Final regulations address gain recognition agreements and other cross-border transfer reporting.

• Author: Halpern, Irwin

In November, the IRS and Treasury issued final regulations revising the reporting rules applicable to stock and property transfers under Secs. 367 and 6038B, including Sec. 367(a) gain recognition agreements (GRAs) (T.D. 9704). Most notably, the regulations provide common standards to address untimely and incomplete filings, including revised coordination of the Secs. 367 and 6038B rules. The regulations adopt, with amendments, proposed regulations issued on Jan. 31, 2013 (REG-140649-11).

New Provisions in the Final Regulations

While the final regulations are generally consistent with the proposed regulations, they include several revisions and additions. Most notably:

* The final regulations expand the scope of the proposed regulations to include the filings under Regs. Secs. 1.367(a)-2 and 1.367(a)-7 (Regs. Secs. 1.367(a)-2(f) and 1.367(a)-7(e)(2)).

* The final regulations revise the extension of statute-of-limitation rules applicable in the event a taxpayer fails to comply in any material respect with the GRA or Regs. Sec. 1.367(e)-2 reporting requirements (Regs. Secs. 1.367(a)-8(j)(8) and 1.367(e)-2(e)(4)(ii)(B)).

* The final regulations expand the Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, information reporting required when a taxpayer files a GRA (Regs. Sec. 1.6038B-1(b)(2)(iv)).

* In certain circumstances, taxpayers may resubmit previously filed requests for relief (including requests that were denied) and thereby apply the regulations' new standards and procedures retroactively (Regs. Secs. 1.367(a)-7(j) and 1.367(a)-8(r)(3)).

* As anticipated, and in tandem with the issuance of the final regulations, the IRS withdrew, effective Nov. 19, 2014, the memorandum LMSB-40510-017, Directive on Examination Action With Respect to Certain Gain Recognition Agreements (July 26,2010).

Background

Sec. 367 modifies the application of the subchapter C nonrecognition rules to cross-border transactions. Secs. 367(a) and (e) address transfers of stock and other property by U.S. persons to foreign corporations (outbound transfers); Sec. 6038B contains notification requirements that apply to these transfers. Sec. 367(e) also addresses certain transfers between foreign corporations (see Regs. Sec. 1.367(e)-2(c) (addressing distributions of property in "foreign to foreign" Sec. 332 liquidations).)

Together, Secs. 367 and 6038B provide a regime of substantive and procedural requirements that must be met to apply the subchapter C rules to avoid current gain recognition in connection with an outbound transfer.

Filings Addressed

The final regulations address the following filing requirements under Secs. 367(a), 367(e), and 6038B:

* The reporting requirements under Temp. Regs. Sec. 1.367(a)-2T(a) for when a U.S. person subject to Sec. 367(a) transfers property to a foreign corporation for use in the active conduct of a foreign trade or business. The 2013 proposed regulations did not address this reporting;

* The reporting requirements under Regs. Secs...