Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has adopted final regulations that clarify when the stock distribution requirements of Code Sec. 368(a)(1)(D) (Type-D reorganizations) and Code Sec. 354(b)(1)( (nonrecognition of gain or loss) are considered satisfied even though no qualifying stock or securities are actually issued. Under the final regulations (which generally adopt temporary regulations issued in December 2006 (T.D. 9303, 2007-1 CB 379, clarified by T.D. 9313, 2007-1 CB 805)), the distribution requirements for a Type-D reorganization are satisfied and a nominal share of stock is deemed issued if:

  the same person or persons own, directly or indirectly, all of the stock of the transferor and transferee corporations in identical proportions; and

  there is only a de minimis variation in shareholder identity or proportionality of ownership in the transferor and transferee corporations (Reg. §1.368-2(l)(2), as added by the new regulations.

  Companion regulations under Code Sec. 358 are also issued which hold that in Type-D reorganizations where the property received consists solely of nonqualifying property equal to the value of the transferred assets (i.e., none of the consideration is stock or securities of the transferee), the shareholder may designate the share of stock of the transferee that they already hold to which the basis, if any, of the surrendered stock or securities of the transferor will attach (Reg. §1.358-2(a)(2)(iii), as added by T.D. 9475, December 17, 2009). In addition, the IRS has added a new example to the intercompany transaction regulations extending these Type-D reorganization rules to consolidated groups (Reg. §1.1502-13(f)(7), as amended by the new rules.

  The IRS request comments on the application of these rules to reorganizations involving foreign corporations or shareholders. Specifically, the IRS is soliciting comments on:

  whether any Code Sec. 1248 amount attributable to the stock of the transferor corporation can be preserved in the nominal share deemed issued by the transferee corporation;

  the manner in which earnings and profits (E&P) are (or should be) taken into account for purposes ofCode Sec. 902 when an exchanging shareholder recognizes gain under Code Sec. 356(a) that is treated as a dividend from the E&P of the transferor and transferee corporations;

  whether and how Code Sec. 902 should apply when an exchanging shareholder does not actually own stock in the transferee corporation but the exchanging shareholder recognizes gain under Code Sec. 356(a) that is treated as a dividend from the E&P of the transferee corporation (including whether a limitation similar to Code Sec. 304(b)(5) is appropriate in such cases);

  whether and how, under Code Sec. 959, an exchanging shareholder should be able to access previously taxed E&P of a foreign transferor and/or transferee corporation before any nonpreviously taxed E&P of either corporation; and

  whether and how Code Sec. 897 applies if the transferor corporation is a United States real property holding corporation with at least one foreign shareholder.

  The final regulations are effective December 17, 2009, and apply to transactions occurring on or after the effective date. For transactions occurring before December 17, 2009, taxpayers should rely on Temporary Reg. §1.368-2T(l), prior to removal by T.D. 9475. However, taxpayers may, in certain circumstances, apply the new rules to transactions occurring before December 17, 2009 (Reg. §1.368-2(l)(4), as added by the new rules.

T.D. 9475, 2010FED ¶47,005

Other References:

 
Code Sec. 354

  CCH Reference - 2009FED ¶16,433.021

 
Code Sec. 358

  CCH Reference - 2009FED ¶16,553.01

 
Code Sec. 368

  CCH Reference - 2009FED ¶16,753.0253

 
Code Sec. 1502

  CCH Reference - 2009FED ¶33,168.0236

  Tax Research Consultant

  CCH Reference - TRC REORG: 18,052.15