Final Regs. Prescribe E&P Treatment in Corporate Reorganizations: New Rules Define "Acquiring Corporation" and Restrict Allocation of Earnings and Profits

By Schreiber, Sally P. | Journal of Accountancy, February 2015 | Go to article overview

Final Regs. Prescribe E&P Treatment in Corporate Reorganizations: New Rules Define "Acquiring Corporation" and Restrict Allocation of Earnings and Profits


Schreiber, Sally P., Journal of Accountancy


New rules under Sec. 381 change which corporation succeeds to the tax attributes, including the earnings and profits (E&P), of the transferor or distributor corporation in certain acquisitions. The regulations also finalize other related proposed regulations under Sec. 312, clarifying that, in certain corporate reorganizations, the "acquiring corporation" succeeds to the full E&P account of the transferor corporation.

The prior Sec. 381 regulations defined the acquiring corporation for purposes of transactions described in Sec. 381(a)(2) (relating to certain Sec. 368 reorganizations) as either the corporation that ultimately acquired all the assets the transferor corporation transferred or the corporation that directly acquired the assets the transferor corporation transferred, if no single corporation ultimately acquired all the assets transferred in the transaction.

The proposed Sec. 381 regulations (REG-131239-13) were adopted without substantive change. Under the final regulations, in a transaction described in Sec. 381(a)(2), the acquiring corporation will be the corporation that directly acquires the assets the transferor corporation transferred, even if the transferee corporation ultimately retains none of the transferred assets. The prior regulations yielded an identical result, except when a single controlled subsidiary of the direct transferee corporation acquired all the assets the transferor corporation transferred under a plan of reorganization. In that case, the prior regulations treated the subsidiary as the acquiring corporation, a result that effectively permitted a taxpayer to choose the location of a transferor corporation's attributes by causing the direct transferee corporation either to retain or not to retain a single asset. …

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