U.S. persons transferring appreciated property to foreign corporations may be eligible for nonrecognition of gain using Section 351 or the corporate reorganization provisions. However, Code §367(a) and its regulations provide exceptions to nonrecognition for transfers of certain property based on the policy that it is appropriate for the U.S. to tax the gain in such items at the time they move to foreign corporate taxpayers.
Previously, foreign goodwill and going concern value were excepted from gain recognition under Code §367(a), based on legislative history that allowing such items to escape gain recognition would not adversely impact the U.S. Per more recent Treasury determinations that this exception was being abused, Proposed Regulations eliminated this exception, and now final Regulations have adopted such a rule.
Another change involves outbound transfers of intangible property in nonrecognition transfers. Under Code §367(d), the U.S. transferor is treated as having sold the property in exchange for payments that are contingent upon the productivity, use or disposition of the property, and as receiving amounts that reasonably reflect what would have been received annually in the form of such payment over the shorter of the property’s useful life or 20 years. Under the final regulations, when the useful life of the property is indefinite or more than 20 years, taxpayers can still apply the 20 year period - but the taxpayer has to include during the 20 year amounts that would have been required to be included over the useful life of the transferred property following the end of the 20 year period.
T.D. 9803
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