The Treasury Department and IRS have issued final regulations (T.D. 9803) under Section 367 that eliminate the foreign goodwill exception under Reg. Section 1.367(d)-1T(b) and generally limit application of the Section 367(a)(3) active trade or business exception to certain tangible property and financial assets. As in the proposed regulations, the final regulations generally treat foreign goodwill and going concern value as an asset subject to Section 367(a) that is ineligible for the modified active trade or business exception, but permit a US transferor to elect to apply Section 367(d), rather than Section 367(a), to an outbound transfer of this intangible. Thus, under the final regulations, all property transferred by a US person to a foreign corporation in a Section 351 or Section 361 exchange will be subject to either the rules of Section 367(a) or 367(d).

In response to comments, the final regulations restore the 20-year limitation on useful life for Section 367(d) intangible property, subject to certain conditions. The final regulations also modify the definition of "useful life" to include "the entire period during which exploitation of the transferred intangible property is reasonably anticipated to affect the determination of taxable income."

The regulations also combine certain sections of the existing regulations under Section 367(a) into a single section.

Consistent with the proposed regulations, the final regulations generally apply to transfers occurring on or after September 14, 2015, and to transfers occurring before that date resulting from entity classification elections filed on or after September 14, 2015.

A Tax Alert is forthcoming.