81 FR 20588 - Inversions and Related Transactions

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 81, Issue 68 (April 8, 2016)

The Department of Treasury (Treasury Department) and the IRS are issuing temporary regulations that address transactions that are structured to avoid the purposes of sections 7874 and 367 of the Internal Revenue Code (the Code) and certain post-inversion tax avoidance transactions in the Rules and Regulations section of this issue of the Federal Register. The temporary regulations affect certain domestic corporations and domestic partnerships whose assets are directly or indirectly acquired by a foreign corporation and certain persons related to such domestic corporations and domestic partnerships. The text of the temporary regulations also serves as the text of these proposed regulations.

[Federal Register Volume 81, Number 68 (Friday, April 8, 2016)]
[Proposed Rules]
[Pages 20588-20591]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-07299]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-135734-14]
RIN 1545-BM45


Inversions and Related Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulation.

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SUMMARY: The Department of Treasury (Treasury Department) and the IRS 
are issuing temporary regulations that address transactions that are 
structured to avoid the purposes of sections 7874 and 367 of the 
Internal Revenue Code (the Code) and certain post-inversion tax 
avoidance transactions in the Rules and Regulations section of this 
issue of the Federal Register. The temporary regulations affect certain 
domestic corporations and domestic partnerships whose assets are 
directly or indirectly acquired by a foreign corporation and certain 
persons related to such domestic corporations and domestic 
partnerships. The text of the temporary regulations also serves as the 
text of these proposed regulations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by July 7, 2016.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-135734-14), room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20224. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
135734-14), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224, or sent electronically via the 
Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-
135734-14).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations 
under sections 304, 367, and 7874, Shane M. McCarrick or David A. 
Levine, (202) 317-6937; concerning the proposed regulations under 
sections 956 and 7701(l), Rose E. Jenkins, (202) 317-6934 (not toll-
free numbers); concerning submissions of comments or requests for a 
public hearing, Regina Johnson, (202) 317-5177 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background

    The temporary regulations in the Rules and Regulations section of 
this issue of the Federal Register contain regulations under sections 
304, 367, 954, 956, 7701(l), and 7874 of the Internal Revenue Code 
(Code) that address transactions that are structured to avoid the 
purposes of sections 7874 and 367 of the Internal Revenue Code (the 
Code) and certain post-inversion tax avoidance transactions. The text 
of the temporary regulations also serves as the text of the proposed 
regulations herein. The preamble to the temporary regulations explains 
the temporary regulations and the corresponding proposed regulations.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory assessment is not 
required. It has also been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. Chapter 5) does not apply to 
these regulations, and because the regulations do not impose a 
collection of information on small entities, the Regulatory Flexibility 
Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f), 
this notice of proposed rulemaking has been submitted to the Chief 
Counsel of Advocacy of the Small Business Administration for comment on 
its impact on small business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ADDRESSES heading. 
Treasury and the IRS request comments on all aspects of the proposed 
rules. All comments will be available at www.regulations.gov or upon 
request. A public hearing will be scheduled if requested in writing by 
any person that timely submits electronic or written comments. If a 
public hearing is scheduled, notice of the date, time, and place for 
the public hearing will be published in the Federal Register.

Drafting Information

    The principal authors of these proposed regulations are Rose E. 
Jenkins, David A. Levine, and Shane M. McCarrick of the 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, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding and 
revising entries in numerical order to read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
    Section 1.304-7 also issued under 26 U.S.C. 304(b)(5)(C).
    Section 1.367(b)-4 also issued under 26 U.S.C. 367(a), 367(b), 
and 954(c)(6)(A).
    Section 1.956-2 also issued under 26 U.S.C. 956(d) and 956(e).

[[Page 20589]]

    Section 1.7701(l)-4 also issued under 26 U.S.C. 7701(l) and 
954(c)(6)(A).
    Section 1.7874-2 also issued under 26 U.S.C. 7874(c)(6) and 
7874(g).
    Section 1.7874-4 also issued under 26 U.S.C. 7874(c)(6) and 
7874(g).
    Section 1.7874-6 also issued under 26 U.S.C. 7874(c)(6) and 
7874(g).
    Section 1.7874-7 also issued under 26 U.S.C. 7874(c)(6) and 
7874(g).
    Section 1.7874-8 also issued under 26 U.S.C. 7874(c)(6) and 
7874(g).
    Section 1.7874-9 also issued under 26 U.S.C. 7874(c)(6) and 
7874(g).
    Section 1.7874-10 also issued under 26 U.S.C. 7874(c)(4) and 
7874(g).
    Section 1.7874-11 also issued under 26 U.S.C. 7874(g).
    Section 1.7874-12 also issued under 26 U.S.C. 7874(g).

0
Par. 2. Section 1.304-7 is added to read as follows:


Sec.  1.304-7  Certain acquisitions by foreign acquiring corporations.

    [The text of proposed Sec.  1.304-7 is the same as the text of 
Sec.  1.304-7T published elsewhere in this issue of the Federal 
Register.]
0
Par. 3. Section 1.367(a)-3 is amended by revising paragraphs 
(c)(3)(iii)(C) and (c)(11)(ii) to read as follows:


Sec.  1.367(a)-3  Treatment of transfers of stock or securities to 
foreign corporations.

* * * * *
    (c) * * *
    (3) * * *
    (iii) * * *
    (C) [The text of the proposed amendment to Sec.  1.367(a)-
3(c)(3)(iii)(C) is the same as the text of Sec.  1.367(a)-
3T(c)(3)(iii)(C) published elsewhere in this issue of the Federal 
Register.]
* * * * *
    (11) * * *
    (ii) [The text of the proposed amendment to Sec.  1.367(a)-
3(c)(11)(ii) is the same as the text of Sec.  1.367(a)-3T(c)(11)(ii) 
published elsewhere in this issue of the Federal Register.]
* * * * *
0
Par. 4. Section 1.367(b)-4 is amended by revising paragraph (a), 
paragraph (b) introductory text, and paragraphs (b)(1)(i)(C), (d)(1), 
(e), (f), (g), and (h) to read as follows:


Sec.  1.367(b)-4  Acquisition of foreign corporate stock or assets by a 
foreign corporation in certain nonrecognition transactions.

    (a) [The text of the proposed amendment to Sec.  1.367(b)-4(a) is 
the same as the text of Sec.  1.367(b)-4T(a) published elsewhere in 
this issue of the Federal Register.]
    (b) [The text of the proposed amendment to the introductory text to 
Sec.  1.367(b)-4(b) is the same as the introductory text of Sec.  
1.367(b)-4T(b) published elsewhere in this issue of the Federal 
Register.]
    (1) * * *
    (i) * * *
    (C) [The text of the proposed amendment to Sec.  1.367(b)-
4(b)(1)(i)(C) is the same as the text of Sec.  1.367(b)-4T(b)(1)(i)(C) 
published elsewhere in this issue of the Federal Register.]
* * * * *
    (d) * * *
    (1) [The text of the proposed amendment to Sec.  1.367(b)-4(d)(1) 
is the same as the text of Sec.  1.367(b)-4T(d)(1) published elsewhere 
in this issue of the Federal Register.]
* * * * *
    (e) [The text of the proposed amendment to Sec.  1.367(b)-4(e) is 
the same as the text of Sec.  1.367(b)-4T(e) published elsewhere in 
this issue of the Federal Register.]
    (f) [The text of the proposed amendment to Sec.  1.367(b)-4(f) is 
the same as the text of Sec.  1.367(b)-4T(f) published elsewhere in 
this issue of the Federal Register.]
    (g) [The text of the proposed amendment to Sec.  1.367(b)-4(g) is 
the same as the text of Sec.  1.367(b)-4T(g) published elsewhere in 
this issue of the Federal Register.]
    (h) [The text of proposed Sec.  1.367(b)-4(h) is the same as the 
text of Sec.  1.367(b)-4T(h) published elsewhere in this issue of the 
Federal Register.]
0
Par. 5. Section 1.956-2 is amended by revising paragraphs (a)(4), 
(c)(5), (d)(2), and (i) to read as follows:


Sec.  1.956-2  Definition of United States property.

    (a) * * *
    (4) [The text of the proposed amendment to Sec.  1.956-2(a)(4) is 
the same as the text of Sec.  1.956-2T(a)(4) published elsewhere in 
this issue of the Federal Register.]
* * * * *
    (c) * * *
    (5) [The text of the proposed amendment to Sec.  1.956-2(c)(5) is 
the same as the text of Sec.  1.956-2T(c)(5) published elsewhere in 
this issue of the Federal Register.]
    (d) * * *
    (2) [The text of the proposed amendment to Sec.  1.956-2(d)(2) is 
the same as the text of Sec.  1.956-2T(d)(2) published elsewhere in 
this issue of the Federal Register.]
* * * * *
    (i) [The text of the proposed amendment to Sec.  1.956-2(i) is the 
same as the text of Sec.  1.956-2T(i) published elsewhere in this issue 
of the Federal Register.]
0
Par. 6. Section 1.7701(l)-4 is added to read as follows:


Sec.  1.7701(l)-4  Rules regarding inversion transactions.

    [The text of proposed Sec.  1.7701(l)-4 is the same as the text of 
Sec.  1.7701(l)-4T published elsewhere in this issue of the Federal 
Register.]
0
Par. 7. Section 1.7874-1 is amended by revising paragraphs (c)(2)(iii), 
(f), and (h)(2) to read as follows.


Sec.  1.7874-1  Disregard of affiliate-owned stock.

* * * * *
    (c) * * *
    (2) * * *
    (iii) [The text of the proposed amendment to Sec.  1.7874-
1(c)(2)(iii) is the same as the text of Sec.  1.7874-1T(c)(2)(iii) 
published elsewhere in this issue of the Federal Register.]
* * * * *
    (f) [The text of the proposed amendment to Sec.  1.7874-1(f) is the 
same as the text of Sec.  1.7874-1T(f) published elsewhere in this 
issue of the Federal Register.]
* * * * *
    (h) * * *
    (2) [The text of the proposed amendment to Sec.  1.7874-1(h)(2) is 
the same as the text of Sec.  1.7874-1T(h)(2) published elsewhere in 
this issue of the Federal Register.]
0
Par. 8. Section 1.7874-2 is amended by:
0
1. Revising paragraphs (a), (b)(7), (b)(8), (b)(9), (b)(10), (b)(11), 
(b)(12), (b)(13), (c)(2), and (c)(4).
0
2. Revising paragraph (f)(1) introductory text.
0
3. Revising paragraph (f)(1)(iv).
0
4. Revising Example 21 of paragraph (k)(2).
0
5. Revising paragraph (l)(2).
    The revisions read as follows:


Sec.  1.7874-2  Surrogate foreign corporation.

    (a) [The text of the proposed amendment to Sec.  1.7874-2(a) is the 
same as the text of Sec.  1.7874-2T(a) published elsewhere in this 
issue of the Federal Register.]
    (b) * * *
    (7) [The text of the proposed amendment to Sec.  1.7874-2(b)(7) is 
the same as the text of Sec.  1.7874-2T(b)(7) published elsewhere in 
this issue of the Federal Register.]
    (8) [The text of the proposed amendment to Sec.  1.7874-2(b)(8) is 
the same as the text of Sec.  1.7874-2T(b)(8) published elsewhere in 
this issue of the Federal Register.]
    (9) [The text of the proposed amendment to Sec.  1.7874-2(b)(9) is 
the same as the text of Sec.  1.7874-2T(b)(9) published elsewhere in 
this issue of the Federal Register.]
    (10) [The text of the proposed amendment to Sec.  1.7874-2(b)(10) 
is the

[[Page 20590]]

same as the text of Sec.  1.7874-2T(b)(10) published elsewhere in this 
issue of the Federal Register.]
    (11) [The text of the proposed amendment to Sec.  1.7874-2(b)(11) 
is the same as the text of Sec.  1.7874-2T(b)(11) published elsewhere 
in this issue of the Federal Register.]
    (12) [The text of the proposed amendment to Sec.  1.7874-2(b)(12) 
is the same as the text of Sec.  1.7874-2T(b)(12) published elsewhere 
in this issue of the Federal Register.]
    (13) [The text of the proposed amendment to Sec.  1.7874-2(b)(13) 
is the same as the text of Sec.  1.7874-2T(b)(13) published elsewhere 
in this issue of the Federal Register.]
    (c) * * *
    (2) [The text of the proposed amendment to Sec.  1.7874-2(c)(2) is 
the same as the text of Sec.  1.7874-2T(c)(2) published elsewhere in 
this issue of the Federal Register.]
* * * * *
    (4) [The text of the proposed amendment to Sec.  1.7874-2(c)(4) is 
the same as the text of Sec.  1.7874-2T(c)(4) published elsewhere in 
this issue of the Federal Register.]
* * * * *
    (f) * * *
    (1) [The proposed amendment to the introductory text of Sec.  
1.7874-2(f)(1) is the same as the introductory text of Sec.  1.7874-
2T(f)(1) published elsewhere in this issue of the Federal Register.]
* * * * *
    (iv) [The text of the proposed amendment to Sec.  1.7874-
2(f)(1)(iv) is the same as the text of Sec.  1.7874-2T(f)(1)(iv) 
published elsewhere in this issue of the Federal Register.]
* * * * *
    (k) * * *
    (2) * * *
    Example 21. [The text of the proposed amendment to Example 21 of 
Sec.  1.7874-2(k)(2) is the same as the text of Example 21 of Sec.  
1.7874-2T(k)(2) published elsewhere in this issue of the Federal 
Register.]
    (l) * * *
    (2) [The text of the proposed amendment to Sec.  1.7874-2(l)(2) is 
the same as the text of Sec.  1.7874-2T(l)(2) published elsewhere in 
this issue of the Federal Register.]
0
Par. 9. Section 1.7874-3 is amended by revising paragraphs (b)(4), 
(d)(10), and (f)(2) to read as follows:


Sec.  1.7874-3  Substantial business activities.

* * * * *
    (b) * * *
    (4) [The text of the proposed amendment to Sec.  1.7874-3(b)(4) is 
the same as the text of Sec.  1.7874-3T(b)(4) published elsewhere in 
this issue of the Federal Register.]
* * * * *
    (d) * * *
    (10) [The text of the proposed amendment to Sec.  1.7874-3(d)(10) 
is the same as the text of Sec.  1.7874-3T(d)(10) published elsewhere 
in this issue of the Federal Register.]
    (f) * * *
    (2) [The text of the proposed amendment to Sec.  1.7874-3(f)(2) is 
the same as the text of Sec.  1.7874-3T(f)(2) published elsewhere in 
this issue of the Federal Register.]
0
Par. 10. Section 1.7874-4 is added to read as follows.


Sec.  1.7874-4  Disregard of certain stock related to the acquisition.

    (a) through (c)(1) introductory text [Reserved].
    (i) [The text of proposed Sec.  1.7874-4(c)(1)(i) is the same as 
the text of Sec.  1.7874-4T(c)(1)(i) as revised elsewhere in this issue 
of the Federal Register.]
    (ii) [Reserved].
    (B) [The text of proposed Sec.  1.7874-4(c)(1)(ii)(B) is the same 
as the text of Sec.  1.7874-4T(c)(1)(ii)(B) as revised elsewhere in 
this issue of the Federal Register.]
    (2) [The text of proposed Sec.  1.7874-4(c)(2) is the same as the 
text of Sec.  1.7874-4T(c)(2) as revised elsewhere in this issue of the 
Federal Register.]
    (d) introductory text through (d)(1) introductory text [Reserved].
    (i) [The text of proposed Sec.  1.7874-4(d)(1)(i) is the same as 
the text of Sec.  1.7874-4T(d)(1)(i) published elsewhere in this issue 
of the Federal Register.]
    (ii) [The text of proposed Sec.  1.7874-4(d)(1)(ii) is the same as 
the text of Sec.  1.7874-4T(d)(1)(ii) as revised elsewhere in this 
issue of the Federal Register.]
    (d)(2) through (g) [Reserved].
    (h) [The text of proposed Sec.  1.7874-4(h) is the same as the text 
of Sec.  1.7874-4T(h) as revised elsewhere in this issue of the Federal 
Register.]
    (i) introductory text through (i)(5) [Reserved].
    (6) [The text of proposed Sec.  1.7874-4(i)(6) is the same as the 
text of Sec.  1.7874-4T(i)(6) published elsewhere in this issue of the 
Federal Register.]
    (i)(7) introductory text through (i)(7)(iii) introductory text 
[Reserved].
    (C) [The text of proposed Sec.  1.7874-4(i)(7)(iii)(C) is the same 
as the text of Sec.  1.7874-4T(i)(7)(iii)(C) as revised elsewhere in 
this issue of the Federal Register.]
    (iv) [The text of proposed Sec.  1.7874-4(i)(7)(iv) is the same as 
the text of Sec.  1.7874-4T(i)(7)(iv) published elsewhere in this issue 
of the Federal Register.]
    (j) introductory text through (j)(6) [Reserved].
    (7) [The text of proposed Sec.  1.7874-4(j)(7) is the same as the 
text of Sec.  1.7874-4T(j)(7) as revised elsewhere in this issue of the 
Federal Register.]
    (8) [The text of proposed Sec.  1.7874-4(j)(8) is the same as the 
text of Sec.  1.7874-4T(j)(8) as revised elsewhere in this issue of the 
Federal Register.]
    (9) [The text of proposed Sec.  1.7874-4(j)(9) is the same as the 
text of Sec.  1.7874-4T(j)(9) published elsewhere in this issue of the 
Federal Register.]
    (10) [The text of proposed Sec.  1.7874-4(j)(10) is the same as the 
text of Sec.  1.7874-4T(j)(10) published elsewhere in this issue of the 
Federal Register.]
    (11) [The text of proposed Sec.  1.7874-4(j)(11) is the same as the 
text of Sec.  1.7874-4T(j)(11) published elsewhere in this issue of the 
Federal Register.]
    Example 1 introductory text through Example 1 paragraph (i) 
[Reserved].
    (ii) [The text of proposed paragraph (ii) of Example 1 of Sec.  
1.7874-4(j) is the same as the text of paragraph (ii) of Example 1 of 
Sec.  1.7874-4T(j) as revised elsewhere in this issue of the Federal 
Register.]
    Example 2 introductory text through Example 2 paragraph (i) 
[Reserved].
    (ii) [The text of proposed paragraph (ii) of Example 2 of Sec.  
1.7874-4(j) is the same as the text of paragraph (ii) of Example 2 of 
Sec.  1.7874-4T(j) as revised elsewhere in this issue of the Federal 
Register.]
    Example 3. [The text of proposed Example 3 of Sec.  1.7874-4(j) is 
the same as the text of Example 3 of Sec.  1.7874-4T(j) published 
elsewhere in this issue of the Federal Register.]
    Example 4. [The text of proposed Example 4 of Sec.  1.7874-4(j) is 
the same as the text of Example 4 of Sec.  1.7874-4T(j) as redesignated 
and revised elsewhere in this issue of the Federal Register.]
    Example 5. [The text of proposed Example 5 of Sec.  1.7874-4(j) is 
the same as the text of Example 5 of Sec.  1.7874-4T(j) as redesignated 
and revised elsewhere in this issue of the Federal Register.]
    Example 6. [The text of proposed Example 6 of Sec.  1.7874-4(j) is 
the same as the text of Example 6 of Sec.  1.7874-4T(j) as redesignated 
and revised elsewhere in this issue of the Federal Register.]
    Example 7. [The text of proposed Example 7 of Sec.  1.7874-4(j) is 
the same as the text of Example 7 of Sec.  1.7874-4T(j) as redesignated 
and revised elsewhere in this issue of the Federal Register.]

[[Page 20591]]

    Example 8. [The text of proposed Example 8 of Sec.  1.7874-4(j) is 
the same as the text of Example 8 of Sec.  1.7874-4T(j) as redesignated 
and revised elsewhere in this issue of the Federal Register.]
    Example 9. [The text of proposed Example 9 of Sec.  1.7874-4(j) is 
the same as the text of Example 9 of Sec.  1.7874-4T(j) as redesignated 
and revised elsewhere in this issue of the Federal Register.]
    (k) introductory text [Reserved].
    (1) [The text of proposed Sec.  1.7874-4(k)(1) is the same as the 
text of Sec.  1.7874-4T(k)(1) published elsewhere in this issue of the 
Federal Register.]
    (k)(2) through (k)(3) [Reserved].
0
Par. 11. Section 1.7874-6 is added to read as follows:


Sec.  1.7874-6  Stock transferred by members of the EAG.

    [The text of proposed Sec.  1.7874-6 is the same as the text of 
Sec.  1.7874-6T published elsewhere in this issue of the Federal 
Register.]
0
Par. 12. Section 1.7874-7 is added to read as follows:


Sec.  1.7874-7  Disregard of certain stock attributable to passive 
assets.

    [The text of proposed Sec.  1.7874-7 is the same as the text of 
Sec.  1.7874-7T published elsewhere in this issue of the Federal 
Register.]
0
Par. 13. Section 1.7874-8 is added to read as follows:


Sec.  1.7874-8  Disregard of certain stock attributable to multiple 
domestic entity acquisitions.

    [The text of proposed Sec.  1.7874-8 is the same as the text of 
Sec.  1.7874-8T published elsewhere in this issue of the Federal 
Register.]
0
Par. 14. Section 1.7874-9 is added to read as follows:


Sec.  1.7874-9  Disregard of certain stock in third-country 
transactions.

    [The text of proposed Sec.  1.7874-9 is the same as the text of 
Sec.  1.7874-9T published elsewhere in this issue of the Federal 
Register.]
0
Par. 15. Section 1.7874-10 is added to read as follows:


Sec.  1.7874-10  Disregard of certain distributions.

    [The text of proposed Sec.  1.7874-10 is the same as the text of 
Sec.  1.7874-10T published elsewhere in this issue of the Federal 
Register.]
0
Par. 16. Section 1.7874-11 is added to read as follows:


Sec.  1.7874-11  Rules regarding inversion gain.

    [The text of proposed Sec.  1.7874-11 is the same as the text of 
Sec.  1.7874-11T published elsewhere in this issue of the Federal 
Register.]
0
Par. 17. Section 1.7874-12 is added to read as follows:


Sec.  1.7874-12  Definitions.

    [The text of proposed Sec.  1.7874-12 is the same as the text of 
Sec.  1.7874-12T published elsewhere in this issue of the Federal 
Register.]

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-07299 Filed 4-4-16; 5:00 pm]
 BILLING CODE 4830-01-P