The IRS published proposed regulations (REG–117614–14) on Oct. 6 that provide guidance under Section 367(b) related to certain triangular reorganizations and inbound nonrecognition transactions.
The proposed regulations would modify the existing regulations to align with the guidance in Notice 2014-32 and Notice 2016-73, which identified transactions designed to exploit certain aspects of the final Section 367(b) regulations issued in 2011 (TD 9526). The IRS said that the transactions described in each notice raise significant policy concerns.
The proposed regulations specifically cover the treatment of property used to acquire parent stock or securities in connection with certain triangular reorganizations involving one or more foreign corporations. They also address the consequences to persons that receive parent stock or securities as part of such reorganizations, as well as the treatment of certain subsequent inbound nonrecognition transactions following these reorganizations and certain other related transactions.
The general applicability dates of the proposed regulations are summarized as follows:
- With respect to those rules described in Notice 2014–32, the proposed regulations generally would apply to transactions completed on or after April 25, 2014, subject to limited exceptions.
- With respect to those rules described in Notice 2016–73, the proposed regulations generally would apply to transactions completed on or after Dec. 2, 2016.
- To the extent that the proposed regulations contain rules not previously announced in Notice 2016–73, the proposed regulations would apply to transactions completed on or after the date the proposed regulations are filed in the Federal Register.
Taxpayers and their related parties (within the meaning of Sections 267(b) and 707(b)(1)) may choose to apply the rules of Notice 2014–32 and Notice 2016–73 or the proposed regulations to any open taxable year beginning before the date the proposed regulations are filed as final regulations in the Federal Register, provided that taxpayers and their related parties consistently apply either the entirety of Notice 2014–32 and Notice 2016–73 or the entirety of the proposed regulations for such years and each subsequent taxable year beginning before the date the proposed regulations are finalized in the Federal Register.
Taxpayers considering triangular reorganizations involving one or more foreign corporations or inbound nonrecognition transactions should consider the potential implication of the proposed regulations.
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