Daily Tax Update - January 30, 2013: Treasury, IRS Propose Regulations Regarding Gain Recognition Agreements

TREASURY, IRS PROPOSE REGULATIONS REGARDING GAIN RECOGNITION AGREEMENTS:  Today, the Treasury Department and the IRS issued proposed regulations amending the consequences for U.S. persons who transfer property to a foreign corporation but fail to file the required gain recognition agreement (“GRA”) and related documents.

  • Under current regulations, a U.S. transferor who fails to timely file a GRA must recognize gain under section 367(a)(1), unless they file the GRA and show a reasonable cause for the late filing.  The proposed amendment would apply full gain recognition only if the failure to file was willful, so as not to penalize those transferors whose failure to file was unintentional.
  • Other amendments include eliminating the requirement for the IRS to respond for a request for relief from a failure to file within 120 days; clarifying that a GRA is considered timely filed only if all required documents are “completed in all material respects”; and clarifying that the section 6038B penalty will apply to a failure to comply in any material respect with section 367(a), or an existing GRA.
  • The Treasury Department and the IRS also propose to apply these changes to failures to file information required under section 367(e)(2) (liquidating distributions to foreign parent corporations) and Treas. Reg. 1.367(a)-3 (certain transfers of stock or securities).
  • For additional information, contact Philip R. West - pwest@steptoe.com
  • The regulations can be accessed here.


Notice 2013-05 provides for the waiver of additions to tax under section 6654(a) of the Internal Revenue Code for underpayment of estimated taxes for certain farmers and fishermen due to the delayed start for filing 2012 tax year returns.  The IRS issued a press release on January 18, 2013, which indicated that it will issue this guidance on this issue.  

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE  Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country.  The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court.  The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.