UPDATE - 11/1/16: Notice 2014-52 was made obsolete by T.D. 9761. See our blog post Over 50 New Situational Charts – Code §7874 Regulation Examples.
On September 22, 2014, the IRS released Notice 2014-52. The notice announced that regulations will be issued under Code §§304(b)(5)(B), 367, 956(e), 7701(l), and 7874 to target corporate inversions.
In summary, the notice aims to:
- Prevent inverted companies from accessing a foreign subsidiary’s earnings while deferring U.S. tax through the use of creative loans, which are known as “hopscotch” loans (action under Code §956(e)).
- Prevent inverted companies from restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free (action under Code §7701(l)).
- Close a loophole to prevent inverted companies from transferring cash or property from a CFC to the new parent to completely avoid U.S. tax (action Code §304(b)(5)(B)).
- Make it more difficult for U.S. entities to invert by strengthening the requirement that the former owners of the U.S. entity own less than 80 percent of the new combined entity (action under Code §7874).
The notice provides 11 examples of the new rules. We have created situational charts that illustrate the examples. Images of the charts are shown below and links to PDFs of the charts are also available:
- Section 2.01(b) Example
- Section 2.03(b)(iv) Example 1
- Section 2.03(b)(iv) Example 1 Alternate Facts
- Section 2.03(b)(iv) Example 2
- Section 2.03(b)(iv) Example 2 Alternate Facts
- Section 3.02(e)(iii) Example 1
- Section 3.02(e)(iii) Example 1 Alternate Facts
- Section 3.02(e)(iii) Example 2
- Section 3.02(e)(iii) Example 3
- Section 3.03(b) Example 1
- Section 3.03(b) Example 2