Corporate Inversion Transactions: IRS and Treasury Issue Temporary Regulations to Determine When Stock Is Disregarded for Purposes of the Internal Revenue Code’s Anti-Inversion Rules (Sullivan & Cromwell LLP)

January 2014

KEYWORDS: IRS, Department of the Treasury, foreign financial institution, stock, anti-inversion rules, safe harbor


Sullivan & Cromwell LLP

  • Sullivan & Cromwell LLP


On January 16, 2014, the IRS and the Treasury Department issued temporary and proposed regulations (the “Regulations”) that disregard certain stock of a foreign corporation when calculating ownership of the foreign corporation in determining whether the foreign corporation is a “surrogate foreign corporation” for purposes of the anti-inversion rules contained in Section 7874. The Regulations largely adopt the rules described in Notice 2009-78 (the “Notice”), issued on September 17, 2009, but contain several important modifications and additions, including:

  • a rule that disregards stock transferred for “obligations” (the “Obligation Rule”), and
  • a rule that is intended to provide a safe harbor where former shareholders of the domestic entity own less than 5% of the resulting entity (the “5% Rule”).

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