IRS proposes rules on gain recognition agreements for outbound transfers

The IRS has issued proposed regulations regarding the implications of the failure to file or comply with documentation requirements to qualify for non-recognition of gain in ‘outbound’ transfers of certain property to foreign corporations. As summarised in this article from DLA Piper, the proposed regulations (REG-140649-11), issued on 30 January 2013, affect four different areas of the current rules.

At a high level, the changes may be summarized as follows:

  1. Section 367(a) - If a US transferor fails to comply with the gain recognition agreement (GRA) filing requirements contained in Section 367(a) and the regulations thereunder, then a US transferor must recognize the full amount of gain on the transfer only if the failure to comply was willful (as opposed to having to demonstrate the failure was due to reasonable cause).
  2. Section 6038B - Form 926 must be filed, even though a GRA is also filed.
  3. Section 367(e)(2) - Penalties for failure to comply with Section 367(e)(2) will be aligned with the above Section 367(a) and Section 6038B rules.
  4. Treas. Reg. 1.367(a)-3 - Penalties for failure to comply with Treas. Reg. 1.367(a)-3 will be aligned with the above Section 367(a) and Section 6038B rules…

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