1.367(b)-14T—Acquisition of parent stock for property in triangular reorganizations (temporary).
(a) In general—
(1) Scope and purpose.
This section applies to triangular reorganizations where P or S (or both) is foreign and, in connection with the reorganization, S acquires, in exchange for property (as defined in this section), all or a portion of the P stock that is used to acquire the stock or assets of T. This section may apply to a reorganization regardless of whether P controls S (within the meaning of section 368(c)) at the time S acquires the P stock that is used to acquire the stock or assets of T. The purpose of this section is to prevent what is in effect a distribution of property to P without the application of provisions otherwise applicable to property distributions, when in connection with a triangular reorganization S acquires, in exchange for property, all or a portion of the P stock used in the reorganization.
(i)
The terms P, S, and T have the meanings set forth in § 1.358-6(b)(1)(i), (ii), and (iii), respectively.
(ii)
In general, the term property has the meaning set forth in section 317(a). Notwithstanding section 357(a), such term includes any liability assumed by S in exchange for the P stock used to acquire the stock or assets of T. Such term also includes any S stock used by S to acquire P stock from a person other than P.
(iii)
The term triangular reorganization means a reorganization described in § 1.358-6(b)(2) or in section 368(a)(1)(G) and (a)(2)(D).
(b) General rules—
(1) Deemed distribution.
If this section applies, adjustments shall be made that have the effect of a distribution of property from S to P under section 301 (deemed distribution). The amount of the deemed distribution shall equal the amount of money plus the fair market value of other property transferred, in connection with the reorganization, by S in exchange for the P stock used to acquire the stock or assets of T in the triangular reorganization. Additional adjustments shall be made under paragraph (b)(3) of this section to the extent S acquires, in exchange for property, P stock from a person other than P.
(2) Timing in the case of acquisitions from P.
To the extent S acquires P stock from P in exchange for property, the deemed distribution described in paragraph (b)(1) of this section shall be treated as a transaction separate from, and occurring immediately before, the triangular reorganization. Therefore, P shall not be treated as receiving the property from S in exchange for P stock. The transfers of P stock in the triangular reorganization shall be subject to generally applicable provisions. See, for example, § 1.1032-2.
(3) Timing and deemed contribution in the case of acquisitions from persons other than P.
To the extent S acquires P stock from a person other than P in exchange for property (the purchase), then immediately following the deemed distribution described in paragraph (b)(1) of this section, adjustments shall be made that have the effect of a contribution by P to S (deemed contribution) of the property deemed distributed by S to P under paragraph (b)(1) of this section. If P controls S (within the meaning of section 368(c)) at the time of the purchase, the deemed distribution and deemed contribution shall be treated as separate transactions occurring immediately before the purchase. If P does not control S (within the meaning of section 368(c)) at the time of the purchase, the deemed distribution and deemed contribution shall be treated as separate transactions occurring immediately after P acquires control of S. Other provisions, such as sections 304, 354, 358 and 368, shall apply after the adjustments made pursuant to paragraph (b)(1) of this section and this paragraph.
(i) Facts. P, a publicly traded domestic corporation, owns all of the outstanding stock of FS, a foreign corporation, and all of the outstanding stock of US1, a domestic corporation that is a member of the P consolidated group. US1 owns all of the outstanding stock of FT, a foreign corporation, the fair market value of which is $100x. FS purchases $100x of P stock on the open market for cash. Pursuant to foreign law, FT merges with and into FS in a triangular reorganization described in section 368(a)(1)(A) by reason of section 368(a)(2)(D). US1 exchanges all the outstanding stock of FT for the stock of P purchased by FS on the open market for $100x cash.
(ii) Analysis. The triangular reorganization is described in paragraph (a)(1) of this section. Therefore, pursuant to paragraphs (b)(1) and (b)(3) of this section, FS is treated as distributing $100x to P under section 301. Immediately after such deemed distribution, P is deemed to contribute to FS the $100x that was deemed distributed to P. The deemed distribution and deemed contribution are treated as separate transactions occurring immediately before FS's purchase of the P stock used in the triangular reorganization.
(c) Collateral adjustments.
This paragraph (c) provides rules for the treatment of a deemed distribution or deemed contribution resulting under paragraph (b)(1) or (b)(3) of this section.
(1) Deemed distribution.
A deemed distribution of property described in paragraph (b)(1) of this section shall be treated as a distribution of property for all purposes of the Internal Revenue Code. For example, under section 301(c) the distribution may constitute a dividend to the extent of the earnings and profits of S, a return of basis, or gain from the sale or exchange of property, as appropriate. In addition, sections 902 and 959 may apply when S is foreign, and sections 897, 1442, and 1445 may apply when S is domestic.
(2) Deemed contribution.
A deemed contribution of property described in paragraph (b)(3) of this section shall be treated as a contribution of property for all purposes of the Internal Revenue Code. For example, appropriate adjustments to P's basis in the S stock and other affected items shall be made according to applicable provisions.
(d) Special rule.
Appropriate adjustments shall be made pursuant to this section if, in connection with a triangular reorganization, a transaction is engaged in with a view to avoid the purpose of this section as described in paragraph (a)(1) of this section. For example, if S is formed or availed of with a view to avoid the purpose of this section, the earnings and profits of S may be deemed to include the earnings and profits of a corporation related to S (within the meaning of section 267(b) ).
(e) Effective/applicability date—
(1) Acquisitions of P stock from P or related persons.
Except as otherwise provided in this paragraph (e), this section applies to triangular reorganizations described in paragraph (a)(1) of this section, to the extent S acquires the P stock from P or from a person related to P or S within the meaning of section 267(b) or 707(b), occurring on or after September 22, 2006. This section, however, shall not apply to triangular reorganizations described in paragraph (a)(1) of this section, to the extent S acquires the P stock from P or from a person related to P or S within the meaning of section 267(b) or 707(b), completed on or after September 22, 2006, pursuant to a written agreement that was (subject to customary conditions) binding before September 22, 2006, and all times afterward.
(2) Acquisitions of P stock from persons other than P—
(i) General rule.
Except as otherwise provided in this paragraph (e), this section applies to triangular reorganizations described in paragraph (a)(1) of this section, to the extent S acquires the P stock from a person other than P that is not related to P or S within the meaning of section 267(b) or 707(b) (unrelated person), occurring on or after May 31, 2007.
(ii) Binding commitment exception.
This section shall not apply to triangular reorganizations described in paragraph (a)(1) of this section, to the extent S acquires the P stock from an unrelated person, pursuant to a written agreement that was (subject to customary conditions) binding before May 31, 2007, and all times afterward, but only to the extent that—
(B)
S had a commitment to acquire the P stock from an unrelated person pursuant to a written agreement that was (subject to customary conditions) binding before May 31, 2007, and all times afterward, or pursuant to a tender offer announced before May 31, 2007, that is subject to section 14(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78n(d)(1)) and Regulation 14(D) ( 17 CFR 240.14d-1 through 240.14d-101) or that is subject to comparable foreign laws.
(3) Application of special rule—
(i) General rule.
Except as provided in paragraph (e)(3)(ii) of this section, paragraph (d) of this section applies to triangular reorganizations described in paragraph (a)(1) of this section occurring on or after May 31, 2007.
(ii) Binding commitment exception.
Paragraph (d) of this section shall not apply to triangular reorganizations described in paragraph (a)(1) of this section entered into pursuant to a written agreement that was (subject to customary conditions) binding before May 31, 2007, and all times afterward, but only to the extent that—
(B)
S had a commitment to acquire the P stock from an unrelated person pursuant to a written agreement that was (subject to customary conditions) binding before May 31, 2007, and all times afterward, or pursuant to a tender offer announced before May 31, 2007, that is subject to section 14(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78n(d)(1)) and Regulation 14(D) ( 17 CFR 240.14d-1 through 240.14d-101) or that is subject to comparable foreign laws.
(4) Treatment of S stock as property—
(i) General rule.
Except as provided in paragraph (e)(4)(ii) of this section, the treatment of S stock as property under paragraph (a)(2)(ii) of this section applies to triangular reorganizations described in paragraph (a)(1) of this section occurring on or after May 23, 2008.
(ii) Binding commitment exception.
The treatment of S stock as property under paragraph (a)(2)(ii) of this section shall not apply to triangular reorganizations described in paragraph (a)(1) of this section occurring on or after May 23, 2008 entered into pursuant to a written agreement that was (subject to customary conditions) binding before May 23, 2008 and all times afterward, but only to the extent that—
(B)
S had a commitment to acquire the P stock from an unrelated person pursuant to a written agreement that was (subject to customary conditions) binding before May 23, 2008 and all times afterward, or pursuant to a tender offer announced before May 23, 2008, that is subject to section 14(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78n(d)(1)) and Regulation 14(D) ( 17 CFR 240.14d-1 through 240.14d-101) or that is subject to comparable foreign laws.