SECTION 3. REGULATIONS TO BE

ISSUED

.01 Treatment of section 961(c) basis in covered inbound transactions

As announced in Notice 2019-1 (2019-2 I.R.B. 275), the Treasury Department and the IRS expect to issue proposed regulations providing substantially comprehensive rules under sections 959 and 961. This notice announces that the Treasury Department and the IRS expect to issue additional proposed regulations (the “forthcoming regulations”) that will provide that, in the case of a covered

1 Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code (the “Code”) or the Income Tax Regulations (26 CFR part 1).

2 See TD 6850, 30 Fed. Reg. 11854 (1965). Section 961(c) was added to the Code by the Taxpayer Relief Act of 1997, Pub. L. No. 105-34 § 1112(b), 111 Stat. 788, 969 (1997).

3 For purposes of this notice, the term “adjusted basis” does not include section 961(c) basis.

4 See H.R. Rep. No. 87-1447 at A106 (1962) (“To prevent doubling up of tax where stock in a controlled foreign corporation is sold at a gain which reflects the retained earnings already taxed to United States persons, the basis of stock would be adjusted.”).

Bulletin No. 2024–5 623 January 29, 2024

inbound transaction, a domestic acquiring corporation’s adjusted basis of the stock of an acquired CFC determined under section 334(b) or 362(b) is determined as if the transferor CFC’s section 961(c) basis were adjusted basis. The transferor CFC’s section 961(c) basis is taken into account for purposes of the preceding sentence, however, only to the extent the section 961(c) basis is with respect to a domestic corporation described in section 3.02(1) or (2) of this notice, as applicable (that is, the section 961(c) basis resulted from inclusions in gross income of the domestic corporation under section 951(a) or section 951A(a), or the section 961(c) basis was inherited by the domestic corporation under section 961(c)’s successor rules in an acquisition by the domestic corporation of stock of the transferor CFC from another person).

.02 General definition of covered inbound transaction

Under the forthcoming regulations, except as provided in section 3.03 or 3.04 of this notice, a covered inbound transaction would be defined, with respect to an acquired CFC, to mean the following transactions in which a domestic acquiring corporation acquires all of the stock of the acquired CFC from a transferor CFC that, immediately before the transaction and any related transactions, owns (directly or indirectly under section 958(a) (2)) all of the stock of the acquired CFC.

(1) Section 332 liquidation or upstream asset reorganization . A liquidation described in section 332, a reorganization described in section 368(a)(1)(A) (but not section 368(a)(2)(D) or 368(a)(2)(E)) (“nontriangular A reorganization”), or a reorganization described in section 368(a) (1)(C) (determined without regard to the parenthetical) (“nontriangular C reorganization”), in which all of the stock of the transferor CFC is owned directly by the domestic acquiring corporation immediately before the transaction.

(2) Other asset reorganization . A nontriangular A reorganization, a nontriangular C reorganization, a reorganization described in section 368(a)(1) (D) (that satisfies the requirements of section 354(b)(1)(A) and (B)), or a reorganization described in section 368(a)(1) (F), in which all of the stock of the transferor CFC is owned directly by a single

domestic corporation (or by members of the same consolidated group) immediately before the transaction, and that same domestic corporation (or members of the same consolidated group) directly owns all of the stock of the domestic acquiring corporation immediately after the transaction and any related transactions.

.03 De minimis rules for stock owner- ship

A transaction otherwise described in section 3.02(1) or (2) of this notice would not fail to be a covered inbound transaction solely because, immediately before the transaction, one or more persons other than the domestic corporation (or members of a consolidated group, as applicable) described in section 3.02(1) or (2) of this notice own (in the aggregate) one percent or less of the total fair market value of the stock of the transferor CFC. Solely for purposes of determining whether a transaction is a covered inbound transaction, stock of the acquired CFC owned by one or more persons other than the transferor CFC immediately before the transaction and any related transactions that represents (in the aggregate) one percent or less of the total fair market value of the stock of the acquired CFC is disregarded, provided that any such person must continue to own its stock of the acquired CFC after the transaction and any related transactions if the person is not related (within the meaning of section 267(b) or 707(b) (1)) to a domestic corporation described in section 3.02(1) or (2) of this notice.

.04 Limitations on the scope of covered inbound transactions

(1) De minimis boot . In general, a reorganization would not be a covered inbound transaction if money or other property is received as described under section 356(a). However, a reorganization would not fail to be a covered inbound transaction if the amount of money or other property received as described under section 356(a) represents no more than one percent of the total fair market value of the stock of the transferor CFC.

(2) Loss in stock of acquired CFC . A transaction would not be a covered inbound transaction if, immediately before the covered inbound transaction, the total amount of the transferor CFC’s basis in the stock of the acquired CFC (that is, the aggregate amount of adjusted

basis and section 961(c) basis) exceeds the total fair market value of such stock of the acquired CFC.

(3) Transfers described in section 368(a)(2)(C) or §1.368-2(k)(1) . A transaction would not be a covered inbound transaction if stock of the acquired CFC is transferred pursuant to section 368(a) (2)(C) or §1.368-2(k)(1), unless the transferee is (i) a member of the same consolidated group that includes the domestic acquiring corporation and wholly owned by one or more members of that same consolidated group, or (ii) the common parent of that consolidated group.

(4) Other subsequent transfers . A transaction would not be a covered inbound transaction if, pursuant to a plan (or series of related transactions), stock of the acquired CFC is transferred to a partnership or foreign corporation in connection with a covered inbound transaction. A plan to transfer the stock of the acquired CFC would be deemed to exist if stock of the acquired CFC is subsequently transferred to a partnership or a foreign corporation within the two-year period beginning at the time the covered inbound transaction is completed.

(5) Certain types of domestic acquiring corporations . A transaction would not be a covered inbound transaction if the domestic acquiring corporation is a regulated investment company as defined in section 851, a real estate investment trust as defined in section 856, or an S corporation as defined in section 1361.

If the stock of multiple acquired CFCs is transferred by a single transferor CFC in a transaction described in section 3.02 of this notice, the limitations in sections 3.04(2), 3.04(3), and 3.04(4) of this notice apply separately with respect to each acquired CFC.