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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