Daily Tax Update - February 17, 2006

Today, the IRS issued final regulations that address the interaction of section 304 and section 367. These regulations generally provide that section 367(a) and (b) do not apply to a deemed section 351 exchange resulting from a section 304(a)(1) transaction. These regulations may apply to transfers of stock to related foreign corporations.

  • The regulations provide that if, pursuant to section 304(a)(1), a U.S. person is treated as transferring stock of a domestic or foreign corporation to a foreign corporation in exchange for stock of such foreign corporation in a transaction to which section 351(a) applies, such deemed section 351 exchange is not a transfer to a foreign corporation subject to section 367(a). The regulations further provide that if, pursuant to section 304(a)(1), a foreign corporation is treated as acquiring the stock of another foreign corporation in a transaction to which section 351(a)applies, such deemed section 351 exchange is not an acquisition subject to section 367(b). The effective date is generally on February 21, although a taxpayer may elect to have the regulations apply for all section 304(a)(1) transactions occurring in all its open tax years.
  • For additional information, contact Philip R. West via email or Stan Smilack via email.
  • The regulations can be accessed here:

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