News / Resources

Washington, D.C., partner Paul Schmidt and associate John Lehrer were members of the International Taxation Technical Resource Panel's Section 367 Task Force which developed the recommended changes put forth by the American Institute of Certified Public Accountants (AICPA) on proposed IRS regulations (REG-209006-89) on outbound asset transfers. The recommendations were published in the May 20, 2009, edition of Tax Notes Today.

According to the article, the AICPA has recommended changes to proposed regulations (REG-209006-89) on outbound asset transfers, suggesting in part that regulated investment companies, real estate investment trusts, and S corporations be exempt from the application of section 367(a)(5) when making certain transfers to foreign corporations.

The recommendations to the IRS include:

• General exemption for Regulated Investment Companies ("RICs"), Real Estate Investment Trusts ("REITs"), and S corporations from the application of section 367(a)(5) when such entities make a section 361(a) or (b) transfer to a foreign corporation;
• Providing exceptions from the application of section 367(a)(5) in appropriate circumstances outside of the direct ownership scenarios envisioned by section 368(c);
• Refraining from recasting transactions so to isolate boot from the rest of the transaction or to otherwise characterize the boot in a manner that is contrary to sections 356(a)(1) and 356(a)(2);
• Taking into consideration the tax attributes of the U.S. transferor that are available to offset the inside gain amount at the time of the section 361 exchange;
• Affiliated group members be treated as one corporation only when the affiliated group members are part of a section 1501 consolidated group;
• All earnings and profits amount inclusion under reg. section 1.367(b)-3(b) when a domestic corporation acquires the assets of a foreign corporation pursuant to an acquisitive, upstream asset reorganization under section 368(a)(1) and then transfers all or part of the acquired assets to another foreign corporation in a transaction described in reg. section 1.368-2(k) (a "Controlled Asset Transfer") be deferred; and
• Modifying the rule in the proposed regulations that would cause taxable gain if the foreign acquiring corporation disposes of an amount of the section 367(a) property transferred in the section 361 exchange that is greater than forty percent of the fair market value of the section 367(a) property at the time of the section 361 exchange within two years of such exchange.