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IRS Seeks Comments on Section 961(c) Basis for Inbound Transactions

international corporate taxation
IRS Notice 2024-16


Welcome to our latest blog post! Today, we're diving into a topic that's crucial for tax professionals and corporations involved in international transactions: the IRS's recent guidance, Notice 2024-16, issued on December 29, 2023. This notice sheds light on how the IRS plans to handle the tax basis of certain inbound transactions involving U.S. and foreign corporations. We'll break down the key points in a way that's easy to grasp so that you can stay informed and prepared.

Understanding the Basics: Section 961 and Its Implications

First, let's understand the backdrop. Section 961 of the Internal Revenue Code is all about the tax basis – essentially, the value for tax purposes – of a U.S. shareholder's stock in a Controlled Foreign Corporation (CFC). This can get complicated when U.S. shareholders indirectly own stock in a CFC through another CFC. The tax basis can fluctuate based on income inclusions and distributions, and Section 961(c) specifically addresses these indirect ownership scenarios.

The Problem: Double Taxation in Inbound Transactions

The issue arises during certain inbound transactions. Imagine a U.S. corporation acquiring a CFC from another CFC in transactions like liquidations or reorganizations. Under the current rules, the acquiring corporation's tax basis in the CFC stock might not reflect previous adjustments made under Section 961(c) by the transferor CFC. This mismatch can lead to the same earnings of the CFC being taxed twice – a scenario everyone wants to avoid!

The Solution: Forthcoming Proposed Regulations

Here's where Notice 2024-16 comes into play. The forthcoming regulations aim to fix this by ensuring that the acquiring corporation's tax basis in the CFC stock considers the transferor CFC's adjusted basis under Section 961(c). This approach is intended to prevent double taxation and maintain consistency in tax treatment across similar transactions. However, there are some limitations and exclusions to keep in mind, like specific transaction types and scenarios where the regulations wouldn't apply.

Practical Implications and Next Steps

What does this mean for you? If you're involved in such transactions, you can rely on this guidance until the proposed regulations are officially published. Also, if you've been maintaining the Section 961(c) basis in a currency other than the U.S. dollar, remember to convert it to dollars using a consistent method.

Closing Thoughts

The IRS is seeking feedback on this guidance, so if you have insights or concerns, now is the time to voice them. The deadline for comments is February 26, 2024. Understanding and adapting to these changes is crucial for avoiding tax pitfalls in international corporate transactions. Stay tuned for more updates, and as always, consult with a tax professional for advice tailored to your specific situation.


The content provided in this blog post is for informational purposes only and is not intended as legal advice. While we strive to ensure the accuracy and timeliness of the information presented, the rapidly changing nature of legal and regulatory environments means that we cannot guarantee its current applicability or completeness.

This blog post does not create an attorney-client relationship between you and Le Tax Law, PLLC. It should not be used as a substitute for competent legal advice from a licensed professional attorney in your jurisdiction.

Readers are advised to consult with a qualified attorney to understand how these legal developments may apply to their specific circumstances. If you are seeking legal advice or assistance, we encourage you to reach out to our experienced team.


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