IRS Will Update Rules On Triangular Reorganizations

On December 2, the US IRS announced that it will issue regulations under Code Sec. 367 to modify the rules relating to the treatment of property used to acquire parent stock or securities in certain triangular reorganizations involving one or more foreign corporations.

Treatment of Certain Triangular Reorganizations

The regulations will modify the rules relating to the treatment of property used to acquire parent stock or securities in certain, and the consequences to persons that receive parent stock or securities pursuant to such triangular reorganizations. The regulation would also modify the amount of an income inclusion required in certain inbound non-recognition transactions.

Triangular Reorganizations - Current Rules

Section 1.367(b)-10 (final regulations) applies to certain triangular reorganizations in which a subsidiary (S) acquires stock or securities of its parent corporation (P) in exchange for property (the P acquisition), and S exchanges the P  stock or securities so acquired for stock, securities, or property of a target corporation (T). The final regulations do not apply unless P or S (or both) is a foreign corporation. The application of the final regulations is also subject to certain exceptions, including the section 367(a) priority rule discussed in the notice.

Effective Date

The regulations would apply to transactions completed on or after December 2, 2016, and to any inbound transaction treated as completed before December 2, 2016, as a result of an entity classification election that is filed on or after December 2, 2016.

The IRS has requested comments on the rules described in this notice. 

Sources: Notice 2016-73, Thomson Reuters

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