Treasury issues proposed regulations on triangular reorganizations and inbound nonrecognition transactions

In brief

Treasury and the IRS on October 5 issued proposed regulations (Proposed Regulations) (REG-117614-14) providing guidance on the treatment of property used to acquire parent stock or securities in connection with certain triangular reorganizations involving one or more foreign corporations, the consequences to persons that receive parent stock or securities pursuant to those reorganizations, and the treatment of certain subsequent inbound nonrecognition transactions following those reorganizations and certain other transactions. The Proposed Regulations affect corporations engaged in certain triangular reorganizations involving one or more foreign corporations, certain shareholders of foreign corporations acquired in such reorganizations, and foreign corporations that participate in certain inbound nonrecognition transactions. 

The Proposed Regulations modify regulations previously announced and described in Notice 2014-32 and Notice 2016-73. Notice 2014-32 contained rules to address transactions which Treasury identified as exploiting certain aspects of final regulations published on May 19, 2011 under Section 367(b) that relate to the treatment of property used to acquire parent stock or securities in certain triangular reorganizations involving one or more foreign corporations (2011 Final Regulations). Notice 2016-73 contained additional rules to address transactions which Treasury identified as exploiting the 2011 Final Regulations, as modified by the rules announced in Notice 2014-32, and announced that additional regulations would be issued under Section 367.

With respect to the rules described in Notice 2014-32, the Proposed Regulations generally would be applicable to transactions completed on or after April 25, 2014, subject to limited exceptions. For those rules described in Notice 2016-73, the Proposed Regulations generally would be applicable to transactions completed on or after December 2, 2016. To the extent the Proposed Regulations contain rules not previously announced in Notice 2016-73, the Proposed Regulations would be applicable to transactions completed on or after the date the Proposed Regulations are filed in the Federal Register.

Comments are due 60 days after the date of publication in the Federal Register.

PwC will publish a more detailed analysis of the Proposed Regulations soon.