Andrew Mitchel LLC

International Tax Blog - New and Interesting International Tax Issues


Over 50 New Situational Charts – Code §7874 Regulation Examples

2016-10-22

Earlier this year, the IRS released T.D. 9761, which included final and temporary regulations under Code §7874.  The regulations contain new rules addressing inversions and certain post-inversion tax avoidance transactions.

Today we have released over 50 situational charts that illustrate all of the examples embedded in the Code §7874 regulations.  Specifically, the situational charts include the examples found in the following regulation sections:

  • Treas. Reg. §1.7874–1 Disregard of affiliate-owned stock
  • Treas. Reg. §1.7874–2 & –2T Surrogate foreign corporation
  • Treas. Reg. §1.7874–4T Disregard of certain stock related to the acquisition
  • Treas. Reg. §1.7874-5T Effect of certain transfers of stock related to the acquisition
  • Treas. Reg. §1.7874–6T Stock transferred by members of the EAG
  • Treas. Reg. §1.7874–7T Disregard of certain stock attributable to passive assets
  • Treas. Reg. §1.7874–8T Disregard of certain stock attributable to multiple domestic entity acquisitions
  • Treas. Reg. §1.7874–9T Disregard of certain stock in third-country transactions
  • Treas. Reg. §1.7874–11T Rules regarding inversion gain

The charts are available at https://www.andrewmitchel.com/topic.php#7874, where you can find hundreds of other situational charts. 

Tags: 7874 Corporate Inversions, Charts - Situational Charts

Charts of Examples in Notice 2014-52

2015-02-05

UPDATE - 11/1/16:  Notice 2014-52 was made obsolete by T.D. 9761.  See our blog post Over 50 New Situational Charts – Code §7874 Regulation Examples.

On September 22, 2014, the IRS released Notice 2014-52.  The notice announced that regulations will be issued under Code §§304(b)(5)(B), 367, 956(e), 7701(l), and 7874 to target corporate inversions.

In summary, the notice aims to:

  • Prevent inverted companies from accessing a foreign subsidiary’s earnings while deferring U.S. tax through the use of creative loans, which are known as “hopscotch” loans (action under Code §956(e)).
  • Prevent inverted companies from restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free (action under Code §7701(l)).
  • Close a loophole to prevent inverted companies from transferring cash or property from a CFC to the new parent to completely avoid U.S. tax (action Code §304(b)(5)(B)).
  • Make it more difficult for U.S. entities to invert by strengthening the requirement that the former owners of the U.S. entity own less than 80 percent of the new combined entity (action under Code §7874).

The notice provides 11 examples of the new rules.  We have created situational charts that illustrate the examples.  Images of the charts are shown below and links to PDFs of the charts are also available:

Notice 2014-52 2.01(b) Ex

Notice 2014-52 2.03 Ex 1

Notice 2014-52 2.03 Ex 1 Alt,/p>

Notice 2014-52 2.03 Ex 2

Notice 2014-52 2.03 Ex 2 Alt

Notice 2014-52 3.02(e)(iii) Ex 1

Notice 2014-52 3.02(e)(iii) Ex 1 Alt

Notice 2014-52 3.02(e)(iii) Ex 2

Notice 2014-52 3.02(e)(iii) Ex 3

Notice 2014-52 3.03 Ex 1

Notice 2014-52 3.03 Ex 2

Tags: 304 Transactions, 367(b) Fgn to Fgn Corp, 956 Investments in U.S. Property, 1248 Sales of CFCs, 7874 Corporate Inversions, Authority - Notices, Charts - Situational Charts

Why U.S. Companies Invert Video

2014-12-03

Today we published a new video discussing Why U.S. Companies Invert.  The video is embedded below:

Tags: 7874 Corporate Inversions, Other - Videos

Chart of PLR 201432002: No Inversion as a Result of an F Reorganization & an IPO

2014-08-19

Last week the IRS released PLR 201432002, where it applied the anti-inversion rules of Code §7874.

The IRS ruled that a newly formed foreign corporation was not a surrogate foreign corporation (i.e., there was no inversion) under Code §7874 where it acquired a U.S. corporation from a foreign corporation in a Code §368(a)(1)(F) reorganization that was followed by a private placement and an IPO.  The shares of the new foreign corporation were excluded from the numerator and the denominator of the ownership fraction (under the "internal group restructuring" exception) and the private placement and IPO shares were excluded from the denominator (under the "anti-stuffing" rules).  This produced an ownership fraction of zero over zero.  The ownership requirement was not met and there was no surrogate foreign corporation.

An image of the chart is shown below and the chart can be viewed as a PDF file here: PLR 201432002.

We will shortly add this chart to andrewmitchel.com, where you can find hundreds of similar situational charts.

For some recent commentary on inversions, visit Paul Caron's TaxProf Blog.

Plr_201432002

Tags: 368 Corporate Reorgs, 7874 Corporate Inversions, Authority - PLRs / CCAs, Charts - Situational Charts

International PLRs of Note for the 32nd week of 2014

2014-08-14

Last week the IRS published the following Private Letter Ruling and Chief Counsel Advice relating to international taxation.

PLR 201432002 - A newly formed foreign corporation was not a surrogate foreign corporation (i.e., there was no inversion) under Code §7874 where it acquired a U.S. corporation from a foreign corporation in a Code §368(a)(1)(F) reorganization that was followed by a private placement and an IPO.  The shares of the new foreign corporation were excluded from the numerator and the denominator of the ownership fraction (under the "internal group restructuring" exception) and the private placement and IPO shares were excluded from the denominator (under the "anti-stuffing" rules).  This produced an ownership fraction of zero over zero.  The ownership requirement was not met and there was no surrogate foreign corporation. 

CCA 201432020 - Failure to file a Form 5471 keeps the period of limitations for assessment of tax open for the entire tax return. 

For a discussion of the statute of limitations and international reporting requirements, see our post here.

Tags: 368 Corporate Reorgs, 6501 Statute of Limitations, 7874 Corporate Inversions, Authority - PLRs / CCAs, Form 5471

International PLRs of the 42nd week of 2012

2012-11-05

Several weeks ago the IRS published the following Private Letter Rulings relating to international taxation.

PLR 201242001 - Late IC DISC election.  Form 4876-A. Code §992(b)(1)(A).

PLR 201242004 - Late Canadian registered retirement savings plan ("RRSP") deferral election.  Form 8891.  Rev. Proc. 2002-23.

PLR 201242007 - A U.S. LLC contributed cash to newly formed foreign corporation.  The foreign corporation, immediately thereafter and pursuant to a preexisting binding commitment, used the contributed cash to purchase certain assets from the U.S. LLC.  The circular flow of cash was disregarded and the transfer of the assets from the U.S. LLC to the foreign corporation was treated as a Code §351 exchange.  The foreign corporation was treated as a U.S. corporation under Code §7874(b).  Thus, Code §367(a) did not apply to the Code §351 exchange.

Tags: 351 Exchanges, 991 IC DISC, 7874 Corporate Inversions, Authority - PLRs / CCAs, Country - Canada, Form 8891