Acquisitive Reorganization Under Section 367(b)


This outline discusses, in plain English, the regulatory provisions called into play under IRC § 367(b) on acquisitive mergers and other non-divisive corporate reorganizations. A Section 367(b) acquisitive reorganization commonly involves some form of internal restructuring within a single controlled group, or in rarer cases, a third-party reorganization in which a U.S. shareholder receives a foreign corporation’s stock. Note that § 367(b) also applies to divisive reorganizations (i.e., spin-offs) involving CFCs and other spin-offs with a cross-border element. These spin-off rules under § 367(b) are not discussed here, as the author has written a comprehensive treatment of those rules through the RIA Checkpoint Catalyst system. (See Checkpoint Catalyst, Topic #132). Readers desiring reference material on that subject are directed there.

The basic categories of transactions covered by this outline may be summarized as follows:

- So-called Domestication transactions, in which a U.S. corporation acquires the assets of a foreign corporation in a § 381 transaction (Part II—or Reg. § 1.367(b)-3);

- De-controlling exchanges, in which a U.S. corporation or its CFC exchanges stock in a CFC for stock in a foreign corporation which is not a CFC (Part III—Reg. § 1.367(b)-4);

- Foreign-to-foreign liquidations and reorganizations, in which the E&P and tax attributes of one foreign corporation carry over to another foreign corporation (Part IV—Reg. § 1.367(b)-7); and

- Leveraged triangular reorganizations or so-called “Killer B” transactions in which a subsidiary purchases its parent’s stock for a note or other property to effect a triangular reorganization (Part V—Reg. § 1.367(b)-10 and IRS Notice 2014-32). Unlike the other categories of § 367(b) transactions, this rule may also apply in the inbound fact pattern of a foreign parent with a domestic subsidiary.

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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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