Notice 97-18 reporting relief creates complexities.

• Author: Yu, Angela
• Position: Brief Article

Notice 97-18 announces changes intended to relax the reporting requirements of current Regs. Sec. 1.1494-1. What purports to be a favorable set of rules, however, may create more problems than it resolves.

Among the changes in Notice 97-18 are provisions to relieve duplicate reporting of outbound transfers. Notice Section II.B.3 provides that reporting under Sec. 1494 is not required for transfers described in Sec. 367(a) and (d) because the reporting requirements of Sec. 6038B adequately address those transfers. Thus, a U.S. transferor that makes a transfer described in both Sec. 367 and Sec. 1491 will satisfy the Sec. 1494 reporting requirement to the extent that the U.S. transferor reports the transfer under Sec. 6038B. If a transfer is not reportable under Sec. 6038B, the reporting requirements of Sec. 1494 will apply.

This rule creates a filing anomaly for transactions involving an overlap of Sec. 351 and Sec. 368(a)(1)(B). Temp. Regs. Sec. 1.367(a)-3T(b)(1) provides that Sec. 367(a)(1) will not apply to a transfer of controlled foreign corporation (CFC) stock by a U.S. person to another CFC pursuant to a Sec. 368(a)(1)(B) reorganization. This position was affirmed by the IRS in Notice 87-85. If such a transfer is also described in Sec. 351, Temp. Regs. Sec. 1.367(a)3T(b)(1) provides that Regs. Sec. 7.367(b)-4(b) will apply.

Regs. Sec. 7.367(b)-4(b)(1) states that if an exchange of stock in a foreign corporation by a U.S. person is described in both Sec...