In one corner, we have Code §368(a)(1)(F) which generally allows for a corporation to move from one jurisdiction to another without triggering gain or other immediate adverse income tax consequences. The purpose is to allow corporations to move around as they feel necessary without being impeded by gain considerations.
In the other corner, we have Code §367(d) which treats a transfer of intellectual property (IP) as a taxable disposition of the IP when it is transferred to a foreign corporation under Code Sections 351 or 361. The purpose is to realize upon the appreciation in such IP at the time it may be leaving the U.S. tax jurisdiction.
So if IP is transferred to a foreign corporation when a U.S. corporation converts to a foreign corporation as an F reorganization, which policy prevails – a taxable disposition, or not?
In a recent Legal Advice by Associate Area Counsel, the IRS concluded that Code §367(d) applies and there is a taxable disposition. Such a reorganization is treated as an indirect disposition. Further, the deemed disposition is treated as a lump-sum payment disposition and not one that is taxed as a stream of royalty payments over multiple tax years.
The Legal Advice is consistent with Chief Counsel Advice issues in 2013 in CCA 201321018.
Legal Advice Issued by Field Attorneys 20152104F