On July 17, the U.S. Treasury and IRS released final regulations targeting various inbound cross-border transactions broadly referred to as "Killer B" transactions, marking the end (for now) of a long-running regulatory fight against what the IRS has long regarded as an abuse of corporate reorganizations to repatriate cash from foreign subsidiaries without recognizing dividend income.
As previously discussed in Brass Tax, the paradigmatic "Killer B" transaction entails a foreign subsidiary of a U.S. parent repatriating cash to the parent by purchasing stock from the parent and then using that stock to acquire stock of another foreign subsidiary in a purportedly tax-free reorganization. In order to combat various permutations of this perceived abuse, the IRS and Treasury issued notices in 2006 and 2007, regulations adopted in 2011, additional notices in 2014 and 2016 and additional proposed regulations in 2023.
Last month's final regulations contain no substantive changes from the proposed regulations, which included a narrower "excess asset basis" (EAB) rule than that first announced in Notice 2016-73. (The EAB rule is discussed in greater length in the October 2023 edition of Brass Tax.) In response to a comment, however, the preamble to the final regulations contains a more in-depth description of the operation and purpose of the anti-abuse rule contained in both the proposed and final regulations, noting that the rule "is designed to be adaptable to . . . changing or unforeseen circumstances and, as such, is not limited to a particular type of avoidance transaction." The text of the anti-abuse rule itself remains unchanged, although Treasury and the IRS made a minor modification to one of the examples illustrating its operation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.