ABA TAX SECTION MEMBERS SEEK CLARIFICATIONS ON CORPORATE DISTRIBUTIONS, LIQUIDATIONS, AND PROCEDURAL RULES UNDER FIRPTA.
ABA TAX SECTION MEMBERS SEEK CLARIFICATIONS ON CORPORATE DISTRIBUTIONS, LIQUIDATIONS, AND PROCEDURAL RULES UNDER FIRPTA.
- AuthorsIrwin Treiger
- Institutional AuthorsAmerican Bar Association, Tax Section
- Code Sections
- Subject Area/Tax Topics
- Index Termsforeign corporationFIRPTAUnited States real property interestsinbound transfersoutbound transfersdomestic corporationFIRPTAcorporate distributionsnonrecognition exchangescorporate liquidations
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 88-7518
- Tax Analysts Electronic Citation88 TNT 184-35
=============== SUMMARY ===============
The members of the Committee on the U.S. Activities of Foreigners of the Taxation Section of the American Bar Association, have submitted their comments on the proposed regulations under sections 897, 367, and 1445.
As to the domestication of foreign corporations, the writers suggest the addition of two specific examples to temporary regulation section 1.897-5T(c)(4)(iv), example 1. The examples proposed would, they claim, illustrate the tax consequences of the varied means of domestication with a type "D" reorganization when the corporation's liabilities exceed its adjusted basis in its U.S. realty interest. The tax section members also point to example 3 of temporary regulation section 1.897-5T(4)(iv), adjustments to basis upon domestication. While it makes sense for the outside basis not to be increased by the amount of gain recognized by the foreign corporation, they claim, the domesticated corporation's basis in Parcel P should be increased by the amount of gain recognized by the foreign corporation in distributing stock in the domestic corporation to the shareholder. They propose other alternatives for dealing with this issue.
As to corporate liquidations, the commentators zero in on section 1.897-5T(b)(3)(ii) and -5T(b)(5), example (2), liquidating distributions by domestic corporations under section 332. They maintain that example 2 produces an unfair result in that the basis of a nonUSRPI asset becomes limited to its fair market value and $25,000 of basis, on which tax was paid, and that basis is lost upon the distribution by a domestic corporation of its USRPI to a foreign corporation. They request a remedial "partial cleansing" rule. They also request an example of section 1.897-5T(c)(2)(ii)(B), claiming that the purpose of the regulation is unclear.
As to procedural requirements, the tax attorneys argue that, if read literally, section 1.897-5T(d)(1)(iii) would require foreign shareholders of a U.S. corporation that had purged its status as a U.S. real property holding corporation under section 897(c)(1)(B), to recognize gain on a liquidation or other disposition of the corporation's stock simply because it had acquired that stock in a domestication transaction under section 368. To prevent any uncertainty, they ask that the regulation provide that an "intervening change in circumstances" shall not include the termination of the status of a U.S. real property holding corporation as an interest in U.S. real property by reason of the application of section 897(c)(1)(B).
The ABA members also raise questions as to the determination of fair market value and the basis for determining gain allocable to U.S. real property interests upon the disposition of a partnership interest. They conclude their remarks by pointing out several typographical errors in the proposed regulations.
- AuthorsIrwin Treiger
- Institutional AuthorsAmerican Bar Association, Tax Section
- Code Sections
- Subject Area/Tax Topics
- Index Termsforeign corporationFIRPTAUnited States real property interestsinbound transfersoutbound transfersdomestic corporationFIRPTAcorporate distributionsnonrecognition exchangescorporate liquidations
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 88-7518
- Tax Analysts Electronic Citation88 TNT 184-35