Section 367(d) Rules for Certain Repatriations of Intangible Property, 27819-27832 [2023-08843]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 88, Number 85 (Wednesday, May 3, 2023)]
[Proposed Rules]
[Pages 27819-27832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08843]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-124064-19]
RIN 1545-BP55


Section 367(d) Rules for Certain Repatriations of Intangible 
Property

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations that, in certain 
cases, would terminate the continued application of certain tax 
provisions arising from a previous transfer of intangible property to a 
foreign corporation when the intangible property is repatriated to 
certain United States persons. The proposed regulations would affect 
certain United States persons that previously transferred intangible 
property to a foreign corporation.

DATES: Written or electronic comments and requests for a public hearing 
must be received by July 3, 2023. Requests for a public hearing must be 
submitted as prescribed in the ``Comments and Requests for a Public 
Hearing'' section.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at https://www.regulations.gov (indicate IRS and 
REG-124064-19) by following the online instructions for submitting 
comments. Once submitted to the Federal eRulemaking Portal, comments 
cannot be edited or withdrawn. The Department of the Treasury (the 
``Treasury Department'') and the IRS will publish for public 
availability any comments submitted electronically or on paper to its 
public docket.
    Send paper submissions to: CC:PA:LPD:PR (REG-124064-19), Room 5203, 
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations 
other than Sec.  1.904-4, Chadwick Rowland and L. Ulysses Chatman, 
(202) 317-6937; concerning Sec.  1.904-4, Jeffrey L. Parry, (202) 317-
6936; concerning submissions of comments and requests for a public 
hearing, Vivian Hayes at (202) 317-6901 (not toll-free numbers) or by 
sending an email to [email protected] (preferred).

SUPPLEMENTARY INFORMATION: 

Background

I. Sections 367(d) and 6038B

A. Statute

    Section 367(d) of the Internal Revenue Code (the ``Code'') provides 
rules for outbound transfers of intangible property (as defined in 
section 367(d)(4)) by a United States person (a ``U.S. person'') to a 
foreign corporation.\1\ Section 367(d)(1) provides that, except as 
provided in regulations, if a U.S. person (a ``U.S. transferor'') 
transfers any intangible property to a foreign corporation (the 
``transferee foreign corporation'') in an exchange described in section 
351 or 361, section 367(d) (and not section 367(a)) applies to the 
transfer. Section 367(d)(2)(A) provides that a U.S. transferor that 
transfers intangible property subject to section 367(d) is treated as 
having sold the intangible property in exchange for payments that are 
contingent upon the productivity, use, or disposition of the intangible 
property.
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    \1\ For purposes of these regulations, a U.S. person is defined 
in Sec.  1.367(a)-1(d)(1), which defines a U.S. person, in part, by 
reference to persons described in section 7701(a)(30). Section 
7701(a)(30) defines a U.S. person as a citizen or resident of the 
United States, a domestic partnership, a domestic corporation, and 
certain estates and trusts.
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    Specifically, the U.S. transferor is treated as receiving amounts 
that reasonably reflect the amounts that would have been received 
annually in the form of such payments over the useful life of the 
intangible property (an ``annual inclusion''), or, in the case of a

[[Page 27820]]

direct or indirect disposition of the intangible property following the 
transfer, at the time of the disposition (a ``lump-sum inclusion,'' and 
each inclusion, a ``section 367(d) inclusion''). See section 
367(d)(2)(A)(ii)(I) and (II). The amounts taken into account by the 
U.S. transferor must be commensurate with the income attributable to 
the transferred intangible property. See section 367(d)(2)(A) (flush 
language). Section 367(d)(2)(B) provides that, for purposes of chapter 
1 of subtitle A of the Code, the earnings and profits (``E&P'') of the 
transferee foreign corporation are reduced by the amount required to be 
included in the income of the U.S. transferor as a section 367(d) 
inclusion.
    Section 6038B(a)(1)(A) grants the Secretary regulatory authority to 
require information reporting related to certain outbound transfers of 
property by a U.S. person to a foreign corporation, including rules 
related to outbound transfers of intangible property. Section 6038B(c) 
generally provides rules for failures to furnish the required 
information.

B. Legislative History

    Congress enacted section 367(d) in substantially its present form 
to address ``specific and unique problems'' that exist with respect to 
outbound transfers of intangible property. See S. Rep. No 169, 98th 
Cong., 2d Sess., at 360 (1984); H.R. Rept. No. 432, 98th Cong., 2d 
Sess., at 1315 (1984). Congress generally identified the cause of such 
problems as follows:

    [T]ransferor U.S. companies hope to reduce their U.S. taxable 
income by deducting substantial research and experimentation 
expenses associated with the development of the transferred 
intangible and, by transferring the intangible to a foreign 
corporation at the point of profitability, to ensure deferral of 
U.S. tax on the profits generated by the intangible.

Id.
    Congress also explained that, after the initial outbound transfer 
of intangible property, these problems could arise by reason of certain 
subsequent direct or indirect dispositions of the intangible property. 
See S. Rept. No 169, 98th Cong., 2d Sess., at 368 (1984) (``[G]ain on a 
disposition of stock in a [transferee foreign corporation] will be 
treated as being attributable, in part, to the transferred intangible . 
. . ; similarly, upon a disposition of the intangible by the 
[transferee foreign corporation], the U.S. transferor will be treated 
as receiving a payment [with respect to that intangible]'').

C. Regulations

1. In General
    Temporary regulations were published under sections 367(d) and 
6038B(a)(1)(A) on May 16, 1986 (51 FR 17936). Proposed regulations were 
also published under these sections on September 16, 2015 (80 FR 
55568), and the related final regulations were published on December 
16, 2016 (81 FR 91012) (these final regulations and the temporary 
regulations, together, the ``section 367(d) regulations'').
    Consistent with section 367(d) and its legislative history, the 
section 367(d) regulations provide rules for determining a U.S. 
transferor's section 367(d) inclusion and a transferee foreign 
corporation's required adjustments for its deemed payment to the U.S. 
transferor. In general, the U.S. transferor takes into account an 
annual inclusion over the useful life of the intangible property, as 
determined in accordance with the provisions of section 482 and 
regulations thereunder. See Sec.  1.367(d)-1T(c)(1). For this purpose, 
the useful life is the entire period during which exploitation of the 
intangible property is reasonably anticipated to affect the 
determination of taxable income, as of the time of transfer. See Sec.  
1.367(d)-1(c)(3)(i).
    Additionally, for purposes of chapter 1 of subtitle A of the Code, 
the transferee foreign corporation reduces its E&P by the amount of the 
deemed payment to the U.S. transferor, and, for purposes of subpart F 
of part III of subchapter N of chapter 1 (``subpart F''), the 
transferee foreign corporation may treat the deemed payment as, in 
relevant part, an expense properly allocated and apportioned to gross 
income subject to subpart F in accordance with the provisions of 
Sec. Sec.  1.954-1(c) and 1.861-8. See Sec.  1.367(d)-1T(c)(2); see 
also Sec.  1.951A-2(c)(2)(ii) (providing similar treatment for purposes 
of determining tested income or tested loss of a controlled foreign 
corporation (as defined in section 957, a ``CFC'')).
2. Subsequent Transfer Rules
    If the U.S. transferor subsequently transfers the stock of the 
transferee foreign corporation it received in exchange for the 
intangible property, or if the transferee foreign corporation 
subsequently transfers the intangible property it received in exchange 
for its stock, the section 367(d) regulations provide different rules 
based on whether the transferee in the subsequent transfer is a U.S. 
person or a foreign person and whether the transferee is a related 
person or an unrelated person as to the U.S. transferor. See Sec.  
1.367(d)-1T(d), (e), and (f); see also Notice 2012-39, 2012-31 I.R.B. 
95 (describing regulations that would apply in lieu of Sec.  1.367(d)-
1T(c), (d), (e), and (g) with respect to certain outbound transfers of 
intangible property by a domestic corporation to a foreign corporation 
in an exchange described in section 361(a) or (b)). These subsequent 
transfer rules treat certain subsequent transfers of the stock of the 
transferee foreign corporation or the intangible property as a 
disposition of the intangible property (within the meaning of section 
367(d)(2)(A)(ii)(II)) that can accelerate a section 367(d) inclusion, 
and corresponding adjustments, by reason of the deemed payment. See, 
for example, Sec.  1.367(d)-1T(d).
    If the U.S. transferor subsequently transfers stock of the 
transferee foreign corporation to a related U.S. person (a ``successor 
U.S. transferor''), the transfer is not treated as a disposition of the 
intangible property, and the successor U.S. transferor is treated as 
receiving a right to receive a proportionate share (determined under 
Sec.  1.367(d)-1T(e)(4)) of the annual inclusion that would otherwise 
be taken into account by the U.S. transferor under Sec.  1.367(d)-
1T(c). Therefore, the successor U.S. transferor is required to take 
into account that proportionate share of the annual section 367(d) 
inclusion over the remaining useful life of the intangible property, 
and the transferee foreign corporation takes into account any 
adjustments from the successor U.S. transferor's annual section 367(d) 
inclusion. See Sec.  1.367(d)-1T(e)(1) and (2). If the U.S. transferor 
transfers a portion of the stock of the transferee foreign corporation 
to one or more successor U.S. transferors and retains a portion of the 
stock of the transferee foreign corporation, the U.S. transferor 
continues to take into account the portion of the annual section 367(d) 
inclusion that is not taken into account by a successor U.S. 
transferor.\2\ See Sec.  1.367(d)-1T(c)(1).
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    \2\ The section 367(d) regulations apply separately as to each 
U.S. person treated as a U.S. transferor. Any reference to a ``U.S. 
transferor'' in the remainder of this Preamble includes a reference 
to a ``successor U.S. transferor'' unless otherwise noted.
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    Alternatively, if a U.S. transferor subsequently transfers stock of 
the transferee foreign corporation to an unrelated person (U.S. or 
foreign), the transfer is treated as an indirect disposition of the 
transferred intangible property that triggers a lump-sum section 367(d) 
inclusion. As a result, the U.S. transferor recognizes gain immediately 
(determined based on the fair market value of the intangible

[[Page 27821]]

property at the time of the indirect disposition and the U.S. 
transferor's adjusted basis in the intangible property at the time of 
the initial section 367(d) transfer), as if the U.S. transferor had 
sold the intangible property to the unrelated person, and the 
transferee foreign corporation makes corresponding adjustments. See 
Sec.  1.367(d)-1T(d); see also Sec.  1.367(d)-1T(e)(1)(iii) and (e)(2) 
(providing pro rata rules for cases in which there is a subsequent 
transfer of stock of the transferee foreign corporation to both an 
unrelated person(s) and a successor U.S. transferor(s)).
    If the transferee foreign corporation subsequently transfers the 
intangible property to a related person, notwithstanding that such 
subsequent transfer is a direct disposition of the intangible property, 
the section 367(d) regulations do not trigger a lump-sum inclusion but 
rather provide that ``the requirement that the U.S. transferor 
recognize gain under [Sec.  1.367(d)-1T(c)(1) or (e)(1)] shall not be 
affected'' by such transfer. See Sec.  1.367(d)-1T(f)(3). The 
regulation does not distinguish between a related U.S. or foreign 
person and provides further that ``for purposes of any required 
adjustments, and of any accounts receivable created under [Sec.  
1.367(d)-1T(g)] the related person that receives the intangible 
property shall be treated as the transferee foreign corporation.'' See 
Sec.  1.367(d)-1T(f)(3).
    Conversely, if the transferee foreign corporation subsequently 
transfers the intangible property to an unrelated person (U.S. or 
foreign), the U.S. transferor recognizes gain immediately (in the form 
of a lump-sum inclusion determined using the U.S. transferor's former 
adjusted basis in the intangible property immediately before the 
transfer to the transferee foreign corporation and a partial annual 
inclusion), and the transferee foreign corporation makes corresponding 
adjustments. See Sec.  1.367(d)-1T(f)(1) and (2).
    As described in the preceding paragraphs of this part I.C.2 of the 
Background, the consequences of a direct or indirect transfer of the 
intangible property following an initial outbound transfer of that 
property depend, in relevant part, on whether the transferee in the 
subsequent transfer is a related or unrelated person. In determining 
relatedness, the section 367(d) regulations lower certain thresholds 
that normally apply in determining whether persons are related, to 
preserve the application of section 367(d) for cases in which a U.S. 
transferor retains a sufficient nexus to the intangible property after 
the subsequent transfer. See Sec.  1.367(d)-1T(h)(2). Thus, the section 
367(d) regulations generally preserve the application of the annual 
inclusion stream upon a subsequent transfer, but if the transfer 
sufficiently severs the U.S. transferor's nexus to the intangible 
property, the transfer is treated as a direct or indirect disposition 
of the intangible property, as applicable, and the section 367(d) 
regulations provide that the U.S. transferor has a lump-sum inclusion 
and a partial annual inclusion.

II. Application of Section 367(d) to Repatriations of Intangible 
Property

    The Treasury Department and the IRS are aware that some taxpayers 
are evaluating whether to repatriate to the United States intangible 
property that was previously transferred to a foreign corporation in a 
transaction subject to section 367(d).
    Because, in relevant part, the section 367(d) regulations do not 
distinguish between subsequent transfers of intangible property made to 
a related U.S. or foreign person, as described in part I.C.2 of this 
Background, there is a concern that, in certain cases, the section 
367(d) regulations can inappropriately require the U.S. transferor to 
continue recognizing an annual section 367(d) inclusion even if the 
subsequent transfer is to a related U.S. person that will recognize the 
income derived from the intangible property. Specifically, the section 
367(d) regulations do not terminate the required annual section 367(d) 
inclusion even if the intangible property is transferred to a related 
U.S. person that is subject to U.S. taxation on income earned from the 
intangible property. As a result, if the section 367(d) inclusion 
stream continues, the income earned from the intangible property would 
be subject to excessive U.S. taxation. Because the continued 
application of section 367(d) in these situations could result in 
excessive U.S. taxation and may disincentivize certain repatriations of 
intangible property, the Treasury Department and the IRS are proposing, 
in certain cases, to terminate the application of section 367(d) if the 
intangible property is repatriated to certain U.S. persons that are 
subject to U.S. taxation with respect to the income derived from the 
intangible property. The term ``repatriation'' is, unless otherwise 
noted, used in this Preamble to generally denote a subsequent transfer 
of the intangible property to the U.S. transferor or a U.S. person 
related to the U.S. transferor.
    Where the U.S. transferor is a member of a consolidated group, and 
the intangible property is repatriated to another member of the same 
consolidated group (``transferee member''), some taxpayers have asked 
whether the U.S. transferor's annual inclusions could be redetermined 
to be excluded from gross income under Sec.  1.1502-13(c)(6)(ii)(A) 
(the ``Automatic Relief Rule''). For that to occur, the transferee 
member's corresponding item must be a deduction or loss that is 
``permanently and explicitly disallowed'' under another provision of 
the Code or regulations. See Sec.  1.1502-13(c)(6)(ii)(A). However, the 
U.S. transferor's annual inclusions may not be excluded under the 
Automatic Relief Rule, because Sec.  1.367(d)-1T(c)(2) does not 
explicitly disallow the transferee member's deduction for its expense 
tied to its deemed payment. Rather, in appropriate factual situations, 
the IRS has ruled that the U.S. transferor's annual inclusions may be 
excluded from income under the Commissioner's discretionary rule of 
Sec.  1.1502-13(c)(6)(ii)(D).
    To address repatriations of intangible property more generally, and 
not just those where the related U.S. person is a member of the same 
consolidated group as the U.S. transferor (and to avoid the need to 
obtain a ruling in such a case), these proposed regulations provide 
rules that more broadly apply section 367(d) to the repatriation of 
intangible property, including the circumstances in which the 
application of section 367(d) is terminated (these rules, collectively, 
the ``section 367(d) repatriation rules'').

III. Section 904(d) Foreign Branch Income

    Section 904 provides for the application of separate foreign tax 
credit limitations to certain categories of income under section 
904(d). One of those categories is the separate category for foreign 
branch income under section 904(d)(1)(B). Section 1.904-4(f)(1)(i) 
provides that foreign branch category income means the gross income of 
a United States person (as defined in section 7701(a)(30), other than a 
pass-through entity) that is attributable to foreign branches (as 
defined in Sec.  1.904-4(f)(3)(vii)) held directly or indirectly 
through disregarded entities by the United States person.
    In general, Sec.  1.904-4(f)(2)(vi)(A) adjusts the attribution of 
gross income when disregarded payments are made between a foreign 
branch and a foreign branch owner, or between foreign branches. 
Disregarded remittances or contributions, however, do not result in the 
reattribution of gross income. Accordingly, when a disregarded 
transaction with a foreign branch may

[[Page 27822]]

be structured as either a remittance or contribution, on the one hand, 
or as a sale, exchange, or license, on the other hand, the amount of 
gross income attributed to a foreign branch could be manipulated. This 
concern is heightened when the property in question is highly mobile 
and highly valuable, as is generally true of intangible property (and 
less frequently true of tangible property).
    To address these concerns Sec.  1.904-4(f)(2)(vi)(D) provides that 
the amount of gross income attributable to a foreign branch (and the 
amount of gross income attributable to its foreign branch owner) that 
is not passive category income must be adjusted to reflect all 
transactions that are disregarded for U.S. tax purposes in which 
property described in section 367(d)(4) is transferred to or from a 
foreign branch or between foreign branches, whether or not a 
disregarded payment is made in connection with the transfer. In 
determining the amount of gross income that is attributable to a 
foreign branch that must be adjusted, the principles of sections 367(d) 
and 482 apply. For example, if a foreign branch owner transfers 
property described in section 367(d)(4) to a foreign branch, the 
principles of section 367(d) are applied by treating the foreign branch 
as a separate foreign corporation to which the property is transferred 
in exchange for stock of the corporation in a transaction described in 
section 351. Similarly, if a foreign branch remits property described 
in section 367(d)(4) to its foreign branch owner, the foreign branch is 
treated as having sold the transferred property to the foreign branch 
owner in exchange for annual payments contingent on the productivity or 
use of the property, the amounts of which are determined under the 
principles of sections 367(d) and 482.

Explanation of Provisions

I. Section 367(d) Repatriation Rules

A. In General

    As described in part II of the Background of this Preamble, Sec.  
1.367(d)-1T(f)(3) provides that a subsequent disposition of intangible 
property by the transferee foreign corporation to a related person does 
not affect a U.S. transferor's annual inclusion under Sec.  1.367(d)-
1T(c) or (e). This provision further provides that the related person 
that receives the intangible property is treated as the new transferee 
foreign corporation for purposes of any required adjustments and any 
accounts receivable created under Sec.  1.367(d)-1T(g). Accordingly, 
the section 367(d) regulations require the U.S. transferor to recognize 
annual inclusions even if the income earned from the intangible 
property is subject to current U.S. taxation in the hands of the U.S. 
person holding the intangible property. In addition, the deemed 
(substituted) transferee foreign corporation is not allowed a deduction 
that could reduce taxable income, even though that deemed transferee 
foreign corporation is the U.S. transferor or a related U.S. person.
    Continuing to apply section 367(d) in such cases could give rise to 
excessive U.S. taxation and disincentivize taxpayers from repatriating 
that property. To address these concerns, proposed Sec.  1.367(d)-
1(f)(4) generally terminates the application of section 367(d) if the 
transferee foreign corporation repatriates the intangible property to a 
``qualified domestic person'' and certain reporting requirements are 
satisfied. See proposed Sec.  1.367(d)-1(f)(4)(i). See part I.C of this 
Explanation of Provisions for a discussion of the definition of a 
qualified domestic person and part III of this Explanation of 
Provisions for a discussion of the reporting requirements.

B. Consequences of Repatriating Intangible Property

1. In General
    As noted in part I.A of this Explanation of Provisions, the 
proposed regulations terminate the continued application of section 
367(d) when a transferee foreign corporation repatriates intangible 
property to a qualified domestic person and the U.S. transferor 
provides the relevant information described in proposed Sec.  1.6038B-
1(d)(2) and, when those requirements are met, the proposed regulations 
require the U.S. transferor to include in gross income a partial annual 
inclusion attributable to the part of its taxable year that the 
transferee foreign corporation held the intangible property, after 
which the intangible property is no longer subject to section 367(d) 
(thus, for example, the annual inclusion stream terminates). See 
proposed Sec.  1.367(d)-1(f)(4)(i). The proposed regulations also 
require the U.S. transferor to recognize gain (which amount may be zero 
in certain cases) as a result of the repatriation. See Id. 
Additionally, the proposed regulations provide a special rule 
(discussed in part I.D of this Explanation of Provisions) to determine 
the qualified domestic person's basis in the repatriated intangible 
property. The transferee foreign corporation, on the other hand, makes 
the required adjustments currently described in Sec.  1.367(d)-
1T(c)(2), with minor clarifications, for cases in which the section 
367(d) repatriation rules apply (that is, the adjustments with respect 
to the U.S. transferor's partial annual inclusion for the year of the 
repatriation). See part I.E of this Explanation of Provisions for a 
discussion of the modifications made with respect to the required 
adjustments described in current Sec.  1.367(d)-1T(c)(2)(ii) and 
(e)(2)(ii).
    The manner in which the repatriation occurs will determine whether 
the U.S. transferor must recognize gain in connection with the 
repatriation transaction, with corresponding adjustments being made as 
to the transferee foreign corporation. For example, the U.S. transferor 
would not recognize gain in the case of a repatriation occurring by 
reason of a nonrecognition transaction pursuant to which no gain or 
loss is recognized as to the transferee foreign corporation. See part 
I.B.2 of this Explanation of Provisions for a discussion of the rules 
that apply based on the form of the transaction by which the intangible 
property is repatriated. The proposed regulations, therefore, address 
the tax consequences under section 367(d) as to the intangible 
property, but do not otherwise alter the tax treatment of the 
transaction by which the intangible property is repatriated.
2. Gain Recognition as to the U.S. Transferor
    Consistent with section 367(d)(2)(A)(ii)(II), proposed Sec.  
1.367(d)-1(f)(4)(i)(A) (the ``gain recognition rule'') requires the 
U.S. transferor to recognize gain equal to the amount described in 
proposed Sec.  1.367(d)-1(f)(4)(ii). The gain recognition rule, in 
conjunction with the rules described in parts I.B.3 (Required 
adjustments for certain gain recognized) and I.D (Qualified domestic 
person's adjusted basis in repatriated intangible property) of this 
Explanation of Provisions, generally ensures that a qualified domestic 
person does not receive a tax-free increase to the adjusted basis in 
the repatriated intangible property.
    Thus, as noted in part I.B.1 of this Explanation of Provisions, 
whether the U.S. transferor recognizes gain under the gain recognition 
rule depends on the form of the repatriation transaction. Specifically, 
the gain recognition rule focuses on whether the intangible property is 
transferred basis property (as defined in section 7701(a)(43)) by 
reason of the repatriation, without regard to the application of 
section 367(d) and the section 367(d)

[[Page 27823]]

regulations. See proposed Sec.  1.367(d)-1(f)(4)(ii). The proposed 
regulations incorporate the definition of transferred basis property 
for this purpose, as opposed to other approaches for distinguishing the 
form of the repatriation transaction, to ensure the appropriate 
application of these proposed rules in all circumstances.\3\
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    \3\ For example, if the form of the repatriation transaction 
were distinguished by reference to whether the repatriation occurred 
pursuant to a nonrecognition transaction (as described in section 
7701(a)(45)), uncertainty could arise in certain cases, such as 
repatriations that occur pursuant to exchanges involving boot (such 
as cash). This uncertainty would impact the proposed rules for 
determining a qualified domestic person's adjusted basis in the 
repatriated intangible property, which relies on the form of the 
repatriation as described in this paragraph.
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    If the intangible property is transferred basis property as 
described in the preceding paragraph, the amount of gain the U.S. 
transferor will recognize pursuant to the gain recognition rule is the 
amount of gain the transferee foreign corporation would recognize, if 
any, upon the repatriation under general subchapter C rules if its 
adjusted basis in the intangible property were equal to the U.S. 
transferor's former adjusted basis in the property. See proposed Sec.  
1.367(d)-1(f)(4)(ii)(A). This amount may be zero in the case of certain 
repatriations, for example, a repatriation by a transferee foreign 
corporation of intangible property to the U.S. transferor in a complete 
liquidation described in sections 332 and 337, in which case the U.S. 
transferor will not recognize any gain under the gain recognition rule. 
Alternatively, if, for example, the repatriation occurs in an exchange 
described in section 351(b) in which the transferee in the exchange is 
a qualified domestic person (as defined in proposed Sec.  1.367(d)-
1(f)(4)(iii)), the amount of gain determined under this rule may be 
greater than zero, even though the intangible property is transferred 
basis property, because the amount of gain is determined by reference 
to the gain the transferee foreign corporation would recognize upon the 
transaction if the adjusted basis in the intangible property were equal 
to the U.S. transferor's former adjusted basis in the intangible 
property.
    If the intangible property is not transferred basis property by 
reason of the repatriation, the amount of gain a U.S. transferor will 
recognize pursuant to the gain recognition rule is the excess, if any, 
of the fair market value of the intangible property on the date of the 
repatriation over the U.S. transferor's former adjusted basis in the 
property. See proposed Sec.  1.367(d)-1(f)(2)(ii)(B). For example, if 
the transferee foreign corporation repatriates the intangible property 
to the U.S. transferor in a distribution described in section 311, the 
intangible property is not transferred basis property, and therefore 
the rule described in this paragraph applies to determine the amount of 
gain recognized by the U.S. transferor under the gain recognition rule.
3. Required Adjustments Related to Certain Gain Recognized
    Current Sec.  1.367(d)-1T(f)(2)(i) provides that a transferee 
foreign corporation's E&P are reduced, in relevant part, by the amount 
of gain recognized by a U.S. transferor under Sec.  1.367(d)-1T(f)(1). 
Because a U.S. transferor recognizes gain in these cases in the form of 
a lump-sum inclusion, the corresponding adjustment to the transferee 
foreign corporation's E&P is generally intended to reduce the E&P that 
arises for the transferee foreign corporation by reason of the 
disposition (and, in so doing, the adjustment prevents potential 
excessive E&P arising from that disposition). To achieve this goal, 
Sec.  1.367(d)-1T(f)(2) necessarily implies a preceding increase to the 
transferee foreign corporation's E&P by reason of the disposition that 
is then offset by the corresponding reduction. For example, consider a 
case in which a U.S. transferor contributed intangible property with an 
adjusted basis of $0 to a wholly owned transferee foreign corporation 
in an exchange described in section 351(a) that was subject to section 
367(d). In a later year, the transferee foreign corporation disposes of 
the intangible property to an unrelated person when the fair market 
value of the intangible property is $100x, which causes the U.S. 
transferor to recognize $100x of gain under Sec.  1.367(d)-1T(f)(1); 
also, assume the transferee foreign corporation has $50x of other E&P 
unrelated to the subsequent disposition of the intangible property. 
Section 1.367(d)-1T(f)(2) does not simply reduce the transferee foreign 
corporation's E&P by $100x, but rather the corresponding reduction 
would offset the $100x of E&P that arises as to the transferee foreign 
corporation by reason of the disposition, thereby preventing potential 
excessive E&P and leaving the transferee foreign corporation's other 
E&P unaffected.
    Similarly, and in order to prevent excessive E&P and gross income 
as to the transferee foreign corporation because of the gain 
recognition rule or Sec.  1.367(d)-1T(f)(1), proposed Sec.  1.367(d)-
1(f)(2)(i) provides certain adjustments to the transferee foreign 
corporation's E&P and gross income that arise by reason of any gain the 
U.S. transferor recognizes under the gain recognition rule or Sec.  
1.367(d)-1T(f)(1). Specifically, for purposes of chapter 1 of the 
Code--that is, chapter 1 (relating to normal taxes and surtaxes) of 
subtitle A (relating to income taxes) of the Code--the transferee 
foreign corporation reduces (but not below zero) the portion of its E&P 
and gross income arising from the transaction to take into account the 
gain recognized by the U.S. transferor. See proposed Sec.  1.367(d)-
1(f)(2)(i). And, as provided currently under the section 367(d) 
regulations, any gain so recognized can be received by the U.S. 
transferor without further U.S. tax consequences pursuant to the 
account receivable mechanism provided in Sec.  1.367(d)-1T(g)(1). See 
proposed Sec.  1.367(d)-1(f)(2)(ii).
    Because section 367(d) effectively shifts certain gain a transferee 
foreign corporation would recognize as to intangible property directly 
to a U.S. transferor under the gain recognition rule or Sec.  1.367(d)-
1T(f)(1) (as applicable), these rules are intended to provide 
appropriate reductions to offset, as to the transferee foreign 
corporation, the impact of a U.S. transferor's recognition of gain 
under section 367(d). In most cases, the proper reduction described in 
proposed Sec.  1.367(d)-1(f)(2)(i) will equal the amount of gain 
recognized by the U.S. transferor under the provisions described in the 
preceding sentence. But the proper reduction may diverge from the 
amount of gain recognized by the U.S. transferor in certain cases, 
depending on the position taken with respect to the transferee foreign 
corporation's basis in the intangible property during the time the 
intangible property is subject to section 367(d). See part I.D of this 
Explanation of Provisions for additional discussion of this issue.
4. Special Rule for Related Transactions
    Proposed Sec.  1.367(d)-1(f)(4)(v) provides a special rule that 
applies if the intangible property is transferred in two or more 
related transactions. If this special rule applies, whether and how the 
proposed regulations apply depends on the ultimate recipient of the 
intangible property. See proposed Sec.  1.367(d)-1(f)(6)(ii)(D) and (E) 
(Examples 4 and 5) for illustrations of this rule.

C. Qualified Domestic Person

    Proposed Sec.  1.367(d)-1(f)(4)(iii) defines a qualified domestic 
person for purposes of the proposed regulations. First, a qualified 
domestic person includes the U.S. transferor that initially transferred 
the intangible property subject to section 367(d) that is

[[Page 27824]]

repatriated (an ``initial U.S. transferor'') and a U.S. person treated 
as the U.S. transferor pursuant to Sec.  1.367(d)1T(e)(1) as applied 
with certain limitations (a ``qualified successor''). See proposed 
Sec.  1.367(d)-1(f)(4)(iii)(A) and (B). Specifically, these limitations 
require that a qualified successor must be either an individual or a 
corporation other than a corporation exempt from tax under section 
501(a), a regulated investment company (as defined in section 851(a)), 
a real estate investment trust (as defined in section 856(a)), a 
domestic international sales corporation (DISC) (as defined in section 
992(a)(1)), or an S corporation (as defined in section 1361(a)) (a 
domestic corporation meeting these requirements, a ``qualified 
corporation''). Second, a qualified domestic person also includes a 
U.S. person that is an individual or a qualified corporation related to 
the U.S. transferor within the meaning of Sec.  1.367(d)-1T(h). See 
proposed Sec.  1.367(d)-1(f)(4)(iii)(C) and (D).
    The proposed regulations define a qualified domestic person in this 
manner based on the principle that it is generally appropriate to 
terminate the continued application of section 367(d) only when all the 
income produced by the intangible property, as well as gain recognized 
on a disposition of the intangible property, will be subject to current 
tax in the United States as to the qualified domestic person while that 
person holds the property. It is also appropriate to terminate the 
continued application of section 367(d) for a repatriation to an 
initial U.S. transferor because such a transfer merely restores the 
circumstances that existed at the time of the original outbound 
transfer subject to section 367(d).
    A qualified domestic person, as noted above, also includes certain 
U.S. persons (individuals and qualified corporations) related to either 
the initial U.S. transferor or qualified successor, as applicable. See 
proposed Sec.  1.367(d)-1(f)(4)(iii)(C) and (D). This aspect of the 
definition of qualified domestic person implements the same principle 
described in the preceding paragraph; that is, to terminate the 
continued application of section 367(d), all of the income or gain from 
the intangible property must be subject to current tax in the United 
States as to the qualified domestic person after the repatriation or 
the repatriation must restore the circumstances that existed at the 
time of the original outbound transfer subject to section 367(d).
    In the case of a domestic partnership, Sec.  1.367(d)-1T(h) defines 
a related person for purposes of the section 367(d) regulations by 
reference to certain relationships described in section 267 or 
707(b)(1). Thus, if a U.S. transferor owns more than 50 percent of the 
capital or profits interest in a domestic partnership, the U.S. 
transferor and the domestic partnership are related within the meaning 
of section 707(b)(1) and, therefore, the U.S. transferor and the 
domestic partnership are related for purposes of Sec.  1.367(d)-1T(h), 
even if the domestic partnership has one or more foreign partners. The 
proposed regulations, however, do not treat the domestic partnership as 
a qualified domestic person. The Treasury Department and the IRS 
considered addressing such cases by including rules in the proposed 
regulations treating a partnership as an aggregate of its partners (an 
``aggregate approach''), with the analysis for qualified domestic 
person status occurring under such an aggregate approach. See, for 
example, Sec. Sec.  1.367(a)-1T(c)(3)(i) and 1.367(d)-1T(a) for similar 
rules that apply to certain transfers of intangible property by a 
partnership to a foreign corporation. The proposed regulations do not 
adopt an aggregate approach because that approach could allow taxpayers 
to circumvent the purposes of these proposed regulations and other 
related regulations following a repatriation to a domestic partnership. 
This could occur if, for example, partnership allocations are changed 
after the repatriation or if the transferee foreign corporation (or a 
related foreign corporation) has liquidation rights to the intangible 
property following the transfer. Additionally, in the case of a 
partnership with one or more partners that are qualified domestic 
persons and one or more partners that are not, an aggregate approach 
would necessitate rules to measure the extent to which proposed Sec.  
1.367(d)-1(f)(4)(i) applies by reason of a repatriation (and, by 
extension, the extent to which the annual inclusion stream under 
section 367(d) should continue to apply after the repatriation). To 
address this concern, the Treasury Department and the IRS also 
considered including, as part of an aggregate approach in the proposed 
regulations, rules like those provided in Sec. Sec.  1.367(a)-3 and 
1.367(a)-8 regarding gain recognition agreements to ensure that, to the 
extent the relief provided in proposed Sec.  1.367(d)-1(f)(4)(i) 
applies as to a repatriation, a corresponding amount of income from the 
intangible property would be, and would continue to be, subject to tax 
in the United States. After consideration, however, the Treasury 
Department and the IRS are not proposing such an approach, because it 
would be unworkable due to the compliance and administrative burden.

D. Qualified Domestic Person's Adjusted Basis in Repatriated Intangible 
Property

    Proposed Sec.  1.367(d)-1(f)(4)(iv) provides rules regarding a 
qualified domestic person's basis in the intangible property it 
receives in a repatriation. Specifically, the proposed regulations 
provide that, in the case of repatriation pursuant to which the 
intangible property qualifies as transferred basis property, a 
qualified domestic person's adjusted basis in the intangible property 
will equal, subject to any applicable limitations that may apply under 
the Code, the lesser of the U.S. transferor's former adjusted basis in 
the intangible property or the transferee foreign corporation's 
adjusted basis in that property (immediately before the repatriation), 
increased by the greater of the amount of gain recognized by the U.S. 
transferor under the proposed regulations upon the repatriation (if 
any) or the amount of gain recognized by the transferee foreign 
corporation upon the repatriation (if any). See Sec.  1.367(d)-
1(f)(4)(v)(A). The result in most cases will track the result that 
would occur under generally applicable rules, like section 334(b) or 
362, while appropriately accounting for situations in which the gain a 
U.S. transferor recognizes under the gain recognition rule differs from 
the gain the transferee foreign corporation recognizes by reason of the 
repatriation. Alternatively, if the intangible property does not 
qualify as transferred basis property, a qualified domestic person's 
adjusted basis in the intangible property will equal the fair market 
value of the intangible property as of the date of the subsequent 
disposition. See proposed Sec.  1.367(d)-1(f)(4)(iv)(B).
    The Treasury Department and the IRS are aware of the uncertainty 
regarding the treatment of adjusted basis in intangible property 
subject to section 367(d) while section 367(d) applies, particularly 
when the U.S. transferor's former adjusted basis is greater than zero. 
The proposed regulations are intended to address basis consequences 
solely when intangible property is repatriated in a transaction that 
eliminates the continued application of section 367(d). In this manner, 
the effect of proposed Sec.  1.367(d)-1(f)(4)(iv) is prospective 
insofar as it provides for a qualified domestic person's adjusted basis 
in the intangible property after the property is no longer subject to 
section 367(d). Thus, the proposed regulations do not address, nor is 
any implication intended as to, the appropriate treatment of adjusted 
basis as to the

[[Page 27825]]

transferee foreign corporation in intangible property subject to 
section 367(d) while section 367(d) applies; instead, the Treasury 
Department and the IRS will address general basis rules under section 
367(d) in future rulemaking. Until such general rules are issued, 
proposed Sec.  1.367(d)-1(f)(4)(iv) would operate in a manner intended 
to reach an appropriate result regarding a qualified domestic person's 
basis in repatriated intangible property. See proposed Sec.  1.367(d)-
1(f)(6)(ii)(C) (Example 3) for an illustration of this rule.

E. Required Adjustments Related to an Annual Section 367(d) Inclusion

    As noted in part I.A of this Explanation of Provisions, the 
transferee foreign corporation makes the required adjustments currently 
described in Sec.  1.367(d)-1T(c)(2) for cases in which the section 
367(d) repatriation rules apply (that is, the adjustments with respect 
to the U.S. transferor's partial annual inclusion for the year of the 
repatriation). Current Sec.  1.367(d)-1T(c)(2)(ii) provides that, as to 
a U.S. transferor's annual inclusion, the transferee foreign 
corporation may treat that deemed payment as an expense (whether or not 
paid) properly allocated and apportioned against gross income subject 
to subpart F, in accordance with Sec. Sec.  1.954-1(c) and 1.861-8.
    The proposed regulations provide that the deemed payment by the 
transferee foreign corporation is treated as an allowable deduction 
that must be allocated and apportioned to such corporation's classes of 
gross income in accordance with Sec. Sec.  1.882-4(b)(1), 1.954-1(c), 
and 1.960-1(c) and (d) (as appropriate). See proposed Sec.  1.367(d)-
1(c)(2)(ii). Proposed Sec.  1.367(d)-1(c)(2)(ii) thus clarifies that 
the allowable deduction is allocated and apportioned under the 
provisions cited in the previous sentence potentially to any class (or 
classes) of gross income (as appropriate) rather than solely to gross 
income subject to subpart F in all circumstances. The proposed 
regulations make identical clarifications in proposed Sec.  1.367(d)-
1(e)(2)(ii) (required adjustments in the case of a subsequent transfer 
of stock of the transferee foreign corporation to a successor U.S. 
transferor). The proposed regulations change the reference to 
``expense'' in the current regulations to ``allowable deduction'' for 
clarity; this modification is not intended to be a substantive change.

F. Multiple U.S. Transferors

    As noted in part I.C of the Background section of this Preamble, 
there may be multiple U.S. transferors with respect to the same 
intangible property, which may occur, for example, if a U.S. transferor 
subsequently transfers a portion of its stock in the transferee foreign 
corporation to a successor U.S. transferor. In these cases, because the 
section 367(d) regulations apply separately as to each U.S. transferor, 
the requirements of proposed Sec.  1.367(d)-1(f)(4)(i) also apply 
separately with respect to each U.S. transferor. That is, to terminate 
the continued application of section 367(d) with respect to a 
particular U.S. transferor, the recipient of the transferred intangible 
property must be a qualified domestic person with respect to that U.S. 
transferor and the information described in proposed Sec.  1.6038B-
1(d)(2)(iv) must be provided.
    To illustrate, assume that a transferee foreign corporation 
(``TFC'') holds intangible property that is subject to section 367(d), 
and TFC repatriates that intangible property on date X. Also assume 
that two domestic corporations (``US1'' and ``US2'') are treated as 
U.S. transferors under the section 367(d) regulations by reason of 
owning stock of TFC (US1 was the original U.S. transferor and US2 is a 
successor U.S. transferor by reason of its acquisition of a portion of 
the stock of TFC from US1). Therefore, if the recipient of the 
transferred intangible property on date X is a qualified domestic 
person (for example, a related domestic corporation) with respect to 
US1, but is an unrelated person with respect to US2, the following 
occurs: proposed Sec.  1.367(d)-1(f)(4)(i) would apply with respect to 
US1, if the information described in proposed Sec.  1.6038B-1(d)(2)(iv) 
is provided, and US2 would recognize gain under Sec.  1.367(d)-1T(f)(1) 
by reason of the transaction.

G. Other Modifications

    The proposed regulations update the references to section 
936(h)(3)(B) that appear in the applicable regulations under section 
367 with references to section 367(d)(4), which was added as part of 
the Consolidated Appropriations Act in 2018. See Public Law 115-141 and 
Sec. Sec.  1.367(a)-1(d)(5) and (6) and 1.367(e)-2(b)(2)(i)(B). The 
proposed regulations do not update all references to section 
936(h)(3)(B) that appear in regulations issued under other sections of 
the Code, but such an update will be included as part of future 
rulemaking.
    The proposed regulations provide that proposed Sec.  1.367(d)-
1(f)(3) would not apply as to a repatriation meeting the requirements 
of proposed Sec.  1.367(d)-1(f)(4)(i)(B); instead, proposed Sec.  
1.367(d)-1(f)(4)(i) applies, and, thereafter, the intangible property 
is no longer subject to section 367(d). The language in proposed Sec.  
1.367(d)-1(f)(3) also reflects minor editorial differences from the 
language currently in Sec.  1.367(d)-1T(f)(3) that are not intended to 
be substantive. See proposed Sec.  1.367(d)-1(f)(3).
    The proposed regulations fix a longstanding typographical error by 
replacing the reference to ``section 267(d)'' in current Sec.  
1.367(d)-1T(h)(2)(ii) with a reference to ``267(f).''
    Finally, the proposed regulations eliminate Sec.  1.951A-
2(c)(2)(ii), which provides that deductions taken into account in 
determining a CFC's tested income and tested loss under section 951A 
include the amount of a deemed payment under section 367(d)(2)(A). This 
rule is no longer necessary because the proposed regulations provide 
that such deemed payments are treated as allowable deductions in 
accordance with, in relevant part, Sec.  1.951A-2(c)(3). See proposed 
Sec.  1.367(d)-1(c)(2)(ii) and (e)(2)(i).

II. Section 904(d) Foreign Branch Income Rules

    As noted in part III of the Background section of this Preamble, 
the provisions in Sec.  1.904-4(f)(2)(vi)(D) provide that, in relevant 
part, the principles of section 367(d) apply for determining the amount 
of gross income that is attributable to a foreign branch that must be 
adjusted under Sec.  1.904-4(f)(2)(vi)(D). But those provisions do not 
elaborate on how the principles of section 367(d) apply for that 
purpose; in particular, there is no mention of how or whether current 
Sec.  1.367(d)-1T(f) applies in the foreign branch income context.
    The Treasury Department and the IRS believe that due to the 
differing scopes and purposes of section 367(d) and Sec.  1.904-
4(f)(2)(vi)(D), the consequences of a subsequent transfer for purposes 
of determining a U.S. transferor's section 367(d) inclusion do not 
necessarily inform the appropriate treatment for purposes of the 
section 904(d) branch income rules. Section 367(d), as a threshold 
matter, applies only in the case of certain outbound transfers of 
intangible property by a U.S. person to a foreign corporation, whereas 
Sec.  1.904-4(f)(2)(vi)(D) applies to outbound transfers by a U.S. 
foreign branch owner to a foreign branch, inbound transfers by a 
foreign branch to a U.S. foreign branch owner, as well as transfers 
between foreign branches with the same U.S. foreign branch owner. If 
there are multiple transfers of an item of intangible property over 
time, each transfer must be separately evaluated and could result in 
differing amounts of

[[Page 27826]]

deemed annual payments depending on any interim changes in the value of 
the intangible property between successive transfers. Accordingly, 
these proposed regulations provide that each successive transfer to 
which Sec.  1.904-4(f)(2)(vi)(D) applies is considered independently 
from any other preceding or subsequent transfers. See proposed Sec.  
1.904-(f)(2)(vi)(D)(4). Therefore, the subsequent transfer rules in the 
regulations under section 367(d), including the rule for repatriations 
provided in these proposed regulations, do not apply in the context of 
determining gross income attributable to the foreign branch income 
category and each successive transfer is separately subject to the 
provisions of Sec.  1.904-(f)(2)(vi)(D)(1) and will not terminate or 
otherwise impact the application of Sec.  1.904-(f)(2)(vi)(D)(1) to a 
prior transfer described in that paragraph.

III. Reporting

A. Reporting Requirements for Subsequent Transfers of Intangible 
Property

    As described in part I.A of this Explanation of Provisions, 
proposed Sec.  1.367(d)-1(f)(4)(i) requires a U.S. transferor to 
provide the information described in proposed Sec.  1.6038B-1(d)(2)(iv) 
with respect to the repatriation. In general, Sec. Sec.  1.6038B-1 and 
1.6038B-1T provide information reporting rules that apply with respect 
to transfers of property to foreign corporations, including transfers 
of property described in sections 367(a) and (d). See Sec.  1.6038B-
1(c) and (d). Section 1.6038B-1T(d) provides specific information 
reporting rules for transfers subject to section 367(d), including 
rules that apply to subsequent transfers. See Sec.  1.6038B-1T(d)(2).
    These proposed regulations make two conforming changes to the 
reporting requirements for subsequent transfers under Sec.  1.6038B-
1T(d)(2) (the ``proposed information reporting rules''). The first 
change provides that, to the extent a qualified domestic person 
receives intangible property in a subsequent transfer, the subsequent 
transfer information described in proposed Sec.  1.6038B-1(d)(2)(iv) 
instead of the subsequent transfer information described in Sec.  
1.6038B-1T(d)(2)(iii) must be provided.
    The second change adds information reporting requirements for a 
subsequent transfer of intangible property to a qualified domestic 
person. See proposed Sec.  1.6038B-1(d)(2)(iv). These reporting rules 
request information that is necessary to ensure that proposed Sec.  
1.367(d)-1(f)(4) is appropriately applied to the subsequent transfer.

B. Relief for Certain Failures To Provide Required Information

    In general, as a condition for terminating the application of 
section 367(d) with respect to the transferred intangible property, 
proposed Sec.  1.367(d)-1(f)(4)(i)(B) requires a U.S. transferor to 
provide the information described in proposed Sec.  1.6038B-
1(d)(2)(iv). If a U.S. transferor fails to provide that information, 
the repatriation is subject to proposed Sec.  1.367(d)-1(f)(3) such 
that the section 367(d) regulations, including the requirement to take 
an annual inclusion into account over the useful life of the intangible 
property, continue to apply. However, a U.S. transferor is eligible for 
relief under the proposed regulations if proposed Sec.  1.367(d)-
1(f)(4)(i)(B) would have applied to the subsequent transfer of 
intangible property but for the fact that the required information was 
not provided and the U.S. transferor, upon becoming aware of the 
failure, promptly provides the required information and explains its 
failure to comply. See proposed Sec.  1.367(d)-1(f)(5). When it 
applies, proposed Sec.  1.367(d)-1(f)(5) treats the requirements of 
proposed Sec.  1.367(d)-1(f)(4)(i)(B) as satisfied as of the date of 
the transfer of intangible property to the qualified domestic person.

IV. Applicability Dates

    The proposed regulations generally apply to subsequent dispositions 
of intangible property occurring on or after the date of publication of 
the Treasury decision adopting these rules as final regulations in the 
Federal Register. See proposed Sec. Sec.  1.367(d)-1(j)(2)), 1.904-
4(q)(3), and 1.6038B-1(g). Proposed Sec.  1.951A-2(c)(2) applies to 
taxable years of foreign corporations ending on or after the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register, and to taxable years of United 
States shareholders in which or with which such taxable years end. See 
proposed Sec.  1.951A-7(e).

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    The Administrator of the Office of Information and Regulatory 
Affairs (``OIRA''), Office of Management and Budget (``OMB''), has 
determined that this proposed rule is not a significant regulatory 
action, as that term is defined in section 3(f) of Executive Order 
12866. Therefore, OIRA has not reviewed this proposed rule pursuant to 
section 6(a)(3)(A) of Executive Order 12866 and the April 11, 2018, 
Memorandum of Agreement between the Treasury Department and OMB.

II. Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to OMB for review in accordance with the 
Paperwork Reduction Act under control number 1545-0026. Commenters are 
strongly encouraged to submit public comments electronically. Written 
comments and recommendations for the proposed information collection 
should be sent to https://www.reginfo.gov/public/do/PRAMain, with 
copies to the Internal Revenue Service. Find this particular 
information collection by selecting ``Currently under Review--Open for 
Public Comments'' then by using the search function. Submit electronic 
submissions for the proposed information collection to the IRS via 
email at [email protected] (indicate ``REG-124064-19 (1545-0026)'' on 
the Subject line). Comments on the collection of information should be 
received by July 3, 2023. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in this proposed regulation is in 
Sec.  1.6038B-1(d)(2)(iv). This information is necessary to ensure that 
proposed Sec.  1.367(d)-1(f)(4) is appropriately applied to the 
subsequent transfer.
    The collection of information is required to comply with section 
367(d). The likely respondents are domestic corporations. Burdens 
associated with these requirements will be reflected in the burden for 
Form 926, Return by a U.S. Transferor of Property to a Foreign 
Corporation.
    Estimated change in annual reporting burden: 1601 hours.

[[Page 27827]]

    Estimated increase in annual burden per respondent: 2.4 hours.
    Estimated number of respondents: 667.
    Estimated frequency of responses: annually.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.

III. Regulatory Flexibility Act

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) (``RFA'') requires the agency ``to 
prepare and make available for public comment an initial regulatory 
flexibility analysis'' that will ``describe the impact of the proposed 
rule on small entities.'' See 5 U.S.C. 603(a). Section 605 of the RFA 
provides an exception to this requirement if the agency certifies that 
the proposed rulemaking will not have a significant economic impact on 
a substantial number of small entities. A small entity is defined as a 
small business, small nonprofit organization, or small governmental 
jurisdiction. See 5 U.S.C. 601(3) through (6).
    The Treasury Department and the IRS do not have detailed data 
readily available to assess the exact number of small entities 
potentially affected by the proposed regulations. Based on the limited 
data available, it is estimated that there will be less than 700 
taxpayers potentially affected by the proposed regulations. But, among 
those taxpayers, an even smaller portion will likely be affected by the 
proposed regulations as these rules apply to a specific type of 
transaction--repatriations of intangible property subject to section 
367(d). Moreover, the entities potentially affected by these proposed 
regulations are generally not small entities, because of the resources 
and investment necessary to develop intangible property and, once so 
developed, transfer the intangible property to a foreign corporation. 
Therefore, the Treasury Department and the IRS certify that the 
proposed regulations will not have a significant economic impact on a 
substantial number of small entities. The IRS invites the public to 
comment on the impact of these regulations on small entities.

IV. Section 7805(f)

    Pursuant to section 7805(f), this notice of proposed rulemaking has 
been submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

V. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a State, 
local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. This rule does not include any Federal mandate that may 
result in expenditures by State, local, or Tribal governments, or by 
the private sector in excess of that threshold.

VI. Executive Order 13132: Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. This proposed rule does not have 
federalism implications, does not impose substantial direct compliance 
costs on State and local governments, and does not preempt State law 
within the meaning of the Executive order.

Comments and Requests for Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to comments that are 
submitted timely to the IRS as prescribed in the Preamble under the 
ADDRESSES section. The Treasury Department and the IRS request comments 
on all aspects of the proposed regulations.
    A public hearing will be scheduled if requested in writing by any 
person who timely submits electronic or written comments. Requests for 
a public hearing are encouraged to be made electronically. If a public 
hearing is scheduled, notice of the date and time for the public 
hearing will be published in the Federal Register. Announcement 2020-4, 
2020-17 IRB 1, provides that until further notice, public hearings 
conducted by the IRS will be held telephonically. Any telephonic 
hearing will be made accessible to people with disabilities.

Statement of Availability of IRS Documents

    IRS Revenue Procedures, Revenue Rulings, and Notices cited in this 
Preamble are published in the Internal Revenue Bulletin (or Cumulative 
Bulletin) and are available from the Superintendent of Documents, U.S. 
Government Publishing Office, Washington, DC 20402, or by visiting the 
IRS website at https://www.irs.gov.

Drafting Information

    The principal authors of these regulations are Chadwick Rowland and 
L. Ulysses Chatman, Office of Associate Chief Counsel (International). 
However, other personnel from the Treasury Department and the IRS 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1.The authority citation for part 1 continues to read in part 
as follows:

    Authority: 6 U.S.C. 7805 * * *
    Section 1.367(d)-1 also issued under 26 U.S.C. 367(d).
* * * * *


Sec.  1.367(a)-1  [Amended]

0
Par. 2. Section 1.367(a)-1 is amended by removing the language 
``section 936(h)(3)(B)'' in paragraphs (d)(5) and (6) and adding the 
language ``section 367(d)(4)'' in its place.
0
Par. 3. Section 1.367(d)-1 is amended by:
0
1. Removing reserved paragraphs (c)(1) through (2).
0
2. Adding a heading to paragraph (c) and adding paragraphs (c)(1) and 
(2).
0
3. Removing reserved paragraphs (c)(4) through (g)(2) (introductory 
text).
0
4. Adding paragraphs (c)(4), (d), (e), and (f).
0
5. Adding a heading to paragraph (g) and adding paragraphs (g)(1) and 
(g)(2) introductory text.
0
6. Removing reserved paragraphs (g)(2)(ii) through (g)(2)(iii)(D).
0
7. Adding paragraph (g)(2)(ii) and reserved paragraphs (g)(2)(iii) 
introductory text and (g)(2)(iii)(A) through (D).
0
8. Removing reserved paragraphs (g)(4) through (i).
0
9. Adding paragraphs (g)(4), (h), and (i).

[[Page 27828]]

0
10. Revising paragraph (j).
    The additions and revision read as follows:


Sec.  1.367(d)-1  Transfers of intangible property to foreign 
corporations.

* * * * *
    (c) Deemed payments upon transfer of intangible property to foreign 
corporation--(1) In general. For further guidance, see Sec.  1.367(d)-
1T(c)(1).
    (2) Required adjustments. For further guidance, see Sec.  1.367(d)-
1T(c)(2) introductory text and (c)(2)(i).
    (i) [Reserved]
    (ii) The deemed payment is treated as an allowable deduction 
(whether or not that amount is paid) of the transferee foreign 
corporation properly allocated and apportioned to the appropriate 
classes of gross income in accordance with Sec. Sec.  1.882-4(b)(1), 
1.951A-2(c)(3), 1.954-1(c), 1.960-1(c), and 1.960-1(d), as applicable.
* * * * *
    (4) Blocked income. For further guidance, see Sec.  1.367(d)-
1T(c)(4).
    (d) Subsequent transfer of stock of transferee corporation to 
unrelated person. For further guidance, see Sec.  1.367(d)-1T(d).
    (e) Subsequent transfer of stock of transferee foreign corporation 
to related person--(1) Transfer to related U.S. person treated as 
disposition of intangible property. For further guidance, see Sec.  1. 
367(d)-1T(e)(1).
    (2) Required adjustments. For further guidance, see Sec.  1.367(d)-
1T(e)(2) introductory text and (e)(2)(i).
    (i) [Reserved]
    (ii) The deemed payment is treated as an allowable deduction 
(whether or not that amount is paid) of the transferee foreign 
corporation properly allocated and apportioned to the appropriate 
classes of gross income in accordance with Sec. Sec.  1.882-4(b)(1), 
1.951A-2(c)(3), 1.954-1(c), 1.960-1(c), and 1.960-1(d), as applicable.
    (iii) For further guidance, see Sec.  1.367(d)-1T(e)(2)(iii) 
through (e)(4).
    (iv) [Reserved]
    (3) through (4) [Reserved]
    (f) Subsequent disposition of transferred intangible property by 
transferee foreign corporation--(1) In general. For further guidance, 
see Sec.  1.367(d)-1T(f)(1).
    (2) Required adjustments. If a U.S. transferor is required to 
recognize gain under paragraph (f)(4)(i)(A) of this section or Sec.  
1.367(d)-1T(f)(1), then, in addition to the adjustments described in 
paragraph (c)(2)(ii) of this section and Sec.  1.367(d)-1T(c)(2) with 
respect to the deemed payment described in Sec.  1.367(d)-
1T(f)(1)(ii)--
    (i) For purposes of chapter 1 of the Code, the transferee foreign 
corporation reduces (but not below zero) the portion of its earnings 
and profits and gross income arising by reason of the subsequent 
disposition of the intangible property by the amount of gain recognized 
by the U.S. transferor under paragraph (f)(4)(i)(A) of this section or 
Sec.  1.367(d)-1T(f)(1); and
    (ii) The U.S. transferor may establish an account receivable from 
the transferee foreign corporation equal to the amount of gain 
recognized under paragraph (f)(4)(i)(A) of this section or Sec.  
1.367(d)-1T(f)(1) in accordance with Sec.  1.367(d)-1T(g)(1).
    (3) Subsequent transfer of intangible property to related person. 
Except as provided in paragraph (f)(4)(i)(B) of this section, a U.S. 
person's requirement to recognize income under Sec.  1.367(d)-1T(c) or 
(e) is not affected by the transferee foreign corporation's subsequent 
disposition of the transferred intangible property to a related person. 
For purposes of any required adjustments, and of any accounts 
receivable created under Sec.  1.367(d)-1T(g)(1), the related person 
that receives the intangible property is treated as the transferee 
foreign corporation.
    (4) Subsequent transfer of intangible property to qualified 
domestic person--(i) In general. Except as provided in paragraph 
(f)(4)(v) of this section, if a U.S. person transfers intangible 
property subject to section 367(d) and the rules of this section and 
Sec.  1.367(d)-1T to a foreign corporation in an exchange described in 
section 351 or 361 and, within the useful life of the intangible 
property, that transferee foreign corporation subsequently disposes of 
the intangible property to a qualified domestic person, then--
    (A) The U.S. transferor of the intangible property (or any person 
treated as such pursuant to Sec.  1.367(d)-1T(e)(1)) is required to 
recognize gain, as applicable, equal to the amount described in 
paragraph (f)(4)(ii) of this section; and
    (B) If the U.S. transferor provides the information described in 
Sec.  1.6038B-1(d)(2)(iv), then--
    (1) The U.S. transferor is required to recognize a deemed payment 
as provided in Sec.  1.367(d)-1T(f)(1)(ii); and
    (2) The intangible property is no longer subject to section 367(d), 
this section, and Sec.  1.367(d)-1T after applying paragraphs 
(f)(4)(i)(A) and (f)(4)(i)(B)(1) of this section.
    (ii) Gain recognition for U.S. transferor. The amount of gain a 
U.S. transferor must recognize under paragraph (f)(4)(i)(A) of this 
section is determined as follows--
    (A) If the intangible property is transferred basis property (as 
defined in section 7701(a)(43)) by reason of the subsequent disposition 
(determined without regard to section 367(d), this section, and Sec.  
1.367(d)-1T), the amount of gain, if any, the transferee foreign 
corporation would recognize if its adjusted basis in the intangible 
property were equal to the U.S. transferor's former adjusted basis in 
the property; or
    (B) If the intangible property is not transferred basis property by 
reason of the subsequent disposition (determined without regard to 
section 367(d), this section, and Sec.  1.367(d)-1T), the excess, if 
any, of the fair market value of the intangible property on the date of 
the subsequent disposition and the U.S. transferor's former adjusted 
basis in that property.
    (iii) Qualified domestic person. For purposes of paragraph (f)(4) 
of this section, a qualified domestic person means--
    (A) The U.S. transferor that initially transferred intangible 
property subject to section 367(d);
    (B) A U.S. person treated as a U.S. transferor under Sec.  
1.367(d)-1T(e)(1), provided such person is an individual or a 
corporation other than a corporation exempt from tax under section 
501(a), a regulated investment company (as defined in section 851(a)), 
a real estate investment trust (as defined in section 856(a)), a 
domestic international sales corporation (DISC) (as defined in section 
992(a)(1)), or an S corporation (as defined in section 1361(a));
    (C) A U.S. person that is an individual related, within the meaning 
of paragraph (h)(2)(ii) of this section and Sec.  1.367(d)-1T(h), to 
the person described in paragraph (f)(4)(iii)(A) or (B) of this 
section; or
    (D) A U.S. person that is a corporation related, within the meaning 
of paragraph (h)(2)(ii) of this section and Sec.  1.367(d)-1T(h), to 
the person described in paragraph (f)(4)(iii)(A) or (B) of this 
section, other than a corporation exempt from tax under section 501(a), 
a regulated investment company (as defined in section 851(a)), a real 
estate investment trust (as defined in section 856(a)), a DISC (as 
defined in section 992(a)(1)), or an S corporation (as defined in 
section 1361(a)).
    (iv) Qualified domestic person's basis in the intangible property. 
The qualified domestic person's adjusted basis in the intangible 
property is--
    (A) In the case of a subsequent disposition of intangible property 
described in paragraph (f)(4)(ii)(A) of this section, and subject to 
any applicable limitations that may apply

[[Page 27829]]

under the Code, the lesser of the U.S. transferor's former adjusted 
basis in the intangible property or the transferee foreign 
corporation's adjusted basis in the intangible property (as determined 
immediately before the subsequent disposition), in each case increased 
by the greater of the amount of gain (if any) described in paragraph 
(f)(4)(ii)(A) of this section and recognized by the U.S. transferor or 
the amount of gain (if any) recognized by the transferee foreign 
corporation as to the intangible property by reason of the subsequent 
disposition; or
    (B) In the case of a subsequent disposition of intangible property 
described in paragraph (f)(4)(ii)(B) of this section, the fair market 
value of the intangible property (as determined on the date of the 
subsequent disposition).
    (v) Special rule for related transactions. If the transferee 
foreign corporation subsequently disposes of the transferred intangible 
property to a person that would, absent this paragraph (f)(4)(v), be a 
qualified domestic person (initial transferee) and, as part of a series 
of related transactions, the intangible property is subsequently 
disposed of to any other person, including by reason of multiple 
dispositions, then the initial transferee is treated as a qualified 
domestic person only if the ultimate recipient of the intangible 
property is a qualified domestic person. See paragraphs (f)(6)(ii)(D) 
and (E) of this section (Examples 4 and 5), for illustrations of the 
application of this paragraph (f)(4)(v).
    (5) Relief for certain failures to comply. This paragraph (f)(5) 
provides relief if paragraph (f)(4)(i)(B)(2) of this section would 
apply but for the U.S. transferor's failure to provide the information 
required by paragraph (f)(4)(i)(B) of this section (a ``failure to 
comply''). When a failure to comply occurs, the subsequent disposition 
of the transferred intangible property is generally subject to 
paragraphs (f)(3) and (f)(4)(i)(A) of this section, and not paragraph 
(f)(4)(i)(B)(2) of this section. Nevertheless, a failure to comply is 
deemed not to have occurred (regardless of whether the U.S. transferor 
continued to include amounts in gross income under Sec.  1.367(d)-1T(c) 
or (e) after the subsequent disposition), and the requirements of 
paragraph (f)(4)(i)(B) of this section are treated as satisfied as of 
the date of the subsequent disposition if, promptly after the U.S. 
transferor becomes aware of the failure, the U.S. transferor provides 
such information and provides a reasonable explanation for its failure 
to comply to the Director of Field Operations, Cross Border Activities 
Practice Area of Large Business & International (or any successor to 
the roles and responsibilities of such position, as appropriate). 
Additionally, the U.S. transferor must timely file an amended return 
for the taxable year in which the subsequent disposition occurred (and, 
if applicable, for each taxable year starting with the taxable year 
immediately after the taxable year in which the subsequent disposition 
occurred and ending with the taxable year in which the U.S. transferor 
seeks relief under this paragraph (f)(5)) that includes the information 
required by paragraph (f)(4)(i)(B) of this section. If any taxable year 
of the U.S. transferor is under examination when an amended return is 
filed, a copy of the amended return (or, if applicable, amended 
returns) must be provided to the Internal Revenue Service personnel 
conducting the examination.
    (6) Examples--(i) Assumed facts. For purposes of the examples in 
paragraph (f)(6)(ii) of this section, and except where otherwise 
indicated, the following facts are assumed.
    (A) USP and USS are domestic corporations that each use a calendar 
taxable year.
    (B) TFC is a foreign corporation whose functional currency is the 
U.S. dollar.
    (C) In year 1, USP transfers intangible property, as defined in 
section 367(d)(4), with a $0 adjusted basis, to TFC in a section 351 
exchange (the ``transferred IP''), and such transfer is subject to 
section 367(d).
    (D) Each annual inclusion (including any amount described in Sec.  
1.367(d)-1T(f)(1)(ii)) is taken into account under section 
367(d)(2)(A)(ii)(I) and Sec.  1.367(d)-1T(c)(1).
    (E) Any subsequent transfer or disposition of stock of TFC or the 
transferred IP occurs within the useful life of the transferred IP.
    (F) All transactions are respected under general principles of tax 
law.
    (ii) Examples. The following examples illustrate the application of 
paragraph (f)(4) of this section and other paragraphs of this section 
that relate to paragraph (f)(4).

    (A) Example 1: Complete liquidation of transferee foreign 
corporation into a qualified domestic person--(1) Facts. In year 2, 
USP transfers all the stock of TFC to USS, a related person within 
the meaning of Sec.  1.367(d)-1T(h) and paragraph (h)(2)(ii) of this 
section, in a section 351 exchange to which Sec.  1.367(d)-1T(e)(1) 
applies (the ``year 2 transfer''). In year 3, TFC distributes all 
its property (including the transferred IP) to USS pursuant to a 
complete liquidation to which sections 332 and 337 apply (the ``year 
3 liquidation''). The all earnings and profits amount determined 
under Sec.  1.367(b)-2(d) with respect to the stock of TFC held by 
USS is $0. The information described in Sec.  1.6038B-1(d)(2) is 
provided by USS for the taxable year in which the year 3 liquidation 
occurs.
    (2) Analysis--(i) The year 2 transfer. Because the year 2 
transfer involves a transfer of all the stock of TFC by USP (the 
initial U.S. transferor) to a related U.S. person (USS), under Sec.  
1.367(d)-1T(e)(1)(i) USS (a successor U.S. transferor) is treated as 
receiving the right to receive a proportionate share of the 
contingent annual payments that USP would have otherwise taken into 
account under Sec.  1.367(d)-1T(c). As determined under Sec.  
1.367(d)-1T(e)(4), USS's proportionate share of such payments is 100 
percent. Accordingly, USS will annually include in its gross income 
the full amount of each of the annual payments that USP would 
otherwise have taken into account under Sec.  1.367(d)-1T(c) over 
the useful life of the transferred IP, and USP will not recognize 
any gain upon the year 2 transfer. See Sec.  1.367(d)-1T(e)(1)(ii) 
and (iii).
    (ii) The year 3 liquidation. The year 3 liquidation results in a 
subsequent disposition of the transferred IP to USS. USS, a U.S. 
person treated as the U.S. transferor pursuant to Sec.  1.367(d)-
1T(e)(1), is a qualified domestic person within the meaning of 
paragraph (f)(4)(iii) of this section. Pursuant to paragraph 
(f)(4)(i)(A) of this section, USS must recognize the amount of gain 
described in paragraph (f)(4)(ii) of this section. Because the year 
3 liquidation is a complete liquidation to which sections 332 and 
337 apply, the intangible property is transferred basis property (as 
defined in section 7701(a)(43) and determined without regard to 
section 367(d), this section, and Sec.  1.367(d)-1T), and therefore 
paragraph (f)(4)(ii)(A) applies to determine the amount of any gain 
USS must recognize. Because TFC does not recognize gain with respect 
to the transferred IP (regardless of the adjusted basis in the 
intangible property) by reason of the year 3 liquidation, the amount 
of gain described in paragraph (f)(4)(ii)(A) of this section is $0. 
Accordingly, USS does not recognize gain pursuant to paragraph 
(f)(4)(i)(A) of this section by reason of the year 3 liquidation. 
Additionally, because USS provides the information described in 
Sec.  1.6038B-1(d)(2), paragraph (f)(4)(i)(B) of this section 
applies to the year 3 liquidation. USS therefore recognizes a deemed 
payment representing the part of USS's taxable year during which TFC 
held the transferred IP pursuant to paragraph (f)(4)(i)(B)(1) of 
this section, and the required adjustments described in paragraph 
(c)(2)(ii) of this section and Sec.  1.367(d)-1T(c)(2)(i) apply as 
to the deemed payment. Also, because USS does not recognize gain 
pursuant to paragraph (f)(4)(i)(A) of this section, the required 
adjustments described in paragraph (f)(2) of this section do not 
apply. Pursuant to paragraph (f)(4)(i)(B)(2) of this section, after 
taking the deemed payment into account, the transferred IP is no 
longer subject to section 367(d), this section, and Sec.  1.367(d)-
1T. Finally, pursuant to paragraph (f)(4)(iv)(A) of this section, 
USS's adjusted basis in the

[[Page 27830]]

transferred IP is $0, which is equal to USP's former adjusted basis 
in the transferred IP ($0), increased by the greater of the amount 
of gain recognized by USS under paragraph (f)(4)(i)(A) of this 
section ($0) or the amount of gain recognized by TFC upon the year 3 
distribution ($0).
    (B) Example 2: Taxable distribution of the transferred 
intangible property to a qualified domestic person--(1) Facts. The 
facts are the same as in paragraph (f)(6)(ii)(A) of this section 
(Example 1), except that, instead of in year 3 TFC distributing all 
its property to USS pursuant to a complete liquidation, in year 3 
TFC distributes the transferred IP to USS in a distribution 
described in section 311(b) when the fair market value of the 
transferred IP is $100x (the ``year 3 distribution''). TFC's 
adjusted basis in the transferred IP immediately before the 
distribution is $0.
    (2) Analysis. The consequence of the year 2 transfer is the same 
as described in paragraph (f)(6)(ii)(A)(2)(i) of this section 
(Example 1). Like the consequences described in paragraph 
(f)(6)(ii)(A)(2) of this section (Example 1), the year 3 
distribution is a subsequent disposition of the transferred IP to 
USS, a qualified domestic person. Pursuant to paragraph (f)(4)(i)(A) 
of this section, USS must recognize the amount of gain described in 
paragraph (f)(4)(ii) of this section. Because the year 3 
distribution is described in section 311(b) the intangible property 
is not transferred basis property (as defined in section 7701(a)(43) 
and determined without regard to section 367(d), this section, and 
Sec.  1.367(d)-1T), and therefore USS must recognize $100x gain 
under paragraph (f)(4)(ii)(B) of this section. The $100x gain amount 
equals the excess of the fair market value of the transferred IP on 
the date of the year 3 distribution ($100x) over USP's former 
adjusted basis in the property ($0). TFC, because of USS's gain 
recognition under paragraph (f)(4)(i)(A) of this section, reduces 
(but not below zero) the portion of its earnings and profits and 
gross income arising by reason of the year 3 distribution by the 
amount of such gain under paragraph (f)(2)(i) of this section. 
Specifically, because the year 3 distribution requires USS to 
recognize $100x of gain, TFC reduces the portion of its earnings and 
profits and gross income that arise by reason of the year 3 
distribution, which is $100x (the excess of the fair market value of 
the transferred IP ($100x) over TFC's adjusted basis in the 
transferred IP ($0)), by $100x (the amount of gain USS recognizes 
pursuant to paragraph (f)(4)(i)(A) of this section). As a result, 
after taking into account the reduction, TFC has no earnings and 
profits or gross income that arise by reason of the year 3 
distribution. Furthermore, USS may establish an account receivable 
from TFC equal to $100x under paragraph (f)(2)(ii) of this section. 
Additionally, and as described in paragraph (f)(6)(ii)(A)(2) of this 
section (Example 1), pursuant to paragraph (f)(4)(i)(B)(1) of this 
section, USS recognizes a deemed payment for the portion of USS's 
taxable year during which TFC held the transferred IP, and the 
required adjustments described in paragraph (c)(2)(ii) of this 
section and Sec.  1.367(d)-1T(c)(2) apply to this deemed payment. 
After taking these consequences into account, pursuant to paragraph 
(f)(4)(i)(B)(2) of this section, the transferred IP is no longer 
subject to section 367(d), this section, and Sec.  1.367(d)-1T. 
Finally, pursuant to paragraph (f)(4)(iv)(B) of this section, USS's 
adjusted basis in the transferred IP is $100x, which is the fair 
market value of the transferred IP on the date of the year 3 
distribution.
    (C) Example 3: Qualified domestic person's basis in intangible 
property when intangible property is repatriated in an exchange 
described in section 351(b)--(1) Facts. The facts are the same as in 
paragraph (f)(6)(ii)(A) of this section (Example 1), except that the 
transfer of stock of TFC to USS in year 2 does not occur and instead 
of the year 3 liquidation, in year 3 TFC transfers the intangible 
property to USS (a qualified domestic person as defined in paragraph 
(f)(4)(iii) of this section) in an exchange described in section 
351(b) pursuant to which TFC recognizes $50x of gain and USP 
recognizes $50x of gain under paragraph (f)(4)(i)(A) of this section 
(the ``year 3 exchange'').
    (2) Analysis. Pursuant to paragraph (f)(4)(iv)(A) of this 
section, USS's adjusted basis in the intangible property is $50x, 
which is the amount equal to the lesser of USP's former adjusted 
basis in the property ($0) or TFC's adjusted basis in the property 
($0), increased by the greater of the amount of gain recognized by 
USP under paragraph (f)(4)(i)(A) of this section ($50x) or the 
amount of gain recognized by TFC upon the year 3 exchange ($50x).
    (D) Example 4: Repatriation as part of a series of related 
transactions culminating in transfer to a foreign corporation--(1) 
Facts. The facts are the same as in paragraph (f)(6)(ii)(A)(1) of 
this section (Example 1), except that the year 3 liquidation occurs 
as part of a series of related transactions pursuant to which USS 
transfers the transferred IP that it receives from TFC to a related 
foreign corporation (FC1) in exchange for stock in FC1.
    (2) Analysis. Because the year 3 liquidation occurs as part of a 
series of related transactions pursuant to which the transferred IP 
is ultimately contributed to a FC1, a foreign corporation, and 
because a foreign corporation is not a qualified domestic person 
pursuant to paragraph (f)(4)(iii) of this section, then, under 
paragraph (f)(4)(v) of this section, the year 3 liquidation is not 
treated as a subsequent disposition described in paragraph (f)(4)(i) 
of this section, but is instead treated as a subsequent disposition 
described in paragraph (f)(3) of this section.
    (E) Example 5: Repatriation as part of a series of related 
transactions culminating in transfer to a qualified domestic 
person--(1) Facts. The facts are the same as in paragraph 
(f)(6)(ii)(B)(1) of this section (Example 2), except that the year 3 
distribution occurs as part of a series of related transactions 
pursuant to which USS disposes of the transferred IP that it 
receives from TFC to USP.
    (2) Analysis. Because the year 3 distribution occurs as part of 
a series of related transactions pursuant to which the transferred 
IP is distributed to USP, and because USP is a qualified domestic 
person pursuant to paragraph (f)(4)(iii) of this section, paragraph 
(f)(4)(v) of this section does not prevent paragraph (f)(4)(i) of 
this section from applying to the year 3 distribution. Accordingly, 
the consequences under section 367(d) of the year 3 distribution are 
the same as those described in paragraph (f)(6)(ii)(B)(2) of this 
section (Example 2), and the consequences of the subsequent 
disposition of the transferred IP by USS to USP are determined after 
applying paragraph (f)(4) of this section to the transfer of the 
transferred IP by TFC to USS.

    (g) Special rules--(1) Establishment of accounts receivable. For 
further guidance, see Sec.  1.367(d)-1T(g)(1).
    (2) Election to treat transfer as sale. For further guidance, see 
Sec.  1.367(d)-1T(g)(2) introductory text.
* * * * *
    (ii) For further guidance, see Sec.  1.367-1T(g)(2)(ii) through 
(g)(2)(iii)(D).
    (iii) [Reserved]
    (A) through (D) [Reserved]
* * * * *
    (4) Coordination with section 482. For further guidance, see Sec.  
1.367(d)-1T(g)(4).
    (5) Determination of fair market value. For further guidance, see 
Sec.  1.367(d)-1T(g)(5).
    (6) Anti-abuse rule. For further guidance, see Sec.  1.367(d)-
1T(g)(6).
    (h) Related person. For further guidance, see Sec.  1.367(d)-1T(h) 
introductory text and (h)(1).
    (1) [Reserved]
    (2) For further guidance, see Sec.  1.367(d)-1T(h)(2) introductory 
text and (h)(2)(i).
    (i) [Reserved]
    (ii) Section 1563 applies (for purposes of section 267(f)) without 
regard to section 1563(b)(2).
    (i) Effective date. For further guidance, see Sec.  1.367(d)-1T(i).
    (j) Applicability dates--(1) In general. This section applies to 
transfers occurring on or after September 14, 2015, and to transfers 
occurring before September 14, 2015, resulting from entity 
classification elections made under Sec.  301.7701-3 of this chapter 
that are filed on or after September 14, 2015. For transfers occurring 
before this section is applicable, see Sec.  1.367(d)-1T as contained 
in 26 CFR part 1 revised as of April 1, 2016.
    (2) Certain subsequent dispositions of intangible property. 
Paragraphs (c)(2)(ii), (e)(2)(ii), (f)(2) through (5), and (h)(2)(ii) 
of this section apply to subsequent dispositions of intangible property 
occurring on or after [date of publication of final regulations in the 
Federal Register]. For subsequent dispositions of intangible property 
occurring before

[[Page 27831]]

[date of publication of final regulations in the Federal Register], see 
Sec.  1.367(d)-1T (as contained in 26 CFR part 1, revised as of April 
1, 2022).


Sec.  1.367(d)-1T  [Amended]

0
Par. 4. Section 1.367(d)-1T is amended by:
0
1. Removing ``; and'' at the end of paragraph (c)(2)(i) and adding a 
period in its place.
0
2. Removing and reserving paragraphs (c)(2)(ii), (e)(2)(ii), and (f)(2) 
and (3).
0
3. Removing ``; and'' at the end of paragraph (h)(2)(i) and adding a 
period in its place.
0
4. Removing and reserving paragraph (h)(2)(ii).


Sec.  1.367(e)-2  [Amended]

0
Par. 5. Section 1.367(e)-2 is amended by removing the language 
``section 936(h)(3)(B)'' in the last sentence of paragraph (b)(2)(i)(B) 
and adding the language ``section 367(d)(4)'' in its place.
0
Par. 6. Section 1.904-4 is amended by adding paragraph (f)(2)(vi)(D)(4) 
and revising paragraph (q)(3) to read as follows:


Sec.  1.904-4  Separate application of section 904 with respect to 
certain categories of income.

* * * * *
    (f) * * *
    (2) * * *
    (vi) * * *
    (D) * * *
    (4) Multiple transfers of intangible property. If the same 
intangible property is transferred in a series of transfers described 
in paragraph (f)(2)(vi)(D)(1) of this section, each successive transfer 
is separately subject to the provisions of paragraph (f)(2)(vi)(D)(1) 
and will not terminate or otherwise affect the application of paragraph 
(f)(2)(vi)(D)(1) to a prior transfer described in paragraph 
(f)(2)(vi)(D)(1).
* * * * *
    (q) * * *
    (3) Except as provided in the following sentence, paragraph (f) of 
this section applies to taxable years that begin after December 31, 
2019, and end on or after November 2, 2020. Paragraph (f)(vi)(D)(4) of 
this section applies to taxable years that begin on or after [date of 
publication of final regulations in the Federal Register].
0
Par. 7. Section 1.951A-2 is amended by revising paragraph (c)(2) to 
read as follows:


Sec.  1.951A-2  Tested income and tested loss.

* * * * *
    (c) * * *
    (2) Determination of gross income and allowable deductions. For 
purposes of determining tested income and tested loss, the gross income 
and allowable deductions of a controlled foreign corporation for a CFC 
inclusion year are determined under the rules of Sec.  1.952-2 for 
determining the subpart F income of the controlled foreign corporation, 
except, for a controlled foreign corporation which is engaged in the 
business of reinsuring or issuing insurance or annuity contracts and 
which, if it were a domestic corporation engaged only in such business, 
would be taxable as an insurance company to which subchapter L of 
chapter 1 of the Code applies, substituting ``the rules of sections 953 
and 954(i)'' for ``the principles of Sec. Sec.  1.953-4 and 1.953-5'' 
in Sec.  1.952-2(b)(2).
* * * * *
0
Par. 8. Section 1.951A-7 is amended by adding paragraph (e) to read as 
follows:


Sec.  1.951A-7  Applicability dates.

* * * * *
    (e) Determination of gross income and allowable deductions. Section 
1.951A-2(c)(2) applies to taxable years of foreign corporations ending 
on or after [date of publication of final regulations in the Federal 
Register], and to taxable years of United States shareholders in which 
or with which such taxable years end. For taxable years of foreign 
corporations ending before [date of publication of final regulations in 
the Federal Register], and to taxable years of United States 
shareholders in which or with which such taxable years end, see Sec.  
1.951A-2(c)(2)(i) and (ii) as contained in 26 CFR part 1, revised as of 
April 1, 2022.
0
Par. 9. Section 1.6038B-1 is amended by:
0
1. Removing reserved paragraphs (d)(1) through (1)(iii).
0
2. Adding paragraphs (d) heading and (d)(1) introductory text and 
reserved paragraphs (d)(1)(i) through (iii).
0
3. Removing reserved paragraphs (d)(1)(viii) through (d)(2).
0
4. Adding paragraphs (d)(1)(viii), (d)(2), and (g)(8).
    The additions read as follows:


Sec.  1.6038B-1  Reporting of certain transfers to foreign 
corporations.

* * * * *
    (d) Transfers subject to section 367 (d)--(1) Initial transfer. For 
further guidance, see Sec.  1.6038B-1T(d)(1) introductory text through 
(d)(1)(iii).
    (i) through (iii) [Reserved]
* * * * *
    (viii) Other intangibles. For further guidance, see Sec.  1.6038B-
1T(d)(1)(viii).
    (2) Subsequent transfers. For additional, see Sec.  1.6038B-
1T(d)(2) introductory text through (d)(2)(ii).
    (i) through (ii) [Reserved]
    (iii) Subsequent transfer. Except for a subsequent transfer 
described in paragraph (d)(2)(iv) of this section, provide the 
following information concerning the subsequent transfer:
    (A) For further guidance, see Sec.  1.6038B-1T(d)(2)(iii)(A) 
through (C).
    (B) through (C) [Reserved]
    (iv) Subsequent transfer of intangible property to a qualified 
domestic person. Provide the following information concerning a 
subsequent transfer of intangible property described in Sec.  1.367(d)-
1(f)(4)(i):
    (A) A statement providing that Sec.  1.367(d)-1(f)(4)(i)(B) applies 
to the subsequent transfer;
    (B) A general description of the subsequent transfer and any wider 
transaction of which it forms a part, including the U.S. transferor's 
former adjusted basis in the intangible property and the transferee 
foreign corporation's adjusted basis in the intangible property (as 
determined immediately before the subsequent transfer), the amount and 
computation of any gain recognized by the U.S. transferor under Sec.  
1.367(d)-1(f)(4)(i)(A), and a description of whether the intangible 
property was, or is expected to be, subsequently transferred to one or 
more other persons (as described in Sec.  1.367(d)-1(f)(4)(v));
    (C) A description of the intangible property;
    (D) A copy of the Form 926 with respect to the original transfer of 
the intangible property and any attachments identifying the intangible 
property as within the scope of section 367(d);
    (E) The name, address, and taxpayer identification number of the 
qualified domestic person that receives the intangible property, 
including a statement describing the relationship between the U.S. 
transferor and the qualified domestic person, and, if applicable, such 
information regarding any other persons described in Sec.  1.367(d)-
1(f)(4)(v); and
    (F) Any other information as may be prescribed by the Commissioner 
in publications, forms, instructions, or other guidance.
* * * * *
    (g) * * *
    (8) Paragraphs (d)(2)(iii) introductory text and (d)(2)(iv) of this 
section apply to transfers occurring on or after [date of publication 
of final regulations in the Federal Register].
0
Par. 10. Section 1.6038B-1T is amended by revising paragraph 
(d)(2)(iii) introductory text to read as follows:

[[Page 27832]]

Sec.  1.6038B-1T  Reporting of certain transactions to foreign 
corporations (temporary).

* * * * *
    (d) * * *
    (2) * * *
    (iii) Subsequent transfer. For further guidance, see Sec.  1.6038B-
1(d)(2)(iii) introductory text:
* * * * *

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-08843 Filed 5-2-23; 8:45 am]
BILLING CODE 4830-01-P