IRS News Release  
April 18, 1994

New Rules Tax Certain Foreign Reorganizations

WASHINGTON - The Internal Revenue Service announced today that regulations will be issued on the taxation of corporate reorganizations involving transfers by U.S. shareholders of stock of U.S. corporations to foreign corporations. The announcement was made in IRS Notice 94-46.

Under the regulation, a U.S. shareholder that exchanges stock of a U.S. corporation for stock of a foreign corporation in an otherwise tax-free reorganization will be subject to tax if all exchanging U.S. shareholders own 50 percent or more of the stock of the foreign corporation after the exchange. The regulations will be issued under IRC 367(a) and will apply to transfers occurring on or after April 18, 1994.

The notice was issued in response to certain tax-motivated restructurings recently undertaken by widely-held U.S. companies with foreign subsidiaries. These restructurings typically involve a transfer of the stock of the U.S. parent corporation to an existing foreign subsidiary or a newly-formed foreign corporation in exchange for shares of the foreign corporation. As a result of the transaction, the shareholders own the U.S. corporation indirectly through a foreign holding company.

Notice 94-46 will appear in Internal Revenue Bulletin 1994-18 on May 2, 1994 and solicits taxpayer comments on whether transactions undertaken for non-tax purposes would unintendedly be affected by the regulations. As appropriate, the regulations will provide exceptions for such transactions.

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