January 23, 2024
IRS signals new IRC Section 367(d) guidance in 2024 on repatriation of intangible property
At the 2024 DC Bar Tax Conference on January 10, 2024, an IRS official said that the IRS hopes to finalize proposed regulations under IRC Section 367(d) in the first half of 2024 that would "turn off the application of that specific code section to avoid excessively taxing income in the US made from repatriated intangible property."1
Teisha Ruggiero, branch chief at the IRS's Office of Chief Counsel, also said the IRS would like to address the issue of basis of intangible property (IP) under IRC Section 367(d), but the work is "all very preliminary."2
Under IRC Section 367(d), a US transferor that transfers certain IP is treated as having sold the IP in exchange for payments that are contingent upon the IP's productivity, use or disposition. A US transferor is treated as receiving amounts that reasonably reflect the amounts that would have been received annually in the form of such payments over the useful life of the IP (an annual inclusion). In May 2023, the IRS released proposed regulations (REG-124064-19) under IRC Section 367(d) that would terminate continuing annual inclusions if (1) the transferee foreign corporation repatriated the outbounded IP to a qualified domestic person, and (2) the original US transferor complied with certain reporting requirements (see Tax Alert 2023-0843).
Ruggiero said the IRS is also working on updating Notice 2012-15 on certain transfers of foreign stock in exchange for foreign property under IRC Section 304 and Notice 2012-39 on certain outbound asset reorganizations under IRC Section 367(d).3
With the US corporate tax rate at a globally competitive 21% and the potential for lower effective tax rates under IRC Section 250, the IRC Section 367(d) regulations are important to many US companies, as they may have an incentive to simplify their operating models by repatriating IP. Uncertainty around the consequences of repatriating outbounded IP subject to IRC Section 367(d) complicates any re-evaluation of operating models in light of global developments.