Academic journal article Journal of Accountancy

Section 367 Regs Issued

Academic journal article Journal of Accountancy

Section 367 Regs Issued

Article excerpt



New regulations under Internal Revenue Code section 367(e) require gain to be recognized on distributions by U.S. corporations to foreign persons in certain otherwise tax-free spin-offs, split-ups, split-offs and liquidations of controlled subsidiaries.

New section 367(e)(1) regulations affect distributions qualifying under IRC section 355. Generally, the distributing U.S. corporation will recognize gain (but not loss) on a distribution of a domestic or foreign subsidiary's stock or securities to non-U.S. shareholders. The tax liability of the foreign distributee is not affected.

There are three exceptions to this rule:

1. If both the distributed and distributing corporation are U.S. real-property holding corporations immediately after the distribution.

2. If a complicated set of requirements is met, including (a) no more than five individuals or corporations directly own 100% of the distributing corporation's stock immediately before the distribution, (b) the distributee directly owns the corporation distributed for five years after the distribution and (c) the foreign distributee is a resident of a U.S. treaty partner.

3. If, on distributions by a corporation publicly traded in the United States, 80% of the stock distributed is with respect to those publicly traded shares. Gain will be recognized, however, to the extent attributable to distributions to more than 5% foreign shareholders.

In addition, new section 367(e)(2) regulations affect liquidations under IRC section 332. Generally, on a liquidation of an 80%-owned U. …

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