Notice 89-85 announced that the

exception and the limitation set forth in §1.897-5T(c)(4)(ii) and (iii) would be replaced by a new exception. This new exception generally provides that gain recognition will not be required on the section 361(c) distribution of the stock of the USRPHC under §1.897-5T(c)(4)(i) if the foreign corporation pays an amount equal to any taxes that section 897 would have imposed (plus interest) on all persons who had disposed of interests in the transferor foreign corporation (or a corporation from which such assets were acquired in a transaction described in section 381) after June 18, 1980, as if it were a domestic corporation on the date of each such disposition, and if the conditions of §1.897-5T(c) (4)(ii)(A) and (C) are met. The condition under §1.897-5T(c)(4)(ii)(A) is met if, at the time of the distribution, the distributee (that is, the exchanging shareholder in the section 354 exchange) would be subject to U.S. taxation on a subsequent disposition of the stock of the domestic corporation. The condition under §1.897-5T(c)(4)(ii) (C) is met if the distributing corporation complies with the filing requirements prescribed in §1.897-5T(d)(1)(iii), under which a nonresident alien individual or foreign corporation that transfers or distributes a USRPI is required to file an income tax return for the taxable year of the distribution or transfer and attach to the return a document setting forth certain information prescribed in the regulations. ¹

Application of Sections 897(d) and (e) to Certain Inbound Asset Reorganizations under Section 368(a)(1)(F); Stock Ownership Requirement under Section 368(a)(1)(F)