Reg. § 1.367(a)-1 Transfers to foreign corporations subject to section 367(a): In general.
(a) Scope Section provides the general rule concerning certain transfers of property by a United States person (referred to at times in this section as the “U.S. person” or “U.S. transferor”) to a foreign corporation. of this section provides general rules explaining the effect of section . of this section describes transfers of property that are described in section . of this section provides definitions that apply for purposes of sections and (d) and the regulations thereunder. and of this section provide rules that apply to certain reorganizations described in section . of this section provides dates of applicability. For rules concerning the reporting requirements under section for certain transfers of property to a foreign corporation, see .
(b) General rules
(1) Foreign corporation not considered a corporation for purposes of certain transfers If a U.S. person transfers property to a foreign corporation in connection with an exchange described in section , , , or , then, pursuant to section , the foreign corporation will not be considered to be a corporation for purposes of determining the extent to which gain is recognized on the transfer. Section denies nonrecognition treatment only to transfers of items of property on which gain is realized. Thus, the amount of gain recognized because of section is unaffected by the transfer of items of property on which loss is realized (but not recognized).
(2) Cases in which foreign corporate status is not disregarded For circumstances in which section does not apply to a U.S. transferor's transfer of property to a foreign corporation, and thus the foreign corporation is considered to be a corporation, see , , and .
(3) Determination of value In cases in which a U.S. transferor's transfer of property to a foreign corporation constitutes a controlled transaction as defined in , the value of the property transferred is determined in accordance with section and the regulations thereunder.
(4) Character, source, and adjustments
(i) In general If a U.S. person is required to recognize gain under section upon a transfer of property to a foreign corporation, then—
(A) The character and source of such gain are determined as if the property had been disposed of in a taxable exchange with the transferee foreign corporation (unless otherwise provided by regulation); and
(B) Appropriate adjustments to earnings and profits, basis, and other affected items will be made according to otherwise applicable rules, taking into account the gain recognized under section . For purposes of applying section , the foreign corporation's basis in the property received is increased by the amount of gain recognized by the U.S. transferor under section and the regulations issued pursuant to that section. To the extent the regulations provide that the U.S. transferor recognizes gain with respect to a particular item of property, the foreign corporation increases its basis in that item of property by the amount of such gain recognized. For example, , , and provide that gain is recognized with respect to particular items of property. To the extent the regulations do not provide that gain recognized by the U.S. transferor is with respect to a particular item of property, such gain is treated as recognized with respect to items of property subject to section in proportion to the U.S. transferor's gain realized in such property, after taking into account gain recognized with respect to particular items of property transferred under any other provision of section . For example, provides that branch losses must be recaptured by the recognition of gain realized on the transfer but does not associate the gain with particular items of property. See also for rules concerning transfers by partnerships or of partnership interests.
(C) The transfer will not be recharacterized for U.S. Federal tax purposes solely because the U.S. person recognizes gain in connection with the transfer under section . For example, if a U.S. person transfers appreciated stock or securities to a foreign corporation in an exchange described in section , the transfer is not recharacterized as other than an exchange described in section solely because the U.S. person recognizes gain in the transfer under section .
(ii) Example The rules of this are illustrated by the following example.
Example. Domestic corporation DC transfers inventory with a fair market value of $1 million and adjusted basis of $800,000 to foreign corporation FC in exchange for stock of FC that is described in section . Title passes within the United States. Pursuant to section , DC is required to recognize gain of $200,000 upon the transfer. Under the rule of this , the gain is treated as ordinary income (sections and ) from sources within the United States (section ) arising from a taxable exchange with FC. Appropriate adjustments to earnings and profits, basis, etc., will be made as if the transfer were subject to section . Thus, for example, DC's basis in the FC stock received, and FC's basis in the transferred inventory, will each be increased by the $200,000 gain recognized by DC, pursuant to sections and , respectively.
(5) Treatment of certain property as subject to section 367(d) A U.S. transferor may apply section and , rather than section and the regulations thereunder, to a transfer of property to a foreign corporation that otherwise would be subject to section , provided that the property is not eligible property, as defined in but determined without regard to . A U.S. transferor and any other U.S. transferor that is related (within the meaning of section or ) to the U.S. transferor must consistently apply this to all property described in this that is transferred to one or more foreign corporations pursuant to a plan. A U.S. transferor applies the provisions of this in the form and manner set forth in and .
(c)
(1) through(c)(3)(i) [Reserved]. For further guidance, see through
(3)
(i)
(ii) Transfer of partnership interest treated as transfer of proportionate share of assets —(A) In general. If a U.S. person transfers an interest as a partner in a partnership (whether foreign or domestic) in an exchange described in section , then that person is treated as having transferred a proportionate share of the property of the partnership in an exchange described in section . Accordingly, the applicability of the exception to section provided in is determined with reference to the property of the partnership rather than the partnership interest itself. A U.S. person's proportionate share of partnership property is determined under the rules and principles of sections through and the regulations thereunder.
(c) (3)(i)(A) Example through (7) [Reserved]. For further guidance, see Example through (7).
(d) Definitions The following definitions apply for purposes of sections and (d) and the regulations thereunder.
(1) United States person The term “United States person” includes those persons described in section . The term includes a citizen or resident of the United States, a domestic partnership, a domestic corporation, and any estate or trust other than a foreign estate or trust. (For definitions of these terms, see section and the regulations thereunder.) For purposes of this section, an individual with respect to whom an election has been made under section or (h) is considered to be a resident of the United States while such election is in effect. A nonresident alien or a foreign corporation will not be considered a United States person because of its actual or deemed conduct of a trade or business within the United States during a taxable year.
(2) Foreign corporation The term “foreign corporation” has the meaning set forth in section and (5) and .
(3) Transfer For purposes of section and regulations thereunder, the term “transfer” means any transaction that constitutes a transfer for purposes of section , , , , , or , as applicable. A person's entering into a cost sharing arrangement under or acquiring rights to intangible property under such an arrangement shall not be considered a transfer of property described in section . See for the date on which the transfer is considered to be made.
(4) Property For purposes of section and the regulations thereunder, the term “property” means any item that constitutes property for purposes of section , , , , or , as applicable.
(5) Intangible property The term “intangible property” means either property described in section or property to which a U.S. person applies section pursuant to of this section, but does not include property described in section or a working interest in oil and gas property.
(6) Operating intangibles An operating intangible is any property described in section of a type not ordinarily licensed or otherwise transferred in transactions between unrelated parties for consideration contingent upon the licensee's or transferee's use of the property. Examples of operating intangibles may include long-term purchase or supply contracts, surveys, studies, and customer lists.
(e) Close of taxable year in certain section 368(a)(1)(F) reorganizations If a domestic corporation is the transferor corporation in a reorganization described in section after March 30, 1987, in which the acquiring corporation is a foreign corporation, then the taxable year of the transferor corporation shall end with the close of the date of the transfer and the taxable year of the acquiring corporation shall end with the close of the date on which the transferor's taxable year would have ended but for the occurrence of the transfer. With regard to the consequences of the closing of the taxable year, see section and the regulations thereunder.
(f) Exchanges under sections 354(a) and 361(a) in certain section 368(a)(1)(F) reorganizations
(1) Rule In every reorganization under section , where the transferor corporation is a domestic corporation, and the acquiring corporation is a foreign corporation, there is considered to exist—
(i) A transfer of assets by the transferor corporation to the acquiring corporation under section in exchange for stock (or stock and securities) of the acquiring corporation and the assumption by the acquiring corporation of the transferor corporation's liabilities;
(ii) A distribution of the stock (or stock and securities) of the acquiring corporation by the transferor corporation to the shareholders (or shareholders and security holders) of the transferor corporation; and
(iii) An exchange by the transferor corporation's shareholders (or shareholders and security holders) of their stock (or stock and securities) of the transferor corporation for stock (or stock and securities) of the acquiring corporation under section .
(2) Rule applies regardless of whether a continuance under applicable law For purposes of of this section, it shall be immaterial that the applicable foreign or domestic law treats the acquiring corporation as a continuance of the transferor corporation.
(g) Effective/applicability dates
(1) through (3) [Reserved]. For further guidance, see through .
(4) The rules in and of this section apply to transfers occurring on or after April 18, 2013. For guidance with respect to of this section before April 18, 2013, see 26 CFR part 1 revised as of April 1, 2012. The rules in of this section apply to transactions occurring on or after March 31, 1987. The rules in of this section apply to transactions occurring on or after January 1, 1985.
(5) Paragraphs (a), (b)(1) through (b)(4)(i)(B), (b)(4)(ii) through (b)(5), (c)(3)(ii)(A), (d) introductory text through (d)(2), (d)(4) through (d)(6) of this section apply to transfers occurring on or after September 14, 2015, and to transfers occurring before September 14, 2015, resulting from entity classification elections made under that are filed on or after September 14, 2015. For transfers occurring before this section is applicable, see §§ and 1.367(a)-1T as contained in 26 CFR part 1 revised as of April 1, 2016.
[T.D. 9803, 81 FR 91022, Dec. 16, 2016, as amended at 82 FR 52848, Nov. 15, 2017; T.D. 9994, 89 FR 82165, Oct. 10, 2024]