Daily Tax Update - April 4, 2016: IRS Issues Temporary Regulations Designed to Curb Inversions

IRS Issues Temporary Regulations Designed to Curb Inversions:  Today, the IRS issued temporary regulations (TD 9761) to address transactions that are structured to avoid sections 367 and 7874.  Among other actions, the temporary regulations seek to limit inversions by disregarding foreign parent stock attributable to prior inversions or acquisitions of US companies.  


IRS Issues Proposed Regulations Designed to Prevent Earnings Stripping:  Today, the IRS proposed regulations (REG-108060-15) under section 385 addressing earnings stripping. These proposed regulations aim to prevent the creation of large interest deductions without any corresponding investment within the United States.  Such related-party debt would be treated as stock under the proposed regulations. Under the regulations, the IRS on audit would be allowed to classify a debt instrument as part debt and part stock.  The regulations also include new documentation requirements for related party indebtedness.


IRS Withdraws Regulations on Cross-Border Stock Transactions and Surrogate Corporations:  Today, the IRS withdrew portions of regulations proposed in 2009 (REG-147636-08) and 2014 (REG-121534-12) with the issuance of REG-135734-14.  The withdrawn regulations issued in 2009 apply section 367 to cross-border stock transfers governed under section 304.  The withdrawn regulations from 2014 relate to certain stock of a foreign corporation that is disregarded in calculating ownership of the foreign corporation for purposes of determining whether it is a surrogate foreign corporation under section 7874.  These regulations have been withdrawn because the IRS says they do not reflect current law as announced by subsequently issued guidance.