Regulations - Guidance for determining stock ownership under section 7874 

January 16: The Treasury Department and IRS and today released for publication in the Federal Register temporary regulations (T.D. 9654) and, by cross-reference, proposed regulations (REG-121534-12) that provide guidance for determining stock ownership of a foreign corporation under section 7874 (which deals with inversion transactions).

The temporary regulations also contain a final regulation that provides a cross-reference to the temporary regulations.


Today's temporary regulations [PDF 86 KB] and proposed regulations [PDF 17 KB] reflect rules previously described in Notice 2009-78 (2009-40 IRB 452), subject to certain modifications. Read TaxNewsFlash-United States (September 17, 2009) [PDF 52 KB].  The temporary and proposed regulations:


  • Identify certain stock of a foreign corporation that is disregarded in calculating ownership of the foreign corporation for purposes of determining whether it is a surrogate foreign corporation, and
  • Provide guidance with respect to the effect of transfers of stock of a foreign corporation after the acquisition described in section 7874(a)(2)(B)(i).

These regulations affect certain domestic corporations and partnerships (and certain parties related thereto), and foreign corporations that acquire substantially all of the properties of such domestic corporations or of the trades or businesses of such domestic partnerships.

Effective date

These regulations are effective on January 17, 2014 (the day they are scheduled to be published in the Federal Register). The rules described in Notice 2009-78 and set forth in the temporary regulations apply to acquisitions completed on or after September 17, 2009. All other rules set forth in the temporary regulations apply to acquisitions completed on or after January 17, 2014. However, a taxpayer may under certain conditions elect to apply all the rules of the temporary regulations to acquisitions completed on or after September 17, 2009 and before January 17, 2014.




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