Government reverses course: Issues Notice 2012-15 requiring GRAs for cross-border section 304 transfers

February 2012


In a fairly dramatic departure from existing law, the government has decided that US shareholders must enter into gain recognition agreements ("GRAs") to prevent immediate gain recognition in outbound stock sales governed by section 304. This is true even if the entire amount of the "section 304 dividend" is treated as a dividend under section 301(c)(1) (because the amount of earnings and profits ("E&P") in the acquiring corporation and the Target exceeds the purchase price). As a result, US shareholders now potentially face multiple gain / income inclusions.

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