Subpart D—Special Rule; Definitions
§367. Foreign corporations
(a) Transfers of property from the United States
(1) General rule
If, in connection with any exchange described in section 332, 351, 354, 356, or 361, a United States person transfers property to a foreign corporation, such foreign corporation shall not, for purposes of determining the extent to which gain shall be recognized on such transfer, be considered to be a corporation.
(2) Exception for certain stock or securities
Except to the extent provided in regulations, paragraph (1) shall not apply to the transfer of stock or securities of a foreign corporation which is a party to the exchange or a party to the reorganization.
(3) Exception for transfers of certain property used in the active conduct of a trade or business
(A) In general
Except as provided in regulations prescribed by the Secretary, paragraph (1) shall not apply to any property transferred to a foreign corporation for use by such foreign corporation in the active conduct of a trade or business outside of the United States.
(B) Paragraph not to apply to certain property
Except as provided in regulations prescribed by the Secretary, subparagraph (A) shall not apply to any—
(i) property described in paragraph (1) or (3) of section 1221 (relating to inventory and copyrights, etc.),
(ii) installment obligations, accounts receivable, or similar property,
(iii) foreign currency or other property denominated in foreign currency,
(iv) intangible property (within the meaning of section 936(h)(3)(B)), or
(v) property with respect to which the transferor is a lessor at the time of the transfer, except that this clause shall not apply if the transferee was the lessee.
(C) Transfer of foreign branch with previously deducted losses
Except as provided in regulations prescribed by the Secretary, subparagraph (A) shall not apply to gain realized on the transfer of the assets of a foreign branch of a United States person to a foreign corporation in an exchange described in paragraph (1) to the extent that—
(i) the sum of losses—
(I) which were incurred by the foreign branch before the transfer, and
(II) with respect to which a deduction was allowed to the taxpayer, exceeds
(ii) the sum of—
(I) any taxable income of such branch for a taxable year after the taxable year in which the loss was incurred and through the close of the taxable year of the transfer, and
(II) the amount which is recognized under section 904(f)(3) on account of the transfer.
Any gain recognized by reason of the preceding sentence shall be treated for purposes of this chapter as income from sources outside the United States having the same character as such losses had.
(4) Special rule for transfer of partnership interests
Except as provided in regulations prescribed by the Secretary, a transfer by a United States person of an interest in a partnership to a foreign corporation in an exchange described in paragraph (1) shall, for purposes of this subsection, be treated as a transfer to such corporation of such person's pro rata share of the assets of the partnership.
(5) Paragraphs (2) and (3) not to apply to certain section 361 transactions
Paragraphs (2) and (3) shall not apply in the case of an exchange described in subsection (a) or (b) of section 361. Subject to such basis adjustments and such other conditions as shall be provided in regulations, the preceding sentence shall not apply if the transferor corporation is controlled (within the meaning of section 368(c)) by 5 or fewer domestic corporations. For purposes of the preceding sentence, all members of the same affiliated group (within the meaning of section 1504) shall be treated as 1 corporation.
(6) Secretary may exempt certain transactions from application of this subsection
Paragraph (1) shall not apply to the transfer of any property which the Secretary, in order to carry out the purposes of this subsection, designates by regulation.
(b) Other transfers
(1) Effect of section to be determined under regulations
In the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer of property described in subsection (a)(1), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes.
(2) Regulations relating to sale or exchange of stock in foreign corporations
The regulations prescribed pursuant to paragraph (1) shall include (but shall not be limited to) regulations dealing with the sale or exchange of stock or securities in a foreign corporation by a United States person, including regulations providing—
(A) the circumstances under which—
(i) gain shall be recognized currently, or amounts included in gross income currently as a dividend, or both, or
(ii) gain or other amounts may be deferred for inclusion in the gross income of a shareholder (or his successor in interest) at a later date, and
(B) the extent to which adjustments shall be made to earnings and profits, basis of stock or securities, and basis of assets.
(c) Transactions to be treated as exchanges
(1) Section 355 distribution
For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange.
(2) Contribution of capital to controlled corporations
For purposes of this chapter, any transfer of property to a foreign corporation as a contribution to the capital of such corporation by one or more persons who, immediately after the transfer, own (within the meaning of section 318) stock possessing at least 80 percent of the total combined voting power of all classes of stock of such corporation entitled to vote shall be treated as an exchange of such property for stock of the foreign corporation equal in value to the fair market value of the property transferred.
(d) Special rules relating to transfers of intangibles
(1) In general
Except as provided in regulations prescribed by the Secretary, if a United States person transfers any intangible property (within the meaning of section 936(h)(3)(B)) to a foreign corporation in an exchange described in section 351 or 361—
(A) subsection (a) shall not apply to the transfer of such property, and
(B) the provisions of this subsection shall apply to such transfer.
(2) Transfer of intangibles treated as transfer pursuant to sale of contingent payments
(A) In general
If paragraph (1) applies to any transfer, the United States person transferring such property shall be treated as—
(i) having sold such property in exchange for payments which are contingent upon the productivity, use, or disposition of such property, and
(ii) receiving amounts which reasonably reflect the amounts which would have been received—
(I) annually in the form of such payments over the useful life of such property, or
(II) in the case of a disposition following such transfer (whether direct or indirect), at the time of the disposition.
The amounts taken into account under clause (ii) shall be commensurate with the income attributable to the intangible.
(B) Effect on earnings and profits
For purposes of this chapter, the earnings and profits of a foreign corporation to which the intangible property was transferred shall be reduced by the amount required to be included in the income of the transferor of the intangible property under subparagraph (A)(ii).
(C) Amounts received treated as United States source ordinary income
For purposes of this chapter, any amount included in gross income by reason of this subsection shall be treated as ordinary income from sources within the United States.
(e) Treatment of distributions described in section 355 or liquidations under section 332
(1) Distributions described in section 355
In the case of any distribution described in section 355 (or so much of section 356 as relates to section 355) by a domestic corporation to a person who is not a United States person, to the extent provided in regulations, gain shall be recognized under principles similar to the principles of this section.
(2) Liquidations under section 332
In the case of any liquidation to which section 332 applies, except as provided in regulations, subsections (a) and (b)(1) of section 337 shall not apply where the 80-percent distributee (as defined in section 337(c)) is a foreign corporation.
(Aug. 16, 1954, ch. 736,
Amendments
1990—Subsec. (a)(5).
1988—Subsec. (a)(5), (6).
1986—Subsec. (a)(1).
Subsec. (d)(2)(A).
Subsec. (e).
Subsec. (f).
1984—Subsec. (a).
Subsec. (d).
Subsecs. (e), (f).
1982—Subsecs. (d), (e).
1976—
1971—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1988 Amendment
Section 1006(e)(13)(B) of
Effective Date of 1986 Amendment
Amendment by section 631(d)(1) of
Amendment by section 1231(e)(2) of
Amendment by section 1810(g)(1), (4) of
Effective Date of 1984 Amendment
Section 131(g) of
"(1)
"(2)
"(A)
"(B)
"(3)
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1976 Amendment
Section 1042(e) of
"(1) The amendments made by this section (other than by subsection (d)) [amending this section and
"(2) In the case of any exchange described in section 367 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect on December 31, 1974) in any taxable year beginning after December 31, 1962, and before the date of the enactment of this Act [Oct. 4, 1976], which does not involve the transfer of property to or from a United States person, a taxpayer shall have for purposes of such section until 183 days after the date of the enactment of this Act [Oct. 4, 1976] to file a request with the Secretary of the Treasury or his delegate seeking to establish to the satisfaction of the Secretary of the Treasury or his delegate that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes and that for purposes of such section a foreign corporation is to be treated as a foreign corporation."
Effective Date of 1971 Amendment
Section 1(c) of
Applicability of Subsection (e)(2)
Section 1006(e)(13)(C) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§368. Definitions relating to corporate reorganizations
(a) Reorganization
(1) In general
For purposes of parts I and II and this part, the term "reorganization" means—
(A) a statutory merger or consolidation;
(B) the acquisition by one corporation, in exchange solely for all or a part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation (whether or not such acquiring corporation had control immediately before the acquisition);
(C) the acquisition by one corporation, in exchange solely for all or a part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), of substantially all of the properties of another corporation, but in determining whether the exchange is solely for stock the assumption by the acquiring corporation of a liability of the other, or the fact that property acquired is subject to a liability, shall be disregarded;
(D) a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor, or one or more of its shareholders (including persons who were shareholders immediately before the transfer), or any combination thereof, is in control of the corporation to which the assets are transferred; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356;
(E) a recapitalization;
(F) a mere change in identity, form, or place of organization of one corporation, however effected; or
(G) a transfer by a corporation of all or part of its assets to another corporation in a title 11 or similar case; but only if, in pursuance of the plan, stock or securities of the corporation to which the assets are transferred are distributed in a transaction which qualifies under section 354, 355, or 356.
(2) Special rules relating to paragraph (1)
(A) Reorganizations described in both paragraph (1)(C) and paragraph (1)(D)
If a transaction is described in both paragraph (1)(C) and paragraph (1)(D), then, for purposes of this subchapter (other than for purposes of subparagraph (C)), such transaction shall be treated as described only in paragraph (1)(D).
(B) Additional consideration in certain paragraph (1)(C) cases
If—
(i) one corporation acquires substantially all of the properties of another corporation,
(ii) the acquisition would qualify under paragraph (1)(C) but for the fact that the acquiring corporation exchanges money or other property in addition to voting stock, and
(iii) the acquiring corporation acquires, solely for voting stock described in paragraph (1)(C), property of the other corporation having a fair market value which is at least 80 percent of the fair market value of all of the property of the other corporation,
then such acquisition shall (subject to subparagraph (A) of this paragraph) be treated as qualifying under paragraph (1)(C). Solely for the purpose of determining whether clause (iii) of the preceding sentence applies, the amount of any liability assumed by the acquiring corporation, and the amount of any liability to which any property acquired by the acquiring corporation is subject, shall be treated as money paid for the property.
(C) Transfers of assets or stock to subsidiaries in certain paragraph (1)(A), (1)(B), (1)(C), and (1)(G) cases
A transaction otherwise qualifying under paragraph (1)(A), (1)(B), or (1)(C) shall not be disqualified by reason of the fact that part or all of the assets or stock which were acquired in the transaction are transferred to a corporation controlled by the corporation acquiring such assets or stock. A similar rule shall apply to a transaction otherwise qualifying under paragraph (1)(G) where the requirements of subparagraphs (A) and (B) of section 354(b)(1) are met with respect to the acquisition of the assets.
(D) Use of stock of controlling corporation in paragraph (1)(A) and (1)(G) cases
The acquisition by one corporation, in exchange for stock of a corporation (referred to in this subparagraph as "controlling corporation") which is in control of the acquiring corporation, of substantially all of the properties of another corporation shall not disqualify a transaction under paragraph (1)(A) or (1)(G) if—
(i) no stock of the acquiring corporation is used in the transaction, and
(ii) in the case of a transaction under paragraph (1)(A), such transaction would have qualified under paragraph (1)(A) had the merger been into the controlling corporation.
(E) Statutory merger using voting stock of corporation controlling merged corporation
A transaction otherwise qualifying under paragraph (1)(A) shall not be disqualified by reason of the fact that stock of a corporation (referred to in this subparagraph as the "controlling corporation") which before the merger was in control of the merged corporation is used in the transaction, if—
(i) after the transaction, the corporation surviving the merger holds substantially all of its properties and of the properties of the merged corporation (other than stock of the controlling corporation distributed in the transaction); and
(ii) in the transaction, former shareholders of the surviving corporation exchanged, for an amount of voting stock of the controlling corporation, an amount of stock in the surviving corporation which constitutes control of such corporation.
(F) Certain transactions involving 2 or more investment companies
(i) If immediately before a transaction described in paragraph (1) (other than subparagraph (E) thereof), 2 or more parties to the transaction were investment companies, then the transaction shall not be considered to be a reorganization with respect to any such investment company (and its shareholders and security holders) unless it was a regulated investment company, a real estate investment trust, or a corporation which meets the requirements of clause (ii).
(ii) A corporation meets the requirements of this clause if not more than 25 percent of the value of its total assets is invested in the stock and securities of any one issuer, and not more than 50 percent of the value of its total assets is invested in the stock and securities of 5 or fewer issuers. For purposes of this clause, all members of a controlled group of corporations (within the meaning of section 1563(a)) shall be treated as one issuer. For purposes of this clause, a person holding stock in a regulated investment company, a real estate investment trust, or an investment company which meets the requirements of this clause shall, except as provided in regulations, be treated as holding its proportionate share of the assets held by such company or trust.
(iii) For purposes of this subparagraph the term "investment company" means a regulated investment company, a real estate investment trust, or a corporation 50 percent or more of the value of whose total assets are stock and securities and 80 percent or more of the value of whose total assets are assets held for investment. In making the 50-percent and 80-percent determinations under the preceding sentence, stock and securities in any subsidiary corporation shall be disregarded and the parent corporation shall be deemed to own its ratable share of the subsidiary's assets, and a corporation shall be considered a subsidiary if the parent owns 50 percent or more of the combined voting power of all classes of stock entitled to vote, or 50 percent or more of the total value of shares of all classes of stock outstanding.
(iv) For purposes of this subparagraph, in determining total assets there shall be excluded cash and cash items (including receivables). Government securities, and, under regulations prescribed by the Secretary, assets acquired (through incurring indebtedness or otherwise) for purposes of meeting the requirements of clause (ii) or ceasing to be an investment company.
(v) This subparagraph shall not apply if the stock of each investment company is owned substantially by the same persons in the same proportions.
(vi) If an investment company which does not meet the requirements of clause (ii) acquires assets of another corporation, clause (i) shall be applied to such investment company and its shareholders and security holders as though its assets had been acquired by such other corporation. If such investment company acquires stock of another corporation in a reorganization described in section 368(a)(1)(B), clause (i) shall be applied to the shareholders of such investment company as though they had exchanged with such other corporation all of their stock in such company for stock having a fair market value equal to the fair market value of their stock of such investment company immediately after the exchange. For purposes of section 1001, the deemed acquisition or exchange referred to in the two preceding sentences shall be treated as a sale or exchange of property by the corporation and by the shareholders and security holders to which clause (i) is applied.
(vii) For purposes of clauses (ii) and (iii), the term "securities" includes obligations of State and local governments, commodity futures contracts, shares of regulated investment companies and real estate investment trusts, and other investments constituting a security within the meaning of the Investment Company Act of 1940 (
[(viii) Repealed.
(G) Distribution requirement for paragraph (1)(C)
(i) In general
A transaction shall fail to meet the requirements of paragraph (1)(C) unless the acquired corporation distributes the stock, securities, and other properties it receives, as well as its other properties, in pursuance of the plan of reorganization. For purposes of the preceding sentence, if the acquired corporation is liquidated pursuant to the plan of reorganization, any distribution to its creditors in connection with such liquidation shall be treated as pursuant to the plan of reorganization.
(ii) Exception
The Secretary may waive the application of clause (i) to any transaction subject to any conditions the Secretary may prescribe.
(H) Special rule for determining whether certain transactions are qualified under paragraph (1)(D)
In the case of any transaction with respect to which the requirements of subparagraphs (A) and (B) of section 354(b)(1) are met, for purposes of determining whether such transaction qualifies under subparagraph (D) of paragraph (1), the term "control" has the meaning given to such term by section 304(c).
(3) Additional rules relating to title 11 and similar cases
(A) Title 11 or similar case defined
For purposes of this part, the term "title 11 or similar case" means—
(i) a case under
(ii) a receivership, foreclosure, or similar proceeding in a Federal or State court.
(B) Transfer of assets in a title 11 or similar case
In applying paragraph (1)(G), a transfer of the assets of a corporation shall be treated as made in a title 11 or similar case if and only if—
(i) any party to the reorganization is under the jurisdiction of the court in such case, and
(ii) the transfer is pursuant to a plan of reorganization approved by the court.
(C) Reorganizations qualifying under paragraph (1)(G) and another provision
If a transaction would (but for this subparagraph) qualify both—
(i) under subparagraph (G) of paragraph (1), and
(ii) under any other subparagraph of paragraph (1) or under section 332 or 351,
then, for purposes of this subchapter (other than section 357(c)(1)), such transaction shall be treated as qualifying only under subparagraph (G) of paragraph (1).
(D) Agency receivership proceedings which involve financial institutions
For purposes of subparagraphs (A) and (B), in the case of a receivership, foreclosure, or similar proceeding before a Federal or State agency involving a financial institution referred to in section 581 or 591, the agency shall be treated as a court.
(E) Application of paragraph (2)(E)(ii)
In the case of a title 11 or similar case, the requirement of clause (ii) of paragraph (2)(E) shall be treated as met if—
(i) no former shareholder of the surviving corporation received any consideration for his stock, and
(ii) the former creditors of the surviving corporation exchanged, for an amount of voting stock of the controlling corporation, debt of the surviving corporation which had a fair market value equal to 80 percent or more of the total fair market value of the debt of the surviving corporation.
(b) Party to a reorganization
For purposes of this part, the term "a party to a reorganization" includes—
(1) a corporation resulting from a reorganization, and
(2) both corporations, in the case of a reorganization resulting from the acquisition by one corporation of stock or properties of another.
In the case of a reorganization qualifying under paragraph (1)(B) or (1)(C) of subsection (a), if the stock exchanged for the stock or properties is stock of a corporation which is in control of the acquiring corporation, the term "a party to a reorganization" includes the corporation so controlling the acquiring corporation. In the case of a reorganization qualifying under paragraph (1)(A), (1)(B), or (1)(C), or (1)(G) of subsection (a) by reason of paragraph (2)(C) of subsection (a), the term "a party to a reorganization" includes the corporation controlling the corporation to which the acquired assets or stock are transferred. In the case of a reorganization qualifying under paragraph (1)(A) or (1)(G) of subsection (a) by reason of paragraph (2)(D) of that subsection, the term "a party to a reorganization" includes the controlling corporation referred to in such paragraph (2)(D). In the case of a reorganization qualifying under subsection (a)(1)(A) by reason of subsection (a)(2)(E), the term "party to a reorganization" includes the controlling corporation referred to in subsection (a)(2)(E).
(c) Control defined
For purposes of part I (other than section 304), part II, this part, and part V, the term "control" means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.
(Aug. 16, 1954, ch. 736,
References in Text
The Investment Company Act of 1940, referred to in subsec. (a)(2)(F)(vii), is title I of act Aug. 22, 1940, ch. 686,
Amendments
1989—Subsec. (a)(3)(D).
1988—Subsec. (a)(2)(F)(ii).
Subsec. (a)(3)(D)(iv), (v).
1986—Subsec. (a)(2)(A).
Subsec. (a)(2)(F)(ii).
Subsec. (a)(2)(G)(i).
Subsec. (a)(2)(H).
Subsec. (a)(3)(D).
Subsec. (c).
1984—Subsec. (a)(2)(F)(viii).
Subsec. (a)(2)(G).
Subsec. (c).
1983—Subsec. (a)(2)(C).
Subsec. (a)(3)(B)(i).
1982—Subsec. (a)(1)(F).
1981—Subsec. (a)(3)(D).
1980—Subsec. (a)(1)(G).
Subsec. (a)(2)(C).
Subsec. (a)(2)(D).
Subsec. (a)(3).
Subsec. (b).
1978—Subsec. (a)(2)(F).
1976—Subsec. (a)(2)(F).
Subsec. (c).
1971—Subsec. (a)(2)(E).
Subsec. (b).
1968—Subsec. (a)(2)(D).
Subsec. (b).
1964—Subsec. (a).
Subsec. (b).
Effective Date of 1989 Amendments
Repeal of amendment by section 904(a) of
Section 1401(c)(1) of
Effective Date of 1988 Amendment
Amendment by section 1018(q)(5) of
Section 4012(b)(1)(C)(i) of
Effective Date of 1986 Amendment
Repeal of amendment by section 806(f)(1) of
Section 904(c)(1) of
Amendment by section 1804(g)(2) of
Amendment by section 1804(h) of
Section 1879(l)(2) of
Effective Date of 1984 Amendment
Amendment by section 63(a) of
Section 64(b) of
Amendment by section 174(b)(5)(D) of
Effective Date of 1983 Amendment
Section 311(b)(2) of
Effective Date of 1982 Amendment
Section 225(b) of
"(1)
"(2)
Effective Date of 1981 Amendment
Section 246(a) of
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Section 701(j)(2) of
"(A) Except as provided in subparagraphs (B) and (C), the amendments made by paragraph (1) [amending this section] shall apply as if included in section 368(a)(2)(F) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] as added by section 2131(a) of the Tax Reform Act of 1976 [
"(B) Clause (viii) of section 368(a)(2)(F) of the Internal Revenue Code of 1986 (as added by paragraph (1)) shall apply only with respect to losses sustained after September 26, 1977.
"(C) Clause (vii) of section 368(a)(2)(F) of the Internal Revenue Code of 1986 (as added by paragraph (1)) shall apply only with respect to transfers made after September 26, 1977."
Effective Date of 1976 Amendment
Section 2131(f)(1), (2) of
"(1) Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply to transfers made after February 17, 1976, in taxable years ending after such date.
"(2) The amendment made by subsection (a) shall not apply to transfers made in accordance with a ruling issued by the Internal Revenue Service before February 18, 1976, holding that a proposed transaction would be a reorganization described in paragraph (1) of section 368(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]."
For effective date of amendment by section 806(f)(1) of
Effective Date of 1971 Amendment
Section 1(c) of
Effective Date of 1968 Amendment
Section 1(c) of
Effective Date of 1964 Amendment
Section 218(c) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Cross References
Assumption of liability, liabilities in excess of basis, see
Carryovers in certain corporate acquisitions, operating rules, see
Dividends paid on certain preferred stock of public utilities, stock issued in reorganization as defined in this section, see
Section 306 stock defined, stock received in reorganization within meaning of this section, see
Taxability of beneficiary of employees' trust, certain plan terminations, see
Transfer to corporation controlled by transferor, definition of control, see
Transferred assets, other taxes, see
Section Referred to in Other Sections
This section is referred to in
1 So in original. A reference to