Academic journal article Journal of Accountancy

Merger and Acquisition Regulations Issued

Academic journal article Journal of Accountancy

Merger and Acquisition Regulations Issued

Article excerpt

The IRS has released long-awaited proposed regulations under section 367. The proposals deal with outbound transfers of stock or securities to a foreign corporation, inbound reorganizations and liquidations, "foreign-to-foreign" transfers and section 355 transactions.

The most important change includes expansion of the stock transfer rules under section 367(a) and elimination of a very complex set of attribution rules under section 367(b).

Section 367(a) generally denies nonrecognition treatment to property transfers to foreign corporations, taxing any appreciation in the transferred property. Under IRS notice 87-35, however, a U.S. corporation that transfers U.S. or foreign stock and that owns 5% or more of the transferee foreign corporation can avoid these taxes by entering into a gain recognition agreement. Gain is triggered proportionately if the transferee disposes of any of the transferred stock (except in a nontaxable transaction). Interest is imposed on the tax.

Although the proposed regulations adopt the principles of notice 87-85, they expand the class of transactions subject to gain recognition agreements. Certain foreign-to-foreign transactions, such as the transfer of stock of a controlled foreign corporation (CFC) to another CFC are now covered. The class of transactions treated as indirect stock transfers, and hence subject to the gain recognition agreement, also has been expanded.

The IRS also made an interesting--and most welcome--change to the regulations under section 367(b). …

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