SECTION 1. OVERVIEW

On September 22, 2006, the Internal Revenue Service (IRS) and the Treasury Department (Treasury) issued Notice 2006–85, 2006–41 I.R.B. 677, to address certain transactions involving foreign corporations where a subsidiary acquires stock of its parent from its parent for use in a triangular reorganization. Comments were requested in section 7 of that notice regarding similar transactions, including transactions where a subsidiary acquires stock of its parent from a person unrelated to its parent (such as from the public on the open market).

For reasons similar to those discussed in section 2 of Notice 2006–85, the IRS and Treasury believe that taxpayers’ characterization of these transactions, as well as other transactions involving acquisitions from related parties, raises significant policy concerns. Accordingly, this notice amplifies Notice 2006–85 by announcing that the IRS and Treasury will issue regulations under section 367(b) of the Internal Revenue Code to address these and similar transactions.