Notice 2016-73 announced that additional regulations would be issued under

section 367(b) to address transactions such as these types of two-step transactions. To address step one of the transaction, the regulations would, in addition to the modifications described in Notice 2014-32, prevent the section 367(a) priority rule from applying where T is foreign and instead subject certain T shareholders to rules under §1.367(b)-4 that could result in an income inclusion or gain recognition with respect to their exchange of T stock. To address step two of the transaction, the regulations would subject any inbound nonrecognition transaction to a new set of “excess asset basis” (EAB) rules to be issued under §1.367(b)-3 that, for purposes of determining the all earnings and profits amount, would take into account certain earnings and profits of lower-tier foreign corporations. Step two of the transaction was subject to the EAB rules because a taxpayer may have completed an applicable triangular reorganization described in step one (but not yet an inbound nonrecognition transaction described in step two) before the issuance of Notice 2016-73. Such partially completed transactions would go unaddressed if the regulations were limited to modifying the section 367(a) priority rule. Notice 2016-73 further announced that the EAB rules would apply to any inbound nonrecognition transaction, regardless

Bulletin No. 2023–44 1195 October 30, 2023

of whether the taxpayer had previously engaged in an applicable triangular reorganization, out of concern that transactions other than applicable triangular reorganizations might also position taxpayers to achieve an improper repatriation of property through a subsequent inbound nonrecognition transaction.