Achieving a Smooth Stock Basis

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In a helpful recent private letter ruling, the Internal Revenue Service illustrated a method allowing multinational corporations seeking tax-efficient ways to repatriate offshore cash to avoid the obstacle posed by Johnson v. United States.

Multinational corporations often seek tax-efficient ways to repatriate offshore cash. However, the U.S. Court of Appeals for the Fourth Circuit decision in Johnson v. United States, 435 F.2d 1257 (4th Cir. 1971), often presents a significant obstacle to these efforts by applying section 301(c)(2) to distributions in excess of earnings and profits (E&P) by reducing stock basis share-by-share, rather than in the aggregate. But the Internal Revenue Service (IRS), in a helpful recent private letter ruling, PLR 201043021 (June 29, 2010), has illustrated a method to get around the Johnson issue.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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