[Federal Register Volume 89, Number 197 (Thursday, October 10, 2024)]
[Rules and Regulations]
[Pages 82160-82170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-23132]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9994]
RIN 1545-BP55


Section 367(d) Rules for Certain Repatriations of Intangible 
Property

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final rule.

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SUMMARY: This document contains final regulations that terminate the 
continued application of certain tax provisions arising from a previous 
transfer of intangible property to a foreign corporation when the 
intangible property is repatriated to certain United States persons. 
The final regulations affect certain United States persons that 
previously transferred intangible property to a foreign corporation.

DATES: 
    Effective date: These regulations are effective on October 10, 
2024.
    Applicability date: For dates of applicability, see Sec. Sec.  
1.367(d)-1(j)(2), 1.904-(q)(3), 1.951A-7(e), and 1.6038B-1(g)(8).

FOR FURTHER INFORMATION CONTACT: Concerning the final regulations other 
than Sec.  1.904-4, Brittany N. Dobi (202) 317-6937; concerning Sec.  
1.904-4, Jeffrey L. Parry, (202) 317-6936 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Authority

    This document contains final additions and amendments to 26 CFR 
part 1 (final regulations) under section 367(d) of the Internal Revenue 
Code (Code) regarding the termination of the continued application of 
certain tax provisions arising from a previous transfer of intangible 
property to a foreign corporation when the intangible property is 
repatriated to certain United States persons. The primary provisions of 
the final regulations are issued pursuant to the express delegations of 
authority to the Secretary of the Treasury (or her delegate) provided 
under sections 367(d) and 6038B. The provisions of the final 
regulations related to foreign branch income are issued pursuant to the 
express delegations of authority provided under sections 904(d)(2)(J) 
and (d)(7). The final regulations are also issued under the express 
delegation of authority under section 7805(a).

Background

    On May 3, 2023, the Department of the Treasury (Treasury 
Department) and the IRS published a notice of proposed rulemaking (REG-
124064-19) in the Federal Register (88 FR 27819) under section 367 (the 
proposed regulations). The proposed regulations were intended to 
address simple, common fact patterns involving repatriations of 
intangible property by terminating the continued application of section 
367(d) when a transferee foreign corporation repatriates intangible 
property subject to section 367(d) to a qualified domestic person when 
certain reporting requirements are satisfied. The proposed regulations 
also included a rule coordinating the application of section 367(d) and 
the provisions in Sec.  1.904-4(f)(2)(vi)(D) that apply the principles 
of section 367(d) to determine the appropriate amount of gross income 
attributable to a foreign branch. A ``repatriation'' denotes a 
subsequent transfer of intangible property to the U.S. transferor or a 
United States person (U.S. person) related to the U.S. transferor.

Summary of Comments and Explanation of Revisions

I. In General

    Five comments were submitted on the proposed regulations, which are 
available at https://www.regulations.gov or upon request. No public 
hearing on the proposed regulations was requested or held.
    This Summary of Comments and Explanation of Revisions describes 
those comments and the revisions made in response to those comments. 
The comments also made various requests for future guidance, which the 
Treasury Department and the IRS will consider as part of a potential 
future rulemaking addressing, among other things, general issues under 
section 367(d).

II. Definition of Qualified Domestic Person

A. In General
    To terminate the continued application of section 367(d) upon a

[[Page 82161]]

repatriation of intangible property, the proposed regulations required 
the recipient of the intangible property to be a qualified domestic 
person. The proposed regulations defined a qualified domestic person by 
reference to an ``initial U.S. transferor,'' a ``qualified successor,'' 
or a U.S. person that is either an individual or ``qualified 
corporation'' related to either the initial U.S. transferor or 
qualified successor. See proposed Sec.  1.367(d)-1(f)(4)(iii).
    As the preamble to the proposed regulations explained in part I.C 
of the Explanation of Provisions, the definition of qualified domestic 
person was based on the principle that it is generally appropriate to 
terminate the continued application of section 367(d) only when all the 
income produced by the intangible property during its useful life, and 
all gain recognized on a disposition of the intangible property, will 
be subject to current tax in the United States as to the qualified 
domestic person while that person holds the property. See 88 FR 27819, 
27824. The proposed regulations further described how, in the case of a 
repatriation to an initial U.S. transferor, the repatriation restored 
the circumstances that existed at the time of the original section 
367(d) transfer. See Id.
B. Partnerships
    The proposed regulations neither treated a domestic partnership as 
a qualified domestic person, nor adopted an approach that would treat a 
partnership as an aggregate of its partners (aggregate approach) for 
purposes of determining qualified domestic person status. One comment 
suggested that the Treasury Department and the IRS modify the 
definition of qualified domestic person to include partnerships in 
which all of the partners in the partnership would themselves be 
qualified domestic persons, or partnerships that made the original 
outbound transfer of the intangible property subject to section 367(d) 
when there is substantial continuity of ownership of that partnership 
during the period beginning on the date of the initial section 367(d) 
transfer and ending on the date of the repatriation of the intangible 
property. As part of the modification, the comment also described 
various approaches for addressing the concerns identified in the 
proposed regulations regarding, for example, the potential for post-
repatriation changes to partnership allocations or liquidation rights 
to frustrate the purposes of the proposed regulations if a partnership, 
or a partner in the partnership, were permitted as a qualified domestic 
person in certain cases. See 88 FR 27819, 27824 for a discussion of 
those concerns. Specifically, the comment suggested that the final 
regulations, in adopting the modification, could limit its application 
by requiring a specific period after the repatriation during which the 
ownership or interests in the partnership could not change. 
Additionally, the comment suggested that, to provide flexibility while 
protecting against the concerns outlined in the proposed regulations, 
the final regulations could allow the Commissioner to exercise 
discretion at a taxpayer's request to determine that a post-
distribution change in the ownership of the partnership, or in the 
economic rights of the partners with respect to the intangible 
property, would not taint the partnership's status as a qualified 
domestic person. Finally, the comment also described more general, 
long-standing issues under section 367(d) related to the treatment of 
partnerships within the section 367(d) regime, and ultimately suggested 
that resolution of those issues should not impede finalizing the 
proposed regulations.
    The final regulations do not adopt this comment and therefore adopt 
the definition of qualified domestic person from the proposed 
regulations without change. The issues identified by the comment, along 
with potential solutions to those issues, were acknowledged in the 
preamble to the proposed regulations, and the Treasury Department and 
the IRS have determined that the approach outlined in the proposed 
regulations continues to strike the appropriate balance between 
implementing the general purpose and scope of the proposed regulations 
(ensuring that only appropriate repatriations terminate the continued 
application of section 367(d)) and concerns regarding administrability 
and compliance. The solutions described in the comment, like the 
alternatives described in the proposed regulations, would not achieve 
this balance because the solutions would either expand the scope of the 
proposed regulations in an inappropriate manner (that is, by expanding 
the basic principle upon which the proposed regulations rests), or the 
solutions would, given the relatively narrow scope of the proposed 
regulations, impose an undue burden on taxpayers and the IRS. See 88 FR 
27819, 27824 (describing, with respect to the latter, an approach 
modeled off of the rules in Sec. Sec.  1.367(a)-3 and 1.367(a)-8 
regarding gain recognition agreements and noting that approach would be 
``unworkable due to the compliance and administrative burden.'').
    Another comment described general, long-standing issues under 
section 367(d) related to the treatment of partnerships. These issues 
were generally identified in the proposed regulations. See id. For 
example, the comment pointed to Sec. Sec.  1.367(a)-1T(c)(3)(i) and 
1.367(d)-1T(a), which apply an aggregate approach upon an initial 
outbound transfer. The comment did not include any explicit suggestion 
for change regarding the proposed regulations, but the Treasury 
Department and the IRS may consider these issues as part of future 
rulemaking.
C. S Corporations
    As described in part I.A of this Summary of Comments and 
Explanation of Revisions, the proposed regulations limited qualified 
domestic person status to ``qualified corporations'' in the case of a 
qualified successor or in the case of a U.S. person related to either 
the initial U.S. transferor or qualified successor. See proposed Sec.  
1.367(d)-1(f)(4)(iii). A qualified corporation, in relevant part, did 
not include an S corporation (as defined in section 1361(a)). See Id.
    One comment suggested that the final regulations allow S 
corporations as qualified corporations. The comment noted that the 
shareholders of an S corporation must generally be U.S. individuals 
subject to U.S. taxation, which ensures that income attributable to 
intangible property held by an S corporation would be subject to U.S. 
taxation (though the comment noted that the limitation is not absolute, 
as certain plans described in section 401(a) may be shareholders of an 
S corporation).
    Section 512(e)(3) excludes a non-individual shareholder that is an 
employee stock ownership plan (ESOP) (as defined in section 4975(e)(7) 
from the scope of section 512(e)(1), which provides that, in the case 
of certain non-individual shareholders of the S corporation, any item 
of income, gain, loss, or deduction, and any gain or loss on the 
disposition of stock in the S corporation, is taken into account by 
such non-individual shareholders as unrelated business taxable income 
(UBTI). As a result, the pro rata share of an S corporation's items of 
income taken into account by an ESOP shareholder is not subject to 
current taxation as UBTI. As noted in part I.A of this Summary of 
Comments and Explanation of Revisions, a principle for the definition 
of qualified domestic person is that termination of the continued 
application of section 367(d)

[[Page 82162]]

should occur only when all the income produced by the intangible 
property, as well as gain recognized on a disposition of the intangible 
property, is subject to current tax in the United States. In the case 
of an S corporation, that result is not guaranteed.
    The final regulations, therefore, do not adopt this comment and 
retain the definition of qualified domestic person from the proposed 
regulations without change. The Treasury Department and the IRS 
considered alternative approaches to address this comment--such as an 
aggregate approach, with prohibitions applicable to S corporation 
shareholders that are ESOPs--but determined that such approaches were 
effectively unworkable due to the compliance and administrative burden 
discussed in part II.B of this Summary of Comment and Explanation of 
Revisions in connection with the comment on partnerships.

III. Qualified Domestic Person's Adjusted Basis in Repatriated 
Intangible Property

    Proposed Sec.  1.367(d)-1(f)(4)(iv) provided rules regarding a 
qualified domestic person's adjusted basis in the intangible property 
it receives in a repatriation. The proposed regulations described how 
these rules were intended to achieve an appropriate result regarding a 
qualified domestic person's adjusted basis in intangible property upon 
a repatriation, but that general rules regarding adjusted basis under 
section 367(d) (and not in the context of a repatriation of intangible 
property to a qualified domestic person) would be addressed in future 
rulemaking. See 88 FR 27819, 27824, and 27825.
    One comment described how existing uncertainty regarding the 
treatment of adjusted basis of intangible property subject to section 
367(d) may be implicated when that intangible property is repatriated. 
The comment noted that any solution would necessarily represent a broad 
solution to existing section 367(d) issues, instead of one limited to 
the proposed regulations, so the comment recommended the Treasury 
Department and the IRS address this issue in future rulemaking. Another 
comment suggested that, when a transferee foreign corporation incurs 
expenditures with respect to repatriated intangible property after the 
initial outbound transfer, proposed Sec.  1.367(d)-1(f)(4)(iv) should 
be modified to allow a qualified domestic person's adjusted basis in 
repatriated intangible property to reflect those expenditures, reduced 
by any attributable amortization allowed or allowable to the transferee 
foreign corporation.
    As noted in the proposed regulations, proposed Sec.  1.367(d)-
1(f)(4)(iv) operated ``in a manner intended to reach an appropriate 
result regarding a qualified domestic person's basis in repatriated 
intangible property'' until future rulemaking is issued that can 
address general basis rules under section 367(d). See id. The Treasury 
Department and the IRS, in agreement with the first comment, continue 
to believe that any resolution of these issues necessarily implicates 
broader issues under section 367(d) and, as such, is beyond the scope 
of this rulemaking. Proposed Sec.  1.367(d)-1(f)(4)(iv) is therefore 
finalized without change, though the Treasury Department and the IRS 
may revisit these issues as part of future rulemaking.

IV. Required Adjustments Related to an Annual Section 367(d) Inclusion

    The proposed regulations provided that the deemed annual payment 
under section 367(d) by the transferee foreign corporation is treated 
as an allowable deduction that must be allocated and apportioned to the 
transferee foreign corporation's classes of gross income in accordance 
with Sec. Sec.  1.882-4(b)(1), 1.954-1(c), and 1.960-1(c) and (d) (as 
applicable). See proposed Sec.  1.367(d)-1(c)(2)(ii) and (e)(2)(ii). 
These provisions, described as ``minor clarifications'' in the preamble 
to the proposed regulations, clarified ``that the allowable deduction 
is allocated and apportioned under the provisions cited in the previous 
sentence potentially to any class (or classes) of gross income (as 
appropriate) rather than solely to gross income subject to subpart F in 
all circumstances.'' See 88 FR 27819, 27822, and 27825.
    One comment suggested that the proposed regulations were unclear as 
to whether the allowable deduction described in proposed Sec.  
1.367(d)-1(c)(2)(ii) and (e)(2)(ii) was limited to the listed 
provisions (Sec. Sec.  1.882-4(b)(1), 1.954-1(c), and 1.960-1(c) and 
(d)) or whether such deduction was more generally available (for 
example, as a deduction under section 162). The comment posited that 
the latter approach was more appropriate and requested that the final 
regulations clarify that the allowable deduction may be allowed as a 
deduction under section 162. In support, the comment described how, in 
the case of certain transfers of intangible property to a U.S. person 
that is not a qualified domestic person, ``excessive U.S. taxation'' 
could result if the allowable deduction were limited to the listed 
provisions, which are provisions relevant to determinations with 
respect to foreign corporations.
    The final regulations do not adopt this comment. The proposed 
regulations terminated the continued application of section 367(d) upon 
certain, rather than all, subsequent transfers of intangible property 
to a U.S. person (that is, upon a repatriation to a qualified domestic 
person if certain reporting requirements are met). See 88 FR 27819, 
27821, and 27822. The comment, if adopted, would effectively terminate 
the continued application of section 367(d) by, for example, providing 
a deduction under section 162 corresponding to each annual inclusion 
under section 367(d). Indeed, as the proposed regulations explained, 
the solution contained in the proposed regulations was premised, in 
relevant part, on the fact that ``the deemed (substituted) transferee 
foreign corporation is not allowed a deduction that could reduce 
taxable income, even though that deemed transferee foreign corporation 
is the U.S. transferor or a related U.S. person.'' See id. Thus, a 
fundamental premise underlying the proposed regulations, and the 
existing section 367(d) regulations, is that an allowable deduction, 
instead of being generally available, is limited to the provisions 
listed in the proposed regulations (Sec. Sec.  1.882-4(b)(1), 1.954-
1(c), and 1.960-1(c) and (d)). To adopt the comment's suggestion would 
therefore be inconsistent with the proposed regulations and section 
367(d) generally.
    The comment also suggested that, when a subsequent transfer of 
intangible property results in treating the same entity as U.S. 
transferor and transferee foreign corporation under the section 367(d) 
regulations, the continued application of section 367(d) should 
terminate by reason of that convergence. As support, the comment cited 
to a case and guidance involving circumstances in which a taxpayer 
acquired its own debt. The Treasury Department and the IRS do not agree 
with this suggestion for the reasons described in the preceding 
paragraph, and references to cases or guidance involving a taxpayer 
acquiring its own debt are not instructive for, nor consistent with, 
the statutory and regulatory framework of section 367(d). Section 
367(d) relies upon a statutory fiction that imposes a notional regime 
with a prescribed payor and payee, and the regulations describe cases 
in which a successor succeeds to the notional payment on both sides of 
the construct. For example, Sec.  1.367(d)-1T(e)(1) provides that a 
related person can succeed an initial U.S. transferor for purposes of 
including income under section 367(d), and Sec.  1.367(d)-1T(f)(3) 
provides that a related person can

[[Page 82163]]

succeed to the payor side of the deemed payment fiction. Where 
intangible property is returned to the original U.S. transferor, that 
U.S. transferor is also the successor transferee under the statutory 
and regulatory framework of section 367(d), and, under the express 
language of Sec.  1.367(d)-1T(f)(3), the annual inclusion under section 
367(d) continues. This is precisely the issue the proposed regulations 
were intended to address, and new regulations providing a rule for 
terminating an annual inclusion stream would have been largely 
unnecessary if the deemed payment construct collapsed automatically in 
such cases. Instead, this Treasury Decision provides the exclusive 
means by which the continued application of section 367(d) may be 
terminated by reason of a subsequent transfer of intangible property to 
a U.S. person.

V. Multiple Transfers Before Repatriation

    One comment suggested changes to the proposed regulations to 
accommodate repatriations preceded by certain transfers of intangible 
property subject to section 367(d) between related foreign 
corporations. To illustrate this suggestion, the comment posited an 
example pursuant to which a repatriation was first preceded by a 
distribution under section 311 of the intangible property (first 
section 311 distribution) from one CFC (original transferee foreign 
corporation, or TFC) to another CFC (successor TFC). The successor TFC 
then distributes the intangible property under section 311 to a 
qualified domestic person (second 311 distribution) in a transaction 
with respect to which the successor TFC did not recognize gain or loss 
(under the theory that successor TFC's adjusted basis in the intangible 
property equaled the intangible property's fair market value).
    On those modified facts, the comment described how the original TFC 
could recognize gain subject to U.S. taxation by reason of the first 
section 311 distribution (not under section 367(d), but rather under, 
for example, section 951A(a) as to a United States shareholder), and 
the qualified domestic person could recognize that same amount of gain 
upon the repatriation after the second 311 distribution under the 
proposed regulations (by reason of the application of the gain 
recognition rule in proposed Sec.  1.367(d)-1(f)(4)(ii)(B), under which 
gain is determined by reference to the U.S. transferor's former 
adjusted basis in the property). And, because the successor TFC is the 
TFC at the time of the repatriation (that is, at the time of the second 
section 311 distribution), the required adjustments described in 
proposed Sec.  1.367(d)-1(f)(2) would apply by reference to the 
successor TFC, which did not recognize gain or loss on the repatriation 
under the theory described above, rather than to the original TFC, 
which recognized gain on the first section 311 distribution. To address 
this concern, the comment suggested modifying the proposed regulations 
in a manner that would effectively negate a prior transfer that was 
subject to tax under a separate regime (for example, section 951A).
    The example provided in the comment highlights significant 
potential interactions between the operation of section 367(d) and 
other generally operative provisions in the Code and regulations. For 
example, Sec.  1.367(d)-1T(f)(3) explicitly provides that the ongoing 
annual royalty construct is unaffected by the taxable distribution of 
intangible property from the original TFC to the successor TFC in the 
first section 311 distribution, and Sec.  1.367(d)-1T(d)(1) and (f)(1) 
are clear that the amount of income recognized by the U.S. transferor 
upon a later indirect or direct disposition of intangible property to 
an unrelated person is determined using the transferor's original basis 
in the property. However, the distribution of the intangible property 
from the original TFC to the successor TFC described in the comment's 
example might result in taxable gain to the original TFC that would be 
treated as tested income under section 951A, notwithstanding the lack 
of an acceleration of income under section 367(d). Similarly, the 
successor TFC might take the intangible property with a fair market 
value basis under section 301(d), even though that increased basis 
would not be available to reduce gain under section 367(d). 
Essentially, the example posited in the comment highlights that it may 
be possible to recognize income under both sections 951A and 367(d) 
with respect to the same property in some fact patterns where separate 
transactions occur in separate foreign corporations, notwithstanding 
that that result would not occur in cases where the property is not 
transferred among multiple foreign corporations. Coordinating potential 
disparities between income recognition under section 367(d) as compared 
to other generally applicable provisions of the Code, and potential 
disparities in tax basis for purposes of section 367(d) as compared to 
adjusted basis for other purposes, is beyond the scope of this 
rulemaking. The request for additional guidance addressing multiple 
related transfers, therefore, is not adopted.

VI. Reporting

    As a condition for terminating the application of section 367(d) 
with respect to repatriated intangible property, proposed Sec.  
1.367(d)-1(f)(4)(i)(B) would have required a U.S. transferor to provide 
the information described in proposed Sec.  1.6038B-1(d)(2)(iv). If a 
U.S. transferor failed to provide that information, the repatriation 
was subject to proposed Sec.  1.367(d)-1(f)(3) such that the section 
367(d) regulations, including the requirement to take an annual 
inclusion into account over the useful life of the intangible property, 
continued to apply. However, a U.S. transferor was eligible for relief 
under the proposed regulations if proposed Sec.  1.367(d)-
1(f)(4)(i)(B)(2) would have applied to the subsequent transfer of 
intangible property but for the fact that the required information was 
not provided and the U.S. transferor, upon becoming aware of the 
failure, promptly provided the required information, explained its 
failure to comply, and met certain other requirements (if applicable).
    One comment requested clarifications of the reporting and relief 
provisions. First, the comment requested that the final regulations 
clarify whether relief for a failure to comply is, in relevant part, 
also conditioned on the U.S. transferor timely filing one or more 
amended returns for the taxable year in which the subsequent transfer 
occurred and succeeding years, and, if the U.S. transferor is under 
examination when an amended return is filed, providing a copy of the 
amended return(s) to the IRS personnel conducting the examination. The 
Treasury Department and the IRS adopt this comment by revising of Sec.  
1.367(d)-1(f)(5) to clarify that the relief for a failure to comply is 
conditioned upon the requirements listed in the previous sentence (if 
applicable).
    The comment also requested that the Treasury Department and the IRS 
consider prescribing in the future a particular form for filing the 
required information under proposed Sec.  1.367(d)-1(f)(5). The 
Treasury Department and the IRS will consider prescribing a particular 
form as part of future improvements to reporting with respect to 
section 367(d) generally. However, to provide taxpayers with additional 
guidance on the manner for providing a U.S. transferor's explanation 
for its failure to comply to the IRS, the final regulations provide an 
eFax number for such purpose (and, if a taxable year of the U.S. 
transferor is under examination, that information should

[[Page 82164]]

instead be provided to the IRS personnel conducting the examination).
    Finally, the comment suggested clarifications or modifications to 
the requirements in proposed Sec.  1.367(d)-1(f)(5) that a U.S. 
transferor ``promptly'' address its failure to file and to the way the 
U.S. transferor provides the remedial information (that is, to the 
Director of Field Operations, Cross Border Activities Practice Area of 
Large Business & International, or any successor to that role). The 
comment suggested that ``promptly'' does not provide sufficient 
guidance to taxpayers (the comment requested a prescribed period) and 
the comment asserted that it is unusual for regulations to require a 
taxpayer to provide information directly to a specified official within 
the IRS. The final regulations do not adopt these suggestions. The 
Treasury Department and the IRS believe that ``promptly'' requiring the 
U.S. transferor to address its failure to comply, rather than providing 
a specific period, allows flexibility so that the relief may apply as 
appropriate to a taxpayer's particular facts and circumstances. 
Additionally, proposed Sec.  1.367(d)-1(f)(5) is modeled on similar 
relief provisions in other contexts (for example, Sec. Sec.  1.367(a)-
8(p) and 1.721(c)-6(f)).
    The Treasury Department and the IRS clarify proposed Sec.  
1.367(d)-1(f)(5) by striking the last clause that appeared in the 
second sentence. That sentence described the consequences of a failure 
to comply, namely the continued application of the annual inclusion 
stream pursuant to proposed Sec.  1.367(d)-1(f)(3) and application of 
the gain recognition rule of proposed Sec.  1.367(d)-1(f)(4)(i)(A). If 
the failure to comply is remedied, the rules of the proposed 
regulations are treated as satisfied as of the date of the repatriation 
(so, the repatriation terminates the continued application of section 
367(d) and the U.S. transferor, if applicable, would take a partial 
annual inclusion into account pursuant to proposed Sec.  1.367(d)-
1(f)(4)(i)(B)(1)).

VII. Clarification to Example 3

    Proposed Sec.  1.367(d)-1(f)(6)(ii)(C) (Example 3) illustrated the 
determination of a qualified domestic person's adjusted basis in 
intangible property under the proposed regulations. In that example, 
TFC transferred the intangible property to USS (a qualified domestic 
person as defined in proposed Sec.  1.367(d)-1(f)(4)(iii)) in an 
exchange described in section 351(b) pursuant to which TFC recognized 
$50x of gain and USP recognized $50x of gain under proposed Sec.  
1.367(d)-1(f)(4)(i)(A). The analysis under proposed Sec.  1.367(d)-
1(f)(6)(ii)(C)(2) was, and remains in this Treasury decision, limited 
to the determination of USS's adjusted basis in the intangible 
property.
    One comment requested, in relevant part, that the final regulations 
clarify that TFC's earnings and profits and gross income arising by 
reason of the repatriation are reduced by the amount of gain recognized 
by USP under proposed Sec.  1.367(d)-1(f)(4)(i)(A) ($50x). The Treasury 
and the IRS adopt the comment by clarifying in the facts of the example 
that, under Sec.  1.367(d)-1(f)(2)(i), TFC will reduce its earnings and 
profits and gross income by $50x, the amount arising by reason of the 
repatriation and the amount of gain recognized by USP under Sec.  
1.367(d)-1(f)(4)(i)(A).

VIII. Section 904(d) Foreign Branch Income Rules

    Proposed Sec.  1.904-4(f)(2)(vi)(D)(4) described the application of 
the principles of section 367(d) to subsequent transfers of intangible 
property in determining adjustments to the amount of gross income 
attributable to a foreign branch under Sec.  1.904-4(f)(2)(vi)(D). 
Specifically, the proposed regulations would have provided that each 
transfer to which Sec.  1.904-4(f)(2)(vi)(D) applies is considered 
independently from any other preceding or subsequent transfer of the 
intangible property, with the result that the subsequent transfer rules 
in the regulations under section 367(d), including the rules for 
repatriations provided in the proposed regulations, do not apply in 
determining gross income attributable to a foreign branch under Sec.  
1.904-4(f)(2)(vi)(D). See 88 FR 27819, 27825, and 27826.
    One comment requested that the Treasury Department and the IRS 
finalize the provisions of the proposed regulations without finalizing 
proposed Sec.  1.904-4(f)(2)(vi)(D)(4). The comment suggested that such 
an approach could allow for further consideration of ways to simplify 
the application of section 367(d) principles in Sec.  1.904-
4(f)(2)(vi)(D). The comment suggested that instead of finalizing 
proposed Sec.  1.904-4(f)(2)(vi)(D)(4), that provision could be adopted 
as a temporary regulation, or alternatively, this preamble could state 
that, until the implementation of final regulations addressing this 
issue, the Treasury Department and the IRS intend that rules related to 
section 367(d) and subsequent transfer will not apply for purposes of 
section 904(d).
    A broader reconsideration of the application of section 367(d) 
principles in Sec.  1.904-4(f)(2)(vi)(D) is beyond the scope of these 
final regulations. The Treasury Department and the IRS believe it is 
necessary to finalize proposed Sec.  1.904-4(f)(2)(vi)(D)(4) to ensure 
the proper application of the foreign branch income rules under Sec.  
1.904-4(f)(2)(vi)(D) as those rules currently stand. This is because, 
as explained in the preamble to the proposed regulations, while Sec.  
1.904-4(f)(2)(vi)(D) relies on the principles of section 367(d) to 
determine the appropriate amount of gross income that is attributable 
to a foreign branch, the purposes of section 367(d) and Sec.  1.904-
4(f)(2)(vi)(D) are different. See 88 FR 27819, 27825 (providing that, 
with respect to Sec.  1.904-4(f)(2)(vi)(D), ``[i]f there are multiple 
transfers of an item of intangible property over time, each transfer 
must be separately evaluated and could result in differing amounts of 
deemed annual payments depending on any interim changes in the value of 
the intangible property between successive transfers . . . these 
proposed regulations provide that each successive transfer to which 
Sec.  1.904-4(f)(2)(vi)(D) applies is considered independently from any 
other preceding or subsequent transfers.''). Accordingly, the final 
regulations do not adopt this comment and proposed Sec.  1.904-
4(f)(2)(vi)(D) is finalized without change.

IX. Applicability Dates

    The proposed regulations were generally proposed to apply to 
subsequent dispositions of intangible property occurring on or after 
the date of publication of the Treasury decision adopting these rules 
as final regulations in the Federal Register. See proposed Sec. Sec.  
1.367(d)-1(j)(2), 1.904-4(q)(3), and 1.6038B-1(g). Comments recommended 
that the proposed regulations apply retroactively.
    The Treasury Department and the IRS generally consider several 
factors when evaluating whether a rule should apply retroactively on an 
elective basis. For example, and as relevant to the proposed 
regulations, retroactive application may be more compelling where the 
regulations are issued with respect to new legislation, or where 
retroactive application is necessary to achieve certain policy 
objectives. The Treasury Department and the IRS also evaluate the 
additional administrative burden likely to result from retroactive 
application. Finally, where the regulations represent a change in 
existing regulations, consideration is given to whether retroactive 
application could advantage certain taxpayers over similarly situated 
taxpayers, based on whether the relevant taxable year remains open for 
the taxpayer to amend

[[Page 82165]]

their return to take advantage of the change. The Treasury Department 
and the IRS have determined that, on balance, these factors, though not 
representing an exhaustive list of factors, weigh against permitting 
the retroactive application of the final regulations and therefore do 
not adopt these comments.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Paperwork Reduction Act

    The collection of information contained in these regulations has 
been reviewed and approved by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) 
under control number 1545-0026. The collection of information in these 
final regulations is in Sec.  1.6038B-1(d)(2)(iv). This information is 
necessary to ensure that proposed Sec.  1.367(d)-1(f)(4) is 
appropriately applied to the subsequent transfer. The collection of 
information is required to comply with section 367(d). The likely 
respondents are domestic corporations. Burdens associated with these 
requirements will be reflected in the burden for Form 926, Return by a 
U.S. Transferor of Property to a Foreign Corporation.
    Estimated total annual reporting burden is 1,601 hours.
    Estimated average annual burden per respondent is 2.4 hours.
    Estimated number of respondents is 667.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget. Books 
or records relating to a collection of information must be retained if 
their contents may become material in the administration of any 
Internal Revenue law. Generally, tax returns and tax return information 
are confidential, as required by section 6103.

III. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that these final regulations will not have a 
significant economic impact on a substantial number of small entities.
    The Treasury Department and the IRS do not have data readily 
available to assess the number of small entities potentially affected 
by the final regulations. However, entities potentially affected by 
these proposed regulations are generally not small entities, because of 
the resources and investment necessary to develop intangible property 
and, once so developed, transfer the intangible property to a foreign 
corporation. Therefore, the Treasury Department and the IRS have 
determined that there will not be a substantial number of domestic 
small entities affected by the final regulations. Consequently, the 
Treasury Department and the IRS certify that the final regulations will 
not have a significant economic impact on a substantial number of small 
entities.

IV. Section 7805(f)

    Pursuant to section 7805(f) of the Code, the proposed regulations 
(REG-113839-22) preceding these final regulations were submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business, and no comments were received.

V. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a State, 
local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. These final regulations do not include any Federal mandate 
that may result in expenditures by State, local, or Tribal governments, 
or by the private sector in excess of that threshold.

VI. Executive Order 13132: Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These final regulations do not have 
federalism implications and do not impose substantial direct compliance 
costs on State and local governments or preempt State law within the 
meaning of the Executive order.

Drafting Information

    The principal author of these regulations is Brittany N. Dobi, of 
the Office of Associate Chief Counsel (International). However, other 
personnel from the Treasury Department and the IRS participated in 
their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS amend 26 CFR part 
1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.367(d)-1 also issued under 26 U.S.C. 367(d).
* * * * *


Sec.  1.367(a)-1   [Amended]

0
Par. 2. Section 1.367(a)-1 is amended by removing the language 
``section 936(h)(3)(B)'' in paragraphs (d)(5) and (6) and adding the 
language ``section 367(d)(4)'' in its place.

0
Par. 3. Section 1.367(d)-1 is amended by:
0
a. Removing reserved paragraphs (c)(1) through (2).
0
b. Adding paragraph (c) heading and paragraphs (c)(1) and (2).
0
c. Removing reserved paragraphs (c)(4) through (g)(2) (introductory 
text).
0
d. Adding paragraphs (c)(4) and (d) through (f).
0
e. Removing paragraph (g)(2)(i), reserved paragraphs (g)(2)(ii) through 
(iii)(D), paragraph (g)(2)(iii)(E), and reserved paragraph (g)(2)(iii) 
undesignated concluding paragraph.
0
f. Adding paragraph (g) heading and paragraphs (g)(1) and (2).
0
g. Removing reserved paragraphs (g)(4) through (i).
0
h. Adding paragraphs (g)(4) through (6), (h), and (i).
0
i. Revising paragraph (j).
    The additions and revision read as follows:


Sec.  1.367(d)-1  Transfers of intangible property to foreign 
corporations.

* * * * *
    (c) Deemed payments upon transfer of intangible property to foreign

[[Page 82166]]

corporation--(1) In general. For further guidance, see Sec.  1.367(d)-
1T(c)(1).
    (2) Required adjustments. For further guidance, see Sec.  1.367(d)-
1T(c)(2) introductory text and (c)(2)(i).
    (i) [Reserved]
    (ii) The deemed payment is treated as an allowable deduction 
(whether or not that amount is paid) of the transferee foreign 
corporation properly allocated and apportioned to the appropriate 
classes of gross income in accordance with Sec. Sec.  1.882-4(b)(1), 
1.951A-2(c)(3), 1.954-1(c), and 1.960-1(c) and(d), as applicable.
* * * * *
    (4) Blocked income. For further guidance, see Sec.  1.367(d)-
1T(c)(4).
    (d) Subsequent transfer of stock of transferee corporation to 
unrelated person. For further guidance, see Sec.  1.367(d)-1T(d).
    (e) Subsequent transfer of stock of transferee foreign corporation 
to related person--(1) Transfer to related U.S. person treated as 
disposition of intangible property. For further guidance, see Sec.  
1.367(d)-1T(e)(1).
    (2) Required adjustments. For further guidance, see Sec.  1.367(d)-
1T(e)(2) introductory text and (e)(2)(i).
    (i) [Reserved]
    (ii) The deemed payment is treated as an allowable deduction 
(whether or not that amount is paid) of the transferee foreign 
corporation properly allocated and apportioned to the appropriate 
classes of gross income in accordance with Sec. Sec.  1.882-4(b)(1), 
1.951A-2(c)(3), 1.954-1(c), and 1.960-1(c) and(d), as applicable.
    (iii) For further guidance, see Sec.  1.367(d)-1T(e)(2)(iii) 
through (e)(4).
    (iv) [Reserved]
    (3) through (4) [Reserved]
    (f) Subsequent disposition of transferred intangible property by 
transferee foreign corporation--(1) In general. For further guidance, 
see Sec.  1.367(d)-1T(f)(1).
    (2) Required adjustments. If a U.S. transferor is required to 
recognize gain under paragraph (f)(4)(i)(A) of this section or Sec.  
1.367(d)-1T(f)(1), then, in addition to the adjustments described in 
paragraph (c)(2)(ii) of this section and Sec.  1.367(d)-1T(c)(2) with 
respect to the deemed payment described in Sec.  1.367(d)-
1T(f)(1)(ii)--
    (i) For purposes of chapter 1 of the Code, the transferee foreign 
corporation reduces (but not below zero) the portion of its earnings 
and profits and gross income arising by reason of the subsequent 
disposition of the intangible property by the amount of gain recognized 
by the U.S. transferor under paragraph (f)(4)(i)(A) of this section or 
Sec.  1.367(d)-1T(f)(1); and
    (ii) The U.S. transferor may establish an account receivable from 
the transferee foreign corporation equal to the amount of gain 
recognized under paragraph (f)(4)(i)(A) of this section or Sec.  
1.367(d)-1T(f)(1) in accordance with Sec.  1.367(d)-1T(g)(1).
    (3) Subsequent transfer of intangible property to related person. 
Except as provided in paragraph (f)(4)(i)(B) of this section, a U.S. 
person's requirement to recognize income under Sec.  1.367(d)-1T(c) or 
(e) is not affected by the transferee foreign corporation's subsequent 
disposition of the transferred intangible property to a related person. 
For purposes of any required adjustments, and of any accounts 
receivable created under Sec.  1.367(d)-1T(g)(1), the related person 
that receives the intangible property is treated as the transferee 
foreign corporation.
    (4) Subsequent transfer of intangible property to qualified 
domestic person--(i) In general. Except as provided in paragraph 
(f)(4)(v) of this section, if a U.S. person transfers intangible 
property subject to section 367(d) and the rules of this section and 
Sec.  1.367(d)-1T to a foreign corporation in an exchange described in 
section 351 or 361 and, within the useful life of the intangible 
property, that transferee foreign corporation subsequently disposes of 
the intangible property to a qualified domestic person, then--
    (A) The U.S. transferor of the intangible property (or any person 
treated as such pursuant to Sec.  1.367(d)-1T(e)(1)) is required to 
recognize gain, as applicable, equal to the amount described in 
paragraph (f)(4)(ii) of this section; and
    (B) If the U.S. transferor provides the information described in 
Sec.  1.6038B-1(d)(2)(iv), then--
    (1) The U.S. transferor is required to recognize a deemed payment 
as provided in Sec.  1.367(d)-1T(f)(1)(ii); and
    (2) The intangible property is no longer subject to section 367(d), 
this section, or Sec.  1.367(d)-1T after applying paragraphs 
(f)(4)(i)(A) and (f)(4)(i)(B)(1) of this section.
    (ii) Gain recognition for U.S. transferor. The amount of gain a 
U.S. transferor must recognize under paragraph (f)(4)(i)(A) of this 
section is determined as follows--
    (A) If the intangible property is transferred basis property (as 
defined in section 7701(a)(43)) by reason of the subsequent disposition 
(determined without regard to section 367(d), this section, and Sec.  
1.367(d)-1T), the amount of gain, if any, the transferee foreign 
corporation would recognize if its adjusted basis in the intangible 
property were equal to the U.S. transferor's former adjusted basis in 
the property; or
    (B) If the intangible property is not transferred basis property by 
reason of the subsequent disposition (determined without regard to 
section 367(d), this section, and Sec.  1.367(d)-1T), the excess, if 
any, of the fair market value of the intangible property on the date of 
the subsequent disposition over the U.S. transferor's former adjusted 
basis in that property.
    (iii) Qualified domestic person. For purposes of this paragraph 
(f)(4), a qualified domestic person means--
    (A) The U.S. transferor that initially transferred intangible 
property subject to section 367(d);
    (B) A U.S. person treated as a U.S. transferor under Sec.  
1.367(d)-1T(e)(1), provided such person is an individual or a 
corporation other than a corporation exempt from tax under section 
501(a), a regulated investment company (as defined in section 851(a)), 
a real estate investment trust (as defined in section 856(a)), a DISC 
(as defined in section 992(a)(1)), or an S corporation (as defined in 
section 1361(a));
    (C) A U.S. person that is an individual related, within the meaning 
of paragraph (h)(2)(ii) of this section and Sec.  1.367(d)-1T(h), to 
the person described in paragraph (f)(4)(iii)(A) or (B) of this 
section; or
    (D) A U.S. person that is a corporation related, within the meaning 
of paragraph (h)(2)(ii) of this section and Sec.  1.367(d)-1T(h), to 
the person described in paragraph (f)(4)(iii)(A) or (B) of this 
section, other than a corporation exempt from tax under section 501(a), 
a regulated investment company (as defined in section 851(a)), a real 
estate investment trust (as defined in section 856(a)), a DISC (as 
defined in section 992(a)(1)), or an S corporation (as defined in 
section 1361(a)).
    (iv) Qualified domestic person's basis in the intangible property. 
The qualified domestic person's adjusted basis in the intangible 
property is--
    (A) In the case of a subsequent disposition of intangible property 
described in paragraph (f)(4)(ii)(A) of this section, and subject to 
any applicable limitations that may apply under the Code, the lesser of 
the U.S. transferor's former adjusted basis in the intangible property 
or the transferee foreign corporation's adjusted basis in the 
intangible property (as determined immediately before the subsequent 
disposition), in each case increased by the greater of the amount of 
gain (if any) described in paragraph (f)(4)(ii)(A) of this section and 
recognized by the U.S. transferor or the amount of gain (if any) 
recognized by the transferee foreign

[[Page 82167]]

corporation as to the intangible property by reason of the subsequent 
disposition; or
    (B) In the case of a subsequent disposition of intangible property 
described in paragraph (f)(4)(ii)(B) of this section, the fair market 
value of the intangible property (as determined on the date of the 
subsequent disposition).
    (v) Special rule for related transactions. If the transferee 
foreign corporation subsequently disposes of the transferred intangible 
property to a person that would, absent this paragraph (f)(4)(v), be a 
qualified domestic person (initial transferee) and, as part of a series 
of related transactions, the intangible property is subsequently 
disposed of to any other person, including by reason of multiple 
dispositions, then the initial transferee is treated as a qualified 
domestic person only if the ultimate recipient of the intangible 
property is a qualified domestic person. See paragraphs (f)(6)(ii)(D) 
and (E) of this section (Examples 4 and 5) for illustrations of the 
application of this paragraph (f)(4)(v).
    (5) Relief for certain failures to comply. This paragraph (f)(5) 
provides relief if paragraph (f)(4)(i)(B)(2) of this section would 
apply but for the U.S. transferor's failure to provide the information 
required by paragraph (f)(4)(i)(B) of this section (a ``failure to 
comply''). When a failure to comply occurs, the subsequent disposition 
of the transferred intangible property is generally subject to 
paragraphs (f)(3) and (f)(4)(i)(A) of this section. Nevertheless, a 
failure to comply is deemed not to have occurred (regardless of whether 
the U.S. transferor continued to include amounts in gross income under 
Sec.  1.367(d)-1T(c) or (e) after the subsequent disposition), and the 
requirements of paragraph (f)(4)(i)(B) of this section are treated as 
satisfied as of the date of the subsequent disposition if--
    (i) Promptly after the U.S. transferor becomes aware of the 
failure, the U.S. transferor provides such information and provides a 
reasonable explanation for its failure to comply to the Director of 
Field Operations, Cross Border Activities Practice Area of Large 
Business & International (or any successor to the roles and 
responsibilities of such position, as appropriate), by eFax at (855) 
582-4842 (or as otherwise directed on irs.gov), or, if any taxable year 
of the U.S. transferor is under examination when the discovery is made, 
to the Internal Revenue Service personnel conducting the examination;
    (ii) The U.S. transferor timely files an amended return for the 
taxable year in which the subsequent disposition occurred (and, if 
applicable, for each taxable year starting with the taxable year 
immediately after the taxable year in which the subsequent disposition 
occurred and ending with the taxable year in which the U.S. transferor 
seeks relief under this paragraph (f)(5)) that includes the information 
required by paragraph (f)(4)(i)(B) of this section; and
    (iii) If any taxable year of the U.S. transferor is under 
examination when an amended return is filed, the U.S. transferor 
provides a copy of the amended return (or, if applicable, amended 
returns) to the Internal Revenue Service personnel conducting the 
examination.
    (6) Examples--(i) Assumed facts. For purposes of the examples in 
paragraph (f)(6)(ii) of this section, and except where otherwise 
indicated, the following facts are assumed.
    (A) USP and USS are domestic corporations that each use a calendar 
taxable year.
    (B) TFC is a foreign corporation whose functional currency is the 
U.S. dollar.
    (C) In year 1, USP transfers intangible property, as defined in 
section 367(d)(4), with a $0 adjusted basis, to TFC in a section 351 
exchange (the transferred IP), and such transfer is subject to section 
367(d).
    (D) Each annual inclusion (including any amount described in Sec.  
1.367(d)-1T(f)(1)(ii)) is taken into account under section 
367(d)(2)(A)(ii)(I) and Sec.  1.367(d)-1T(c)(1).
    (E) Any subsequent transfer or disposition of stock of TFC or the 
transferred IP occurs within the useful life of the transferred IP.
    (F) All transactions are respected under general principles of tax 
law.
    (ii) Examples. The following examples illustrate the application of 
paragraph (f)(4) of this section and other paragraphs of this section 
that relate to paragraph (f)(4).
    (A) Example 1: Complete liquidation of transferee foreign 
corporation into a qualified domestic person--(1) Facts. In year 2, USP 
transfers all the stock of TFC to USS, a related person within the 
meaning of Sec.  1.367(d)-1T(h) and paragraph (h)(2)(ii) of this 
section, in a section 351 exchange to which Sec.  1.367(d)-1T(e)(1) 
applies (the year 2 transfer). In year 3, TFC distributes all its 
property (including the transferred IP) to USS pursuant to a complete 
liquidation to which sections 332 and 337 apply (the year 3 
liquidation). The all earnings and profits amount determined under 
Sec.  1.367(b)-2(d) with respect to the stock of TFC held by USS is $0. 
The information described in Sec.  1.6038B-1(d)(2) is provided by USS 
for the taxable year in which the year 3 liquidation occurs.
    (2) Analysis--(i) The year 2 transfer. Because the year 2 transfer 
involves a transfer of all the stock of TFC by USP (the initial U.S. 
transferor) to a related U.S. person (USS), under Sec.  1.367(d)-
1T(e)(1)(i) USS (a successor U.S. transferor) is treated as receiving 
the right to receive a proportionate share of the contingent annual 
payments that USP would have otherwise taken into account under Sec.  
1.367(d)-1T(c). As determined under Sec.  1.367(d)-1T(e)(4), USS's 
proportionate share of such payments is 100 percent. Accordingly, USS 
will annually include in its gross income the full amount of each of 
the annual payments that USP would otherwise have taken into account 
under Sec.  1.367(d)-1T(c) over the useful life of the transferred IP, 
and USP will not recognize any gain upon the year 2 transfer. See Sec.  
1.367(d)-1T(e)(1)(ii) and (iii).
    (ii) The year 3 liquidation. The year 3 liquidation results in a 
subsequent disposition of the transferred IP to USS. USS, a U.S. person 
treated as the U.S. transferor pursuant to Sec.  1.367(d)-1T(e)(1), is 
a qualified domestic person within the meaning of paragraph (f)(4)(iii) 
of this section. Pursuant to paragraph (f)(4)(i)(A) of this section, 
USS must recognize the amount of gain described in paragraph (f)(4)(ii) 
of this section. Because the year 3 liquidation is a complete 
liquidation to which sections 332 and 337 apply, the intangible 
property is transferred basis property (as defined in section 
7701(a)(43) and determined without regard to section 367(d), this 
section, and Sec.  1.367(d)-1T), and therefore paragraph (f)(4)(ii)(A) 
of this section applies to determine the amount of any gain USS must 
recognize. Because TFC does not recognize gain with respect to the 
transferred IP (regardless of the adjusted basis in the intangible 
property) by reason of the year 3 liquidation, the amount of gain 
described in paragraph (f)(4)(ii)(A) of this section is $0. 
Accordingly, USS does not recognize gain pursuant to paragraph 
(f)(4)(i)(A) of this section by reason of the year 3 liquidation. 
Additionally, because USS provides the information described in Sec.  
1.6038B-1(d)(2), paragraph (f)(4)(i)(B) of this section applies to the 
year 3 liquidation. USS therefore recognizes a deemed payment 
representing the part of USS's taxable year during which TFC held the 
transferred IP pursuant to paragraph (f)(4)(i)(B)(1) of this section, 
and the

[[Page 82168]]

required adjustments described in paragraph (c)(2)(ii) of this section 
and Sec.  1.367(d)-1T(c)(2)(i) apply as to the deemed payment. Also, 
because USS does not recognize gain pursuant to paragraph (f)(4)(i)(A) 
of this section, the required adjustments described in paragraph (f)(2) 
of this section do not apply. Pursuant to paragraph (f)(4)(i)(B)(2) of 
this section, after taking the deemed payment into account, the 
transferred IP is no longer subject to section 367(d), this section, 
and Sec.  1.367(d)-1T. Finally, pursuant to paragraph (f)(4)(iv)(A) of 
this section, USS's adjusted basis in the transferred IP is $0, which 
is equal to USP's former adjusted basis in the transferred IP ($0), 
increased by the greater of the amount of gain recognized by USS under 
paragraph (f)(4)(i)(A) of this section ($0) or the amount of gain 
recognized by TFC upon the year 3 liquidation ($0).
    (B) Example 2: Taxable distribution of the transferred intangible 
property to a qualified domestic person--(1) Facts. The facts are the 
same as in paragraph (f)(6)(ii)(A) of this section (Example 1), except 
that, instead of in year 3 TFC distributing all its property to USS 
pursuant to a complete liquidation, in year 3 TFC distributes the 
transferred IP to USS in a distribution described in section 311(b) 
when the fair market value of the transferred IP is $100x (the year 3 
distribution). TFC's adjusted basis in the transferred IP immediately 
before the distribution is $0.
    (2) Analysis. The consequence of the year 2 transfer is the same as 
described in paragraph (f)(6)(ii)(A)(2)(i) of this section (Example 1). 
Like the consequences described in paragraph (f)(6)(ii)(A)(2) of this 
section (Example 1), the year 3 distribution is a subsequent 
disposition of the transferred IP to USS, a qualified domestic person. 
Pursuant to paragraph (f)(4)(i)(A) of this section, USS must recognize 
the amount of gain described in paragraph (f)(4)(ii) of this section. 
Because the year 3 distribution is described in section 311(b) the 
intangible property is not transferred basis property (as defined in 
section 7701(a)(43) and determined without regard to section 367(d), 
this section, and Sec.  1.367(d)-1T), and therefore USS must recognize 
$100x gain under paragraph (f)(4)(ii)(B) of this section. The $100x 
gain amount equals the excess of the fair market value of the 
transferred IP on the date of the year 3 distribution ($100x) over 
USP's former adjusted basis in the property ($0). TFC, because of USS's 
gain recognition under paragraph (f)(4)(i)(A) of this section, reduces 
(but not below zero) the portion of its earnings and profits and gross 
income arising by reason of the year 3 distribution by the amount of 
such gain under paragraph (f)(2)(i) of this section. Specifically, 
because the year 3 distribution requires USS to recognize $100x of 
gain, TFC reduces the portion of its earnings and profits and gross 
income that arise by reason of the year 3 distribution, which is $100x 
(the excess of the fair market value of the transferred IP ($100x) over 
TFC's adjusted basis in the transferred IP ($0)), by $100x (the amount 
of gain USS recognizes pursuant to paragraph (f)(4)(i)(A) of this 
section). As a result, after taking into account the reduction, TFC has 
no earnings and profits or gross income that arise by reason of the 
year 3 distribution. Furthermore, USS may establish an account 
receivable from TFC equal to $100x under paragraph (f)(2)(ii) of this 
section. Additionally, and as described in paragraph (f)(6)(ii)(A)(2) 
of this section (Example 1), pursuant to paragraph (f)(4)(i)(B)(1) of 
this section, USS recognizes a deemed payment for the portion of USS's 
taxable year during which TFC held the transferred IP, and the required 
adjustments described in paragraph (c)(2)(ii) of this section and Sec.  
1.367(d)-1T(c)(2) apply to this deemed payment. After taking these 
consequences into account, pursuant to paragraph (f)(4)(i)(B)(2) of 
this section, the transferred IP is no longer subject to section 
367(d), this section, and Sec.  1.367(d)-1T. Finally, pursuant to 
paragraph (f)(4)(iv)(B) of this section, USS's adjusted basis in the 
transferred IP is $100x, which is the fair market value of the 
transferred IP on the date of the year 3 distribution.
    (C) Example 3: Qualified domestic person's basis in intangible 
property when intangible property is repatriated in an exchange 
described in section 351(b)--(1) Facts. The facts are the same as in 
paragraph (f)(6)(ii)(A) of this section (Example 1), except that the 
transfer of stock of TFC to USS in year 2 does not occur and instead of 
the year 3 liquidation, in year 3 TFC transfers the intangible property 
to USS (a qualified domestic person as defined in paragraph (f)(4)(iii) 
of this section) in an exchange described in section 351(b) pursuant to 
which TFC recognizes $50x of gain and USP recognizes $50x of gain under 
paragraph (f)(4)(i)(A) of this section (the year 3 exchange), which 
amount will reduce TFC's earnings and profits and gross income by $50x 
under paragraph (f)(2)(i) of this section.
    (2) Analysis. Pursuant to paragraph (f)(4)(iv)(A) of this section, 
USS's adjusted basis in the intangible property is $50x, which is the 
amount equal to the lesser of USP's former adjusted basis in the 
property ($0) or TFC's adjusted basis in the property ($0), increased 
by the greater of the amount of gain recognized by USP under paragraph 
(f)(4)(i)(A) of this section ($50x) or the amount of gain recognized by 
TFC upon the year 3 exchange ($50x).
    (D) Example 4: Repatriation as part of a series of related 
transactions culminating in transfer to a foreign corporation--(1) 
Facts. The facts are the same as in paragraph (f)(6)(ii)(A)(1) of this 
section (Example 1), except that the year 3 liquidation occurs as part 
of a series of related transactions pursuant to which USS transfers the 
transferred IP that it receives from TFC to a related foreign 
corporation (FC1) in exchange for stock in FC1.
    (2) Analysis. Because the year 3 liquidation occurs as part of a 
series of related transactions pursuant to which the transferred IP is 
ultimately contributed to a FC1, a foreign corporation, and because a 
foreign corporation is not a qualified domestic person pursuant to 
paragraph (f)(4)(iii) of this section, then, under paragraph (f)(4)(v) 
of this section, the year 3 liquidation is not treated as a subsequent 
disposition described in paragraph (f)(4)(i) of this section, but is 
instead treated as a subsequent disposition described in paragraph 
(f)(3) of this section.
    (E) Example 5: Repatriation as part of a series of related 
transactions culminating in transfer to a qualified domestic person--
(1) Facts. The facts are the same as in paragraph (f)(6)(ii)(B)(1) of 
this section (Example 2), except that the year 3 distribution occurs as 
part of a series of related transactions pursuant to which USS disposes 
of the transferred IP that it receives from TFC to USP.
    (2) Analysis. Because the year 3 distribution occurs as part of a 
series of related transactions pursuant to which the transferred IP is 
distributed to USP, and because USP is a qualified domestic person 
pursuant to paragraph (f)(4)(iii) of this section, paragraph (f)(4)(v) 
of this section does not prevent paragraph (f)(4)(i) of this section 
from applying to the year 3 distribution. Accordingly, the consequences 
under section 367(d) of the year 3 distribution are the same as those 
described in paragraph (f)(6)(ii)(B)(2) of this section (Example 2), 
and the consequences of the subsequent disposition of the transferred 
IP by USS to USP are determined after applying paragraph (f)(4) of this 
section to the transfer of the transferred IP by TFC to USS.
    (g) Special rules--(1) Establishment of accounts receivable. For 
further guidance, see Sec.  1.367(d)-1T(g)(1).

[[Page 82169]]

    (2) Election to treat transfer as sale. For further guidance, see 
Sec.  1.367(d)-1T(g)(2) introductory text.
    (i) The intangible property transferred constitutes an operating 
intangible, as defined in Sec.  1.367(a)-1(d)(6).
    (ii) For further guidance, see Sec.  1.367-1T(g)(2)(ii) through 
(g)(2)(iii)(D).
    (iii)(A) through (D) [Reserved]
    (E) The transferred intangible property will be used in the active 
conduct of a trade or business outside of the United States within the 
meaning of Sec.  1.367(a)-2 and will not be used in connection with the 
manufacture or sale of products in or for use or consumption in the 
United States.
    (F) For further guidance, see Sec.  1.367(d)-1T(g)(2)(iii)(F).
* * * * *
    (4) Coordination with section 482. For further guidance, see Sec.  
1.367(d)-1T(g)(4)
    (5) Determination of fair market value. For further guidance, see 
Sec.  1.367(d)-1T(g)(5).
    (6) Anti-abuse rule. For further guidance, see Sec.  1.367(d)-
1T(g)(6).
    (h) Related person. For further guidance, see Sec.  1.367(d)-1T(h) 
introductory text through (h)(1).
    (1) [Reserved]
    (2) For further guidance, see Sec.  1.367(d)-1T(h)(2) introductory 
text and (h)(2)(i).
    (i) [Reserved]
    (ii) Section 1563 applies (for purposes of section 267(f)) without 
regard to section 1563(b)(2).
    (i) Effective date. For further guidance, see Sec.  1.367(d)-1T(i).
    (j) Applicability dates--(1) In general. This section applies to 
transfers occurring on or after September 14, 2015, and to transfers 
occurring before September 14, 2015, resulting from entity 
classification elections made under Sec.  301.7701-3 of this chapter 
that are filed on or after September 14, 2015. For transfers occurring 
before this section is applicable, see Sec.  1.367(d)-1T as contained 
in 26 CFR part 1 revised as of April 1, 2016.
    (2) Certain subsequent dispositions of intangible property. 
Paragraphs (c)(2)(ii), (e)(2)(ii), (f)(2) through (5), and (h)(2)(ii) 
of this section apply to subsequent dispositions of intangible property 
occurring on or after October 10, 2024. For subsequent dispositions of 
intangible property occurring before October 10, 2024, see Sec.  
1.367(d)-1T as contained in 26 CFR part 1 revised as of April 1, 2022.

0
Par. 4. Section 1.367(d)-1T is amended by:
0
a. Revising paragraph (c)(2)(ii).
0
b. Removing the undesignated paragraph following paragraph (c)(2)(ii).
0
d. Revising paragraphs (e)(2)(ii) and (f)(2).
0
e. Removing and reserving paragraph (f)(3) and adding reserved 
paragraphs (f)(4) through (6).
0
f. Designating the undesignated paragraph following paragraph 
(g)(2)(iii)(E) as paragraph (g)(2)(iii)(F).
0
g. Revising paragraph (h)(2)(ii).
    The revisions read as follows:


Sec.  1.367(d)-1T  Transfers of intangible property to foreign 
corporations (temporary).

* * * * *
    (c) * * *
    (2) * * *
    (ii) For further guidance, see Sec.  1.367(d)-1(c)(2)(ii).
* * * * *
    (e) * * *
    (2) * * *
    (ii) For further guidance, see Sec.  1.367(d)-1(e)(2)(ii);
* * * * *
    (f) * * *
    (2) Required adjustments. For further guidance, see Sec.  1.367(d)-
1(f)(2) through (6).
    (3) through (6) [Reserved]
* * * * *
    (h) * * *
    (2) * * *
    (ii) For further guidance, see Sec.  1.367(d)-1(h)(2)(ii).
* * * * *


Sec.  1.367(e)-2  [Amended]

0
Par. 5. Section 1.367(e)-2 is amended by removing the language 
``section 936(h)(3)(B)'' in the last sentence of paragraph (b)(2)(i)(B) 
and adding the language ``section 367(d)(4)'' in its place.

0
Par. 6. Section 1.904-4 is amended by adding paragraph (f)(2)(vi)(D)(4) 
and revising paragraph (q)(3) to read as follows:


Sec.  1.904-4   Separate application of section 904 with respect to 
certain categories of income.

* * * * *
    (f) * * *
    (2) * * *
    (vi) * * *
    (D) * * *
    (4) Multiple transfers of intangible property. If the same 
intangible property is transferred in a series of transfers described 
in paragraph (f)(2)(vi)(D)(1) of this section, each successive transfer 
is separately subject to the provisions of paragraph (f)(2)(vi)(D)(1) 
and will not terminate or otherwise affect the application of paragraph 
(f)(2)(vi)(D)(1) to a prior transfer described in paragraph 
(f)(2)(vi)(D)(1).
* * * * *
    (q) * * *
    (3) Except as provided in the following sentence, paragraph (f) of 
this section applies to taxable years that begin after December 31, 
2019, and end on or after November 2, 2020. Paragraph (f)(2)(vi)(D)(4) 
of this section applies to taxable years that begin on or after October 
10, 2024.

0
Par. 7. Section 1.951A-2 is amended by revising paragraph (c)(2) to 
read as follows:


Sec.  1.951A-2   Tested income and tested loss.

* * * * *
    (c) * * *
    (2) Determination of gross income and allowable deductions. For 
purposes of determining tested income and tested loss, the gross income 
and allowable deductions of a controlled foreign corporation for a CFC 
inclusion year are determined under the rules of Sec.  1.952-2 for 
determining the subpart F income (as defined in section 952) of the 
controlled foreign corporation, except, for a controlled foreign 
corporation which is engaged in the business of reinsuring or issuing 
insurance or annuity contracts and which, if it were a domestic 
corporation engaged only in such business, would be taxable as an 
insurance company to which subchapter L of chapter 1 of the Code 
applies, the text ``the principles of Sec. Sec.  1.953-4 and 1.953-5'' 
means ``the rules of sections 953 and 954(i)'' in Sec.  1.952-2(b)(2).
* * * * *

0
Par. 8. Section 1.951A-7 is amended by adding a paragraph (e) to read 
as follows:


Sec.  1.951A-7   Applicability dates.

* * * * *
    (e) Determination of gross income and allowable deductions. Section 
1.951A-2(c)(2) applies to taxable years of foreign corporations ending 
on or after October 10, 2024, and to taxable years of United States 
shareholders in which or with which such taxable years end. For taxable 
years of foreign corporations ending before October 10, 2024, and to 
taxable years of United States shareholders in which or with which such 
taxable years end, see Sec.  1.951A-2(c)(2)(i) and (ii) as contained in 
26 CFR part 1, revised as of April 1, 2022.

0
Par. 9. Section 1.6038B-1 is amended by:
0
a. Removing reserved paragraphs (d)(1) through (1)(iii).
0
b. Adding paragraphs (d) heading and (d)(1) introductory text and 
reserved paragraphs (d)(1)(i) through (iii).
0
c. Removing reserved paragraphs (d)(1)(viii) through (d)(2).
0
d. Adding paragraphs (d)(1)(viii), (d)(2), and (g)(8).

[[Page 82170]]

    The additions read as follows:


Sec.  1.6038B-1   Reporting of certain transfers to foreign 
corporations.

* * * * *
    (d) Transfers subject to section 367(d)--(1) Initial transfer. For 
further guidance, see Sec.  1.6038B-1T(d)(1) introductory text through 
(d)(1)(iii).
    (i) through (iii) [Reserved]
* * * * *
    (viii) Other intangibles. For further guidance, see Sec.  1.6038B-
1T(d)(1)(viii).
    (2) Subsequent transfers. For additional, see Sec.  1.6038B-
1T(d)(2) introductory text through (d)(2)(ii).
    (i) through (ii) [Reserved]
    (iii) Subsequent transfer. Except for a subsequent transfer 
described in paragraph (d)(2)(iv) of this section, provide the 
following information concerning the subsequent transfer:
    (A) For further guidance, see Sec.  1.6038B-1T(d)(2)(iii)(A) 
through (C).
    (B) through (C) [Reserved]
    (iv) Subsequent transfer of intangible property to a qualified 
domestic person. Provide the following information concerning a 
subsequent transfer of intangible property described in Sec.  1.367(d)-
1(f)(4)(i):
    (A) A statement providing that Sec.  1.367(d)-1(f)(4)(i)(B) applies 
to the subsequent transfer;
    (B) A general description of the subsequent transfer and any wider 
transaction of which it forms a part, including the U.S. transferor's 
former adjusted basis in the intangible property and the transferee 
foreign corporation's adjusted basis in the intangible property (as 
determined immediately before the subsequent transfer), the amount and 
computation of any gain recognized by the U.S. transferor under Sec.  
1.367(d)-1(f)(4)(i)(A), and a description of whether the intangible 
property was, or is expected to be, subsequently transferred to one or 
more other persons (as described in Sec.  1.367(d)-1(f)(4)(v));
    (C) A description of the intangible property;
    (D) A copy of the Form 926 with respect to the original transfer of 
the intangible property and any attachments identifying the intangible 
property as within the scope of section 367(d);
    (E) The name, address, and taxpayer identification number of the 
qualified domestic person that receives the intangible property, 
including a statement describing the relationship between the U.S. 
transferor and the qualified domestic person, and, if applicable, such 
information regarding any other persons described in Sec.  1.367(d)-
1(f)(4)(v); and
    (F) Any other information as may be prescribed by the Commissioner 
in publications, forms, instructions, or other guidance.
* * * * *
    (g) * * *
    (8) Paragraphs (d)(2)(iii) introductory text and (d)(2)(iv) of this 
section apply to transfers occurring on or after October 10, 2024.

0
Par. 10. Section 1.6038B-1T is amended by revising paragraph 
(d)(2)(iii) introductory text to read as follows:


Sec.  1.6038B-1T   Reporting of certain transactions to foreign 
corporations (temporary).

* * * * *
    (d) * * *
    (2) * * *
    (iii) Subsequent transfer. For further guidance, see Sec.  1.6038B-
1T(d)(2)(iii) introductory text:
* * * * *

Douglas W. O'Donnell,
Deputy Commissioner.
    Approved: September 23, 2024.
Aviva Aron-Dine,
Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2024-23132 Filed 10-9-24; 8:45 am]
BILLING CODE 4830-01-P