestic
subsidiary of a foreign parent corporation in a triangular
reorganization). The overlap rule in the 2005 proposed regulations was
intended to address cases that are affected by this rule. The IRS and
Treasury continue to believe that the rule is necessary to preserve the
policies of section 367(b), and that the rule as applied in these
contexts does not create undue complexity. For this reason, the comment
is not adopted.
D. Triangular Section 368(a)(1)(B) Reorganizations
In a triangular section 368(a)(1)(B) reorganization, if a U.S.
person exchanges stock of an acquired corporation for voting stock of a
foreign corporation that controls (within the meaning of section
368(c)) the acquiring corporation, the U.S. person is treated as making
an indirect transfer of stock of the acquired corporation to the
foreign controlling corporation in a transfer subject to section
367(a). Sec. 1.367(a)-3(d)(1)(iii). The current regulations do not,
however, treat as an indirect stock transfer a triangular section
368(a)(1)(B) reorganization where the acquiring
[[Page 4279]]
corporation is foreign and the controlling corporation is domestic. The
2005 proposed regulations would extend the indirect stock transfer
rules to include triangular section 368(a)(1)(B) reorganizations in
which a U.S. person exchanges stock of the acquired corporation for
voting stock of a domestic corporation that controls the foreign
acquiring corporation. In such a case, the 2005 proposed regulations
would provide that a gain recognition agreement filed pursuant to such
transaction is triggered if the domestic controlling corporation
disposes of the stock of the foreign acquiring corporation, or the
foreign acquiring corporation disposes of the stock of the acquired
corporation.
Commentators stated that because any built-in gain in the stock of
the acquired corporation is reflected in the stock of the foreign
acquiring corporation held by the domestic controlling corporation
under Sec. 1.358-6(c)(3), a gain recognition agreement should not be
triggered if the domestic controlling corporation disposes of the stock
of the foreign acquiring corporation. The IRS and Treasury agree, in
part, with this comment. Accordingly, the final regulations provide
that, in certain cases, the disposition of the stock of the foreign
acquiring corporation is not a triggering event. For example, the gain
recognition agreement terminates in such a case if the domestic
controlling corporation disposes of the stock of the foreign acquiring
corporation in a taxable exchange. See Sec. 1.367(a)-8(h)(1).
E. Identifying the Stock Transferred in Indirect Stock Transfers
Involving a Change in Domestic or Foreign Status of the Acquired
Corporation
Under the current section 367(a) regulations, if a U.S. person
exchanges stock or securities of an acquired corporation for stock or
securities of a foreign acquiring corporation in, for example, a
section 368(a)(1)(C) reorganization, and the foreign acquiring
corporation transfers all or part of the assets of the acquired
corporation to a corporation in a controlled asset transfer, the U.S.
person is treated, for purposes of section 367(a), as transferring the
stock or securities of the acquired corporation to the foreign
acquiring corporation to the extent of the assets transferred to the
controlled subsidiary. Sec. 1.367(a)-3(d)(1)(v); see also Sec.
1.367(a)-3(d)(3), Example 5A.
A commentator stated that the indirect stock transfer rules should
apply to such a transaction based on the status of the controlled
subsidiary, rather than the status of the acquired corporation. Under
this approach, if the acquired corporation were domestic and the
controlled subsidiary were foreign, U.S. persons that exchange stock or
securities of the domestic acquired corporation would be treated as
having made an indirect stock transfer of stock or securities of a
foreign corporation to a foreign corporation subject to Sec. 1.367(a)-
3(b), rather than of stock or securities of a domestic corporation that
would be subject to the more restrictive rules of Sec. 1.367(a)-3(c).
The IRS and Treasury agree, in part, with this comment and believe
that Sec. 1.367(a)-3(c) should not apply to certain indirect stock
transfers that occur by reason of transactions involving a subsidiary
member of a consolidated group to the extent that the assets of the
domestic acquired corporation are ultimately transferred to a foreign
corporation. Accordingly, the final regulations provide that where a
subsidiary member of a consolidated group transfers its assets to a
foreign corporation pursuant to an asset reorganization, and an
indirect stock transfer described in Sec. 1.367(a)-3(d)(1)(i) (mergers
described in section 368(a)(1)(A) and (a)(2)(D) and reorganizations
described in section 368(a)(1)(G) and (a)(2)(D)), (iv) (triangular
reorganizations described in section 368(a)(1)(C)), or (v) (asset
reorganizations followed by a controlled asset transfer) occurs in
connection with such transfer, the U.S. persons that exchange stock or
securities in the domestic acquired corporation pursuant to section 354
(or section 356) will be treated for purposes of Sec. 1.367(a)-3 as
having made an indirect transfer of foreign stock or securities subject
to the rules of Sec. 1.367(a)-3(b) (and not domestic stock or
securities subject to Sec. 1.367(a)-3(c)). In the case where the
foreign acquiring corporation transfers assets in a controlled asset
transfer to a foreign corporation, the exception applies only to the
extent of the assets transferred to the foreign corporation. Further,
the exception does not apply to the extent that the assets of the
domestic acquired corporation are ultimately transferred in one or more
successive controlled asset transfers to a domestic corporation. Thus,
in such a case, the indirect stock transfer remains subject to Sec.
1.367(a)-3(c). The rules relating to foreign acquired corporations
remain the same as under current law (that is, the indirect stock
transfer rules are based on the status of the foreign acquired
corporation).
The IRS and Treasury are studying in a separate project the
interaction of section 7874 and Sec. 1.367(a)-3(c). In connection with
this study, the IRS and Treasury will continue to examine whether the
recommended change should also apply to other transactions. The results
of this study may be addressed in a future regulations project. At this
time, however, the final regulation will continue to apply to other
transactions based on the stock that is owned and exchanged by the U.S.
person in the transaction (rather than based on stock of the
corporation in which the assets of the acquired corporation are
ultimately transferred). Comments are requested as to whether the
exception, described above, should be expanded to other ownership
structures (e.g., where the domestic target corporation is an
affiliated but not consolidated group member).
F. Coordination of the Indirect Stock Transfer Rules and the Asset
Transfer Rules
Under the current regulations, when an indirect stock transfer also
involves a transfer of assets by a domestic corporation to a foreign
corporation, section 367(a) and (d) apply to the domestic corporation's
transfer of assets prior to the application of the indirect stock
transfer rules. However, section 367(a) and (d) do not apply to the
domestic corporation's transfer to the extent that the foreign
acquiring corporation re-transfers the assets received in the asset
transfer to a controlled domestic corporation, provided that the
controlled domestic corporation's basis in the assets is no greater
than the basis that the domestic acquired corporation had in such
assets.
The 2005 proposed regulations would modify the scope of the
coordination rule as it applies to asset reorganizations such that
section 367(a) and (d) generally would apply to the domestic
corporation's transfer of assets to the foreign corporation, even if
the foreign corporation re-transfers all or part of the assets received
to a domestic corporation in a controlled asset transfer. However, the
2005 proposed regulations would provide two exceptions to this general
rule. The first exception generally would apply if the domestic
acquired corporation is controlled (within the meaning of section
368(c)) by 5 or fewer domestic corporations, appropriate basis
adjustments as provided in section 367(a)(5) are made to the stock of
the foreign acquiring corporation, and any other conditions as provided
in regulations under section 367(a)(5) are satisfied.
The second exception would apply if the controlled domestic
corporation's basis in the assets is no greater than the domestic
acquired corporation's basis in such assets and the following two
[[Page 4280]]
conditions are satisfied: (1) The indirect transfer of stock of the
domestic acquired corporation satisfies the requirements of Sec.
1.367(a)-3(c)(1)(i), (ii), and (iv), and (c)(6); and (2) the domestic
acquired corporation attaches a statement to its tax return for the
taxable year of the transfer. The statement must certify that the
domestic acquired corporation will recognize gain (as described below)
if the foreign acquiring corporation disposes of any stock of the
domestic controlled corporation with a principal purpose of avoiding
the U.S. tax that would have been imposed on the domestic acquired
corporation had it disposed of the re-transferred assets. The 2005
proposed regulations contain a rebuttable presumption that the
disposition of stock has a principal purpose of tax avoidance if the
disposition occurs within 2 years of the transfer.
When applicable, under this second exception, the domestic acquired
corporation would be required to recognize gain as if, immediately
prior to the exchange, it had transferred the re-transferred assets,
including any intangible assets, directly to a domestic corporation in
an exchange qualifying under section 351, and immediately sold the
stock to an unrelated party for its fair market value in a transaction
in which it recognizes gain, if any (but not loss). The 2005 proposed
regulations would provide that the basis that the foreign acquiring
corporation has in the stock of the domestic controlled corporation is
increased immediately prior to its disposition by the amount of gain
recognized by the domestic acquired corporation. However, the basis of
the re-transferred assets held by the domestic controlled corporation
would not be increased by such gain.
Several comments were received with respect to the second
exception. Commentators stated that the final regulations should
provide that the amount of gain recognized by the domestic acquired
corporation under the second exception should also increase the basis
of the re-transferred assets held by the domestic controlled
corporation. As stated in the preamble to the 2005 proposed
regulations, the IRS and Treasury believe that the concerns raised by
the construct that results from a controlled asset transfer to a
domestic subsidiary after an outbound asset transfer are analogous to
the concerns raised in other divisive transactions where gain is
recognized on the stock of a corporation without a corresponding
increase in the basis of the assets of such corporation. See section
355(e) and Sec. 1.367(e)-2(b)(2)(iii). The tax consequences set forth
in the final regulations are intended to be consistent with the tax
consequences that result in these other transactions. As a result, the
final regulations do not adopt this comment.
Commentators also questioned whether the proposed modification to
the coordination rule is necessary in light of the enactment of section
7874 and whether any new limitations to the rule should await an
analysis of how section 7874 affects the rules of Sec. 1.367(a)-3(c).
Because of the divisive concerns present in these types of
transactions, the IRS and Treasury believe that the modifications to
the coordination rule continue to be necessary and therefore are
retained. Nevertheless, the IRS and Treasury are studying the effect of
section 7874 on the coordination rule, as well as the direct and
indirect transfer of domestic stock under Sec. 1.367(a)-3(c). The
results of this study may be addressed in a future regulation project.
Finally, in light of the enactment of section 7874, Example 6D of
Sec. 1.367(a)-3(d)(3) of the 2005 proposed regulations has not been
retained. Compare Sec. 1.367(a)-3(d)(3) Example 6B.
G. Treatment of a Controlled Asset Transfer Following a Section
368(a)(1)(F) Reorganization as an Indirect Stock Transfer
The 2005 proposed regulations would revise Sec. 1.367(a)-
3(d)(1)(v) so that any non-triangular asset reorganization followed by
a controlled asset transfer will be considered an indirect stock
transfer under Sec. 1.367(a)-3(d)(1).
Commentators stated, however, that a section 368(a)(1)(F)
reorganization followed by a controlled asset transfer should not be
treated as an indirect stock transfer. According to the commentators,
because a section 368(a)(1)(F) reorganization involves only a
``single'' corporation, it should be treated in effect as a ``non-
event'' for purposes of the indirect stock transfer rules. As a result,
the commentators believe that the transaction should be treated as a
mere section 351 transfer of assets to the controlled subsidiary and
not as an indirect stock transfer.
In response to this comment, the final regulations exclude from the
application of the indirect stock transfer rules same-country
368(a)(1)(F) reorganizations followed by controlled asset transfers.
For this purpose, a same-country section 368(a)(1)(F) reorganization is
a reorganization described in section 368(a)(1)(F) in which both the
acquired corporation and the acquiring corporation are foreign
corporations and are created or organized under the laws of the same
foreign country. This would include, for example, situations where the
foreign corporation changes its name, changes its location within the
foreign country, or changes its form within the foreign country. The
IRS and Treasury will continue to examine whether other foreign-to-
foreign section 368(a)(1)(F) reorganizations followed by controlled
asset transfers should be treated as indirect stock transfers, however,
as the general treatment of section 368(a)(1)(F) reorganizations is
further considered. Outbound reorganizations under section 368(a)(1)(F)
followed by controlled asset transfers are treated as indirect stock
transfers under the final regulations. See Sec. 1.367(a)-1T(f).
H. Treatment of Reorganizations Described in Section 368(a)(1)(G) and
(a)(2)(D) as Indirect Stock Transfers
Section 368(a)(2)(D) provides that the acquisition by one
corporation, in exchange for stock of a corporation which is in control
of the acquiring corporation, of substantially all the properties of
another corporation does not disqualify a transaction from qualifying
as a reorganization under section 368(a)(1)(A) or 368(a)(1)(G),
provided certain conditions are satisfied.
Section 1.367(a)-3(d)(1)(i) and (iv) of the 2005 proposed
regulations would treat certain reorganizations described in section
368(a)(1)(A) and (a)(2)(D), and certain triangular reorganizations
described in section 368(a)(1)(C), respectively, as indirect stock
transfers. Moreover, section 1.367(a)-3(d)(1)(v) of the 2005 proposed
regulations would include certain reorganizations described in section
368(a)(1)(G), followed by controlled asset transfers, as indirect stock
transfers. The 2005 proposed regulations would not explicitly treat
reorganizations described in section 368(a)(1)(G) and (a)(2)(D) as
indirect stock transfers, even though they have the same effect as
these other reorganizations. As a result, the final regulations modify
Sec. 1.367(a)-3(d)(1)(i), and related provisions, to include as
indirect stock transfers certain reorganizations described in section
368(a)(1)(G) and (a)(2)(D). Similar modifications are made in other
sections of the final regulations to take into account reorganizations
described in section 368(a)(1)(G) and (a)(2)(D).
I. General Operation of Section 367 Regulations and the Effect of
Section 7874
Comments were received regarding the scope of certain portions of
the section 367 regulations in light of the enactment of section 7874.
In response
[[Page 4281]]
to the potential overlap of these two provisions, the IRS and Treasury
are considering possible changes to Sec. 1.367(a)-3(c). Comments are
requested as to the interaction of section 7874 and Sec. 1.367(a)-
3(c), as well as to other aspects of the section 367 regulations.
J. Section 6038B Reporting
Section 6038B provides for reporting by U.S. persons that transfer
property to foreign corporations in an exchange described in section
332, 351, 354, 355, 356, or 361. Temporary regulations under section
6038B provide an exception from reporting for certain transactions
described in Sec. 1.367(a)-3(a). Section 1.367(a)-3(a) provides an
exception to section 367(a) for certain exchanges under section 354 or
356 of stock or securities in section 368(a)(1)(E) reorganizations or
in asset reorganizations that are not indirect stock transfers. These
exceptions from reporting under section 6038B have been amended to
conform to the amendments to Sec. 1.367(a)-3(a). These exceptions are
incorporated in the final regulations. See Part B. of this preamble.
Section 6038B and the regulations thereunder provide for reporting
by filing Form 926 ``Return by a U.S. Transferor of Property to a
Foreign Corporation'' and any attachments with the income tax return
for the year of the transfer. Temporary regulations under section 6038B
eliminate the requirement to sign Form 926, thus permitting the
electronic filing of the form with the U.S. transferor's federal income
tax return. The temporary regulations provide that Form 926 and any
attachments are verified by signing the income tax return with which
the form and attachments are filed. These temporary regulations are
incorporated in these final regulations, except with respect to certain
filings by corporations which will be addressed as part of a larger
final regulation dealing with electronic filing.
K. Effective Dates
1. General Rule
Except as provided below, the final regulations apply to
transactions occurring on or after January 23, 2006.
2. Retroactive Application of Sec. 1.367(b)-4(b)(1)(ii) of the
Proposed Regulations
Under Sec. 1.367(b)-4(b), certain shareholders of a foreign
acquired corporation are required to include in income as a deemed
dividend the section 1248 amount with respect to the stock of the
foreign acquired corporation if such exchange results in the loss of
section 1248 shareholder status. This may occur, for example, if the
exchanging shareholder receives domestic stock in exchange for the
stock of an acquired foreign corporation in a triangular reorganization
where a domestic issuing corporation controls the foreign acquiring
corporation.
The current regulations consider the section 1248 shareholder
status to be lost in this case because the domestic acquiring
corporation's basis in the foreign acquiring corporation is generally
determined by reference to the assets of the foreign acquired
corporation, rather than by reference to the stock of the foreign
acquired corporation. See Sec. 1.358-6. Under the 2005 proposed
regulations, however, such an exchanging shareholder would not be
required to include in income as a deemed dividend the section 1248
amount under Sec. 1.367(b)-4(b), provided that the domestic issuing
corporation, immediately after the exchange, is a section 1248
shareholder of the acquired corporation (in the case of a triangular
section 368(a)(1)(B) reorganization) or the surviving corporation (in
the case of a triangular section 368(a)(1)(C) reorganization, a forward
triangular merger, a reorganization described in section 368(a)(1)(G)
and (a)(2)(D), or a reverse triangular merger) and such acquired or
surviving corporation is a controlled foreign corporation. This change
was made in the case of triangular asset reorganizations because the
special basis rules in Sec. 1.367(b)-13(c) of the 2005 proposed
regulations would preserve the section 1248 amounts attributable to the
stock of the foreign acquired corporation in the stock of the foreign
acquiring (or surviving) corporation held by the domestic issuing
corporation. The special basis rules would not apply to triangular
reorganizations under section 368(a)(1)(B). The special basis rules are
not needed for these transactions because section 1248 amounts are
preserved under the general rules of Sec. 1.358-6.
Commentators requested that the modification to Sec. 1.367(b)-4
relating to triangular section 368(a)(1)(B) reorganizations be made
retroactive to February 23, 2000, the date on which Sec. 1.367(b)-4
was promulgated, because the basis rules of Sec. 1.358-6 were in
effect at that time and the transactions never raised concerns about
preserving section 1248 amounts. The IRS and Treasury agree with this
comment and therefore the final regulations allow taxpayers to apply
the modification to Sec. 1.367(b)-4 to a triangular section
368(a)(1)(B) reorganization occurring on or after February 23, 2000,
and during any taxable year which is not closed by the period of
limitations. Taxpayers applying this rule, however, must do so
consistently with respect to all such transactions.
Commentators also requested that the modification to Sec.
1.367(b)-4 apply to other triangular reorganizations on a retroactive
basis, on the condition that taxpayers also apply the special basis
rules of Sec. 1.367(b)-13(c) of the 2005 proposed regulations
retroactively to these transactions. The IRS and Treasury only intend
for the Sec. 1.367(b)-13(c) basis rules to apply on a prospective
basis. Elective application of these rules to prior years would be
complex and difficult to administer. Accordingly, the IRS and Treasury
have not adopted this comment for other triangular reorganizations.
3. Exchanges of Securities in Certain Recapitalizations and
Reorganizations
As stated above in part B.2. of this preamble, the final
regulations provide an exception to the application of section 367(a)
to transfers of securities by U.S. persons in a section 354 or 356
exchange pursuant to a section 368(a)(1)(E) reorganization, or a
section 368(a)(1) asset reorganization that is not treated as an
indirect stock transfer. This rule applies to transfers occurring after
January 5, 2005, although taxpayers may apply the rule to transfers of
securities occurring on or after July 20, 1998, and on or before
January 5, 2005, if done consistently to all transactions.
4. Asset Reorganizations Followed by Controlled Asset Transfers
Commentators stated that because the 2005 proposed regulations did
not provide an effective date for the rule that treats a section
368(a)(1)(F) reorganization followed by a controlled asset transfer as
an indirect stock transfer, such rule could be interpreted as applying
to transactions occurring on or after July 20, 1998, which is the
general effective date of Sec. 1.367(a)-3(d). The final regulations
clarify that a section 368(a)(1)(F) reorganization followed by a
controlled asset transfer is treated as an indirect stock transfer
subject to section 367(a) only if the reorganization occurs on or after
January 23, 2006.
In general, section 368(a)(1)(D) reorganizations followed by
controlled asset transfers are treated as indirect stock transfers
subject to section 367(a) if the reorganization occurs after December
9, 2002. However, see Rev. Rul. 2002-85 (2002-2 C.B. 986), for special
retroactive applicability dates.
[[Page 4282]]
5. Electronic Filing Under Section 6038B
These final regulations provide that Form 926 and any attachments
will be verified by signing the income tax return with which the form
and attachments are filed, in order to facilitate the electronic filing
of Form 926 with the transferor's income tax return. This rule applies
to taxable years beginning after December 31, 2002. For taxable years
beginning before January 1, 2003, Form 926 must be signed under
penalties of perjury declaring that the information submitted is true,
correct and complete to the best of the transferor's knowledge and
belief.
Special Analyses
It has been determined that this Treasury Decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It has also been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations, and because the
regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Code, the notice of proposed
rulemaking preceding these regulations was submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business.
Drafting Information
The principal author of these regulations is Robert W. Lorence,
Jr., of the Office of Associate Chief Counsel (International). However,
other personnel from the IRS and Treasury participated in their
development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805 * * *
Sec. 1.367(a)-3(b) also issued under 26 U.S.C. 367(a) * * *
Sec. 1.367(b)-13 also issued under 26 U.S.C. 367(b) * * *
0
Par. 2. In Sec. 1.358-6, paragraph (e) is amended by adding a sentence
at the end of the paragraph to read as follows:
Sec. 1.358-6 Stock basis in certain triangular reorganizations
* * * * *
(e) * * * For certain triangular reorganizations where the
surviving corporation (S or T) is foreign, see Sec. 1.367(b)-13.
* * * * *
0
Par. 3. Section 1.367(a)-3 is amended as follows:
0
1. In paragraph (a), remove the third and fourth sentences, and add
five sentences in their place.
0
2. In paragraph (a), add a sentence at the end of the paragraph.
0
3. Revise paragraph (b)(2)(i).
0
4. Revise paragraph (c)(5)(vi).
0
5. Revise paragraph (d)(1), introductory text.
0
6. Revise paragraph (d)(1)(i).
0
7. In paragraph (d)(1)(ii), add a sentence at the end of the paragraph.
0
8. Revise paragraph (d)(1)(iii).
0
9. In paragraph (d)(1)(iv), remove the language ``Example 5'' and add
``Example 6'' in its place, remove ``Example 7'' and add ``Example 8''
in its place, and remove ``Example 11'' and add ``Example 14'' in its
place.
0
10. Revise paragraph (d)(1)(v).
0
11. In paragraph (d)(1)(vi), remove the language ``Example 10 and
Example 10A'' and add ``Example 13 and Example 13A'' in its place.
0
12. Revise paragraphs (d)(2)(i), (ii), and (iv).
0
13. Revise paragraph (d)(2)(v)(A) and (C).
0
14. Redesignate paragraph (d)(2)(v)(D) as paragraph (d)(2)(v)(F).
0
15. Add new paragraphs (d)(2)(v)(D) and (E).
0
16. Revise paragraph (d)(2)(vi).
0
17. Add new paragraph (d)(2)(vii).
0
18. In paragraph (d)(3), remove the first sentence, and add two
sentences in its place.
0
19. In paragraph (d)(3), redesignate the examples as follows and add
the following new examples:
------------------------------------------------------------------------
Redesignate As Add
------------------------------------------------------------------------
Example 12...................... Example 16.
................. Example 15.
Examples 11 and 11A............. Examples 14 and
14A.
Examples 10 and 10A............. Examples 13 and
13A.
Example 9....................... Example 12.
................. Examples 10 and 11.
Example 8....................... Example 9.
Examples 7, 7A, 7B, and 7C...... Examples 8, 8A,
8B, and 8C.
Examples 6 and 6A............... Examples 7 and
7A.
................. Example 6C.
Examples 5, 5A, and 5B.......... Examples 6, 6A,
and 6B.
................. Example 5A.
Example 4....................... Example 5.
Example 3....................... Example 4.
Example 2....................... Example 3.
................. Example 2.
------------------------------------------------------------------------
0
20. In paragraph (d)(3), newly designated Example 3, the heading and
paragraph (i) are revised.
0
21. In paragraph (d)(3), newly designated Example 5, paragraph (i),
remove the language ``paragraph (d)(1)(iii)'' and add ``paragraph
(d)(1)(iii)(A)'' in its place.
0
22. In paragraph (d)(3), newly designated Example 5, paragraph (ii),
last sentence, remove the language ``, or if S sold all or a portion of
the stock of Y''.
0
23. In paragraph (d)(3), newly designated Example 6A, paragraph (i),
the first and last sentences, and paragraph (ii), the first, fourth,
and fifth sentences are revised.
0
24. In paragraph (d)(3), newly designated Example 6B is revised.
0
25. In paragraph (d)(3), newly designated Example 8, paragraph (ii),
the fourth sentence is revised.
0
26. In paragraph (d)(3), newly designated Example 9 is revised.
0
27. In paragraph (d)(3), newly designated Example 12, paragraph (ii),
the fifth sentence is revised.
0
28. In paragraph (d)(3), revise newly designated Example 16.
0
29. In paragraph (d)(3), for each of the newly designated examples
listed in the first column, replace the language in the second column
with the language in the third column:
------------------------------------------------------------------------
Redesignated examples Remove Add
------------------------------------------------------------------------
Example 7, paragraph (i)........ Example 5......... Example 6.
Example 7A, paragraph (i) and Example 6......... Example 7.
paragraph (ii), penultimate
sentence.
Example 8, paragraph (i)........ Example 5......... Example 6.
Example 8A, paragraph (i)....... Example 7......... Example 8.
[[Page 4283]]
Example 8B, paragraph (i)....... Example 7......... Example 8.
Example 8C, paragraph (i)....... Example 7......... Example 8.
Example 12, paragraph (i), third Example 9......... Example 12.
sentence.
Example 13A, paragraph (i) and Example 10........ Example 13.
paragraph (ii), first sentence.
Example 14A, paragraph (i)...... Example 11........ Example 14.
------------------------------------------------------------------------
0
30. Paragraph (e)(1) is revised.
The revisions and additions are as follows:
Sec. 1.367(a)-3 Treatment of transfers of stock or securities to
foreign corporations.
* * * * *
(a) * * * However, if, in an exchange described in section 354 or
356, a U.S. person exchanges stock or securities of a foreign
corporation in a reorganization described in section 368(a)(1)(E), or a
U.S. person exchanges stock or securities of a domestic or foreign
corporation pursuant to an asset reorganization that is not treated as
an indirect stock transfer under paragraph (d) of this section, such
section 354 or 356 exchange is not a transfer to a foreign corporation
subject to section 367(a). See paragraph (d)(3) Example 16 of this
section. For purposes of this section, an asset reorganization is
defined as a reorganization described in section 368(a)(1) involving a
transfer of assets under section 361. If, in a transfer described in
section 361, a domestic merging corporation transfers stock of a
controlling corporation to a foreign surviving corporation in a
reorganization described in sections 368(a)(1)(A) and (a)(2)(E), such
section 361 transfer is not subject to section 367(a) if the stock of
the controlling corporation is provided to the merging corporation by
the controlling corporation pursuant to the plan of reorganization; a
section 361 transfer of other property, including stock of the
controlling corporation not provided by the controlling corporation
pursuant to the plan of reorganization, by the domestic merging
corporation to the foreign surviving corporation pursuant to such a
reorganization is subject to section 367(a). For special basis and
holding period rules involving foreign corporations that are parties to
certain triangular reorganizations under section 368(a)(1), see Sec.
1.367(b)-13. * * * For rules related to expatriated entities, see
section 7874 and the regulations thereunder.
(b) * * *
(2) * * *
(i) In general. A transfer of foreign stock or securities described
in section 367(a) or the regulations thereunder as well as in section
367(b) or the regulations thereunder shall be subject concurrently to
sections 367(a) and (b) and the regulations thereunder, except as
provided in paragraph (b)(2)(i)(A) or (B) of this section. See
paragraph (d)(3) Examples 11 and 14 of this section.
(A) Section 367(b) and the regulations thereunder shall not apply
if a foreign corporation is not treated as a corporation under section
367(a)(1). See the example in paragraph (b)(2)(ii) of this section and
paragraph (d)(3) Example 14 of this section.
(B) If a foreign corporation transfers assets to a domestic
corporation in a transaction to which Sec. 1.367(b)-3(a) and (b) and
the indirect stock transfer rules of paragraph (d) of this section
apply, and all the earnings and profits amount attributable to the
stock of an exchanging shareholder under Sec. 1.367(b)-3(b) is greater
than the amount of gain in such stock subject to section 367(a)
pursuant to the indirect stock transfer rules of paragraph (d) of this
section, then the rules of section 367(b), and not the rules of section
367(a), shall apply to the exchange. See paragraph (d)(3) Example 15 of
this section.
* * * * *
(c) * * *
(5) * * *
(vi) Transferee foreign corporation. Except as provided in
paragraph (d)(2)(i)(B) of this section, a transferee foreign
corporation is the foreign corporation whose stock is received in the
exchange by U.S. persons.
* * * * *
(d) * * *
(1) In general. For purposes of this section, a U.S. person who
exchanges, under section 354 (or section 356) stock or securities in a
domestic or foreign corporation for stock or securities in a foreign
corporation (or in a domestic corporation in control of a foreign
acquiring corporation in a triangular section 368(a)(1)(B)
reorganization) in connection with a transaction described in
paragraphs (d)(1)(i) through (v) of this section (or who is deemed to
make such an exchange under paragraph (d)(1)(vi) of this section)
shall, except as provided in paragraph (d)(2)(vii) of this section, be
treated as having made an indirect transfer of such stock or securities
to a foreign corporation that is subject to the rules of this section,
including, for example, the requirement, where applicable, that the
U.S. transferor enter into a gain recognition agreement to preserve
nonrecognition treatment under section 367(a). If the U.S. person
exchanges stock or securities of a foreign corporation, see also
section 367(b) and the regulations thereunder. For examples of the
concurrent application of the indirect stock transfer rules under
section 367(a) and the rules of section 367(b), see paragraph (d)(3)
Examples 14 and 15 of this section. For purposes of this paragraph (d),
if a corporation acquiring assets in an asset reorganization transfers
all or a portion of such assets to a corporation controlled (within the
meaning of section 368(c)) by the acquiring corporation as part of the
same transaction, the subsequent transfer of assets to the controlled
corporation will be referred to as a controlled asset transfer. See
section 368(a)(2)(C).
(i) Mergers described in sections 368(a)(1)(A) and (a)(2)(D) and
reorganizations described in sections 368(a)(1)(G) and (a)(2)(D). A
U.S. person exchanges stock or securities of a corporation (the
acquired corporation) for stock or securities of a foreign corporation
that controls the acquiring corporation in a reorganization described
in either sections 368(a)(1)(A) and (a)(2)(D), or in sections
368(a)(1)(G) and (a)(2)(D). See paragraph (d)(3) Example 1 of this
section for an example of a reorganization described in sections
368(a)(1)(A) and (a)(2)(D) involving domestic acquired and acquiring
corporations, and see paragraph (d)(3) Example 10 of this section for
an example involving a domestic acquired corporation and a foreign
acquiring corporation.
(ii) * * * See paragraph (d)(3) Example 2 of this section for an
example of a reorganization described in sections 368(a)(1)(A) and
(a)(2)(E) involving domestic acquired and acquiring corporations, and
see paragraph (d)(3) Example 11 of this section for an example
involving a domestic acquired corporation and a foreign acquiring
corporation.
(iii) Triangular reorganizations described in section
368(a)(1)(B)--(A) A U.S. person exchanges stock or securities of the
acquired corporation for voting stock or securities of a foreign
corporation that is in control (as defined in section 368(c)) of the
acquiring corporation in a reorganization described in section
368(a)(1)(B). See paragraph (d)(3) Example 5 of this section.
[[Page 4284]]
(B) A U.S. person exchanges stock or securities of the acquired
corporation for voting stock or securities of a domestic corporation
that is in control (as defined in section 368(c)) of a foreign
acquiring corporation in a reorganization described in section
368(a)(1)(B). See paragraph (d)(3) Example 5A of this section.
* * * * *
(v) Transfers of assets to subsidiaries in certain section
368(a)(1) reorganizations. A U.S. person exchanges stock or securities
of a corporation (the acquired corporation) for stock or securities of
a foreign acquiring corporation in an asset reorganization (other than
a triangular section 368(a)(1)(C) reorganization described in paragraph
(d)(1)(iv) of this section, a reorganization described in sections
368(a)(1)(A) and (a)(2)(D) or sections 368(a)(1)(G) and (a)(2)(D)
described in paragraph (d)(1)(i) of this section, a reorganization
described in sections 368(a)(1)(A) and (a)(2)(E) described in paragraph
(d)(1)(ii) of this section, or a same-country section 368(a)(1)(F)
reorganization) that is followed by a controlled asset transfer. For
purposes of this section, a same-country section 368(a)(1)(F)
reorganization is a reorganization described in section 368(a)(1)(F) in
which both the acquired corporation and the acquiring corporation are
foreign corporations and are created or organized under the laws of the
same foreign country. In the case of a transaction described in this
paragraph (d)(1)(v) in which some but not all of the assets of the
acquired corporation are transferred in a controlled asset transfer,
the transaction shall be considered to be an indirect transfer of stock
or securities subject to this paragraph (d) only to the extent of the
assets so transferred. The remaining assets shall be treated as having
been transferred by the acquired corporation in an asset transfer
rather than an indirect stock transfer, and, if the acquired
corporation is a domestic corporation, such asset transfer shall be
subject to the other provisions of section 367, including sections
367(a)(1), (3), and (5), and (d). See paragraph (d)(3) Examples 6A and
6B of this section.
* * * * *
(2) * * *
(i) Transferee foreign corporation--(A) General rule. Except as
provided in paragraph (d)(2)(i)(B) of this section, the transferee
foreign corporation shall be the foreign corporation that issues stock
or securities to the U.S. person in the exchange.
(B) Special rule for triangular reorganizations described in
paragraph (d)(1)(iii)(B) of this section. In the case of a triangular
reorganization described in paragraph (d)(1)(iii)(B) of this section,
the transferee foreign corporation shall be the foreign acquiring
corporation. See paragraph (d)(3) Example 5A of this section.
(ii) Transferred corporation. The transferred corporation shall be
the acquiring corporation, except as provided in this paragraph
(d)(2)(ii). In the case of a triangular section 368(a)(1)(B)
reorganization described in paragraph (d)(1)(iii) of this section, the
transferred corporation shall be the acquired corporation. In the case
of an indirect stock transfer described in paragraph (d)(1)(i), (ii),
or (iv) of this section followed by a controlled asset transfer, or an
indirect stock transfer described in paragraph (d)(1)(v) of this
section, the transferred corporation shall be the controlled
corporation to which the assets are transferred. In the case of
successive section 351 transfers described in paragraph (d)(1)(vi) of
this section, the transferred corporation shall be the corporation to
which the assets are transferred in the final section 351 transfer. The
transferred property shall be the stock or securities of the
transferred corporation, as appropriate under the circumstances.
* * * * *
(iv) Gain recognition agreements involving multiple parties. The
U.S. transferor's agreement to recognize gain, as provided in Sec.
1.367(a)-8, shall include appropriate provisions consistent with the
principles of these rules, including a requirement that the transferor
recognize gain in the event of a direct or indirect disposition of the
stock or assets of the transferred corporation. For example, in the
case of a triangular section 368(a)(1)(B) reorganization described in
paragraph (d)(1)(iii)(A) of this section, a disposition of the
transferred stock or securities requiring the U.S. transferor to
recognize gain shall include a direct or indirect disposition of such
stock or securities by the transferee foreign corporation, such as a
disposition of such stock or securities by a foreign acquiring
corporation or a disposition of the stock of the acquiring corporation
(either foreign or domestic) by the transferee foreign corporation. In
the case of a triangular section 368(a)(1)(B) reorganization described
in paragraph (d)(1)(iii)(B) of this section, a disposition of the
transferred stock or securities requiring the U.S. transferor to
recognize gain shall occur, for example, upon the disposition of such
stock or securities by the acquiring corporation. Moreover, a
disposition of the stock of the acquiring corporation by the domestic
issuing corporation in a taxable transaction shall, for example,
terminate the gain recognition agreement. See Sec. 1.367(a)-8(h)(1)
and paragraph (d)(3) Examples 5 and 5A of this section.
(v) * * *
(A) In the case of a reorganization described in paragraph
(d)(1)(i) of this section (a reorganization described in sections
368(a)(1)(A) and (a)(2)(D) or sections 368(a)(1)(G) and (a)(2)(D)) or a
reorganization described in section (d)(1)(iv) of this section (a
triangular section 368(a)(1)(C) reorganization), the assets of the
acquired corporation;
* * * * *
(C) In the case of an asset reorganization followed by a controlled
asset transfer, as described in paragraph (d)(1)(v) of this section,
the assets of the acquired corporation that are transferred to the
corporation controlled by the acquiring corporation;
(D) In the case of a triangular reorganization described in section
368(a)(1)(C) followed by a controlled asset transfer, a reorganization
described in sections 368(a)(1)(A) and (a)(2)(D) followed by a
controlled asset transfer, or a reorganization described in sections
368(a)(1)(G) and (a)(2)(D) followed by a controlled asset transfer, the
assets of the acquired corporation including those transferred to the
corporation controlled by the acquiring corporation;
(E) In the case of a reorganization described in sections
368(a)(1)(A) and (a)(2)(E) followed by a controlled asset transfer, the
assets of the acquiring corporation including those transferred to the
corporation controlled by the acquiring corporation; and
* * * * *
(vi) Coordination between asset transfer rules and indirect stock
transfer rules--(A) General rule. Except as otherwise provided in this
paragraph (d)(2)(vi), if, pursuant to any of the transactions described
in paragraph (d)(1) of this section, a U.S. person transfers (or is
deemed to transfer) assets to a foreign corporation in an exchange
described in section 351 or section 361, the rules of section 367,
including sections 367(a)(1), (a)(3), and (a)(5), as well as section
367(d), and the regulations thereunder shall apply prior to the
application of the rules of this section.
(B) Exceptions. (1) If a transaction is described in paragraph
(d)(2)(vi)(A) of this section, sections 367(a) and (d) shall not apply
to the extent a domestic corporation (domestic acquired corporation)
transfers its assets to a foreign corporation (foreign acquiring
[[Page 4285]]
corporation) in an asset reorganization, and such assets (re-
transferred assets) are transferred to a domestic corporation (domestic
controlled corporation) in a controlled asset transfer, provided that
the domestic controlled corporation's basis in such assets is no
greater than the basis that the domestic acquired corporation had in
such assets and the conditions contained in either of the following
paragraphs are satisfied:
(i) The domestic acquired corporation is controlled (within the
meaning of section 368(c)) by 5 or fewer domestic corporations,
appropriate basis adjustments as provided in section 367(a)(5) are made
to the stock of the foreign acquiring corporation, and any other
conditions as provided in regulations under section 367(a)(5) are
satisfied. For purposes of determining whether the domestic acquired
corporation is controlled by 5 or fewer domestic corporations, all
members of the same affiliated group within the meaning of section 1504
shall be treated as 1 corporation.
(ii) The requirements of paragraphs (c)(1)(i), (ii), and (iv), and
(c)(6) of this section are satisfied with respect to the indirect
transfer of stock in the domestic acquired corporation, and the
domestic acquired corporation attaches a statement described in
paragraph (d)(2)(vi)(C) of this section to its U.S. income tax return
for the taxable year of the transfer.
(2) Sections 367(a) and (d) shall not apply to transfers described
in paragraph (d)(1)(vi) of this section where a U.S. person transfers
assets to a foreign corporation in a section 351 exchange, to the
extent that such assets are transferred by such foreign corporation to
a domestic corporation in another section 351 exchange, but only if the
domestic transferee's basis in the assets is no greater than the basis
that the U.S. transferor had in such assets.
(C) Required statement. The statement required by paragraph
(d)(2)(vi)(B)(1)(ii) of this section shall be entitled ``Required
Statement under Sec. 1.367(a)-3(d) for Assets Transferred to a
Domestic Corporation'' and shall be signed under penalties of perjury
by an authorized officer of the domestic acquired corporation and by an
authorized officer of the foreign acquiring corporation. The required
statement shall contain a certification that, if the foreign acquiring
corporation disposes of any stock of the domestic controlled
corporation in a transaction described in paragraph (d)(2)(vi)(D) of
this section, the domestic acquired corporation shall recognize gain as
described in paragraph (d)(2)(vi)(E) of this section. The domestic
acquired corporation (or the foreign acquiring corporation on behalf of
the domestic acquired corporation) shall file a U.S. income tax return
(or an amended U.S. tax return, as the case may be) for the year of the
transfer reporting such gain.
(D) Gain recognition transaction. (1) A transaction described in
this paragraph (d)(2)(vi)(D) is one where a principal purpose of the
transfer by the domestic acquired corporation is the avoidance of U.S.
tax that would have been imposed on the domestic acquired corporation
on the disposition of the re-transferred assets. A transfer may have a
principal purpose of tax avoidance even though the tax avoidance
purpose is outweighed by other purposes when taken together.
(2) For purposes of paragraph (d)(2)(vi)(D)(1) of this section, a
transaction is deemed to have a principal purpose of tax avoidance if
the foreign acquiring corporation disposes of any stock of the domestic
controlled corporation (whether in a recognition or non-recognition
transaction) within 2 years of the transfer described in paragraph
(d)(2)(vi)(A) of this section. The rule in this paragraph
(d)(2)(vi)(D)(2) shall not apply if the domestic acquired corporation
(or the foreign acquiring corporation on behalf of the domestic
acquired corporation) demonstrates to the satisfaction of the
Commissioner that the avoidance of U.S. tax was not a principal purpose
of the transaction.
(E) Amount of gain recognized and other matters. (1) In the case of
a transaction described in paragraph (d)(2)(vi)(D) of this section,
solely for purposes of this paragraph (d)(2)(vi)(E), the domestic
acquired corporation shall be treated as if, immediately prior to the
transfer described in paragraph (d)(2)(vi)(A) of this section, it
transferred the re-transferred assets, including any intangible assets,
directly to a domestic corporation in exchange for stock of such
domestic corporation in a transaction that is treated as a section 351
exchange, and immediately sold such stock to an unrelated party for its
fair market value in a sale in which it shall recognize gain, if any
(but not loss). Any gain recognized by the domestic acquired
corporation pursuant to this paragraph (d)(2)(vi)(E) will increase the
basis that the foreign acquiring corporation has in the stock of the
domestic controlled corporation immediately before the transaction
described in paragraph (d)(2)(vi)(D) of this section, but will not
increase the basis of the re-transferred assets held by the domestic
controlled corporation. Section 1.367(d)-1T(g)(6) shall not apply with
respect to any intangible property included in the re-transferred
assets described in this paragraph.
(2) If additional tax is required to be paid as a result of a
transaction described in paragraph (d)(2)(vi)(D) of this section, then
interest must be paid on that amount at rates determined under section
6621 with respect to the period between the date prescribed for filing
the domestic acquired corporation's income tax return for the year of
the transfer and the date on which the additional tax for that year is
paid.
(F) Examples. For illustrations of the rules in paragraph
(d)(2)(vi) of this section, see paragraph (d)(3) Examples 6B, 6C, 9,
and 13A of this section.
(vii) Change in status of a domestic acquired corporation to a
foreign corporation. (A) A U.S. person that exchanges stock or
securities of a domestic corporation for stock or securities of a
foreign corporation under section 354 (or section 356) will be treated
for purposes of this section as having made an indirect stock transfer
of the stock or securities of a foreign corporation (and not of a
domestic corporation) to a foreign corporation under paragraph (b) of
this section (but not paragraph (c) of this section), if the acquired
domestic corporation is a subsidiary member (within the meaning of
Sec. 1.1502-1(c)) of a consolidated group (within the meaning of Sec.
1.1502-1(h)) immediately before the transaction, and if the transaction
is either of the following:
(1) Described in paragraph (d)(1)(i) or (iv) of this section, but
only if the acquiring corporation is foreign. See paragraph (d)(3)
Examples 8, 9, 10 and 12 of this section.
(2) Described in paragraph (d)(1)(v) of this section, but only to
the extent the controlled asset transfer is to a foreign corporation.
See paragraph (d)(3) Example 6A of this section.
(B) The rules of paragraph (d)(2)(vii)(A) of this section will not
apply to the extent assets transferred to the foreign acquiring
corporation in a transaction described in paragraph (d)(2)(vii)(A)(1)
of this section, or assets transferred to a foreign corporation in a
controlled asset transfer in a transaction described in paragraph
(d)(2)(vii)(A)(2) of this section, are retransferred to a domestic
controlled corporation in one or more successive transfers as part of
the same transaction. See paragraph (d)(3) Example 9 of this section.
(3) * * * The rules of this paragraph (d) and Sec. 1.367(a)-8 are
illustrated by the following examples. For purposes of these examples,
assume section 7874 does not apply.
* * * * *
[[Page 4286]]
Example 2. Section 368(a)(1)(A)/(a)(2)(E) reorganization--(i)
Facts. The facts are the same as in Example 1, except that Newco
merges into W and Newco receives stock of W which it distributes to
F in a reorganization described in sections 368(a)(1)(A) and
(a)(2)(E). Pursuant to the reorganization, A receives 40 percent of
the stock of F in an exchange described in section 354.
(ii) Result. The consequences of the transfer are similar to
those described in Example 1. Pursuant to paragraph (d)(1)(ii) of
this section, A is considered to have transferred its W stock to F
pursuant to the indirect stock transfer rules. F is treated as the
transferee foreign corporation, and W is treated as the transferred
corporation. Provided that the requirements of paragraph (c)(1) of
this section are satisfied, including the requirement that A enter
into a five-year gain recognition agreement as described in Sec.
1.367(a)-8, A's exchange of W stock for F stock under section 354
will not be subject to section 367(a)(1).
Example 3. Taxable transaction pursuant to indirect stock
transfer rules--(i) Facts. The facts are the same as in Example 1,
except that A receives 55 percent of either the total voting power
or the total value of the stock of F in the transaction.
* * * * *
Example 5A. Triangular section 368(a)(1)(B) reorganization--(i)
Facts. The facts are the same as in Example 5, except that F is a
domestic corporation and S is a foreign corporation.
(ii) Result. U's exchange of Y stock for stock of F, a domestic
corporation in control of S, the foreign acquiring corporation, is
treated as an indirect transfer of Y stock to a foreign corporation
under paragraph (d)(1)(iii)(B) of this section. U's exchange of Y
stock for F stock will not be subject to section 367(a)(1) provided
that all of the requirements of paragraph (c)(1) of this section are
satisfied, including the requirement that U enter into a five-year
gain recognition agreement. In satisfying the 50 percent or less
ownership requirements of paragraphs (c)(1)(i) and (ii) of this
section, U's indirect ownership of S stock (through its direct
ownership of F) will determine whether the requirement of paragraph
(c)(1)(i) of this section is satisfied and will be taken into
account in determining whether the requirement of paragraph
(c)(1)(ii) of this section is satisfied. See paragraph (c)(4)(iv) of
this section. For purposes of this section, S is treated as the
transferee foreign corporation (see paragraph (d)(2)(i)(B) of this
section). The gain recognition agreement would be triggered, for
example, if S sold all or a portion of the stock of Y, or if Y sold
substantially all of its assets (within the meaning of section
368(a)(1)(C)). In addition, if F disposed of the stock of S in a
taxable transaction the gain recognition agreement would be
terminated.
* * * * *
Example 6A. Section 368(a)(1)(C) reorganization followed by a
controlled asset transfer--(i) Facts. The facts are the same as in
Example 6, except that the transaction is structured as a section
368(a)(1)(C) reorganization with Z transferring its assets to F,
followed by a controlled asset transfer, and R is a foreign
corporation. * * * F then contributes Businesses B and C to R in a
controlled asset transfer.
(ii) Result. The transfer of the Business A assets by Z to F
does not constitute an indirect stock transfer under paragraph (d)
of this section, and, subject to section 367(a)(5), the Business A
assets qualify for the section 367(a)(3) active trade or business
exception and are not subject to section 367(a). * * * Subject to
section 367(a)(5), the Business B assets may qualify for the
exception under section 367(a)(3) and Sec. 1.367(a)-2T(c)(2) for
assets that will be used by R in an active trade or business outside
the United States. Pursuant to paragraphs (d)(1) and
(d)(2)(vii)(A)(2) of this section, V is deemed to transfer the stock
of a foreign corporation to F in a section 354 exchange subject to
the rules of paragraphs (b) and (d) of this section. * * *
* * * * *
Example 6B. Section 368(a)(1)(C) reorganization followed by a
controlled asset transfer to a domestic controlled corporation--(i)
Facts. The facts are the same as in Example 6A, except that R is a
domestic corporation.
(ii) Result. As in Example 6A, the outbound transfer of the
Business A assets to F is not affected by the rules of this
paragraph (d) and is subject to the general rules under section 367.
However, subject to section 367(a)(5), the Business A assets qualify
for the section 367(a)(3) active trade or business exception and are
not subject to section 367(a). The Business B and C assets are part
of an indirect stock transfer under this paragraph (d) but must
first be tested under section 367(a) and (d). The Business B assets
qualify for the active trade or business exception under section
367(a)(3); the Business C assets do not. However, pursuant to
paragraph (d)(2)(vi)(B) of this section, the Business B and C assets
are not subject to section 367(a) or (d), provided that the basis of
the Business B and C assets in the hands of R is no greater than the
basis of the assets in the hands of Z, and appropriate basis
adjustments are made pursuant to section 367(a)(5) to the stock of F
held by V. V also is deemed to make an indirect transfer of Z stock
under the rules of paragraph (d) of this section to the extent the
assets are transferred to R. To preserve non-recognition treatment
under section 367(a), and assuming the other requirements of
paragraph (c) of this section are satisfied, V must enter into a 5-
year gain recognition agreement in the amount of $50, the amount of
the appreciation in the Business B and C assets, as the transfer of
such assets by Z was not taxable under section 367(a)(1) and
constituted an indirect stock transfer.
Example 6C. Section 368(a)(1)(C) reorganization followed by a
controlled asset transfer to a domestic controlled corporation--(i)
Facts. The facts are the same as in Example 6B, except that Z is
owned by U.S. individuals, none of whom qualify as five-percent
target shareholders with respect to Z within the meaning of
paragraph (c)(5)(iii) of this section. The following additional
facts are present. No U.S. persons that are either officers or
directors of Z own any stock of F immediately after the transfer. F
is engaged in an active trade or business outside the United States
that satisfies the test set forth in paragraph (c)(3) of this
section.
(ii) Result. The Business A assets transferred to F are not re-
transferred to R and therefore Z's transfer of these assets is not
subject to the rules of paragraph (d) of this section. However, the
transfer of such assets is subject to gain recognition under section
367(a)(1), because the section 367(a)(3) active trade or business
exception is inapplicable pursuant to section 367(a)(5). The
Business B and C assets are part of an indirect stock transfer under
this paragraph (d) but must first be tested with respect to Z under
section 367(a) and (d), as provided in paragraph (d)(2)(vi) of this
section. The transfer of the Business B assets (which otherwise
would satisfy the section 367(a)(3) active trade or business
exception) generally is subject to section 367(a)(1) pursuant to
section 367(a)(5). The transfer of the Business C assets generally
is subject to section 367(a)(1) because these assets do not qualify
for the active trade or business exception under section 367(a)(3).
However, pursuant to paragraph (d)(2)(vi)(B) of this section, the
transfer of the Business B and C assets is not subject to sections
367(a)(1) and (d), provided the basis of the Business B and C assets
in the hands of R is no greater than the basis in the hands of Z and
certain other requirements are satisfied. Even though Z is not
controlled within the meaning of section 368(c) by 5 or fewer
domestic corporations, Z may avoid immediate gain recognition under
section 367(a) and (d) on the transfers of the Business B and
Business C assets to F if, pursuant to paragraph (d)(3)(vi)(B) of
this section, the indirect transfer of Z stock satisfies the
requirements of paragraphs (c)(1)(i), (ii), and (iv), and (c)(6) of
this section, and Z attaches a statement described in paragraph
(d)(2)(vi)(C) of this section to its U.S. income tax return for the
taxable year of the transfer. In general, the statement must contain
a certification that, if F disposes of the stock of R (in a
recognition or nonrecognition transaction) and a principal purpose
of the transfer is the avoidance of U.S. tax that would have been
imposed on Z on the disposition of the Business B and C assets
transferred to R, then Z (or F on behalf of Z) will file a return
(or amended return as the case may be) recognizing gain ($50), as
if, immediately prior to the reorganization, Z transferred the
Business B and C assets to a domestic corporation in exchange for
stock in a transaction treated as a section 351 exchange and
immediately sold such stock to an unrelated party for its fair
market value. A transaction is deemed to have a principal purpose of
U.S. tax avoidance if F disposes of R stock within two years of the
transfer, unless Z (or F on behalf of Z) can rebut the presumption
to the satisfaction of the Commissioner. See paragraph
(d)(2)(vi)(D)(2) of this section. With respect to the indirect
transfer of Z stock, assume the requirements of paragraphs
(c)(1)(i), (ii), and (iv) of this section are satisfied. Thus,
assuming Z attaches the statement described in paragraph
(d)(2)(vi)(C) of this section to its U.S. income tax return and
satisfies the reporting
[[Page 4287]]
requirements of (c)(6) of this section, the transfer of Business B
and C assets is not subject to immediate gain recognition under
section 367(a) or (d).
* * * * *
Example 8. Concurrent application of asset transfer and indirect
stock transfer rules in consolidated return setting--(i) Facts. * *
*
(ii) * * * Pursuant to paragraphs (d)(1) and (d)(2)(vii)(A)(1)
of this section, V is deemed to transfer the stock of a foreign
corporation to F in a section 354 exchange subject to the rules of
paragraphs (b) and (d) of this section, and therefore must enter
into a gain recognition agreement in the amount of $60 (the gain
realized but not recognized by V in the stock of Z after the $40
basis adjustment).
* * * * *
Example 9. Indirect stock transfer by reason of a controlled
asset transfer--(i) Facts. The facts are the same as in Example 8,
except that R transfers the Business A assets to M, a wholly owned
domestic subsidiary of R, in a controlled asset transfer. In
addition, V's basis in its Z stock is $90.
(ii) Result. Pursuant to paragraph (d)(2)(vi)(B) of this
section, sections 367(a) and (d) do not apply to Z's transfer of the
Business A assets to R, because such assets are re-transferred to M,
a domestic corporation, provided that the basis of the Business A
assets in the hands of M is no greater than the basis of the assets
in the hands of Z, and certain other requirements are satisfied.
Because Z is controlled (within the meaning of section 368(c)) by V,
a domestic corporation, appropriate basis adjustments must be made
pursuant to section 367(a)(5) to the stock of F held by V. Section
367(a)(1) does not apply to Z's transfer of its Business B assets to
R (which are not re-transferred to M) because such assets qualify
for an exception to gain recognition under section 367(a)(3),
subject to section 367(a)(5). Pursuant to paragraphs (d)(1) and
(d)(2)(vii)(A)(1) of this section, V is generally deemed to transfer
the stock of a foreign corporation to F in a section 354 exchange
subject to the rules of paragraphs (b) and (d) of this section,
including the requirement that V enter into a 5-year gain
recognition agreement and comply with the requirements of Sec.
1.367(a)-8. However, pursuant to paragraph (d)(2)(vii)(B) of this
section, paragraph (d)(2)(vii)(A)(1) of this section does not apply
to the extent of the transfer of business A assets by R to M, a
domestic corporation. As a result, to the extent of the business A
assets transferred by R to M, V is deemed to transfer the stock of Z
(a domestic corporation) to F in a section 354 exchange subject to
the rules of paragraphs (c) and (d) of this section. Thus, with
respect to V's indirect transfer of Z stock to F, such transfer is
not subject to gain recognition under section 367(a)(1) if the
requirements of paragraph (c) of this section are satisfied,
including the requirement that V enter into a 5-year gain
recognition agreement and comply with the requirements of Sec.
1.367(a)-8. Under paragraphs (d)(2)(i) and (ii) of this section, the
transferee foreign corporation is F and the transferred corporation
is M. Pursuant to paragraph (d)(2)(iv) of this section, a
disposition by F of the stock of R, or a disposition by R of the
stock of M, will trigger the gain recognition agreement. To
determine whether an asset disposition constitutes a deemed
disposition of the transferred corporation's stock under the rules
of Sec. 1.367(a)-8(e)(3)(i), both the Business A assets in M and
the Business B assets in R must be considered.
Example 10. Concurrent application of direct stock transfer and
indirect stock transfer rules in section 368(a)(1)(A)/(a)(2)(D)
reorganization--(i) Facts. The facts are the same as in Example 8,
except that R acquires all of the assets of Z in a reorganization
described in sections 368(a)(1)(A) and (a)(2)(D). Pursuant to the
reorganization, V receives 30 percent of the stock of F in a section
354 exchange.
(ii) Result. The consequences of the transaction are similar to
those in Example 8. The assets of Businesses A and B that are
transferred to R must be tested under section 367(a) and (d) prior
to the consideration of the indirect stock transfer rules of this
paragraph (d). The Business B assets qualify for the active trade or
business exception under section 367(a)(3), subject to section
367(a)(5). Because the Business A assets do not qualify for the
exception, Z must recognize $40 of gain under section 367(a) on the
transfer of Business A assets to R. Further, because V and Z file a
consolidated return, V's basis in the stock of Z is increased from
$100 to $140 as a result of Z's $40 gain. Pursuant to paragraphs
(d)(1) and (d)(2)(vii)(A)(1) of this section, V is deemed to
transfer the stock of a foreign corporation to F in a section 354
exchange subject to the rules of paragraphs (b) and (d) of this
section. V's indirect transfer of foreign stock will be taxable
under section 367(a) unless V enters into a gain recognition
agreement in the amount of $60 ($200 value of Z stock less $140
adjusted basis).
Example 11. Concurrent application of section 367(a) and (b) in
section 368(a)(1)(A)/(a)(2)(E) reorganization--(i) Facts. F, a
foreign corporation, owns all the stock of D, a domestic
corporation. V, a domestic corporation, owns all the stock of Z, a
foreign corporation. V has a basis of $100 in the stock of Z which
has a fair market value of $200. D is an operating corporation with
assets valued at $100 with a basis of $60. In a reorganization
described in sections 368(a)(1)(A) and (a)(2)(E), D merges into Z,
and V exchanges its Z stock for 55 percent of the outstanding F
stock.
(ii) Result. Under paragraph (d)(1)(ii) of this section, V is
treated as making an indirect transfer of Z stock to F. V's exchange
of Z stock for F stock will be taxable under section 367(a) (and
section 1248 will be applicable) if V fails to enter into a 5-year
gain recognition agreement in accordance with the requirements of
Sec. 1.367(a)-8. Under paragraph (b)(2) of this section, if V
enters into a gain recognition agreement, the exchange will be
subject to the provisions of section 367(b) and the regulations
thereunder as well as section 367(a). Under Sec. 1.367(b)-4(b),
however, no income inclusion is required because both F and Z are
controlled foreign corporations with respect to which V is a section
1248 shareholder immediately after the exchange. Under paragraphs
(d)(2)(i) and (ii) of this section, the transferee foreign
corporation is F, and the transferred corporation is Z (the
acquiring corporation). If F disposes (within the meaning of Sec.
1.367(a)-8(e)) of all (or a portion) of Z stock within the 5-year
term of the agreement (and V has not made a valid election under
Sec. 1.367(a)-8(b)(1)(vii)), V is required to file an amended
return for the year of the transfer and include in income, with
interest, the gain realized but not recognized on the initial
section 354 exchange. To determine whether Z (the transferred
corporation) disposes of substantially all of its assets, only the
assets of Z immediately prior to the transaction are taken into
account, pursuant to paragraph (d)(2)(v)(B) of this section. Because
D is owned by F, a foreign corporation, section 367(a)(5) precludes
any assets of D from qualifying for nonrecognition under section
367(a)(3). Thus, D recognizes $40 of gain on the transfer of its
assets to Z under section 367(a)(1).
Example 12. Concurrent application of direct and indirect stock
transfer rules--(i) Facts. * * *
(ii) * * * Pursuant to paragraphs (d)(1) and (d)(2)(vii)(A)(1)
of this section, D is deemed to transfer the stock of a foreign
corporation to F in a section 354 exchange subject to the rules of
paragraphs (b) and (d) of this section, and therefore may enter into
a gain recognition agreement for such indirect stock transfer as
provided in paragraph (b) of this section and Sec. 1.367(a)-8. * *
*
* * * * *
Example 15. Concurrent application of indirect stock transfer
rules and section 367(b)--(i) Facts. F, a foreign corporation, owns
all of the stock of Newco, a domestic corporation. P, a domestic
corporation, owns all of the stock of FC, a foreign corporation. P's
basis in the stock of FC is $50 and the value of FC stock is $100.
The all earnings and profits amount with respect to the FC stock
held by P is $60. See Sec. 1.367(b)-2(d). In a reorganization
described in sections 368(a)(1)(A) and (a)(2)(D) (and paragraph
(d)(1)(i) of this section), Newco acquires all of the properties of
FC, and P exchanges its stock in FC for 20 percent of the stock in
F.
(ii) Result. P's section 354 exchange is considered an indirect
stock transfer under paragraph (d)(1)(i) of this section. Further,
because the assets of FC were acquired by Newco, a domestic
corporation, in an asset reorganization, the transaction is within
Sec. 1.367(b)-3(a) and (b). Because the transaction is subject to
Sec. 1.367(b)-3 and the indirect stock rules of paragraph (d) of
this section, and because the all earnings and profits amount with
respect to the FC stock exchanged by P ($60) is greater than the
gain in such stock subject to section 367(a) ($50), the section
367(b) rules (and not the section 367(a) rules) apply to the
exchange. See Sec. 1.367(a)-3(b)(2)(i)(B). Under the rules of
section 367(b), P must include in income the all earnings and
profits amount of $60 with respect to its FC stock. See Sec.
1.367(b)-3. Alternatively, if P's all earnings and profits amount
with respect to its FC stock were $30 (which is less than the gain
in such stock subject to section 367(a) ($50)), section 367(b) and
the regulations thereunder would not
[[Page 4288]]
apply if there is gain recognition under section 367(a). Thus, if P
failed to enter into a 5-year gain recognition agreement in
accordance with Sec. 1.367(a)-8, then P would recognize $50 of gain
under section 367(a) and there would be no income inclusion under
section 367(b). If, instead, P enters into a 5-year gain recognition
agreement under Sec. 1.367(a)-8, thereby avoiding immediate gain
recognition on the entire $50 of section 367(a) gain, P is required
to include in income the all earnings and profits amount of $30. In
such a case, P will adjust its basis in the FC stock pursuant to
Sec. 1.367(b)-2(e)(3)(ii) and enter into a gain recognition
agreement in the amount of $20.
Example 16. Direct asset reorganization not subject to stock
transfer rules--(i) Facts. D is a domestic corporation that owns all
the stock of F1 and F2, both foreign corporations. In a
reorganization described in section 368(a)(1)(D), F2 acquires all of
the assets of F1, and D receives 30 percent of the stock of F2 in an
exchange described in section 354.
(ii) Result. The section 368(a)(1)(D) reorganization is not an
indirect stock transfer described in paragraph (d) of this section.
Moreover, the section 354 exchange by D of F1 stock for F2 stock is
not an exchange described under section 367(a). See paragraph (a) of
this section.
(e) * * *
(1) Rules of applicability--(A) Except as otherwise provided in
this paragraph (e), the rules in paragraphs (a), (b), and (d) of this
section apply to transfers occurring on or after July 20, 1998.
(B) The following rules apply to transactions occurring on or after
January 23, 2006--
(1) The rules in paragraphs (a) and (d) of this section, as they
apply to section 368(a)(1)(A) reorganizations (including
reorganizations described in section 368(a)(2)(D) or (E)) involving a
foreign acquiring or foreign acquired corporation;
(2) The rules in paragraph (b)(2)(i)(B) of this section;
(3) The rules in paragraph (d) of this section, as they apply to
section 368(a)(1)(G) reorganizations (including reorganizations
described in section 368(a)(2)(D));
(4) The rules of paragraph (d)(1) and (d)(2)(iv), as they relate to
exchanges by a U.S. person of securities of an acquired corporation for
voting stock or securities of a foreign corporation in control of the
acquiring corporation in a triangular section 368(a)(1)(B)
reorganization;
(5) The rules in paragraph (d)(1) and (d)(2)(iv) of this section,
as they relate to exchanges by a U.S. person of stock or securities of
an acquired corporation for voting stock or securities of a domestic
corporation in control of the foreign acquiring corporation in a
triangular section 368(a)(1)(B) reorganization; and
(6) The rules in paragraph (d)(2)(vii) of this section.
(C) The rules of paragraph (a) of this section that apply to
transfers of securities in a section 354 or 356 exchange (pursuant to a
section 368(a)(1)(E) reorganization or an asset reorganization that is
not treated as an indirect stock transfer) that is not subject to
section 367(a) apply only to transfers occurring after January 5, 2005
(although taxpayers may apply such provision to transfers of securities
occurring on or after July 20, 1998, and on or before January 5, 2005,
if done consistently to all transactions).
(D) The rules in paragraph (d)(1)(v) of this section apply to:
(1) A reorganization described in section 368(a)(1)(C) followed by
a controlled asset transfer if such reorganization occurs on or after
July 20, 1998;
(2) A reorganization described in section 368(a)(1)(D) followed by
a controlled asset transfer if such reorganization occurs after
December 9, 2002 (for additional guidance concerning such
reorganizations that occur on or after July 20, 1998 and on or before
December 9, 2002, see Rev. Rul. 2002-85 (2002-2 C.B. 986) and Sec.
601.601(d)(2) of this chapter); and
(3) A reorganization described in section 368(a)(1)(A), (F), or (G)
followed by a controlled asset transfer if such reorganization occurs
on or after January 23, 2006.
(E) The rules of paragraph (d)(2)(vi) of this section apply only to
transactions occurring on or after January 23, 2006. See Sec.
1.367(a)-3(d)(2)(vi), as contained in 26 CFR part 1 revised as of April
1, 2005, for transactions occurring on or after July 20, 1998 and
before January 23, 2006.
(F) With respect to certain transfers of domestic stock or
securities, the rules in paragraph (c) of this section are generally
applicable for transfers occurring after January 29, 1997. See Sec.
1.367(a)-3(c)(11). For transition rules regarding certain transfers of
domestic stock or securities after December 16, 1987, and before
January 30, 1997, and transfers of foreign stock or securities after
December 16, 1987, and before July 20, 1998, see paragraph (g) of this
section.
* * * * *
0
Par. 4. Section 1.367(a)-8 is amended as follows:
0
1. In paragraphs (c)(2) and (d), remove the words ``district director''
and add ``Director of Field Operations'' in their place.
0
2. In paragraph (e)(1)(i), a sentence is added after the first
sentence.
The addition reads as follows:
Sec. 1.367(a)-8 Gain recognition agreement requirements.
* * * * *
(e) * * *
(1) * * *
(i) * * * It also includes an indirect disposition of the stock of
the transferred corporation as described in Sec. 1.367(a)-3(d)(2)(iv).
* * *
* * * * *
0
Par. 5. In Sec. 1.367(b)-1(a), remove the third and fourth sentences
and add a sentence in their place to read as follows:
Sec. 1.367(b)-1 Other transfers.
(a) * * * For rules coordinating the concurrent application of
sections 367(a) and (b), see Sec. 1.367(a)-3(b)(2). * * *
* * * * *
0
Par. 6. In Sec. 1.367(b)-3(b)(3)(ii), revise paragraph (i) of Example
5 to read as follows:
Sec. 1.367(b)-3 Repatriation of foreign corporate assets in certain
nonrecognition transactions.
* * * * *
(b) * * *
(3) * * *
(ii) * * *
Example 5. (i) Facts. DC1, a domestic corporation, owns all of
the outstanding stock of FC1, a foreign corporation. FC1 owns all of
the outstanding stock of FC2, a foreign corporation. The all
earnings and profits amount with respect to the FC2 stock owned by
FC1 is $20. In a reorganization described in section 368(a)(1)(A),
DC2, a domestic corporation unrelated to FC1 or FC2, acquires all of
the assets and liabilities of FC2 pursuant to a State W merger. FC2
receives DC2 stock and distributes such stock to FC1. The FC2 stock
held by FC1 is canceled, and FC2 ceases its separate legal
existence.
* * * * *
0
Par. 7. Section 1.367(b)-4 is amended as follows.
0
1. Paragraph (a) is revised.
0
2. The heading and first sentence of paragraph (b)(1)(i) are revised.
0
3. Paragraph (b)(1)(ii) is redesignated as paragraph (b)(1)(iii), and
new paragraph (b)(1)(ii) is added.
0
4. In newly designated paragraph (b)(1)(iii) Examples 3A and 3B are
added after Example 3.
The revisions and additions read as follows:
Sec. 1.367(b)-4 Acquisition of foreign corporate stock or assets by a
foreign corporation in certain nonrecognition transactions.
(a) Scope. This section applies to an acquisition by a foreign
corporation (the foreign acquiring corporation) of the
[[Page 4289]]
stock or assets of a foreign corporation (the foreign acquired
corporation) in an exchange described in section 351 or a
reorganization described in section 368(a)(1). In the case of a
reorganization described in sections 368(a)(1)(A) and (a)(2)(E), this
section applies if stock of the foreign surviving corporation is
exchanged for stock of a foreign corporation in control of the merging
corporation; in such a case, the foreign surviving corporation is
treated as a foreign acquired corporation for purposes of this section.
A foreign corporation that undergoes a reorganization described in
section 368(a)(1)(E) is treated as both the foreign acquired
corporation and the foreign acquiring corporation for purposes of this
section. See Sec. 1.367(a)-3(b)(2) for transactions subject to the
concurrent application of this section and section 367(a).
(b) * * *
(1) * * *
(i) General rule. Except as provided in paragraph (b)(1)(ii) of
this section, an exchange is described in this paragraph (b)(1)(i) if--
* * * * *
(ii) Exception. In the case of a triangular reorganization
described in Sec. 1.358-6(b)(2), or a reorganization described in
sections 368(a)(1)(G) and (a)(2)(D), an exchange is not described in
paragraph (b)(1)(i) of this section if the stock received in the
exchange is stock of a domestic corporation and, immediately after the
exchange, such domestic corporation is a section 1248 shareholder of
the acquired corporation (in the case of a triangular B reorganization)
or the surviving corporation (in the case of a triangular C
reorganization, a forward triangular merger, a reorganization described
in sections 368(a)(1)(G) and (a)(2)(D), or a reverse triangular merger)
and such acquired or surviving corporation is a controlled foreign
corporation. See Sec. 1.367(b)-13(c) for rules regarding such domestic
corporation's basis in the stock of the surviving corporation. See
paragraph (b)(1)(iii) of this section, Example 3B for an illustration
of this rule.
(iii) * * *
Example 3A. (i) Facts. The facts are the same as in Example 3,
except that FC1 merges into FC2 in a reorganization described in
sections 368(a)(1)(A) and (a)(2)(E). Pursuant to the reorganization,
DC exchanges its FC2 stock for stock of FP.
(ii) Result. The result is similar to the result in Example 3.
The transfer is an indirect stock transfer subject to section
367(a). See Sec. 1.367(a)-3(d)(1)(ii). Accordingly, DC's exchange
of FC2 stock for FP stock will be taxable under section 367(a) (and
section 1248 will be applicable) if DC fails to enter into a gain
recognition agreement. If DC enters into a gain recognition
agreement, the exchange will be subject to the provisions of section
367(b) and the regulations thereunder, as well as section 367(a). If
FP and FC2 are controlled foreign corporations as to which DC is a
section 1248 shareholder immediately after the reorganization, then
paragraph (b)(1)(i) of this section does not apply to require DC to
include in income the section 1248 amount attributable to the FC2
stock that was exchanged and the amount of the gain recognition
agreement is the amount of gain realized on the indirect stock
transfer. If FP or FC2 is not a controlled foreign corporation as to
which DC is a section 1248 shareholder immediately after the
exchange, then DC must include in income as a deemed dividend from
FC2 the section 1248 amount ($20) attributable to the FC2 stock that
DC exchanged. Under these circumstances, the gain recognition
agreement would be the amount of gain realized on the indirect
transfer, less the $20 section 1248 amount inclusion.
Example 3B. (i) Facts. The facts are the same as Example 3,
except that USP, a domestic corporation, owns the controlling
interest (within the meaning of section 368(c)) in FC1 stock. In
addition, FC2 merges into FC1 in a reorganization described in
sections 368(a)(1)(A) and (a)(2)(D). Pursuant to the reorganization,
DC exchanges its FC2 stock for USP stock.
(ii) Result. Because DC receives stock of a domestic
corporation, USP, in the section 354 exchange, the transfer is not
an indirect stock transfer subject to section 367(a). Accordingly,
the exchange will be subject only to the provisions of section
367(b) and the regulations thereunder. Under paragraph (b)(1)(ii) of
this section, because the stock received is stock of a domestic
corporation (USP) and, immediately after the exchange, USP is a
section 1248 shareholder of FC1 (the surviving corporation) and FC1
is a controlled foreign corporation, the exchange is not described
in paragraph (b)(1)(i) of this section and DC is not required to
include in income the section 1248 amount attributable to the FC2
stock that was exchanged. See Sec. 1.367(b)-13(c) for the basis and
holding period rules applicable to this transaction, which cause
USP's adjusted basis and holding period in the stock of FC1 after
the transaction to reflect the basis and holding period that DC had
in its FC2 stock.
* * * * *
0
Par. 8. In Sec. 1.367(b)-6, paragraph (a)(1), add two sentences to the
end to read as follows:
Sec. 1.367(b)-6 Effective dates and coordination rules.
(a) * * *
(1) * * * The rules of Sec. Sec. 1.367(b)-3 and 1.367(b)-4, as
they apply to reorganizations described in section 368(a)(1)(A)
(including reorganizations described in section 368(a)(2)(D) or (E))
involving a foreign acquiring or foreign acquired corporation, apply
only to transfers occurring on or after January 23, 2006. Section
1.367(b)-4(b)(1)(ii) applies to triangular B reorganizations occurring
on or after February 23, 2000 and to all other triangular
reorganizations and reorganizations described in section 368(a)(1)(G)
and (a)(2)(D) occurring on or after January 23, 2006.
* * * * *
0
Par. 9. Section 1.367(b)-13 is added to read as follows:
Sec. 1.367(b)-13 Special rules for determining basis and holding
period.
(a) Scope and definitions--(1) Scope. This section provides special
basis and holding period rules to determine the basis and holding
period of stock of certain foreign surviving corporations held by a
controlling corporation whose stock is issued in an exchange under
section 354 or 356 in a triangular reorganization. This section applies
to transactions that are subject to section 367(b) as well as section
367(a), including transactions concurrently subject to sections 367(a)
and (b).
(2) Definitions. For purposes of this section, the following
definitions apply:
(i) A block of stock has the meaning provided in Sec. 1.1248-2(b).
(ii) A triangular reorganization is a reorganization described in
Sec. 1.358-6(b)(2)(i), (ii), or (iii) or in sections 368(a)(1)(G) and
(a)(2)(D) (a forward triangular merger, triangular C reorganization,
reverse triangular merger, or triangular G reorganization,
respectively). For purposes of triangular reorganizations--
(A) P is a corporation that is a party to a reorganization that is
in control (within the meaning of section 368(c)) of another party to
the reorganization and whose stock is transferred pursuant to the
reorganization;
(B) S is a corporation that is a party to the reorganization and
that is controlled by P; and
(C) T is a corporation that is another party to the reorganization.
(b) Determination of basis for exchanges of foreign stock or
securities under section 354 or 356. For rules determining the basis of
stock or securities in a foreign corporation received in a section 354
or 356 exchange, see Sec. 1.358-2.
(c) Determination of basis and holding period for triangular
reorganizations--(1) Application. In the case of a triangular
reorganization described in paragraph (a)(2)(ii) of this section, this
paragraph (c) applies, if--
(i)(A) Immediately before the transaction, either P is a section
1248 shareholder with respect to S, or P is a foreign corporation and a
United States
[[Page 4290]]
person is a section 1248 shareholder with respect to both P and S; and
(B) In the case of a reverse triangular merger, P's exchange of S
stock is not described in Sec. 1.367(b)-3(a) and (b) or in Sec.
1.367(b)-4(b)(1)(i), (2)(i), or (3); or
(ii)(A) Immediately before the transaction, a shareholder of T is a
section 1248 shareholder with respect to T, or a shareholder of T is a
foreign corporation and a United States person is a section 1248
shareholder with respect to both such foreign corporation and T; and
(B) With respect to at least one of the exchanging shareholders
described in paragraph (c)(1)(ii)(A) of this section, the exchange of T
stock is not described in Sec. 1.367(b)-3(a) and (b) or in Sec.
1.367(b)-4(b)(1)(i), (2)(i), or (3).
(2) Basis and holding period rules. In the case of a triangular
reorganization described in paragraph (c)(1) of this section, each
share of stock of the surviving corporation (S or T) held by P must be
divided into portions attributable to the S stock and the T stock
immediately before the exchange. See paragraph (e) of this section
Examples 1 through 4 for illustrations of this rule.
(i) Portions attributable to S stock--(A) In the case of a forward
triangular merger, a triangular C reorganization, or a triangular G
reorganization, the basis and holding period of the portion of each
share of surviving corporation stock attributable to the S stock is the
basis and holding period of such share of stock immediately before the
exchange.
(B) In the case of a reverse triangular merger, the basis and
holding period of the portion of each share of surviving corporation
stock attributable to the S stock is the basis and the holding period
immediately before the exchange of a proportionate amount of the S
stock to which the portion relates. If P is a shareholder described in
paragraph (c)(1)(i)(A) of this section with respect to S, and P
exchanges two or more blocks of S stock pursuant to the transaction,
then each share of the surviving corporation (T) attributable to the S
stock must be further divided into separate portions to account for the
separate blocks of stock in S.
(C) If the value of S stock immediately before the triangular
reorganization is less than one percent of the value of the surviving
corporation stock immediately after the triangular reorganization, then
P may determine its basis in the surviving corporation stock by
applying the rules of paragraph (c)(2)(ii) of this section to determine
the basis and holding period of the surviving corporation stock
attributable to the T stock, and then increasing the basis of each
share of surviving corporation stock by the proportionate amount of P's
aggregate basis in the S stock immediately before the exchange (without
dividing the stock of the surviving corporation into separate portions
attributable to the S stock).
(ii) Portions attributable to T stock--(A) If any exchanging
shareholder of T stock is described in paragraph (c)(1)(ii) of this
section, the basis and holding period of the portion of each share of
stock in the surviving corporation attributable to the T stock is the
basis and holding period immediately before the exchange of a
proportionate amount of the T stock to which such portion relates. If
any exchanging shareholder of T stock is described in paragraph
(c)(1)(ii) of this section, and such shareholder exchanges two or more
blocks of T stock pursuant to the transaction, then each share of
surviving corporation stock attributable to the T stock must be further
divided into separate portions to account for the separate blocks of T
stock.
(B) If no exchanging shareholder of T stock is described in
paragraph (c)(1)(ii) of this section, the rules of Sec. 1.358-6 apply
to determine the basis of the portion of each share of the surviving
corporation attributable to T immediately before the exchange.
(d) Special rules applicable to divided shares of stock--(1) In
general--(i) Shares of stock in different blocks are aggregated into
one divided portion for basis purposes, if such shares immediately
before the exchange are owned by one or more shareholders that are--
(A) Not section 1248 shareholders with respect to the corporation;
or
(B) Foreign corporate shareholders, provided that no United States
persons are section 1248 shareholders with respect to both such foreign
corporate shareholders and the corporation.
(ii) For purposes of determining the amount of gain realized on the
sale or exchange of stock that has a divided portion pursuant to
paragraph (c) of this section, any amount realized on such sale or
exchange will be allocated to each divided portion of the stock based
on the relative fair market value of the stock to which the portion is
attributable at the time the portions were created. See paragraph (e)
Example 5 of this section.
(iii) Shares of stock will no longer be required to be divided if
section 1248 or section 964(e) would not apply to a disposition or
exchange of such stock.
(2) Pre-exchange earnings and profits. All earnings and profits (or
deficits) accumulated by a foreign corporation before the
reorganization and attributable to a share (or block) of stock for
purposes of section 1248 are attributable to the divided portion of
stock with the basis and holding period of that share (or block). See
Sec. 1.367(b)-4(d).
(3) Post-exchange earnings and profits. Any earnings and profits
(or deficits) accumulated by the surviving corporation subsequent to
the reorganization are attributed to each divided share of stock
pursuant to section 1248 and the regulations thereunder. The amount of
earnings and profits (or deficits) attributable to a divided share of
stock is further attributed to the divided portions of such share of
stock based on the relative fair market value of each divided portion
of stock. See paragraph (e) Example 5 of this section.
(e) Examples. The rules of this section are illustrated by the
following examples:
Example 1. Blocks of stock exchanged in a triangular
reorganization--(i) Facts. (A) US1, a domestic corporation, owns all
the stock of F1, a foreign corporation. F1 owns all the stock of FT,
a foreign corporation, with 100 shares of stock outstanding. Each
share of FT stock is valued at $10x. Because F1 acquired the stock
of FT at two different dates, F1 owns two blocks of FT stock for
purposes of section 1248. The first block consists of 60 shares. The
shares in the first block have a basis of $300x ($5x per share), a
holding period of 10 years, and $240x ($4x per share) of earnings
and profits attributable to the shares for purposes of section 1248.
The second block consists of 40 shares. The shares in the second
block have a basis of $600x ($15x per share), a holding period of 2
years, and $80x ($2x per share) of earnings and profits attributable
to the shares for purposes of section 1248.
(B) US2, a domestic corporation, owns all of the stock of FP, a
foreign corporation, which owns all of the stock of FS, a foreign
corporation. FP owns two blocks of FS stock. Each block consists of
10 shares with a value of $200x ($20x per share). The shares in the
first block have a basis of $50x ($5x per share), a holding period
of 10 years, and $50x ($5x per share) of earnings and profits
attributable to such shares for purposes of section 1248. The shares
in the second block had a basis of $100x ($10x per share), a holding
period of 5 years, and $20x ($2x per share) of earnings and profits
attributable to such shares for purposes of section 1248.
(C) FT merges into FS, with FS surviving, and F1 receives 50
shares of FP stock with a value of $1,000x in exchange for its FT
stock. The merger of FT into FS qualifies as forward triangular
merger, and immediately after the exchange US1 is a section 1248
shareholder with respect to F1, the exchanging shareholder, FP and
FS, all of which are controlled foreign corporations.
(ii) Basis and holding period determination. (1) US1 is a
section 1248 shareholder of F1, the exchanging
[[Page 4291]]
shareholder, and FT (both of which are controlled foreign
corporations) immediately before the transaction. Moreover, F1 is
not required to include amounts in income under Sec. 1.367(b)-3(b)
or 1.367(b)-4(b) as described in paragraph (c)(1)(ii)(B) of this
section. Accordingly, the basis and holding period of the FS stock
held by FP immediately after the triangular reorganization is
determined pursuant to paragraph (c) of this section.
(2) Pursuant to paragraph (c) of this section, each share of FS
stock is divided into portions attributable to the basis and holding
period of the FS stock held by FP immediately before the exchange
(the FS portion) and the FT stock held by F1 immediately before the
exchange (the FT portion). The basis and holding period of the FS
portion is the basis and holding period of the FS stock held by FP
immediately before the exchange. Thus, each share of FS stock in the
first block has a portion with a basis of $5x, a value of $20x, a
holding period of 10 years, and $5x of earnings and profits
attributable to such portion for purposes of section 1248. Each
share of FS stock in the second block has a portion with a basis of
$10x, a value of $20x, a holding period of 5 years, and $2x of
earnings and profits attributable to such portion for purposes of
section 1248.
(3) Because the exchanging shareholder of FT stock (F1) has a
section 1248 shareholder (US1), the holding period and basis of the
FT portion is the holding period and the proportionate amount of the
basis of the FT stock immediately before the exchange to which such
portion relates. Further, because F1 exchanged two blocks of FT
stock, the FT portion must be divided into two separate portions
attributable to the two blocks of FT stock. Thus, each share of FS
stock will have a second portion with a basis of $15x ($300x basis /
20 shares), a value of $30x ($600x value / 20 shares), a holding
period of 10 years, and $12x of earnings and profits ($240x / 20
shares) attributable to such portion for purposes of section 1248.
Each share of FS stock will have a third portion with a basis of
$30x ($600x basis / 20 shares), a value of $20x ($400x value / 20
shares), a holding period of 2 years, and $4x of earnings and
profits ($80x / 20 shares) attributable to such portion for purposes
of section 1248.
(iii) Subsequent disposition--first block. Assume, immediately
after the transaction, FP disposes of a share of FS stock from the
first block. When FP disposes of any share of its FS stock, it is
treated as disposing of each divided portion of such share. With
respect to the first portion (attributable to the FS stock), FP
recognizes a gain of $15x ($20x value-$5x basis), $5x of which is
treated as a dividend under section 1248. With respect to the second
portion (attributable to the first block of FT stock), FP recognizes
a gain of $15x ($30x value-$15x basis), $12x of which is treated as
a dividend under section 1248. With respect to the third portion
(attributable to the second block of FT stock), FP recognizes a
capital loss of $10x ($20x value-$30x basis).
(iv) Subsequent disposition--second block. Assume further,
immediately after the transaction, FP also disposes of a share of
stock from the second block of FS stock. With respect to the first
portion (attributable to the FS stock), FP recognizes a gain of $10x
($20x value-$10x basis), $2x of which is treated as a dividend under
section 1248. With respect to the second portion (attributable to
the first block of FT stock), FP recognizes a gain of $15x ($30x
value-$15x basis), $12x of which is treated as a dividend under
section 1248. With respect to the third portion (attributable to the
second block of FT stock), FP recognizes a capital loss of $10x
($20x value-$30x basis).
Example 2. (i) Facts. The facts are the same as in Example 1,
except that FS merges into FT with FT surviving in a reverse
triangular merger. Pursuant to the merger, F1 receives FP stock with
a value of $1,000x in exchange for its FT stock, and FP receives 10
shares of FT stock with a value of $1,000x in exchange for its FS
stock. Immediately after the exchange, US1 is a section 1248
shareholder with respect to F1, the exchanging shareholder, FP, and
FT, all of which are controlled foreign corporations.
(ii) Basis and holding period determination--(A) The basis and
holding period of the stock of the surviving corporation held by FP
are the same as in Example 1, except that each share of the
surviving corporation (FT, instead of FS) will be divided into four
portions instead of three portions. Because FP exchanges two blocks
of FS stock, the FS portion must be divided into two separate
portions attributable to the two blocks of FS stock. Because F1
exchanges two blocks of FT stock, the FT portion must be divided
into two separate portions attributable to the two blocks of FT
stock.
(B) Thus, each share of the surviving corporation (FT) will have
a first portion (attributable to the first block of FS stock) with a
basis of $5x ($50x / 10 shares), a value of $20x ($200x / 10
shares), a holding period of 10 years, and $5x of earnings and
profits ($50x / 10 shares) attributable to such portion for purposes
of section 1248. Each share of FT stock will have a second portion
(attributable to the second block of FS stock) with a basis of $10x
($100x / 10 shares), a value of $20x ($200x / 10 shares), a holding
period of 5 years, and $2x of earnings and profits ($20x / 10
shares) attributable to such portion for purposes of section 1248.
Moreover, each share of FT stock will have a third portion
(attributable to the first block of FT stock) with a basis of $30x
($300x basis / 10 shares), a value of $60x ($600x value / 10
shares), a holding period of 10 years, and $24x of earnings and
profits ($240x / 10 shares) attributable to such portion for
purposes of section 1248. Lastly, each share of FT stock will have a
fourth portion (attributable to the second block of FT stock) with a
basis of $60x ($600x basis / 10 shares), a value of $40x ($400x
value / 10 shares), a holding period of 2 years, and $8x of earnings
and profits ($80x / 10 shares) attributable to such portion for
purposes of section 1248.
Example 3. (i) Facts. USP, a domestic corporation, owns all the
stock of FS, a foreign corporation with 10 shares of stock
outstanding. Each share of FS stock has a value of $10x, a basis of
$5x, a holding period of 10 years, and $7x of earnings and profits
attributable to such share for purposes of section 1248. FP, a
foreign corporation, owns the stock of FT, another foreign
corporation. FP and FT do not have any section 1248 shareholders. FT
has assets with a value of $100x, a basis of $50x, and no
liabilities. The FT stock held by FP has a value of $100x and a
basis of $75x. FT merges into FS with FS surviving in a forward
triangular merger. Pursuant to the reorganization, FP receives USP
stock with a value of $100x in exchange for its FT stock.
(ii) Basis and holding period determination--(A) Because USP is
a section 1248 shareholder of FS immediately before the transaction,
the basis and holding period of the FS stock held by USP immediately
after the triangular reorganization is determined pursuant to
paragraph (c) of this section.
(B) Pursuant to paragraph (c) of this section, each share of FS
stock is divided into portions attributable to the basis and holding
period of the FS stock held by USP immediately before the exchange
(the FS portion) and the FT portion immediately before the exchange.
Because FT does not have a section 1248 shareholder immediately
before the transaction, the rules of Sec. 1.358-6 apply to
determine the basis of the FT portion of each share of FS stock.
Those rules determine the basis of FS stock held by USP by reference
to the basis of FT's net assets. The basis and holding period of the
FS portion is the basis and holding period of the FS stock held by
USP immediately before the exchange. Thus, each share of FS stock
has a portion with a basis of $5x, a value of $10x, a holding period
of 10 years, and $7x of earnings and profits attributable to such
portion for section 1248 purposes. The basis of the FT portion is
the basis of the FT assets to which such portion relates. Thus, each
share of FS stock has a second portion with a basis of $5x ($50x
basis in FT's assets / 10 shares) and a value of $10x ($100x value
of FT's assets / 10 shares). All of FS's earnings and profits prior
to the transaction ($70x) is attributed solely to the FS portion in
each share of FS stock. As a result of each share of stock being
divided into portions, the basis of the FS stock is not averaged
with the basis of the FT assets to increase the section 1248 amount
with respect to the stock of the surviving corporation (FS).
Example 4. (i) Facts. US, a domestic corporation, owns all of
the stock of FT, a foreign corporation. The FT stock held by US
constitutes a single block of stock with a value of $1,000x, a basis
of $600x, and holding period of 5 years. USP, a domestic
corporation, forms FS, a foreign corporation, pursuant to the plan
of reorganization and capitalizes it with $10x of cash. FS merges
into FT with FT surviving in a reverse triangular merger and a
reorganization described in section 368(a)(1)(B). Pursuant to the
reorganization, US receives USP stock with a value of $1,000x in
exchange for its FT stock, and USP receives 10 shares of FT stock
with a value of $1,010x in exchange for its FS stock.
(ii) Basis and holding period determination. (A) US and USP are
section 1248 shareholders of FT and FS, respectively, immediately
before the transaction. Neither
[[Page 4292]]
US nor USP is required to include amounts in income under Sec.
1.367(b)-3(b) or 1.367(b)-4(b) as described in paragraph
(c)(1)(i)(B) or (c)(1)(ii)(B) of this section. The basis and holding
period of the FT stock held by USP is determined pursuant to
paragraph (c) of this section.
(B) Pursuant to paragraph (c) of this section, because the
exchanging shareholder of FT stock (US) is a section 1248
shareholder of FT, each share of the surviving corporation (FT) has
a proportionate amount of the basis and holding period of the FT
stock immediately before the exchange to which such share relates.
Thus, the portion of each share of FT stock attributable to the FT
stock has a basis of $60x ($600x basis / 10 shares), a value of
$100x ($1,000x value / 10 shares), and a holding period of 5 years.
Because the value of FS stock immediately before the triangular
reorganization ($10x) is less than one percent of the value of the
surviving corporation (FT) immediately after the triangular
reorganization ($1,010x), USP may determine its basis in the stock
of the surviving corporation (FT) attributable to its FS stock basis
held prior to the reorganization by increasing the basis of each
share of FT stock by the proportionate amount of USP's aggregate
basis in the FS stock immediately before the exchange (without
dividing each share of FT stock into separate portions to account
for FS and FT). If USP so elects, USP's basis in each share of FT
stock is increased by $1x ($10x basis in FS stock / 10 shares). As a
result, each share of FT stock has a basis of $61x, a value of
$101x, and a holding period of 5 years.
Example 5. (i) Facts. US, a domestic corporation, owns all of
the stock of F1, a foreign corporation, which owns all the stock of
FT, a foreign corporation. The FT stock held by F1 constitutes one
block of stock with a basis of $170x, a value of $200x, a holding
period of 5 years, and $10x of earnings and profits attributable to
such stock for purposes of section 1248. FP, a foreign corporation,
owns all the stock of FS, a foreign corporation. FS has 10 shares of
stock outstanding. No United States person is a section 1248
shareholder with respect to FP or FS. The FS stock held by FP has a
value of $100x and a basis of $50x ($5x per share). FT merges into
FS with FS surviving in a forward triangular merger. Pursuant to the
merger, F1 receives FP stock with a value of $200x for its FT stock
in an exchange that qualifies for non-recognition under section 354.
US is a section 1248 shareholder with respect to F1, the exchanging
shareholder, FP, and FS (all of which are controlled foreign
corporations) immediately after the exchange.
(ii) Basis and holding period determination. (A) Because US is a
section 1248 shareholder of F1, the exchanging shareholder, and FT
immediately before the transaction, and US is a section 1248
shareholder of F1, FP, and FS immediately after the transactions, F1
is not required to include amounts in income under Sec. Sec.
1.367(b)-3(b) and 1.367(b)-4(b) as described in paragraph
(c)(1)(ii)(B) of this section. Thus, the basis and holding period of
the FS stock held by FP immediately after the triangular
reorganization is determined pursuant to paragraph (c) of this
section.
(B) Pursuant to paragraph (c) of this section, each share of FS
stock is divided into portions attributable to the basis and holding
period of the FS stock held by FP immediately before the exchange
(the FS portion) and the FT stock held by F1 immediately before the
exchange (the FT portion). The basis and holding period of the FS
portion is the basis and holding period of the FS stock held by FP
immediately before the exchange. Thus, each share of FS stock has a
portion with a basis of $5x and a value of $10x. Because the
exchanging shareholder of FT stock (F1) has a section 1248
shareholder of both F1 and FT, the basis and holding period of the
FT portion is the proportionate amount of the basis and the holding
period of the FT stock immediately before the exchange to which such
portion relates. Thus, each share of FS stock will have a second
portion with a basis of $17x ($170x basis / 10 shares), a value of
$20x ($200x value / 10 shares), a holding period of 5 years, and $1x
of earnings and profits ($10x earnings and profits / 10 shares)
attributable to such portion for purposes of section 1248.
(iii) Subsequent disposition. (A) Several years after the
merger, FP disposes of all of its FS stock in a transaction governed
by section 964(e). At the time of the disposition, FS stock has
decreased in value to $210x (a post-merger reduction in value of
$90x), and FS has incurred a post-merger deficit in earnings and
profits of $30x.
(B) Pursuant to paragraph (d)(1)(ii) of this section, for
purposes of determining the amount of gain realized on the sale or
exchange of stock that has a divided portion, any amount realized on
such sale or exchange is allocated to each divided portion of the
stock based on the relative fair market value of the stock to which
the portion is attributable at the time the portions were created.
Immediately before the merger, the value of the FS stock in relation
to the value of both the FS stock and the FT stock was one-third
($100x / ($100x plus $200x)). Likewise, immediately before the
merger, the value of the FT stock in relation to the value of both
the FT stock and the FS stock was two-thirds ($200x / $100x plus
$200x). Accordingly, one-third of the $210x amount realized is
allocated to the FS portion of each share and two-thirds to the FT
portion of each share. Thus, the amount realized allocated to the FS
portion of each share is $7x (one-third of $210x divided by 10
shares). The amount realized allocated to the FT portion of each
share is $14x (two-thirds of $210x divided by 10 shares).
(C) Pursuant to paragraph (d)(3) of this section, any earnings
and profits (or deficits) accumulated by the surviving corporation
subsequent to the reorganization are attributed to the divided
portions of shares of stock based on the relative fair market value
of each divided portion of stock. Accordingly, one-third of the
post-merger earnings and profits deficit of $30x is allocated to the
FS portion of each share and two-thirds to the FT portion of each
share. Thus, the deficit in earnings and profits allocated to the FS
portion of each share is $1x (one-third of $30x divided by 10
shares). The deficit in earnings and profits allocated to the FT
portion of each share is $2x (two-thirds of $30x divided by 10
shares).
(D) When FP disposes of its FS stock, FP is treated as disposing
of each divided portion of a share of stock. With respect to the FS
portion of each share of stock, FP recognizes a gain of $2x ($7x
value - $5x basis), which is not recharacterized as a dividend
because a deficit in earnings and profits of $1x is attributable to
such portion for purposes of section 1248. With respect to the FT
portion of each share of stock, FP recognizes a loss of $3x ($14x
value - $17x basis).
(f) Effective date. This section applies to exchanges occurring on
or after January 23, 2006.
0
Par. 10. Section 1.884-2 is amended as follows:
0
1. Paragraphs (c)(3) through (c)(6)(i)(A) are revised.
0
2. Paragraphs (c)(6)(i)(B), (C), and (D) are added.
0
3. Paragraphs (c)(6)(ii) through (f) are revised.
0
4. Paragraph (g) is amended by adding a sentence at the end.
The revisions and additions read as follows:
Sec. 1.884-2 Special rules for termination or incorporation of a U.S.
trade or business or liquidation or reorganization of a foreign
corporation or its domestic subsidiary.
* * * * *
(c)(3) through (c)(6)(i)(A) [Reserved]. For further guidance, see
Sec. 1.884-2T(c)(3) through (c)(6)(i)(A).
(B) Shareholders of the transferee (or of the transferee's parent
in the case of a triangular reorganization described in section
368(a)(1)(C) or a reorganization described in sections 368(a)(1)(A) and
368(a)(2)(D) or (E)) who in the aggregate owned more than 25 percent of
the value of the stock of the transferor at any time within the 12-
month period preceding the close of the year in which the section
381(a) transaction occurs sell, exchange or otherwise dispose of their
stock or securities in the transferee at any time during a period of
three years from the close of the taxable year in which the section
381(a) transaction occurs.
(C) In the case of a triangular reorganization described in section
368(a)(1)(C) or a reorganization described in sections 368(a)(1)(A) and
368(a)(2)(D) or (E), the transferee's parent sells, exchanges, or
otherwise disposes of its stock or securities in the transferee at any
time during a period of three years from the close of the taxable year
in which the section 381(a) transaction occurs.
(D) A corporation related to any such shareholder or the
shareholder itself if it is a corporation (subsequent to an
[[Page 4293]]
event described in paragraph (c)(6)(i)(A) or (B) of this section) or
the transferee's parent (subsequent to an event described in paragraph
(c)(6)(i)(C) of this section), uses, directly or indirectly, the
proceeds or property received in such sale, exchange or disposition, or
property attributable thereto, in the conduct of a trade or business in
the United States at any time during a period of three years from the
date of sale in the case of a disposition of stock in the transferor,
or from the close of the taxable year in which the section 381(a)
transaction occurs in the case of a disposition of the stock or
securities in the transferee (or the transferee's parent in the case of
a triangular reorganization described in section 368(a)(1)(C) or a
reorganization described in sections 368(a)(1)(A) and (a)(2)(D) or
(E)). Where this paragraph (c)(6)(i) applies, the transferor's branch
profits tax liability for the taxable year in which the section 381(a)
transaction occurs shall be determined under Sec. 1.884-1, taking into
account all the adjustments in U.S. net equity that result from the
transfer of U.S. assets and liabilities to the transferee pursuant to
the section 381(a) transaction, without regard to any provisions in
this paragraph (c). If an event described in paragraph (c)(6)(i)(A),
(B), or (C) of this section occurs after the close of the taxable year
in which the section 381(a) transaction occurs, and if additional
branch profits tax is required to be paid by reason of the application
of this paragraph (c)(6)(i), then interest must be paid on that amount
at the underpayment rates determined under section 6621(a)(2), with
respect to the period between the date that was prescribed for filing
the transferor's income tax return for the year in which the section
381(a) transaction occurs and the date on which the additional tax for
that year is paid. Any such additional tax liability together with
interest thereon shall be the liability of the transferee within the
meaning of section 6901 pursuant to section 6901 and the regulations
thereunder.
(c)(6)(ii) through (f) [Reserved]. For further guidance, see Sec.
1.884-2T(c)(6)(ii) through (f).
(g) * * * Paragraphs (c)(6)(i)(B), (C), and (D), are applicable for
tax years beginning after December 31, 1986, except that such
paragraphs are applicable to transactions occurring on or after January
23, 2006, in the case of reorganizations described in sections
368(a)(1)(A) and 368(a)(2)(D) or (E).
0
Par. 11. In Sec. 1.884-2T, paragraphs (c)(6)(i)(B), (C), and (D) are
revised to read as follows:
Sec. 1.884-2T Special rules for termination or incorporation of a
U.S. trade or business or liquidation or reorganization of a foreign
corporation or its domestic subsidiary (Temporary).
* * * * *
(c) * * *
(6) * * *
(i) * * *
(B), (C), and (D) [Reserved]. For further guidance, see Sec.
1.884-2(c)(6)(i)(B), (C), and (D).
0
Par. 12. Section Sec. 1.6038B-1 is amended as follows:
0
1. Paragraphs (b)(1)(i) and (b)(1)(ii) are revised.
0
2. The text of paragraph (g) is redesignated as paragraph (g)(1) and
the first sentence is revised.
0
3. Paragraphs (g)(2), (g)(3), and (g)(4) are added.
The revisions and addition are as follows:
Sec. 1.6038B-1 Reporting of certain transfers to foreign
corporations.
* * * * *
(b) Time and manner of reporting--(1) In general--(i) Reporting
procedure. Except for stock or securities qualifying under the special
reporting rule of Sec. 1.6038B-1(b)(2), and certain exchanges
described in section 354 or 356 (listed below), any U.S. person that
makes a transfer described in section 6038B(a)(1)(A), 367(d) or (e), is
required to report pursuant to section 6038B and the rules of Sec.
1.6038B-1 and must attach the required information to Form 926,
``Return by a U.S. Transferor of Property to a Foreign Corporation.''
For special rules regarding cash transfers made in tax years beginning
after February 5, 1999, see paragraphs (b)(3) and (g) of this section.
For purposes of determining a U.S. transferor that is subject to
section 6038B, the rules of Sec. Sec. 1.367(a)-1T(c) and 1.367(a)-3(d)
shall apply with respect to a transfer described in section 367(a), and
the rules of Sec. 1.367(a)-1T(c) shall apply with respect to a
transfer described in section 367(d). Additionally, if in an exchange
described in section 354 or 356, a U.S. person exchanges stock or
securities of a foreign corporation in a reorganization described in
section 368(a)(1)(E), or a U.S. person exchanges stock or securities of
a domestic or foreign corporation pursuant to an asset reorganization
described in section 368(a)(1) (involving a transfer of assets under
section 361) that is not treated as an indirect stock transfer under
Sec. 1.367(a)-3(d), then the U.S. person exchanging stock or
securities is not required to report under section 6038B.
Notwithstanding any statement to the contrary on Form 926, the form and
attachments must be attached to, and filed by the due date (including
extensions) of the transferor's income tax return for the taxable year
that includes the date of the transfer (as defined in Sec. 1.6038B-
1T(b)(4)). For taxable years beginning before January 1, 2003, any
attachment to Form 926 required under the rules of this section is
filed subject to the transferor's declaration under penalties of
perjury on Form 926 that the information submitted is true, correct and
complete to the best of the transferor's knowledge and belief. For
taxable years beginning after December 31, 2002, Form 926 and any
attachments shall be verified by signing the income tax return with
which the form and attachments are filed.
(ii) [Reserved]. For further guidance, see Sec. 1.6038B-1T(b)(ii).
* * * * *
(g) Effective dates--(1) This section applies to transfers
occurring on or after July 20, 1998, except for transfers of cash made
in tax years beginning on or before February 5, 1999 (which are not
required to be reported under section 6038B), except for transfers
described in paragraphs (g)(2) through (4) of this section, and except
for transfers described in paragraph (e) of this section, which applies
to transfers that are subject to Sec. Sec. 1.367(e)-1(f) and 1.367(e)-
2(e). * * *
(2) The rules of paragraph (b)(1)(i) of this section as they apply
to section 368(a)(1)(A) reorganizations (including reorganizations
described in section 368(a)(2)(D) or (E)) apply to transfers occurring
on or after January 23, 2006.
(3) The rules of paragraph (b)(1)(i) of this section that provide
an exception from reporting under section 6038B for transfers of stock
or securities in a section 354 or 356 exchange, pursuant to a section
368(a)(1)(G) reorganization that is not treated as an indirect stock
transfer under Sec. 1.367(a)-3(d), apply to transfers occurring on or
after January 23, 2006.
(4) The rules of paragraph (b)(1)(i) of this section that provide
an exception from reporting under section 6038B for transfers of stock
in a section 354 or 356 exchange, pursuant to a section 368(a)(1)(E)
reorganization or an asset reorganization under section 368(a)(1) that
is not treated as an indirect stock transfer under Sec. 1.367(a)-3(d),
apply to transfers occurring on or after January 23, 2006. The rules of
paragraph (b)(1)(i) of this section that provide an exception from
reporting under section 6038B for transfers of securities in a section
354 or 356 exchange, pursuant to a section 368(a)(1)(E) reorganization
or an asset
[[Page 4294]]
reorganization under section 368(a)(1) that is not treated as an
indirect stock transfer under Sec. 1.367(a)-3(d), apply only to
transfers occurring after January 5, 2005 (although taxpayers may apply
such provision to transfers of securities occurring on or after July
20, 1998 and on or before January 5, 2005 if done consistently to all
transactions). See Sec. 1.6038-1T(b)(i), as contained in 26 CFR part 1
revised as of April 1, 2005, for transfers occurring prior to the
effective dates described in paragraphs (g)(2) through (4) of this
section.
0
Par. 13. In Sec. 1.6038B-1T, paragraph (b)(1)(i) is revised to read as
follows:
Sec. 1.6038B-1T Reporting of certain transactions to foreign
corporations (temporary).
* * * * *
(b) Time and manner of reporting--(1) In general--(i) [Reserved].
For further guidance, see Sec. 1.6038B-1(b)(1)(i).
* * * * *
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
Approved: January 17, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 06-587 Filed 1-23-06; 11:43 am]
BILLING CODE 4830-01-P