Treatment of Property Used To Acquire Parent Stock in Certain Triangular Reorganizations Involving Foreign Corporations, 30301-30305 [E8-11653]
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Federal Register / Vol. 73, No. 102 / Tuesday, May 27, 2008 / Rules and Regulations
identical to the requirement of section 403(r)
***
On September 17, 2007, FDA
published an interim final rule which
imposed requirements under section
403(r) of the act. This final rule affirms
the September 17, 2007, amendment to
the existing food labeling regulations to
add isomaltulose to the authorized
health claim for noncariogenic
carbohydrate sweeteners and dental
caries. Although this rule has a
preemptive effect in that it precludes
States from issuing any health claim
labeling requirements for isomaltulose
and the nonpromotion of dental caries
that are not identical to those required
by this final rule, this preemptive effect
is consistent with what Congress set
forth in section 403A of the act. Section
403A(a)(5) of the act displaces both
State legislative requirements and State
common law duties. Riegel v.
Medtronic, 128 S. Ct. 999 (2008).
FDA believes that the preemptive
effect of this final rule is consistent with
Executive Order 13132. Section 4(e) of
the Executive order provides that ‘‘when
an agency proposes to act through
adjudication or rulemaking to preempt
State law, the agency shall provide all
affected State and local officials notice
and an opportunity for appropriate
participation in the proceedings.’’ On
August 1, 2007, FDA’s Division of
Federal and State Relations provided
notice via fax and e-mail transmission to
State health commissioners, State
agriculture commissioners, food
program directors, and drug program
directors, as well as FDA field
personnel, of FDA’s intent to amend the
health claim regulation authorizing
health claims for noncariogenic
carbohydrate sweeteners and dental
caries (§ 101.80). FDA received no
comments from any States in response
to this notice.
In addition, the agency sought input
from all stakeholders through
publication of the interim final rule in
the Federal Register on September 17,
2007 (72 FR 52783). FDA received no
comments from any States on the
interim final rule.
In conclusion, the agency believes
that it has complied with all of the
applicable requirements of Executive
Order 13132 and has determined that
the preemptive effects of this rule are
consistent with the Executive order.
jlentini on PROD1PC65 with RULES
List of Subjects in 21 CFR Part 101
Food labeling, Nutrition, Reporting
and Recordkeeping requirements.
I Therefore, under the Federal Food,
Drug, and Cosmetic Act and under
authority delegated to the Commissioner
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of Food and Drugs, 21 CFR part 101 is
amended as follows:
PART 101—FOOD LABELING
Accordingly, the interim final rule
amending § 101.80 that was published
in the Federal Register of September 17,
2007 (72 FR 52783), is adopted as a final
rule without change.
I
Dated: May 19, 2008.
Jeffrey Shuren,
Associate Commissioner for Policy and
Planning.
[FR Doc. E8–11802 Filed 5–23–08; 8:45 am]
BILLING CODE 4160–01–S
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9400]
RIN 1545–BG97
Treatment of Property Used To Acquire
Parent Stock in Certain Triangular
Reorganizations Involving Foreign
Corporations
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
AGENCY:
SUMMARY: This document contains final
and temporary regulations under section
367(b) of the Internal Revenue Code
(Code). The final regulations revise an
existing final regulation and add a crossreference. The temporary regulations
implement the rules described in Notice
2006–85 and Notice 2007–48. The
regulations affect corporations engaged
in certain triangular reorganizations
involving one or more foreign
corporations. The text of the temporary
regulations serves as the text of the
proposed regulations (REG–136020–07)
set forth in the notice of proposed
rulemaking on this subject published in
the Proposed Rules section in this issue
of the Federal Register.
DATES: Effective Date: These regulations
are effective May 27, 2008.
Applicability Dates: For dates of
applicability, see § 1.367(a)–
3T(b)(2)(i)(C) and 1.367(b)–14T(e).
FOR FURTHER INFORMATION CONTACT:
Daniel McCall, (202) 622–3860 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On September 22, 2006, the IRS and
Treasury Department issued Notice
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30301
2006–85 (2006–41 IRB 677), which
announced that regulations would be
issued under section 367(b) to address
certain triangular reorganizations under
section 368(a) involving one or more
foreign corporations. On May 31, 2007,
the IRS and Treasury Department issued
Notice 2007–48 (2007–25 IRB 1428),
which amplified Notice 2006–85 and
announced that additional regulations
would be issued under section 367(b).
Each notice describes transactions the
IRS and Treasury Department believe
raise significant policy concerns.
Notice 2006–85 describes triangular
reorganizations in which a subsidiary
(S) purchases stock of its parent
corporation (P) from P in exchange for
property, and then exchanges the P
stock for the stock or assets of a target
corporation (T), but only if P or S (or
both) is foreign. Notice 2006–85
announced that regulations to be issued
under section 367(b) would make
adjustments that would have the effect
of a distribution of property from S to
P under section 301 (deemed
distribution). Notice 2006–85 further
announced that regulations would
address similar transactions where S
acquires the P stock from a related party
that purchased the P stock in a related
transaction.
Notice 2007–48 describes transactions
in which S purchases all or a portion of
the P stock exchanged in the
reorganization from a person other than
P (such as from public shareholders on
the open market). Notice 2007–48
announced that regulations to be issued
under section 367(b) would also make
adjustments that would have the effect
of a distribution of property from S to
P (under section 301) followed by a
deemed contribution of such property
by P to S. Notice 2007–48 further
announced that the regulations would
take into account the earnings and
profits of other corporations, as
appropriate, if a principal purpose of
creating, organizing, or funding S is to
avoid the adjustments to be made by the
regulations.
These temporary regulations set forth
the regulations described in Notices
2006–85 and 2007–48. The existing final
regulations under § 1.367(b)–13 are
revised to conform the definitions of the
terms P, S, and T in those regulations to
the definitions of such terms in these
temporary regulations. The existing
final regulations under § 1.367(b)–2 are
revised to clarify that the definition of
earnings and profits in § 1.367(b)–2(l)(8)
applies only for purposes of §§ 1.367(b)–
7 and 1.367(b)–9.
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Federal Register / Vol. 73, No. 102 / Tuesday, May 27, 2008 / Rules and Regulations
Explanation of Provisions
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A. Section 367— In General
Section 367(a)(1) provides that 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. However, exceptions are
provided under section 367(a)(2) and
(3), and the Secretary has broad
authority under section 367(a)(6) to
provide that section 367(a)(1) will not
apply to certain transfers otherwise
described therein.
Section 367(b)(1) provides that in the
case of any exchange described in
section 332, 351, 354, 355, 356, or 361
in connection with which there is no
transfer of property described in section
367(a)(1), a foreign corporation shall be
considered to be a corporation except to
the extent provided in regulations
prescribed by the Secretary which are
necessary or appropriate to prevent the
avoidance of Federal income taxes.
Section 367(b)(2) provides that the
regulations prescribed pursuant to
section 367(b)(1) shall include (but shall
not be limited to) regulations dealing
with the sale or exchange of stock or
securities in a foreign corporation by a
United States person, including
regulations providing the circumstances
under which gain is recognized,
amounts are included in gross income
as a dividend, adjustments are made to
earnings and profits, or adjustments are
made to basis of stock or securities.
B. Policies of Section 367(b)
Section 367(b) was enacted to ensure
that international tax considerations are
adequately addressed when the
nonrecognition provisions of subchapter
C of the Code apply to certain exchanges
involving foreign corporations. Congress
further noted that ‘‘it is essential to
protect against tax avoidance in
transfers to foreign corporations and
upon the repatriation of previously
untaxed foreign earnings. * * *’’ H.R.
Rep. No. 658, 94th Cong., 1st Sess. 241
(1975). Accordingly, Congress granted
the Secretary authority to provide
regulations ‘‘necessary or appropriate to
prevent the avoidance of Federal
income taxes’’ and identified ‘‘transfers
constituting a repatriation of foreign
earnings’’ as a type of transfer to be
covered in regulations to be
promulgated by the Secretary. Id. The
Secretary has exercised this grant of
authority to address a wide range of
international policy concerns. For
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further discussion, see Notices 2006–85
and 2007–48.
C. Adjustments Made Under Section
367(b)
These temporary regulations apply to
triangular reorganizations where P or S
(or both) is foreign and, in connection
with the reorganization, S acquires, in
exchange for property, all or a portion
of the P stock that is used to acquire the
stock or assets of T. The ‘‘in connection
with’’ standard is a broad standard that
includes any transaction related to the
reorganization even if the transaction is
not part of the plan of reorganization.
For example, the temporary regulations
apply to a triangular reorganization
regardless of whether P controls S
(within the meaning of section 368(c))
when S acquires the P stock that is used
in the reorganization.
In a triangular reorganization subject
to the temporary regulations,
adjustments shall be made that have the
effect of a distribution of property from
S to P under section 301. The amount
of the deemed distribution shall equal
the amount of money plus the fair
market value of other property that S
used to acquire P stock. For this
purpose, the term property has the
meaning set forth in section 317(a), but
includes any liability assumed by S in
exchange for the P stock
(notwithstanding the application of
section 357(a)) and any S stock used by
S to acquire the P stock from a person
other than P. Consistent with the rule
announced in Notice 2007–48, these
temporary regulations provide that to
the extent S buys P stock from a person
other than P, immediately after taking
into account the deemed distribution to
P, P is deemed to contribute to S the
property deemed distributed to P.
These temporary regulations provide
that the deemed distribution shall be
treated as a distribution for all purposes
of the Code. For example, provisions
such as sections 312, 881, 897, 902, 959,
1442, and 1445 apply, as appropriate, to
the deemed distribution. Similarly, the
deemed contribution of property shall
be treated as a contribution of property
for all purposes of the Code. For
example, appropriate adjustments to P’s
basis in the S stock and other affected
items shall be made according to
applicable Code provisions.
Ordering rules are provided that
generally require the deemed
distribution and, in cases where S buys
P stock from a person other than P, the
deemed contribution to be taken into
account before the transfers undertaken
pursuant to the triangular
reorganization. If P does not control S
(within the meaning of section 368(c)) at
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the time that S purchases the P stock,
the deemed distribution and deemed
contribution shall be treated as separate
transactions occurring immediately after
P acquires control of S. Thus, in a
transaction where S purchases the P
stock from a person other than P, after
taking into account the adjustments
made under these temporary
regulations, S’s purchase and transfer of
P stock pursuant to the triangular
reorganization are taken into account
under generally applicable Code
provisions, such as sections 304, 354,
356, 358, and 368.
These temporary regulations also
provide that appropriate adjustments
will be made if in connection with a
triangular reorganization described in
the regulations, a transaction is engaged
in with a view to avoid the purpose of
the regulations. For example, if S is a
newly formed corporation and, in
connection with the reorganization, P
contributes to S another corporation
with positive earnings and profits (S2)
to facilitate S’s purchase of the P stock
or to facilitate the repayment of an
obligation incurred by S to purchase the
P stock, then, under the temporary
regulations, the earnings and profits of
S may be deemed to include the
earnings and profits of S2.
Finally, these temporary regulations
contain a coordination rule that applies
to transactions described in section
367(a) and § 1.367(b)–14T. The IRS and
Treasury Department continue to study
transactions that implicate the policies
of section 367(a) and (b), but that are not
subject to both provisions as a result of
the application of the coordination rule.
Comments are requested on such
transactions.
Availability of IRS Documents
IRS notices cited in this preamble are
made available by the Superintendent of
Documents, U.S. Government Printing
Office, Washington, DC 20402.
Effective/Applicability Dates
With respect to those rules addressing
transactions described in Notice 2006–
85, these temporary regulations are
generally applicable to transactions
occurring on or after September 22,
2006, with limited transition relief.
With respect to those rules addressing
transactions described in Notice 2007–
48, these temporary regulations are
generally applicable to transactions
occurring on or after May 31, 2007, with
limited transition relief. Other rules
included in these temporary regulations
are generally applicable to transactions
occurring on or after May 23, 2008, with
limited transition relief. See § 1.367(b)–
14T(e).
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Federal Register / Vol. 73, No. 102 / Tuesday, May 27, 2008 / Rules and Regulations
No inference is intended as to the
potential applicability of other Code or
regulatory provisions or judicial
doctrines (including substance over
form) to transactions described in these
temporary regulations.
The following publications are
obsolete as of May 27, 2008:
Notice 2006–85 (2006–41 IRB 677).
Notice 2007–48 (2007–25 IRB 1428).
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. A
delayed effective date would be
inappropriate because the purpose of
this regulation is to address transactions
that the IRS and Treasury Department
believe raise serious policy concerns.
Accordingly, good cause is found for
dispensing with notice and public
comment pursuant to 5 U.S.C. 553(b)
and (c) and with a delayed effective date
pursuant to 5 U.S.C. 553(d).
Furthermore, under section
7805(b)(1)(C) of the Code, an effective
date earlier than the date this regulation
is filed with the Federal Register is
appropriate because prior notices
substantially described the rules
contained in this regulation. For
applicability of the Regulatory
Flexibility Act, see the cross-referenced
notice of proposed rulemaking
published elsewhere in this Federal
Register. Pursuant to section 7805(f) of
the Code, these regulations have been
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.
Request for Comments
For information on how to submit
comments or request a public hearing,
see the section ‘‘Comments and
Requests for a Public Hearing,’’ set forth
in the notice of proposed rulemaking
published elsewhere in this issue of the
Federal Register.
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Drafting Information
The principal author of these
regulations is Daniel McCall of the
Office of Associate Chief Counsel
(International). However, other
personnel from the IRS and the Treasury
Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
16:07 May 23, 2008
Accordingly, 26 CFR part 1 is
amended as follows:
I
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding new
entries in numerical order to read as
follows:
I
Effect on Other Documents
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Amendments to the Regulations
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Authority: 26 U.S.C. 7805 * * *
Section 1.367(a)–3T(b)(2)(i)(C) also issued
under 26 U.S.C. 367(a) and (b). * * *
Section 1.367(b)–14T also issued under 26
U.S.C. 367(b). * * *
Par. 2. Section 1.367(a)–3 is amended
by revising the first sentence in
paragraph (b)(2)(i) and adding new
paragraph (b)(2)(i)(C) to read as follows:
I
§ 1.367(a)–3 Treatment of transfers of
stock or securities to foreign corporations.
*
*
*
*
*
(b) * * *
(2) * * *
(i) * * * A transfer of stock or
securities described in section 367(a) or
the regulations thereunder as well as in
section 367(b) or the regulations
thereunder shall be subject concurrently
to sections 367(a) and (b) and the
respective regulations thereunder,
except as provided in paragraph
(b)(2)(i)(A) through (C) of this section.
* * *
(C) [Reserved]. For further guidance,
see § 1.367(a)–3T(b)(2)(i)(C).
*
*
*
*
*
I Par. 3. Section 1.367(a)–3T is
amended by revising paragraphs (a)
through (d) and (f)(3), to read as follows:
§ 1.367(a)–3T Treatment of transfers of
stock or securities to foreign corporations
(temporary).
(a) through (b)(2)(i)(B) [Reserved]. For
further guidance, see § 1.367(a)–3(a)
through (b)(2)(i)(B).
(C) If in connection with a transaction
described in § 1.367(b)–14T, one or
more U.S. persons transfer stock of T, as
defined in § 1.358–6(b)(1)(iii), to a
corporation in a transfer described in
section 367(a), and the amount of gain
in the T stock that would otherwise be
recognized under section 367(a) is less
than the deemed distribution that would
result from the adjustments made under
§ 1.367(b)–14T and that would be
treated as a dividend under section
301(c)(1), then section 367(b), and not
section 367(a), shall apply to such
transaction. This paragraph (b)(2)(i)(C)
applies to transfers occurring on or after
May 23, 2008.
(b)(2)(ii) through (d) [Reserved]. For
further guidance, see § 1.367(a)–
3(b)(2)(ii) through (d).
*
*
*
*
*
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30303
(f) * * *
(3) Expiration date. The applicability
of § 1.367(a)–3T(b)(2)(i)(C) expires on
May 23, 2011. The applicability of
§ 1.367(a)–3T(e) and (f)(1) and (f)(2)
expires on February 1, 2010.
I Par. 4. Section 1.367(b)–2 is amended
by revising paragraph (l)(8) to read as
follows:
§ 1.367(b)–2
Definitions and special rules.
*
*
*
*
*
(l) * * *
(8) Earnings and profits. For purposes
of §§ 1.367(b)–7 and 1.367(b)–9, the
term earnings and profits means post1986 undistributed earnings, pre-1987
accumulated profits, and pre-1987
section 960 earnings and profits.
*
*
*
*
*
I Par. 5. Section 1.367(b)–13 is
amended by redesignating paragraph
(a)(2)(ii) as paragraph (a)(2)(iii), revising
newly designated paragraph (a)(2)(iii),
and adding a new paragraph (a)(2)(ii) to
read as follows:
§ 1.367(b)–13 Special rules for determining
basis and holding period.
(a) * * *
(2) * * *
(ii) The terms P, S, and T have the
meanings set forth in § 1.358–6(b)(1)(i),
(ii), and (iii), respectively.
(iii) A triangular reorganization is a
reorganization described in § 1.358–
6(b)(2)(i), (ii), or (iii) or in sections
368(a)(1)(G) and (a)(2)(D) (a forward
triangular merger, triangular C
reorganization, reverse triangular
merger, or triangular G reorganization,
respectively).
*
*
*
*
*
I Par. 6. Section 1.367(b)–14T is added
to read as follows:
§ 1.367(b)–14T Acquisition of parent stock
for property in triangular reorganizations
(temporary).
(a) In general—(1) Scope and purpose.
This section applies to triangular
reorganizations where P or S (or both)
is foreign and, in connection with the
reorganization, S acquires, in exchange
for property (as defined in this section),
all or a portion of the P stock that is
used to acquire the stock or assets of T.
This section may apply to a
reorganization regardless of whether P
controls S (within the meaning of
section 368(c)) at the time S acquires the
P stock that is used to acquire the stock
or assets of T. The purpose of this
section is to prevent what is in effect a
distribution of property to P without the
application of provisions otherwise
applicable to property distributions,
when in connection with a triangular
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reorganization S acquires, in exchange
for property, all or a portion of the P
stock used in the reorganization.
(2) Definitions. For purposes of this
section, the following definitions apply:
(i) The terms P, S, and T have the
meanings set forth in § 1.358–6(b)(1)(i),
(ii), and (iii), respectively.
(ii) In general, the term property has
the meaning set forth in section 317(a).
Notwithstanding section 357(a), such
term includes any liability assumed by
S in exchange for the P stock used to
acquire the stock or assets of T. Such
term also includes any S stock used by
S to acquire P stock from a person other
than P.
(iii) The term triangular
reorganization means a reorganization
described in § 1.358–6(b)(2) or in
section 368(a)(1)(G) and (a)(2)(D).
(b) General rules—(1) Deemed
distribution. If this section applies,
adjustments shall be made that have the
effect of a distribution of property from
S to P under section 301 (deemed
distribution). The amount of the deemed
distribution shall equal the amount of
money plus the fair market value of
other property transferred, in
connection with the reorganization, by S
in exchange for the P stock used to
acquire the stock or assets of T in the
triangular reorganization. Additional
adjustments shall be made under
paragraph (b)(3) of this section to the
extent S acquires, in exchange for
property, P stock from a person other
than P.
(2) Timing in the case of acquisitions
from P. To the extent S acquires P stock
from P in exchange for property, the
deemed distribution described in
paragraph (b)(1) of this section shall be
treated as a transaction separate from,
and occurring immediately before, the
triangular reorganization. Therefore, P
shall not be treated as receiving the
property from S in exchange for P stock.
The transfers of P stock in the triangular
reorganization shall be subject to
generally applicable provisions. See, for
example, § 1.1032–2.
(3) Timing and deemed contribution
in the case of acquisitions from persons
other than P. To the extent S acquires
P stock from a person other than P in
exchange for property (the purchase),
then immediately following the deemed
distribution described in paragraph
(b)(1) of this section, adjustments shall
be made that have the effect of a
contribution by P to S (deemed
contribution) of the property deemed
distributed by S to P under paragraph
(b)(1) of this section. If P controls S
(within the meaning of section 368(c)) at
the time of the purchase, the deemed
distribution and deemed contribution
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shall be treated as separate transactions
occurring immediately before the
purchase. If P does not control S (within
the meaning of section 368(c)) at the
time of the purchase, the deemed
distribution and deemed contribution
shall be treated as separate transactions
occurring immediately after P acquires
control of S. Other provisions, such as
sections 304, 354, 358 and 368, shall
apply after the adjustments made
pursuant to paragraph (b)(1) of this
section and this paragraph.
(4) Example. The rules of this
paragraph (b) are illustrated by the
following example:
(i) Facts. P, a publicly traded domestic
corporation, owns all of the outstanding
stock of FS, a foreign corporation, and all of
the outstanding stock of US1, a domestic
corporation that is a member of the P
consolidated group. US1 owns all of the
outstanding stock of FT, a foreign
corporation, the fair market value of which
is $100x. FS purchases $100x of P stock on
the open market for cash. Pursuant to foreign
law, FT merges with and into FS in a
triangular reorganization described in section
368(a)(1)(A) by reason of section 368(a)(2)(D).
US1 exchanges all the outstanding stock of
FT for the stock of P purchased by FS on the
open market for $100x cash.
(ii) Analysis. The triangular reorganization
is described in paragraph (a)(1) of this
section. Therefore, pursuant to paragraphs
(b)(1) and (b)(3) of this section, FS is treated
as distributing $100x to P under section 301.
Immediately after such deemed distribution,
P is deemed to contribute to FS the $100x
that was deemed distributed to P. The
deemed distribution and deemed
contribution are treated as separate
transactions occurring immediately before
FS’s purchase of the P stock used in the
triangular reorganization.
(c) Collateral adjustments. This
paragraph (c) provides rules for the
treatment of a deemed distribution or
deemed contribution resulting under
paragraph (b)(1) or (b)(3) of this section.
(1) Deemed distribution. A deemed
distribution of property described in
paragraph (b)(1) of this section shall be
treated as a distribution of property for
all purposes of the Internal Revenue
Code. For example, under section 301(c)
the distribution may constitute a
dividend to the extent of the earnings
and profits of S, a return of basis, or gain
from the sale or exchange of property,
as appropriate. In addition, sections 902
and 959 may apply when S is foreign,
and sections 897, 1442, and 1445 may
apply when S is domestic.
(2) Deemed contribution. A deemed
contribution of property described in
paragraph (b)(3) of this section shall be
treated as a contribution of property for
all purposes of the Internal Revenue
Code. For example, appropriate
adjustments to P’s basis in the S stock
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and other affected items shall be made
according to applicable provisions.
(d) Special rule. Appropriate
adjustments shall be made pursuant to
this section if, in connection with a
triangular reorganization, a transaction
is engaged in with a view to avoid the
purpose of this section as described in
paragraph (a)(1) of this section. For
example, if S is formed or availed of
with a view to avoid the purpose of this
section, the earnings and profits of S
may be deemed to include the earnings
and profits of a corporation related to S
(within the meaning of section 267(b)).
(e) Effective/applicability date—(1)
Acquisitions of P stock from P or related
persons. Except as otherwise provided
in this paragraph (e), this section
applies to triangular reorganizations
described in paragraph (a)(1) of this
section, to the extent S acquires the P
stock from P or from a person related to
P or S within the meaning of section
267(b) or 707(b), occurring on or after
September 22, 2006. This section,
however, shall not apply to triangular
reorganizations described in paragraph
(a)(1) of this section, to the extent S
acquires the P stock from P or from a
person related to P or S within the
meaning of section 267(b) or 707(b),
completed on or after September 22,
2006, pursuant to a written agreement
that was (subject to customary
conditions) binding before September
22, 2006, and all times afterward.
(2) Acquisitions of P stock from
persons other than P—(i) General rule.
Except as otherwise provided in this
paragraph (e), this section applies to
triangular reorganizations described in
paragraph (a)(1) of this section, to the
extent S acquires the P stock from a
person other than P that is not related
to P or S within the meaning of section
267(b) or 707(b) (unrelated person),
occurring on or after May 31, 2007.
(ii) Binding commitment exception.
This section shall not apply to
triangular reorganizations described in
paragraph (a)(1) of this section, to the
extent S acquires the P stock from an
unrelated person, pursuant to a written
agreement that was (subject to
customary conditions) binding before
May 31, 2007, and all times afterward,
but only to the extent that—
(A) S acquired the P stock from an
unrelated person before May 31, 2007;
or
(B) S had a commitment to acquire the
P stock from an unrelated person
pursuant to a written agreement that
was (subject to customary conditions)
binding before May 31, 2007, and all
times afterward, or pursuant to a tender
offer announced before May 31, 2007,
that is subject to section 14(d) of the
E:\FR\FM\27MYR1.SGM
27MYR1
jlentini on PROD1PC65 with RULES
Federal Register / Vol. 73, No. 102 / Tuesday, May 27, 2008 / Rules and Regulations
Securities and Exchange Act of 1934 (15
U.S.C. 78n(d)(1)) and Regulation 14(D)
(17 CFR 240.14d–1 through 240.14d–
101) or that is subject to comparable
foreign laws.
(3) Application of special rule—(i)
General rule. Except as provided in
paragraph (e)(3)(ii) of this section,
paragraph (d) of this section applies to
triangular reorganizations described in
paragraph (a)(1) of this section occurring
on or after May 31, 2007.
(ii) Binding commitment exception.
Paragraph (d) of this section shall not
apply to triangular reorganizations
described in paragraph (a)(1) of this
section entered into pursuant to a
written agreement that was (subject to
customary conditions) binding before
May 31, 2007, and all times afterward,
but only to the extent that—
(A) S acquired the P stock before May
31, 2007; or
(B) S had a commitment to acquire the
P stock from an unrelated person
pursuant to a written agreement that
was (subject to customary conditions)
binding before May 31, 2007, and all
times afterward, or pursuant to a tender
offer announced before May 31, 2007,
that is subject to section 14(d) of the
Securities and Exchange Act of 1934 (15
U.S.C. 78n(d)(1)) and Regulation 14(D)
(17 CFR 240.14d–1 through 240.14d–
101) or that is subject to comparable
foreign laws.
(4) Treatment of S stock as property—
(i) General rule. Except as provided in
paragraph (e)(4)(ii) of this section, the
treatment of S stock as property under
paragraph (a)(2)(ii) of this section
applies to triangular reorganizations
described in paragraph (a)(1) of this
section occurring on or after May 23,
2008.
(ii) Binding commitment exception.
The treatment of S stock as property
under paragraph (a)(2)(ii) of this section
shall not apply to triangular
reorganizations described in paragraph
(a)(1) of this section occurring on or
after May 23, 2008 entered into
pursuant to a written agreement that
was (subject to customary conditions)
binding before May 23, 2008 and all
times afterward, but only to the extent
that—
(A) S acquired the P stock before May
23, 2008; or
(B) S had a commitment to acquire the
P stock from an unrelated person
pursuant to a written agreement that
was (subject to customary conditions)
binding before May 23, 2008 and all
times afterward, or pursuant to a tender
offer announced before May 23, 2008,
that is subject to section 14(d) of the
Securities and Exchange Act of 1934 (15
U.S.C. 78n(d)(1)) and Regulation 14(D)
VerDate Aug<31>2005
16:07 May 23, 2008
Jkt 214001
(17 CFR 240.14d–1 through 240.14d–
101) or that is subject to comparable
foreign laws.
(5) Expiration. The applicability of
this section expires May 23, 2011.
Linda E. Stiff,
Deputy Commissioner for Services and
Enforcement.
Approved: May 16, 2008.
Eric Solomon,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. E8–11653 Filed 5–23–08; 8:45 am]
30305
p.m., Eastern Standard Time, Monday
through Friday.
SUPPLEMENTARY INFORMATION: The
following outline contains the contents
of the SUPPLEMENTARY INFORMATION
section of this final rule:
DEPARTMENT OF AGRICULTURE
Background
Regulatory Certifications
Regulatory Impact
Environmental Impact
Federalism
Consultation With Tribal Governments
No takings Implications
Controlling Paperwork Burdens on the
Public
Energy Effects
Civil Justice Reform
Unfunded Mandates
List of Subjects in Part 261
Forest Service
Background
BILLING CODE 4830–01–P
36 CFR Part 261
RIN 0596–AC30
Clarifying Prohibitions for Failure To
Maintain Control of Fires That Damage
National Forest System Lands
Forest Service, USDA.
Notice of final rule.
AGENCY:
ACTION:
SUMMARY: This final rule revises
regulations to establish a new
prohibition for starting and negligently
failing to maintain control of a
prescribed fire. Proof of criminal
negligence is required for this offense.
The rule also clarifies that the
prohibition for causing and failing to
maintain control of all other fires is a
strict liability offense, not requiring
proof of criminal intent. In
implementing the National Fire Plan,
the Forest Service has encouraged
adjacent landowners to develop
integrated fire management plans for the
use of prescribed fire for the restoration
and protection of private lands adjacent
to National Forest System lands.
Without these changes, adjacent
landowners might be discouraged from
using prescribed fire.
DATES: This rule is effective June 26,
2008.
The public may inspect
comments received at USDA Forest
Service, State and Private Forestry, 1400
Independence Avenue, SW.,
Washington, DC. Visitors are
encouraged to call ahead to 202–205–
1331 to facilitate entry into the building.
FOR FURTHER INFORMATION CONTACT:
Denny Truesdale, State and Private
Forestry, 202–205–1588. Individuals
who use telecommunication devices for
the deaf (TDD) may call the Federal
Information Relay Service (FIRS) at 1–
800–877–8339 between 8 a.m. and 8
ADDRESSES:
PO 00000
Frm 00035
Fmt 4700
Sfmt 4700
A new paragraph (c) is added to
section 261.1, Scope, to clarify that
unless criminal intent (‘‘mens rea’’) is
expressly required in the provision
setting forth the offense, strict liability
would apply. Whether criminal intent is
a required element of an offense is a
question of statutory construction.
Where a statute or regulation does not
expressly require criminal intent,
‘‘silence on this point by itself does not
necessarily suggest that Congress
intended to dispense with the
conventional mens rea element * * *’’
Staples v. United States, 511 U.S. 600,
605 (1994). As a general rule, absent a
clear indication of legislative intent,
courts require proof of intent for
criminal offenses. See Id. at 605, for a
discussion of cases that support this
well-established principle.
However, the general presumption
that some guilty intent or purpose is
required does not apply to ‘‘public
welfare offenses.’’ These are offenses
that typically impose penalties to serve
as an effective means of regulation. Id.
At 606 (‘‘[i]n construing such statutes,
we have inferred from silence that
Congress did not intend to require proof
of mens rea to establish an offense’’).
Public welfare offenses are those that
‘‘are not of the nature of positive
aggressions or invasions, with which the
common law so often dealt, but are in
the nature of neglect where the law
requires care, or inaction where it
imposes duty.’’ Morissette v. United
States, 342 U.S. 246, 255 (1952). Public
welfare offenses ‘‘render[s] criminal a
type of conduct that a reasonable person
should know is subject to stringent
public regulation and may seriously
threaten the community’s health and
safety.’’ Liparota v. United States, 471
U.S. 419, 426 (1985). A person should
know that the use of Federal lands is
subject to stringent regulation, and that
E:\FR\FM\27MYR1.SGM
27MYR1
]]>Agencies
[Federal Register Volume 73, Number 102 (Tuesday, May 27, 2008)]
[Rules and Regulations]
[Pages 30301-30305]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-11653]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9400]
RIN 1545-BG97
Treatment of Property Used To Acquire Parent Stock in Certain
Triangular Reorganizations Involving Foreign Corporations
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final and temporary regulations under
section 367(b) of the Internal Revenue Code (Code). The final
regulations revise an existing final regulation and add a cross-
reference. The temporary regulations implement the rules described in
Notice 2006-85 and Notice 2007-48. The regulations affect corporations
engaged in certain triangular reorganizations involving one or more
foreign corporations. The text of the temporary regulations serves as
the text of the proposed regulations (REG-136020-07) set forth in the
notice of proposed rulemaking on this subject published in the Proposed
Rules section in this issue of the Federal Register.
DATES: Effective Date: These regulations are effective May 27, 2008.
Applicability Dates: For dates of applicability, see Sec.
1.367(a)-3T(b)(2)(i)(C) and 1.367(b)-14T(e).
FOR FURTHER INFORMATION CONTACT: Daniel McCall, (202) 622-3860 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On September 22, 2006, the IRS and Treasury Department issued
Notice 2006-85 (2006-41 IRB 677), which announced that regulations
would be issued under section 367(b) to address certain triangular
reorganizations under section 368(a) involving one or more foreign
corporations. On May 31, 2007, the IRS and Treasury Department issued
Notice 2007-48 (2007-25 IRB 1428), which amplified Notice 2006-85 and
announced that additional regulations would be issued under section
367(b). Each notice describes transactions the IRS and Treasury
Department believe raise significant policy concerns.
Notice 2006-85 describes triangular reorganizations in which a
subsidiary (S) purchases stock of its parent corporation (P) from P in
exchange for property, and then exchanges the P stock for the stock or
assets of a target corporation (T), but only if P or S (or both) is
foreign. Notice 2006-85 announced that regulations to be issued under
section 367(b) would make adjustments that would have the effect of a
distribution of property from S to P under section 301 (deemed
distribution). Notice 2006-85 further announced that regulations would
address similar transactions where S acquires the P stock from a
related party that purchased the P stock in a related transaction.
Notice 2007-48 describes transactions in which S purchases all or a
portion of the P stock exchanged in the reorganization from a person
other than P (such as from public shareholders on the open market).
Notice 2007-48 announced that regulations to be issued under section
367(b) would also make adjustments that would have the effect of a
distribution of property from S to P (under section 301) followed by a
deemed contribution of such property by P to S. Notice 2007-48 further
announced that the regulations would take into account the earnings and
profits of other corporations, as appropriate, if a principal purpose
of creating, organizing, or funding S is to avoid the adjustments to be
made by the regulations.
These temporary regulations set forth the regulations described in
Notices 2006-85 and 2007-48. The existing final regulations under Sec.
1.367(b)-13 are revised to conform the definitions of the terms P, S,
and T in those regulations to the definitions of such terms in these
temporary regulations. The existing final regulations under Sec.
1.367(b)-2 are revised to clarify that the definition of earnings and
profits in Sec. 1.367(b)-2(l)(8) applies only for purposes of
Sec. Sec. 1.367(b)-7 and 1.367(b)-9.
[[Page 30302]]
Explanation of Provisions
A. Section 367-- In General
Section 367(a)(1) provides that 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.
However, exceptions are provided under section 367(a)(2) and (3), and
the Secretary has broad authority under section 367(a)(6) to provide
that section 367(a)(1) will not apply to certain transfers otherwise
described therein.
Section 367(b)(1) provides that in the case of any exchange
described in section 332, 351, 354, 355, 356, or 361 in connection with
which there is no transfer of property described in section 367(a)(1),
a foreign corporation shall be considered to be a corporation except to
the extent provided in regulations prescribed by the Secretary which
are necessary or appropriate to prevent the avoidance of Federal income
taxes.
Section 367(b)(2) provides that the regulations prescribed pursuant
to section 367(b)(1) shall include (but shall not be limited to)
regulations dealing with the sale or exchange of stock or securities in
a foreign corporation by a United States person, including regulations
providing the circumstances under which gain is recognized, amounts are
included in gross income as a dividend, adjustments are made to
earnings and profits, or adjustments are made to basis of stock or
securities.
B. Policies of Section 367(b)
Section 367(b) was enacted to ensure that international tax
considerations are adequately addressed when the nonrecognition
provisions of subchapter C of the Code apply to certain exchanges
involving foreign corporations. Congress further noted that ``it is
essential to protect against tax avoidance in transfers to foreign
corporations and upon the repatriation of previously untaxed foreign
earnings. * * *'' H.R. Rep. No. 658, 94th Cong., 1st Sess. 241 (1975).
Accordingly, Congress granted the Secretary authority to provide
regulations ``necessary or appropriate to prevent the avoidance of
Federal income taxes'' and identified ``transfers constituting a
repatriation of foreign earnings'' as a type of transfer to be covered
in regulations to be promulgated by the Secretary. Id. The Secretary
has exercised this grant of authority to address a wide range of
international policy concerns. For further discussion, see Notices
2006-85 and 2007-48.
C. Adjustments Made Under Section 367(b)
These temporary regulations apply to triangular reorganizations
where P or S (or both) is foreign and, in connection with the
reorganization, S acquires, in exchange for property, all or a portion
of the P stock that is used to acquire the stock or assets of T. The
``in connection with'' standard is a broad standard that includes any
transaction related to the reorganization even if the transaction is
not part of the plan of reorganization. For example, the temporary
regulations apply to a triangular reorganization regardless of whether
P controls S (within the meaning of section 368(c)) when S acquires the
P stock that is used in the reorganization.
In a triangular reorganization subject to the temporary
regulations, adjustments shall be made that have the effect of a
distribution of property from S to P under section 301. The amount of
the deemed distribution shall equal the amount of money plus the fair
market value of other property that S used to acquire P stock. For this
purpose, the term property has the meaning set forth in section 317(a),
but includes any liability assumed by S in exchange for the P stock
(notwithstanding the application of section 357(a)) and any S stock
used by S to acquire the P stock from a person other than P. Consistent
with the rule announced in Notice 2007-48, these temporary regulations
provide that to the extent S buys P stock from a person other than P,
immediately after taking into account the deemed distribution to P, P
is deemed to contribute to S the property deemed distributed to P.
These temporary regulations provide that the deemed distribution
shall be treated as a distribution for all purposes of the Code. For
example, provisions such as sections 312, 881, 897, 902, 959, 1442, and
1445 apply, as appropriate, to the deemed distribution. Similarly, the
deemed contribution of property shall be treated as a contribution of
property for all purposes of the Code. For example, appropriate
adjustments to P's basis in the S stock and other affected items shall
be made according to applicable Code provisions.
Ordering rules are provided that generally require the deemed
distribution and, in cases where S buys P stock from a person other
than P, the deemed contribution to be taken into account before the
transfers undertaken pursuant to the triangular reorganization. If P
does not control S (within the meaning of section 368(c)) at the time
that S purchases the P stock, the deemed distribution and deemed
contribution shall be treated as separate transactions occurring
immediately after P acquires control of S. Thus, in a transaction where
S purchases the P stock from a person other than P, after taking into
account the adjustments made under these temporary regulations, S's
purchase and transfer of P stock pursuant to the triangular
reorganization are taken into account under generally applicable Code
provisions, such as sections 304, 354, 356, 358, and 368.
These temporary regulations also provide that appropriate
adjustments will be made if in connection with a triangular
reorganization described in the regulations, a transaction is engaged
in with a view to avoid the purpose of the regulations. For example, if
S is a newly formed corporation and, in connection with the
reorganization, P contributes to S another corporation with positive
earnings and profits (S2) to facilitate S's purchase of the P stock or
to facilitate the repayment of an obligation incurred by S to purchase
the P stock, then, under the temporary regulations, the earnings and
profits of S may be deemed to include the earnings and profits of S2.
Finally, these temporary regulations contain a coordination rule
that applies to transactions described in section 367(a) and Sec.
1.367(b)-14T. The IRS and Treasury Department continue to study
transactions that implicate the policies of section 367(a) and (b), but
that are not subject to both provisions as a result of the application
of the coordination rule. Comments are requested on such transactions.
Availability of IRS Documents
IRS notices cited in this preamble are made available by the
Superintendent of Documents, U.S. Government Printing Office,
Washington, DC 20402.
Effective/Applicability Dates
With respect to those rules addressing transactions described in
Notice 2006-85, these temporary regulations are generally applicable to
transactions occurring on or after September 22, 2006, with limited
transition relief. With respect to those rules addressing transactions
described in Notice 2007-48, these temporary regulations are generally
applicable to transactions occurring on or after May 31, 2007, with
limited transition relief. Other rules included in these temporary
regulations are generally applicable to transactions occurring on or
after May 23, 2008, with limited transition relief. See Sec. 1.367(b)-
14T(e).
[[Page 30303]]
No inference is intended as to the potential applicability of other
Code or regulatory provisions or judicial doctrines (including
substance over form) to transactions described in these temporary
regulations.
Effect on Other Documents
The following publications are obsolete as of May 27, 2008:
Notice 2006-85 (2006-41 IRB 677).
Notice 2007-48 (2007-25 IRB 1428).
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. A delayed effective
date would be inappropriate because the purpose of this regulation is
to address transactions that the IRS and Treasury Department believe
raise serious policy concerns. Accordingly, good cause is found for
dispensing with notice and public comment pursuant to 5 U.S.C. 553(b)
and (c) and with a delayed effective date pursuant to 5 U.S.C. 553(d).
Furthermore, under section 7805(b)(1)(C) of the Code, an effective date
earlier than the date this regulation is filed with the Federal
Register is appropriate because prior notices substantially described
the rules contained in this regulation. For applicability of the
Regulatory Flexibility Act, see the cross-referenced notice of proposed
rulemaking published elsewhere in this Federal Register. Pursuant to
section 7805(f) of the Code, these regulations have been submitted to
the Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small business.
Request for Comments
For information on how to submit comments or request a public
hearing, see the section ``Comments and Requests for a Public
Hearing,'' set forth in the notice of proposed rulemaking published
elsewhere in this issue of the Federal Register.
Drafting Information
The principal author of these regulations is Daniel McCall of the
Office of Associate Chief Counsel (International). However, other
personnel from the IRS and the Treasury Department participated in
their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Amendments to the Regulations
0
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding new
entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.367(a)-3T(b)(2)(i)(C) also issued under 26 U.S.C.
367(a) and (b). * * *
Section 1.367(b)-14T also issued under 26 U.S.C. 367(b). * * *
0
Par. 2. Section 1.367(a)-3 is amended by revising the first sentence in
paragraph (b)(2)(i) and adding new paragraph (b)(2)(i)(C) to read as
follows:
Sec. 1.367(a)-3 Treatment of transfers of stock or securities to
foreign corporations.
* * * * *
(b) * * *
(2) * * *
(i) * * * A transfer of stock or securities described in section
367(a) or the regulations thereunder as well as in section 367(b) or
the regulations thereunder shall be subject concurrently to sections
367(a) and (b) and the respective regulations thereunder, except as
provided in paragraph (b)(2)(i)(A) through (C) of this section. * * *
(C) [Reserved]. For further guidance, see Sec. 1.367(a)-
3T(b)(2)(i)(C).
* * * * *
0
Par. 3. Section 1.367(a)-3T is amended by revising paragraphs (a)
through (d) and (f)(3), to read as follows:
Sec. 1.367(a)-3T Treatment of transfers of stock or securities to
foreign corporations (temporary).
(a) through (b)(2)(i)(B) [Reserved]. For further guidance, see
Sec. 1.367(a)-3(a) through (b)(2)(i)(B).
(C) If in connection with a transaction described in Sec.
1.367(b)-14T, one or more U.S. persons transfer stock of T, as defined
in Sec. 1.358-6(b)(1)(iii), to a corporation in a transfer described
in section 367(a), and the amount of gain in the T stock that would
otherwise be recognized under section 367(a) is less than the deemed
distribution that would result from the adjustments made under Sec.
1.367(b)-14T and that would be treated as a dividend under section
301(c)(1), then section 367(b), and not section 367(a), shall apply to
such transaction. This paragraph (b)(2)(i)(C) applies to transfers
occurring on or after May 23, 2008.
(b)(2)(ii) through (d) [Reserved]. For further guidance, see Sec.
1.367(a)-3(b)(2)(ii) through (d).
* * * * *
(f) * * *
(3) Expiration date. The applicability of Sec. 1.367(a)-
3T(b)(2)(i)(C) expires on May 23, 2011. The applicability of Sec.
1.367(a)-3T(e) and (f)(1) and (f)(2) expires on February 1, 2010.
0
Par. 4. Section 1.367(b)-2 is amended by revising paragraph (l)(8) to
read as follows:
Sec. 1.367(b)-2 Definitions and special rules.
* * * * *
(l) * * *
(8) Earnings and profits. For purposes of Sec. Sec. 1.367(b)-7 and
1.367(b)-9, the term earnings and profits means post-1986 undistributed
earnings, pre-1987 accumulated profits, and pre-1987 section 960
earnings and profits.
* * * * *
0
Par. 5. Section 1.367(b)-13 is amended by redesignating paragraph
(a)(2)(ii) as paragraph (a)(2)(iii), revising newly designated
paragraph (a)(2)(iii), and adding a new paragraph (a)(2)(ii) to read as
follows:
Sec. 1.367(b)-13 Special rules for determining basis and holding
period.
(a) * * *
(2) * * *
(ii) The terms P, S, and T have the meanings set forth in Sec.
1.358-6(b)(1)(i), (ii), and (iii), respectively.
(iii) A triangular reorganization is a reorganization described in
Sec. 1.358-6(b)(2)(i), (ii), or (iii) or in sections 368(a)(1)(G) and
(a)(2)(D) (a forward triangular merger, triangular C reorganization,
reverse triangular merger, or triangular G reorganization,
respectively).
* * * * *
0
Par. 6. Section 1.367(b)-14T is added to read as follows:
Sec. 1.367(b)-14T Acquisition of parent stock for property in
triangular reorganizations (temporary).
(a) In general--(1) Scope and purpose. This section applies to
triangular reorganizations where P or S (or both) is foreign and, in
connection with the reorganization, S acquires, in exchange for
property (as defined in this section), all or a portion of the P stock
that is used to acquire the stock or assets of T. This section may
apply to a reorganization regardless of whether P controls S (within
the meaning of section 368(c)) at the time S acquires the P stock that
is used to acquire the stock or assets of T. The purpose of this
section is to prevent what is in effect a distribution of property to P
without the application of provisions otherwise applicable to property
distributions, when in connection with a triangular
[[Page 30304]]
reorganization S acquires, in exchange for property, all or a portion
of the P stock used in the reorganization.
(2) Definitions. For purposes of this section, the following
definitions apply:
(i) The terms P, S, and T have the meanings set forth in Sec.
1.358-6(b)(1)(i), (ii), and (iii), respectively.
(ii) In general, the term property has the meaning set forth in
section 317(a). Notwithstanding section 357(a), such term includes any
liability assumed by S in exchange for the P stock used to acquire the
stock or assets of T. Such term also includes any S stock used by S to
acquire P stock from a person other than P.
(iii) The term triangular reorganization means a reorganization
described in Sec. 1.358-6(b)(2) or in section 368(a)(1)(G) and
(a)(2)(D).
(b) General rules--(1) Deemed distribution. If this section
applies, adjustments shall be made that have the effect of a
distribution of property from S to P under section 301 (deemed
distribution). The amount of the deemed distribution shall equal the
amount of money plus the fair market value of other property
transferred, in connection with the reorganization, by S in exchange
for the P stock used to acquire the stock or assets of T in the
triangular reorganization. Additional adjustments shall be made under
paragraph (b)(3) of this section to the extent S acquires, in exchange
for property, P stock from a person other than P.
(2) Timing in the case of acquisitions from P. To the extent S
acquires P stock from P in exchange for property, the deemed
distribution described in paragraph (b)(1) of this section shall be
treated as a transaction separate from, and occurring immediately
before, the triangular reorganization. Therefore, P shall not be
treated as receiving the property from S in exchange for P stock. The
transfers of P stock in the triangular reorganization shall be subject
to generally applicable provisions. See, for example, Sec. 1.1032-2.
(3) Timing and deemed contribution in the case of acquisitions from
persons other than P. To the extent S acquires P stock from a person
other than P in exchange for property (the purchase), then immediately
following the deemed distribution described in paragraph (b)(1) of this
section, adjustments shall be made that have the effect of a
contribution by P to S (deemed contribution) of the property deemed
distributed by S to P under paragraph (b)(1) of this section. If P
controls S (within the meaning of section 368(c)) at the time of the
purchase, the deemed distribution and deemed contribution shall be
treated as separate transactions occurring immediately before the
purchase. If P does not control S (within the meaning of section
368(c)) at the time of the purchase, the deemed distribution and deemed
contribution shall be treated as separate transactions occurring
immediately after P acquires control of S. Other provisions, such as
sections 304, 354, 358 and 368, shall apply after the adjustments made
pursuant to paragraph (b)(1) of this section and this paragraph.
(4) Example. The rules of this paragraph (b) are illustrated by the
following example:
(i) Facts. P, a publicly traded domestic corporation, owns all
of the outstanding stock of FS, a foreign corporation, and all of
the outstanding stock of US1, a domestic corporation that is a
member of the P consolidated group. US1 owns all of the outstanding
stock of FT, a foreign corporation, the fair market value of which
is $100x. FS purchases $100x of P stock on the open market for cash.
Pursuant to foreign law, FT merges with and into FS in a triangular
reorganization described in section 368(a)(1)(A) by reason of
section 368(a)(2)(D). US1 exchanges all the outstanding stock of FT
for the stock of P purchased by FS on the open market for $100x
cash.
(ii) Analysis. The triangular reorganization is described in
paragraph (a)(1) of this section. Therefore, pursuant to paragraphs
(b)(1) and (b)(3) of this section, FS is treated as distributing
$100x to P under section 301. Immediately after such deemed
distribution, P is deemed to contribute to FS the $100x that was
deemed distributed to P. The deemed distribution and deemed
contribution are treated as separate transactions occurring
immediately before FS's purchase of the P stock used in the
triangular reorganization.
(c) Collateral adjustments. This paragraph (c) provides rules for
the treatment of a deemed distribution or deemed contribution resulting
under paragraph (b)(1) or (b)(3) of this section.
(1) Deemed distribution. A deemed distribution of property
described in paragraph (b)(1) of this section shall be treated as a
distribution of property for all purposes of the Internal Revenue Code.
For example, under section 301(c) the distribution may constitute a
dividend to the extent of the earnings and profits of S, a return of
basis, or gain from the sale or exchange of property, as appropriate.
In addition, sections 902 and 959 may apply when S is foreign, and
sections 897, 1442, and 1445 may apply when S is domestic.
(2) Deemed contribution. A deemed contribution of property
described in paragraph (b)(3) of this section shall be treated as a
contribution of property for all purposes of the Internal Revenue Code.
For example, appropriate adjustments to P's basis in the S stock and
other affected items shall be made according to applicable provisions.
(d) Special rule. Appropriate adjustments shall be made pursuant to
this section if, in connection with a triangular reorganization, a
transaction is engaged in with a view to avoid the purpose of this
section as described in paragraph (a)(1) of this section. For example,
if S is formed or availed of with a view to avoid the purpose of this
section, the earnings and profits of S may be deemed to include the
earnings and profits of a corporation related to S (within the meaning
of section 267(b)).
(e) Effective/applicability date--(1) Acquisitions of P stock from
P or related persons. Except as otherwise provided in this paragraph
(e), this section applies to triangular reorganizations described in
paragraph (a)(1) of this section, to the extent S acquires the P stock
from P or from a person related to P or S within the meaning of section
267(b) or 707(b), occurring on or after September 22, 2006. This
section, however, shall not apply to triangular reorganizations
described in paragraph (a)(1) of this section, to the extent S acquires
the P stock from P or from a person related to P or S within the
meaning of section 267(b) or 707(b), completed on or after September
22, 2006, pursuant to a written agreement that was (subject to
customary conditions) binding before September 22, 2006, and all times
afterward.
(2) Acquisitions of P stock from persons other than P--(i) General
rule. Except as otherwise provided in this paragraph (e), this section
applies to triangular reorganizations described in paragraph (a)(1) of
this section, to the extent S acquires the P stock from a person other
than P that is not related to P or S within the meaning of section
267(b) or 707(b) (unrelated person), occurring on or after May 31,
2007.
(ii) Binding commitment exception. This section shall not apply to
triangular reorganizations described in paragraph (a)(1) of this
section, to the extent S acquires the P stock from an unrelated person,
pursuant to a written agreement that was (subject to customary
conditions) binding before May 31, 2007, and all times afterward, but
only to the extent that--
(A) S acquired the P stock from an unrelated person before May 31,
2007; or
(B) S had a commitment to acquire the P stock from an unrelated
person pursuant to a written agreement that was (subject to customary
conditions) binding before May 31, 2007, and all times afterward, or
pursuant to a tender offer announced before May 31, 2007, that is
subject to section 14(d) of the
[[Page 30305]]
Securities and Exchange Act of 1934 (15 U.S.C. 78n(d)(1)) and
Regulation 14(D) (17 CFR 240.14d-1 through 240.14d-101) or that is
subject to comparable foreign laws.
(3) Application of special rule--(i) General rule. Except as
provided in paragraph (e)(3)(ii) of this section, paragraph (d) of this
section applies to triangular reorganizations described in paragraph
(a)(1) of this section occurring on or after May 31, 2007.
(ii) Binding commitment exception. Paragraph (d) of this section
shall not apply to triangular reorganizations described in paragraph
(a)(1) of this section entered into pursuant to a written agreement
that was (subject to customary conditions) binding before May 31, 2007,
and all times afterward, but only to the extent that--
(A) S acquired the P stock before May 31, 2007; or
(B) S had a commitment to acquire the P stock from an unrelated
person pursuant to a written agreement that was (subject to customary
conditions) binding before May 31, 2007, and all times afterward, or
pursuant to a tender offer announced before May 31, 2007, that is
subject to section 14(d) of the Securities and Exchange Act of 1934 (15
U.S.C. 78n(d)(1)) and Regulation 14(D) (17 CFR 240.14d-1 through
240.14d-101) or that is subject to comparable foreign laws.
(4) Treatment of S stock as property--(i) General rule. Except as
provided in paragraph (e)(4)(ii) of this section, the treatment of S
stock as property under paragraph (a)(2)(ii) of this section applies to
triangular reorganizations described in paragraph (a)(1) of this
section occurring on or after May 23, 2008.
(ii) Binding commitment exception. The treatment of S stock as
property under paragraph (a)(2)(ii) of this section shall not apply to
triangular reorganizations described in paragraph (a)(1) of this
section occurring on or after May 23, 2008 entered into pursuant to a
written agreement that was (subject to customary conditions) binding
before May 23, 2008 and all times afterward, but only to the extent
that--
(A) S acquired the P stock before May 23, 2008; or
(B) S had a commitment to acquire the P stock from an unrelated
person pursuant to a written agreement that was (subject to customary
conditions) binding before May 23, 2008 and all times afterward, or
pursuant to a tender offer announced before May 23, 2008, that is
subject to section 14(d) of the Securities and Exchange Act of 1934 (15
U.S.C. 78n(d)(1)) and Regulation 14(D) (17 CFR 240.14d-1 through
240.14d-101) or that is subject to comparable foreign laws.
(5) Expiration. The applicability of this section expires May 23,
2011.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
Approved: May 16, 2008.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E8-11653 Filed 5-23-08; 8:45 am]
BILLING CODE 4830-01-P
