Reg. § 1.367(a)-4 Special rule applicable to U.S. depreciated property.
(a) Depreciated property used in the United States
(1) In general A U.S. person that transfers U.S. depreciated property (as defined in of this section) to a foreign corporation in an exchange described in section , must include in its gross income for the taxable year in which the transfer occurs ordinary income equal to the gain realized that would have been includible in the transferor's gross income as ordinary income under section , , , , , or , whichever is applicable, if at the time of the transfer the U.S. person had sold the property at its fair market value. Recapture of depreciation under this is required regardless of whether the exception to section provided by applies to the transfer of the U.S. depreciated property. However, the transfer of the U.S. depreciated property may qualify for the exception with respect to realized gain that is not included in ordinary income pursuant to this .
(2) U.S. depreciated property U.S. depreciated property subject to the rules of this is any property that—
(i) Is either mining property (as defined in section ), section property (as defined in section ), section property (as defined in section ), farm land (as defined in section ), section property (as defined in section ), or section property (as defined in section ); and
(ii) Has been used in the United States or has been described in section before its transfer.
(3) Property used within and without the United States
(i) If U.S. depreciated property has been used partly within and partly without the United States, then the amount required to be included in ordinary income pursuant to this is reduced to an amount determined in accordance with the following formula:
(ii) For purposes of the fraction in of this section, the “full recapture amount” is the amount that would otherwise be included in the transferor's income under of this section. “U.S. use” is the number of months that the property either was used within the United States or has been described in section , and was subject to depreciation by the transferor or a related person. “Total use” is the total number of months that the property was used (or available for use), and subject to depreciation, by the transferor or a related person. For purposes of this , property is not considered to have been in use outside of the United States during any period in which such property was, for purposes of section , treated as property not used predominantly outside the United States pursuant to section . For purposes of this , the term “related person” has the meaning set forth in .
(b) Effective/applicability dates The rules 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)-4T as contained in 26 CFR part 1 revised as of April 1, 2016.
[T.D. 9803, 81 FR 91027, Dec. 16, 2016]