What is a 367 transaction?

Specifically, IRC 367(a)(1) imposes taxation on the outbound transfer of property by a U.S. person to a FC in what would otherwise be a nontaxable exchange (i.e., because a nonrecognition rule, such as IRC 351, normally would apply if both parties to the transaction were U.S. persons).

What is a 367 gain recognition agreement?

Gain recognition agreements A GRA provides parameters under which the U.S. transferor, in a transaction to which section 367(a) applies, will recognize gain if the foreign corporation disposes of transferred property during the five-year term of the GRA.

What is a new gain recognition agreement?

A GRA is an agreement pursuant to which a US transferor agrees to recognize gain if the transferee foreign corporation disposes of the transferred stock or securities during the term of the GRA and to pay interest on any additional tax owing if a so-called “triggering event” occurs.

Who files a gain recognition agreement?

Who Must File a Gain Recognition Agreement? The person or entity doing the transferring must file a gain recognition agreement according to Section 367 of the U.S. Treasury regulations. In addition, the foreign transferee must fill out IRS Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation.

What is a section 361 transaction?

Sec. 361(a) states that no gain or loss to a corporation will be recognized if that corporation is a party to a reorganization and exchanges property solely for stock of another corporation involved in the reorganization.

What is an outbound toll charge?

A tax or outbound toll charge applies to transfers of appreciated property by a U.S. corporation or person to a foreign corporation. The character and source of the gain produced by the outbound toll charge is determined as if the transferor had sold the property to the transferee in a taxable transaction.

What is an outbound stock transfer?

Issue and Transaction Overview. Outbound Transfer of Domestic Stock. ▪ A U.S. corporation can transfer shares of a domestic corporation (“domestic stock”) to another corporation in a wide variety of nonrecognition transactions.

Is liability assumed boot?

Generally speaking you should not recognize any gain on the Corporation’s assumption of the liability. The amount of the liability generally is treated as “boot” predominately for determining your basis in the stock received in the exchange.

What is a 381 transaction?

Section 381 provides that a corporation which acquires the assets of another corporation in certain liquidations and reorganizations shall succeed to, and take into account, as of the close of the date of distribution or transfer, the items described in section 381(c) of the distributor or transferor corporation.

What happens to tax attributes in a merger?

An acquirer will receive a tax basis in the stock acquired (“outside basis”) equal to the consideration paid. However, the target’s assets carry over at their historic tax basis (“carryover basis,” or “inside basis”); the tax attributes (losses, credits, etc.)

What is a 367 D royalty?

The general rule is that when a U.S. person transfers intangible property (“IP”) to a foreign corporation pursuant to IRC 351 or IRC 361, IRC 367(d) requires that the U.S. transferor recognize a deemed sale of the IP in exchange for a continuing deemed annual royalty.

What is an indirect stock transfer?

If a U.S. person exchanges domestic or foreign stock or securities for stock or securities of a foreign corporation in certain corporate reorganizations, then such person is treated as indirectly transferring the exchanged stock or securities to the foreign corporation.

Does 351 apply to foreign corporations?

If a U.S. person transfers property to a foreign corporation in connection with an exchange described in section 351, 354, 356, or 361, then, pursuant to section 367(a)(1), the foreign corporation will not be considered to be a corporation for purposes of determining the extent to which gain is recognized on the …

Why is cash called boot?

If the two parties determined that one horse, for example, was worth more than the other, the person that received the more valuable horse had to pay something to the other (money, tobacco, sugar, etc.) to even the score, and the additional item went into the recipients boot–hence the term.

What are the two kinds of boot in a 1031 exchange?

Cash proceeds There are two ways cash boot received during a 1031 exchange can occur: Holding cash back by not transferring 100% of the sales proceeds from your relinquished property (the property sold) to your Qualified Intermediary (QI)

What is a 361 transaction?

A transaction fitting within one of the prescribed models is eligible for tax-free treatment. Section 361 describes the treatment of the corporation whose stock or assets are being transferred. In general, under section 361(b), boot can be distributed without causing taxation to the distributing corporation.

Are proceeds from a merger taxable?

The merger qualifies as a “tax-free reorganization” under the tax law. That’s usually the case if at least half the consideration you receive is in the form of stock. The only consideration you receive in addition to common stock of the acquiring company is cash.

What is deemed royalty?

The deemed royalty is characterized as ordinary income over the useful life of the property, not to exceed 20 years.

What is a foreign corporation under Sec 367?

Sec. 367. Foreign Corporations If, in connection with any exchange described in section 332, 351, 354, 356 , or 361, a United States person transfers property to a foreign corporation, such foreign corporation shall not, for purposes of determining the extent to which gain shall be recognized on such transfer, be considered to be a corporation.

What is Section 367(E)(2) of the 1986 Code?

“Section 367 (e) (2) of the 1986 Code (as amended by the Reform Act [ Pub. L. 99–514 ]) shall not apply in the case of any corporation completely liquidated before June 10, 1987, into a corporation organized in a country which has an income tax treaty with the United States.”

What is Section 367 (a) of the Tax Act?

Bloomberg Tax Portfolio, 919-3rd T.M., U.S.-to-Foreign Transfers Under Section 367 (a), No. 919, examines the rules that apply to various forms of foreign corporate or partnership formations or restructurings under §367 (a) and under related provisions such as §6038B.

Does §367 (a) apply to outbound transfers of business property?

It then reviews the application of §367 (a) to outbound transfers of business property, including the significant exception for transfers of foreign business property.