Internal Revenue Bulletin 2013-17 (PDF rendition): IRS Notices

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Bulletin No. 201
3-17
April 22, 2013
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9614, page 947.
Final and temporary regulations provide an exception to the
general rule under section 367(a)(5) of the Code, which gener-
ally causes gain to be recognized on transfers otherwise not
taxable under section 361(a) or (b), if certain conditions are sat-
isfied. Section 1248(f) causes an inclusion to domestic corpo-
rations that transfer the stock of certain foreign corporations in
transfers that would otherwise be tax free under sections 337,
355 or 361(c). Section 1248(f) allows taxpayers to elect out
of taxation under regulations and the final regulations provide
such an election. Notice 87–64 obsoleted.
Notice 2013–25, page 978.
2012 nonconventional source fuel credit, section 45K
inflation adjustment factor, and section 45K reference
price.The notice announces the inflation adjustment factor,
the reference price, and the credit amount for the nonconven-
tional source fuel credit for coke or coke gas (other than from
petroleum based products) for the 2012 calendar year.
Rev. Proc. 2013–23, page 978.
Guidance is provided to individuals who fail to meet the eligi-
bility requirements of section 911(d)(1) of the Code because
adverse conditions in a foreign country preclude the individual
from meeting those requirements. A current list of countries
for tax year 2012 and the dates those countries are subject to
the section 911(d)(4) waiver is provided.
Announcement 2013–27, page 981.
This document contains corrections to a notice of proposed
rulemaking and notice of public hearing (REG–148500–12,
2013–13 I.R.B. 716) that was published in the Federal Regis-
ter on Friday, February 1, 2013 (78 FR 7314). The proposed
regulations relate to the requirement to maintain minimum
essential coverage enacted by the Patient Protection and
Affordable Care Act and the Health Care and Education Recon-
ciliation Act 0f 2010, as amended by the TRICARE Affirmation
Act and Public Law 111–173. These proposed regulations
provide guidance on the liability for shared responsibility
payment for not maintaining minimum essential coverage.
Announcement 2013–28, page 982.
This document contains corrections to final regulations (T.D.
9612, 2013–13 I.R.B. 678) that were published in the Fed-
eral Register on Tuesday, February 5, 2013 (78 FR 7997) re-
lating to the tax treatment of noncompensatory options and
convertible instruments issued by a partnership. The final reg-
ulations generally provide that the exercise of a noncompen-
satory options does not cause the recognition of immediate
income or loss by either the issuing partnership or the option
holder. The final regulations also modify the regulations under
section 704(b) regarding the maintenance of the partners’ cap-
ital accounts and the determination of the partners’ distributive
shares of partnership items. The final regulations also contain
a characterization rule providing that the holder of a noncom-
pensatory option is treated as a partner under certain circum-
stances.
(Continued on the next page)
Finding Lists begin on page ii.

EMPLOYEE PLANS
Announcement 2013–21, page 980.
This announcement provides a revised Acknowledgment Let-
ter, attached to Rev. Proc. 2013–12, 2013–4 I.R.B. 313. The
telephone number that taxpayers use to inquire about the sta-
tus of a Voluntary Correction Program (“VCP”) submission that
has been sent to the IRS has changed as of March 27, 2013.
The new number is 626–927–2011. Accordingly, this requires
a revision to the Acknowledgment Letter.
ADMINISTRATIVE
Announcement 2013–22, page 981.
Notice and request for comments about the Internal Rev-
enue Bulletin Index System.This document is soliciting
comments from the public on the proposal to eliminate the
Bulletin Index from the Internal Revenue Bulletin. Written com-
ments should be received on or before August 3, 2013. An-
nouncement 2013–12 supplemented.
April 22, 20132013–17 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly.
It is the poli
cy of the Service to publish in the Bulletin all sub-
stantive ru
lings necessary to promote a uniform application of
the tax laws
, including all rulings that supersede, revoke, mod-
ify, or amen
d any of those previously published in the Bulletin.
All publish
ed rulings apply retroactively unless otherwise indi-
cated. Pro
cedures relating solely to matters of internal man-
agement ar
e not published; however, statements of internal
practices
and procedures that affect the rights and duties of
taxpayers
are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The cont
ents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
2013–17 I.R.B.April 22, 2013

April 22, 20132013–17 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 367.—
Foreign
Corporations
26 CRF 1.367(a)–1: Transfers to foreign corporation
subject to section 367(a): In general.
T.D. 9614
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Certain Outbound Property
Transfers by Domestic
Corporations; Certain Stock
Distributions by Domestic
Corporations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains fi-
nal and temporary regulations that apply
to transfers of certain property by a do-
mestic corporation to a foreign corpora-
tion in certain nonrecognition exchanges,
or to distributions of stock of certain for-
eign corporations by a domestic corpo-
ration in certain nonrecognition distribu-
tions. The final regulations also establish
reporting requirements for property trans-
fers and stock distributions to which the
final regulations apply. The regulations
affect domestic corporations that transfer
property to foreign corporations in certain
nonrecognition transactions, or that dis-
tribute the stock of certain foreign corpo-
rations in certain nonrecognition distribu-
tions, and certain domestic shareholders of
those domestic corporations.
DATES:Effective date:These regulations
are effective on March 19, 2013.
Applicability dates:For dates of
applicability,see §§1.367(a)–1(g),
1.367(a)–3(g), 1.367(a)–7(j), 1.367(b)–6,
1.1248–1(g), 1.1248–6(e), 1.1248–8(d),
1.1248(f)–3(b), and 1.6038B–1(g).
FOR FURTHER IN
FORMATION
CONTACT: Robe
rt B. Williams, Jr., (202)
622–3860 (not
a toll-free number).
SUPPLEMENTA
RY INFORMATION:
Paperwork Re
duction Act
The collecti
ons of information con-
tained in the
regulations have been re-
viewed and a
pprovedbytheOfficeof
Management
and Budget in accordance
with the Pap
erwork Reduction Act of 1995
(44 U.S.C. 3
507(d)) under control number
1545–2183
.
The collect
ions of information are in
§§1.367(a
)–7(c) and (e)(2), 1.367(a)–8(c),
1.1248(f)
–2(a)(3), (b)(1) and (c)(1), and
1.6038B–1
(c)(6). The collections of infor-
mation are
mandatory. The likely respon-
dents are
domestic corporations.
An agency m
ay not conduct or sponsor,
and a pers
on is not required to respond to, a
collecti
on of information unless it displays
a valid co
ntrol number.
Books and
records relating to a collec-
tion of in
formation must be retained as
long as th
eir contents might become ma-
terial in
the administration of any internal
revenue
law. Generally, tax returns and tax
return i
nformation are confidential, as re-
quired b
y26U.S.C.6103.
Backgro
und
On Augus
t 20, 2008, the Department
of the T
reasury (Treasury Department) and
the Int
ernal Revenue Service (IRS) issued
propos
ed regulations under sections 367,
1248, a
nd 6038B of the Internal Revenue
Code (C
ode) (2008 proposed regulations)
conce
rning transfers of property by a do-
mesti
c corporation to a foreign corporation
in an e
xchange described in section 361(a)
or (b)
(section 361 exchange), and certain
nonre
cognition distributions of stock of a
fore
ign corporation by a domestic corpo-
rati
on (REG–209006–89; 73 FR 49278,
2008
–2 C.B. 867). A correction to the
2008
proposed regulations was published
in th
eFederal Registeron September 26,
200
8 (73 FR 56535; 2008–41 I.R.B. 867).
No p
ublichearingonthe2008proposed
reg
ulations was requested or held; how-
eve
r, comments were received. Based, in
part, on comme
nts received, the Treasury
Department an
d the IRS adopt the 2008
proposed regu
lations, with modifications,
as final regu
lations. As discussed in para-
graph G. of th
is preamble, a portion of the
2008 propose
d regulations is adopted, with
modificatio
ns, in temporary regulations to
be publishe
d in the Bulletin. Those tem-
porary regu
lations also modify final reg-
ulations un
der section 367(a) concerning
transfers o
f stock or securities by a do-
mestic corp
oration to a foreign corporation
in a sectio
n 361 exchange. All comments
will be ava
ilable atwww.regulations.govor
upon reque
st.
Summary of
Comments and
Explanati
on of Revisions
A.Regulat
ions under Section 367(a)(5)
1.Overvie
w
In general
, section 367(a)(5) provides
that the e
xceptions to section 367(a)(1)
in sectio
n 367(a)(2) and (a)(3) do not ap-
ply in the
case of a section 361 exchange
in which a
domestic corporation (U.S.
transfer
or) transfers assets to a foreign
corpora
tion, unless the U.S. transferor is
control
led (within the meaning of sec-
tion 368
(c)) by five or fewer (but at least
one) dom
estic corporations (each a control
group me
mber, and together the con-
trol gr
oup) and basis adjustments and
other c
onditions as provided in regula-
tions a
re satisfied. The policy underlying
sectio
n 367(a)(5) is the protection of cor-
porate
-level gain on appreciated property
follo
wing the repeal of theGeneral Util-
ities
doctrine. See H.R. Rep. No 795,
100th
Cong., 2d Sess. 60 (1988).
The 20
08 proposed regulations would
imple
ment section 367(a)(5) by providing
that,
as a general rule, the exceptions to
secti
on 367(a)(1) do not apply to a trans-
fer o
f certain property by the U.S. trans-
fero
r to a foreign acquiring corporation in
asec
tion 361 exchange. An exception to
the g
eneral rule is provided, at the elec-
tion
of the U.S. transferor and members
of t
he control group (elective exception),
sub
ject to conditions that are intended, in
par
t, to ensure that the net gain (if any) re-
ali
zed by the U.S. transferor in connection
2013–17 I.R.B.947April 22, 2013

with the transfer of property subject to sec-
tion 367(a) (defined asinside gain)is,in
the aggregate, recognized currently by the
U.S. transferor or, to the extent permitted,
preserved in the stock received in the re-
organization by certain domestic corporate
shareholders of the U.S. transferor.
Section 337(d) provides that the Sec-
retary shall prescribe such regulations as
may be necessary or appropriate to carry
out the purposes of the amendments made
by subtitle D of title VI of the Tax Re-
form Act of 1986 (concerning the repeal
of theGeneral Utilitiesdoctrine), includ-
ing regulations providing for appropriate
coordination of the provisions of section
337 with the provisions of the Code relat-
ingtotaxationofforeign corporations and
their shareholders.
2.Calculation of inside gain
In addition to the adjusted basis of cer-
tain transferred property, for purposes of
computing inside gain, the 2008 proposed
regulations take intoaccount certain liabil-
ities of the U.S. transferor that would give
rise to a deduction when paid (deductible
liabilities). Under the 2008 proposed regu-
lations, a deductible liability would be de-
fined as a liability assumed in the section
361 exchange or satisfied in connection
with the reorganization (within the mean-
ing of section 361(c)(3)), but only if pay-
ment of the liability would give rise to a
deduction. Section 361(c)(3) provides that
the U.S. transferor recognizes no gain or
loss on the satisfaction of a liability with
stock received in connection with the reor-
ganization, but does not prevent the U.S.
transferor from obtaining a deduction on
payment of the liability with the stock re-
ceived. The policy for allowing a de-
ductible liability to reduce inside gain is
that the U.S. transferor has not received
a tax benefit for such liability but the li-
ability reduces the value of the stock re-
ceived. Accordingly, under the final regu-
lations, a deductible liability is limited to a
liabilitythatisassumedinthesection361
exchange if payment of the liability would
give rise to a deduction.
Several comments suggested that other
tax attributes of the U.S. transferor should
also be taken into account in computing
inside gain (in particular, net operating
losses and foreign tax credits) because
those other tax attributes are similar to the
adjusted basis of the transferred property
and deductible liabilities. Recognizing the
complexity that would result if other tax
attributes were taken into account, other
comments suggested that the final regu-
lations permit the U.S. transferor to elect
to recognize an amount of gain sufficient
to utilize all or a portion of any additional
tax attributes. Another comment, how-
ever, considered this recommendation to
be inconsistent with the basic approach of
section 367(a)(1), which only takes into
account the adjusted basis of the trans-
ferred property in determining the amount
of gain required to be recognized by the
U.S. transferor.
The Treasury Department and the IRS
believe that taking into account other tax
attributes of the U.S. transferor in deter-
mining inside gain would substantially in-
crease the complexity of the final regula-
tions and IRS examinations of these trans-
actions. In addition, a U.S. transferor can
utilize any other available tax attributes by
not electing to apply the elective excep-
tion. Accordingly, the comment was not
adopted.
3.Built-in loss in stock of the U.S.
transferor corporation
To qualify for the elective exception un-
der the 2008 proposed regulations, each
control group member must reduce its ad-
justed basis (as determined under section
358) in the stock received in the reorgani-
zation by the amount (if any) that its por-
tion of the inside gain exceeds the gain (or
loss) in that stock (outside gain) but for the
application of section 367(a)(5). In cer-
tain cases, the required basis adjustment
will convert built-in loss stock into built-in
gain stock. For example, assume that prior
to the application of the elective excep-
tion the control group member has a $150x
adjusted basis (as determined under sec-
tion 358) in stock received that has a fair
market value of $100x (that is, there is a
$50x built-in loss in the stock). If the con-
trol group member’s share of inside gain
is $30x, its adjusted basis in the stock re-
ceived must be reduced to $70x, resulting
in $30x of built-in gain in the stock and
eliminating the $50x pre-existing built-in
loss.
Several comments suggested that re-
ducing the adjusted basis of built-in loss
stock to this extent is inappropriate and
recommended that final regulations treat
a reduction to an existing built-in loss the
same as a reduction to basis that would in-
crease built-in gain. For example, under
the previous assumed facts, the approach
in these comments would reduce the ad-
justed basis of the stock by $30x (the con-
trol group member’s share of inside gain),
reducing the built-in loss to $20x.
Another comment recommended that
the provisions be modified to preserve
both the domestic corporate shareholder’s
share of inside gain as well as the built-in
gain (or loss) existing in the stock received
before any required basis adjustment.
Specifically, the comment suggested that
any outside built-in gain (loss) should be
treated as a deferred gain (loss) that would
be taken into account based on principles
similar to those of section 267(a)(1).
Consistent with the legislative history
to section 367(a)(5), the Treasury Depart-
ment and the IRS believe that the amount
of outside built-in gain or loss should not
affect the required reduction to the ad-
justed basis of the stock received in the
transaction. That is, the basis must be re-
duced to an amount such that the gain in
the stock corresponds to the proportion-
ateamountofinsidegain. SeeS.Rep.
No. 445, 100th Cong., 2d Sess. 62–3
(1988). Therefore, the final regulations do
not adopt these recommendations. The fi-
nal regulations do, however, clarify that
if a U.S. transferor does not have inside
gain, that is, there is no net built-in gain
in the U.S. transferor’s assets, stock basis
adjustments are not required to be made
by control group members, even if the out-
side stock loss of a control group member
is greater than the net built-in loss attribut-
able to the control group member.
4.Disposition of a significant amount of
section 367(a) property
The 2008 proposed regulations would
deny the application of the elective excep-
tion if, with a principal purpose of avoid-
ing U.S. tax, the foreign acquiring corpo-
ration disposes of a significant amount of
the property received from the U.S. trans-
feror (disposition rule).
Several comments recommended that
the disposition rule be conformed to the
provisions of §1.367(a)–8 concerning gain
recognition agreements. Specifically, one
comment recommended that a defined pe-
April 22, 20139482013–17 I.R.B.

riod be set for the reach of the disposi-
tion rule. In this regard, the gain recog-
nition agreement provisions generally re-
quire gain recognition only if a triggering
event occurs during the term of the gain
recognition agreement, which is the period
ending with the close of the fifth full tax-
able year (not less than 60 months) follow-
ing the year in which the transfer requiring
the gain recognition agreement occurred.
Another comment recommended that
the final regulations include provisions
similar to those of the gain recognition
provisions in §1.367(a)–8(k)(14) to ad-
dress nonrecognition transfers of property.
Those provisions generally provide that a
transfer of assets subject to a gain recog-
nition agreement during the term of the
gain recognition agreement in certain
nonrecognition transactions will not be
triggering events if specified conditions
are satisfied. Other comments suggested
that this disposition rule is not necessary
because §1.367(a)–2T(c)(1) denies the
exception under section 367(a)(3) in cer-
tain cases when the transferred property is
re-transferred to another person as part of
the same transaction.
The Treasury Department and the IRS
believe that safeguards in addition to
§1.367(a)–2T(c)(1) are needed in the case
of outbound reorganizations that qualify
for the elective exception, but agree that
adopting certain aspects of the gain recog-
nition agreement provisions is appropriate.
Accordingly, the final regulations deny the
elective exception only if, with a principal
purpose of avoiding U.S. tax, the foreign
acquiring corporation disposes of a signif-
icant amount of the property received from
the U.S. transferor during the 60-month
period that begins on the date of distri-
bution or transfer (within the meaning of
§1.381(b)–1(b)), which generally is the
date on which the transfer of property by
the U.S. transferor to the foreign acquiring
corporation is completed.
Furthermore, the final regulations pro-
vide that property that is subsequently
transferred pursuant to a nonrecognition
provision is not treated as disposed of for
purposes of the disposition rule, provided
such transfer satisfies, and is treated in
a manner consistent with the principles
underlying §1.367(a)–8(k) (concerning
non-triggering events with respect to
gain recognition agreements) and more
generally the provisions of §1.367(a)–8
concerning gain recognition agreements.
Finally, one comment suggested that
dispositions of property in the ordinary
course of business should not deny the ap-
plication of the elective exception, even if
the disposition occurs within the two-year
“presumption of tax avoidance” period fol-
lowing the reorganization. The Treasury
Department and the IRS agree with this
comment. Accordingly, the final regu-
lations provide an exception for disposi-
tions of property occurring in the ordinary
course of business.
5.Definitions of section 367(a) property
and section 367(d) property
Subject to a special rule, the 2008 pro-
posed regulations define section 367(a)
property as any property other than section
367(d) property. The 2008 proposed reg-
ulations define section 367(d) property as
property to which section 367(d) applies.
In response to a comment, the final
regulations clarify that section 367(d)
property is property described in section
936(h)(3)(B). Section 367(d)(1) provides
that, except as provided in regulations, if
a United States person transfers any in-
tangible property (within the meaning of
section 936(h)(3)(B)) to a foreign corpo-
ration in an exchange described in section
351 or 361, section 367(d) (and not section
367(a)) applies to such transfer. Accord-
ingly, income or gain attributable to the
transfer of property by a U.S. person to a
foreign corporation in a section 351 ex-
change or section 361 exchange is taken
into account either in accordance with sec-
tion 367(d)(2)(A)(ii)(I) or (d)(2)(A)(ii)(II),
or in accordance with section 367(a) and
the regulations thereunder in the case of
a section 361 exchange subject to sec-
tion 367(a)(5). For guidance concerning
transfers of section367(d) property in
outbound asset reorganizations, see No-
tice 2012–39, 2012–31 I.R.B. 95 (see
§601.601(d)(2)(ii)(b) of this chapter).
6.Treatment of a RIC, REIT, or S
corporation
One comment suggested that if the pol-
icyofsection367(a)(5)istopreserveU.S.
taxing jurisdiction over corporate-level
gain, then section 367(a)(5) should not
generally apply to a regulated investment
company (RIC), real estate investment
trust (REIT), or S corporation (collec-
tively, special corporate entities), because
those entities generally are not subject to
corporate-level tax. The comment further
suggested that to the extent those special
corporate entities are subject to corpo-
rate-level tax, the final regulations should
incorporate a targeted gain recognition
rule to address those limited situations.
In contrast, another comment noted that
exempting special corporate entities from
the application of section 367(a)(5) could
facilitate the use ofspecial corporate
entities to avoid U.S. tax. A third com-
ment asserted that, at a minimum, even
though specialcorporate entities may not
generally be subject to corporate-level
tax, special corporate entities should be
permitted to be members of the control
group, because the amount of inside gain
preserved in stock received by special
corporate entities could, when recognized,
be wholly or partly subject to U.S. tax in
the hands of shareholders of the special
corporate entities.
The Treasury Department and the IRS
remain concerned about exempting spe-
cial corporate entities from the application
of section 367(a)(5). Section 367(a)(1)
addresses transfers of certain appreciated
property by a United States person to a for-
eign corporation incertain nonrecognition
exchanges described in subchapter C of the
Code. This general rule applies equally to
special corporate entities, as it does to any
U.S. person, including any domestic cor-
poration. Although special corporate en-
tities are generally not subject to entity-
level tax, the underlying income (includ-
ing built-in gain in assets) flows through
to their owners. Because the owners of
special corporate entities generally receive
a basis determined under section 358 in
the shares of the foreign acquiring corpo-
ration, preservation of corporate-level tax
on the inside gain is not assured.
The Treasury Department and the IRS
also remain concerned about allowing spe-
cial corporate entities to be members of the
control group. If a special corporate entity
was allowed to be a member of the control
group, whether the inside gain preserved
in the hands of a special corporate entity
is ever subject to U.S. corporate tax would
depend on the extent of the domestic cor-
porate ownership of the special corporate
entity at the time the gain is recognized.
The domestic corporate ownership at the
2013–17 I.R.B.949April 22, 2013

time the gain is recognized may decrease
or increase from the time the reorganiza-
tion occurred.
Accordingly, the final regulations do
not adopt the recommendations to pro-
vide relief from the application of section
367(a)(5) to special corporate entities, or
allow special corporate entities to be con-
trol group members.
7.Indirect stock ownership
Several comments recommended that
the final regulations permit indirect owner-
ship of the U.S. transferor through partner-
ships or foreign corporations to be taken
into account for purposes of satisfying the
control requirement of section 367(a)(5).
Section 367(a)(5), however, incorporates
the control requirement of section 368(c),
which requires the direct ownership of
stock. Furthermore, there is no indica-
tion in the legislative history to section
367(a)(5) that indirect stock ownership
should also be considered for this purpose.
In addition, as noted in the preamble to the
2008 proposed regulations, the Treasury
Department and the IRS are concerned
with the additional complexity that would
result if indirect ownership were taken
into account. Thus, the final regulations
do not adopt this recommendation.
8.Treatment of affiliated group members
as a single corporation
The 2008 proposed regulations provide
that members of an affiliated group of cor-
porations (within the meaning of section
1504) are treated as a single corporation
for purposes of the control requirement
of section 367(a)(5). Several comments
stated that the wording of this aggrega-
tion rule could be read to suggest that the
affiliated group members are also treated
as a single corporation for other purposes,
including, for example, to determine the
amount of any required stock basis adjust-
ments. The final regulations revise the
aggregation rule to clarify that affiliated
group members are treated as a single cor-
poration only for purposes of the control
requirement.
9.Transfers described in other
nonrecognition provisions
The 2008 proposed regulations clarify
that section 367(a)(5) applies to a transfer
of property described in section 351 if the
transfer is also described in section 361(a)
or (b). This clarification ensures that the
policies underlying section 367(a)(5) are
not undermined by transfers described in
section 361(a) or (b) that also qualify for
nonrecognition under section 351.
One comment suggested that transfers
described in section 361(a) or (b) could
also be described in nonrecognition provi-
sions other than section 351, such as sec-
tion 354. In response to this comment,
the general rule in the final regulations
is modified to provide that, unless an ex-
ception applies, the U.S. transferor rec-
ognizes any gain realized with respect to
section 367(a) property. Thus, for pur-
poses of recognizing gain under the gen-
eral rule it is irrelevant whether, in addi-
tion to section 361(a) or (b), the transfer
is also eligible fornonrecognition treat-
ment under other exchanges enumerated in
section 367(a)(1). Moreover, the general
rule is issued under regulatory authority
granted under both section 367(a)(5) and
section 337(d). Accordingly, if a transfer
of items of property that is described in
section 361(a) or (b) is also described in
a nonrecognition provision that is not enu-
merated in section 367(a)(1) (such as sec-
tion 1036), the U.S. transferor recognizes
gain or loss realized on the transfer of such
items of property, but the amount of loss
recognized on the property shall not ex-
ceed the amount of gain recognized on the
property. The Treasury Department and
the IRS believe that permitting the recog-
nition of losses to the extent of gains in
such a case is consistent with the repeal
of theGeneral Utilitiesdoctrine. See sec-
tion 337(d). However, losses described in
the prior sentence may be subject to other
limitations, including, for example, sec-
tion 267(f).
10.Other clarifications and modifications
The 2008 proposed regulations provide
for various determinations to be made “at
the time of the section 361 exchange,”
and therefore do not take into account the
possibility that the property of the U.S.
transferor may not be transferred on a sin-
gle date to the foreign acquiring corpora-
tion. Accordingly, the final regulations no
longer use the phrase “at the time of the
section 361 exchange” as the time for mak-
ing certain determinations required under
the regulations. Forexample, under the
final regulations the determination as to
whether the control requirement is satis-
fied is instead made immediately before
the reorganization.
Under the final regulations, the compu-
tation of a shareholder’s ownership interest
percentage in the U.S. transferor for pur-
poses of various calculations also gener-
ally must be made immediately before the
reorganization. However, the final regu-
lations further revise the computation of
the ownership interest percentage to take
into account certain distributions by the
U.S. transferor of a portion of its property.
Specifically, under the final regulations,
the ownership interest percentage is deter-
mined after taking into account any distri-
bution by the U.S. transferor of money or
other property not received from the for-
eign acquiring corporation in exchange for
property of the U.S. transferor acquired in
the section 361 exchange.
The final regulations remove references
in the 2008 proposed regulations to stock
that is deemed received because refer-
ences to stock received necessarily include
stock that is deemed received. No sub-
stantive change is intended by the removal
of references to stock that is deemed re-
ceived. Similarly, indescribing a control
group member’s stock basis adjustments,
the final regulations remove references to
blocks of stock because such references
are not necessary to the determination
of which basis in stock is reduced. No
substantive change is intended by this
modification.
The 2008 proposed regulations con-
tain a reasonable cause relief provision
in §1.367(a)–7(e)(2), pursuant to which
a control group member’s failure to
timely comply with any requirement of
§1.367(a)–7 will be deemed not to have
occurred if the failure was due to reason-
able cause and not willful neglect. The
reasonable cause relief provision includes
a provision that the control group mem-
ber will be deemed to have established
that the failure to comply was due to
reasonable cause and not willful neglect
if the control group member requesting
relief is not notified by the IRS within
120 days of IRS acknowledgement of
receipt of the request. As discussed in
the preamble to temporary regulations to
be published in the Bulletin, the Trea-
sury Department and the IRS believe it
April 22, 20139502013–17 I.R.B.

is appropriate to eliminate the 120-day
provision from the reasonable cause relief
provision of §1.367(a)–7(e)(2). Other than
the elimination of the 120-day provision,
the reasonable cause relief provision is
retained in the temporary regulations.
Other modifications to §1.367(a)–7
are generally intended to coordi-
nate the rules with other provisions,
such as §§1.367(a)–3T(e), 1.367(b)–4,
1.1248(f)–1, and 1.1248(f)–2, when the
property transferredinthesection361
exchange is stock or securities.
B.Other Regulations under Section
367(a)
The 2008 proposed regulations would
modify §1.367(a)–1T(b)(4)(i)(B) to pro-
vide that an increase in basis under sec-
tion 362 for gain recognized by the U.S.
transferor under section 367(a) is allocated
among the transferred property with re-
spect to which gain is recognized in pro-
portion to the gain realized by the U.S.
transferor.
The final regulations clarify this rule
to provide that if gain is recognized un-
der section 367 with respect to a particu-
lar item of property, the foreign transferee
corporation increases its basis in that item
of property for such gain. The final reg-
ulations further clarify that any gain rec-
ognized that is not with respect to a par-
ticular item of property (for example, gain
recognized under the branch loss recapture
rules) is then allocated in proportion to the
gain realized by the U.S. transferor with re-
spect to all items of property transferred,
but for this purpose the gain realized is de-
termined after taking into account gain rec-
ognized under other provisions of section
367 that apply with respect to particular
items of property.
C.Regulations under Section 367(b)
1.Modified Example 4 of
§1.367(b)–4(b)(1)
Final regulations issued under sec-
tion 367(b) on January 24, 2000, provide
that if a U.S. transferor that is a section
1248 shareholder of a foreign acquired
corporation transfers the stock of such
corporation to a foreign acquiring cor-
poration in a section 361 exchange, the
U.S. transferor must include in income
the section 1248 amount attributable to
the stock of the foreign acquired corpo-
ration. As part of the analysis, the final
regulations state that immediately after the
exchange, the U.S. transferor is not a sec-
tion 1248 shareholder because the stock
of the U.S. transferor is cancelled. This is
the case even if the foreign acquiring cor-
poration and the foreign acquired corpo-
ration are controlled foreign corporations
(within the meaning of §1.367(b)–2(a)).
See §1.367(b)–4(b)(1)(iii),Example 4.
The 2008 proposed regulations would
modify §1.367(b)–4(b)(1)(iii),Example
4, to provide that the requirements in
§1.367(b)–4(b)(1)(i)(B) are applied im-
mediately after the section 361 exchange
(and before the distribution of the foreign
stock under section 361(c)(1)).
One comment requested that the analy-
sis inExample 4, as revised by the 2008
proposed regulations, be clarified to ad-
dress the fact that the stock of the foreign
corporation received in the transaction is
immediately distributed by the U.S. trans-
feror. That is, the comment questioned
whether the analysis has the effect of re-
specting the transitory ownership of stock
for purposes of applying §1.367(b)–4. The
comment further noted that Revenue Rul-
ing 83–23, 1983–1 C.B. 82, disregards
transitory ownership of stock for purposes
of applying the section 367(b) regulations
then in effect.
Unless otherwise provided, judicial
doctrines and principles, such as sub-
stance-over-form and the step-transaction
doctrine, apply in determining whether
the conditions for an income inclusion
under §1.367(b)–4(b)(1) are satisfied, just
as such principles and doctrines apply
for purposes of determining the appro-
priate treatment of a transaction under
any provision of section 367 (and more
generally, section 1248). Thus, for ex-
ample, an issuance of stock by the for-
eign acquiring corporation in connection
with the exchange being tested under
§1.367(b)–4 would be taken into account
in determining whether an income inclu-
sion under §1.367(b)–4(b)(1) is required.
Nevertheless, for purposes of applying
§1.367(b)–4(b)(1), the Treasury Depart-
ment and the IRS believe it is appro-
priate to respect the ownership of stock
by the U.S. transferor in the context of
outbound section 361 exchanges (such
as the transaction addressed inExample
4). This treatment is appropriate because
thesection1248amountinthestockof
the foreign acquired corporation will,
in the aggregate, either be preserved in
the hands of certain domestic corporate
shareholders of the U.S. transferor pur-
suant to §1.1248(f)–2(c), or be included
in the gross income of the U.S. trans-
feror as a result of the distribution of such
stock under section 361(c) pursuant to
§1.1248(f)–1(b)(3). Accordingly, the final
regulations provide that in the case of an
outbound transfer of stock of a foreign
corporation in a section 361 exchange, the
requirements of §1.367(b)–4(b)(1)(ii)(B)
apply after the section 361 exchange, but
prior to and without taking into account
the U.S. transferor’s distribution under
section 361(c)(1).
2.Other modifications to §1.367(b)–4
The final regulations modify
§1.367(b)–4(b)(1) by expanding the type
of exchanges for which an income inclu-
sion is not required to include a section
361 exchange of foreign stock by a foreign
target that is itself acquired in a triangular
asset reorganization involving stock of
a domestic controlling(parent) corpora-
tion. Furthermore, the final regulations
modify the format and organization of
§1.367(b)–4(a) and (b)(1) to clarify its
application.
D.Section 1248(f) Regulations and
Section 1.1248–8
1.Section 337 distributions
The 2008 proposed regulations under
section 1248(f) would provide exceptions
to the operative rule of section 1248(f)(1)
that requires a domestic corporation (dis-
tributing corporation) that distributes stock
of certain foreign corporations under sec-
tions 337, 355(c)(1), or 361(c)(1) to in-
clude in income the section 1248 amount
(if any) in the foreign stock distributed.
Except in the case of a section 337 distri-
bution, the exceptions apply only if an af-
firmative election is made (assuming the
requirements for making the election are
satisfied). The requirements for the elec-
tion include making adjustments to the ba-
sis and holding period of the stock in the
hands of the distributee to the extent nec-
essary to preserve the section 1248 amount
2013–17 I.R.B.951April 22, 2013

in the foreign stock in the hands of the dis-
tributee. In the case of a section 337 dis-
tribution, the exception applies if certain
conditions are satisfied without the need
to make adjustments to the basis or hold-
ingperiodofthedistributedstock,which
should generally be the case. However,
the Treasury Department and the IRS be-
lieve that taxpayers should be permitted
to elect to make any necessary basis and
holding period adjustments to avoid a sec-
tion 1248 inclusion for section 337 distri-
butions. The final regulations are modified
accordingly.
2.Section 361(c)(1) distributions of stock
involving section 361 exchanges
(a)Interaction with regulations under
section 367(a)
Application of the 2008 proposed reg-
ulations under section 1248(f), in combi-
nation with the 2008 proposed regulations
under §1.367(a)–7, could in certain cases
result in aggregate basis adjustments and
gain recognition (or deemed dividend in-
clusions) that exceedthe built-in gain in
the property transferred by the U.S. trans-
feror in the section 361 exchange. The fi-
nal regulations are modified to address this
result.
(b)Allocation of section 358 basis to
portions of a share
If in a section 361 exchange the U.S.
transferor transfers property, other than a
single block of stock of a foreign corpora-
tion with respect to which the U.S. trans-
feror is a section 1248 shareholder, each
share of stock of the foreign distributed
corporation is required to be divided into
portions. The 2008 proposed regulations
would provide that for purposes of com-
puting basis in a portion of a share of stock
of the foreign distributed corporation, the
distributee section 1248 shareholder’s sec-
tion 358 basis in that share is allocated to
a portion of a sharepro ratabasedonthe
fair market value of the property to which
the portion relates relative to the aggregate
fair market value of all property received
by the foreign distributed corporation.
The final regulations modify this rule,
providing that the distributee’s section 358
basis in a share of thedistributed foreign
corporation is allocated to a portion of a
sharepro ratabased on the basis of the
property to which the portion relates rel-
ative to the aggregate basis of all prop-
erty received by the foreign distributed
corporation. As a result of this modifi-
cation, the aggregate built-in gain in the
respective portion of all shares to which
a block of foreign stock transferred with
a section 1248 amount relates will more
closely match the built-in gain in such for-
eign stock transferred. Because the section
1248 amount is limited to the built-in gain
in the stock, the modification will mini-
mize basis reductions to portions of shares
that may otherwise be required to preserve
the section 1248 amount in foreign stock
transferred.
(c)Preservation of the section 1248(f)
amount
The 2008 proposed regulations would
provide that if the section 1248(f) amount
attributable to a portion of a share of stock
(including a whole share, if appropriate)
of the foreign distributed corporation re-
ceivedbyadistributeesection1248share-
holder in the distribution exceeds the dis-
tributee section 1248 shareholder’s post-
distribution amount in the portion (excess
amount), then the distributee section 1248
shareholder’s section 358 basis in the por-
tion is reduced by the excess amount.
The final regulations modify the 2008
proposed regulations to provide that the
section 358 basis in the portion is not re-
duced below zero, and therefore to the ex-
tent the excess amount exceeds the sec-
tion 358 basis in the portion, the domes-
tic distributing corporation must include
that portion of the section 1248(f) amount
attributable to the portion of the share in
gross income as a dividend. The excess
amount can exceed the section 358 basis in
the portion, for example, where the section
1248(f) amount attributable to the control
group member exceeds the inside gain at-
tributable to the control group member.
The Treasury Department and the IRS
considered whether a distributee required
to decrease basis in a portion of a share
should be allowed to increase the basis in
another portion of the same share or in an-
other share (or portion thereof). Due to ad-
ditional complexities that would arise from
such rules, such as ensuring that the ba-
sis increase does not decrease the section
1248(f) amount in another portion or cre-
ate (or increase) a built-in loss in another
portion, the Treasury Department and the
IRS decline to provide such rules. How-
ever, the modification made by the final
regulations providing that the section 358
basis in a share of stock is allocated among
portions of such share of stock based on the
basis (rather than the fair market value) of
the property transferred to the foreign dis-
tributed corporation in the section 361 ex-
change will, in many cases, minimize the
amount of basis decreases.
(d)Multiple classes of stock
The 2008 proposed regulations did
not provide rules for situations in which
multiple classes of stock of the foreign
distributed corporation are received. The
final regulations provide that if multiple
classes of stock are received by a control
group member, the section 1248(f) amount
“traced” to such control group member
is attributed to a share (or portion of a
share) of stock received by the control
group member based on the ratio of the
fair market value of such share to the fair
market value of all shares received by the
control group member. Furthermore, the
final regulations make consistent modifi-
cations to the regulations under §1.1248–8
(concerning the attribution of section 1248
earnings and profits of stock of a foreign
corporation transferred in a section 361
exchange to a share or portion of a share of
stock of the foreign distributed corporation
received by a section 1248 shareholder).
3.Other modifications to the section
1248(f) regulations
The final regulations clarify that if
the domestic distributing corporation dis-
tributes stock of the foreign distributed
corporationthatitdidnotreceiveina
section 361 exchange (existing stock)
in addition to stock of the foreign dis-
tributed corporation that it did receive in
the section 361 exchange (new stock),
then certain rules apply to the existing
stock and another set of rules apply to the
new stock. This could occur, for example,
if the domestic distributing corporation
owns an existing foreign subsidiary and as
part of the plan that includes a distribution
of that stock that qualifies under section
355, the domestic distributing corporation
contributes additional property to the for-
eign subsidiary in exchange for additional
stock of the foreign subsidiary.
April 22, 20139522013–17 I.R.B.

The final regulations refer to a distri-
bution of stock that is not received in a
section 361 exchange as an “existing stock
distribution,” and a distribution of stock re-
ceived in a section 361 exchange as a “new
stock distribution.”
The 2008 proposed regulations con-
tain a reasonable cause relief provision
in §1.1248(f)–3, pursuant to which a re-
porting person’s failure to timely comply
with any requirement of §1.1248(f)–2 will
be deemed not to have occurred if the
failure was due to reasonable cause and
not willful neglect. The reasonable cause
relief provision includes a provision that
the reporting person will be deemed to
have established that the failure to comply
was due to reasonable cause and not will-
ful neglect if the control group member
requesting relief is not notified by the IRS
within 120 days of IRS acknowledgement
of receipt of the request. As discussed
in the preamble to temporary regulations
to be published in the Bulletin, the Trea-
sury Department and the IRS believe it
is appropriate to eliminate the 120-day
provision from the reasonable cause relief
provision of §1.1248(f)–3. Other than
the elimination of the 120-day provision,
the reasonable cause relief provision is
retained in the temporary regulations.
E.Definition of “Sale or Exchange” for
Purposes of Section 1248
The 2008 proposed regulations
amended §1.1248–1(b) to clarify the def-
inition of the term “sale or exchange”
to include gain recognized under section
301(c)(3). No changes to §1.1248–1(b)
are included as part of these final reg-
ulations because after issuance of the
2008 proposed regulations a temporary
regulation was issued that included this
amendment. See §1.1248–1T(b), issued
in T.D. 9444 (February 10, 2009), and
changes finalized by T.D. 9585 (April 24,
2012).
F.Regulations under Section 6038B
The 2008 proposed regulations contain
various reporting requirements. For ex-
ample, the 2008 regulations under section
6038B describe how the U.S. transferor
makes the election under §1.367(a)–7(c),
including requiring the U.S. transferor to
file a statement containing specified infor-
mation. The final regulations identify cer-
tain additional items of information that
must be included with the statement mak-
ing the election. The 2008 regulations also
require the U.S. transferor to file a state-
ment agreeing to file an amended return in
certain cases if the foreign acquiring cor-
poration subsequently disposes of a sig-
nificant amount of section 367(a) prop-
erty acquired in the section 361 exchange.
The final regulations modify the disposi-
tion rules to provide that certain disposi-
tions of section 367(a) property are not dis-
positions for this purpose.
Finally, as discussed in the preamble
to temporary regulations to be published
in the Bulletin, the Treasury Department
and the IRS believe it is appropriate to
eliminate the 120-day provision from
the reasonable cause relief procedures of
§1.6038B–1(f)(3). Other than the elimi-
nation of the 120-day provision, the rea-
sonable cause relief provision is retained
in the temporary regulations.
G.Elimination of Coordination
Rule Exception in
§1.367(a)–3(d)(2)(vi)(B)(1)(i)
Section 1.367(a)–3(d)(2)(vi)(A) (co-
ordination rule) provides that if in con-
nectionwithanindirectstocktransfer,
as defined in §1.367(a)–3(d)(1), a U.S.
person transfers assets to a foreign corpo-
ration (direct asset transfer) in an exchange
described in sections 351 or 361, the
rules of section 367 and the regulations
under that section apply first to the di-
rect asset transfer and then to the indirect
stock transfer. However, the regulations
provide two exceptions to the coordina-
tion rule for asset reorganizations to the
extent the foreign acquiring corporation
re-transfers the transferred assets to a con-
trolled domestic corporation, but only if
such domestic corporation’s basis in the
re-transferred assets is not greater than the
U.S. transferor corporation’s basis in the
assets and the conditions in either para-
graph §1.367(a)–3(d)(2)(vi)(B)(1)(i)or
(d)(2)(vi)(B)(1)(ii) are satisfied. The 2008
proposed regulations would modify the
exceptions to the coordination rule excep-
tions, including clarifications described in
Notice 2008–10, 2008–1 C.B. 277.
As discussed in the preamble to tem-
porary regulations to be published in
the Bulletin, the Treasury Department
and the IRS believe it is appropriate to
eliminate the coordination rule excep-
tion under §1.367(a)–3(d)(2)(vi)(B)(1)(i).
The coordination rule exception in
§1.367(a)–3(d)(2)(vi)(B)(1)(ii) is retained
in the temporary regulations.
H.Effective/Applicability Dates
1.Regulations under Sections 367(a) and
6038B
Section 1.367(a)–7 and the revisions
to §§1.367(a)–1 and 1.6038B–1 apply to
transfers occurring on or after April 18,
2013.
2.Regulations under Sections 367(b) and
1248
The 2008 proposed regulations provide
that the rules under sections 367(b) and
1248(f), including the modification toEx-
ample 4of §1.367(b)–4(b)(1)(iii), apply
to distributions or exchanges, respectively,
occurring on or after the date that is 30
days after the date the regulations are pub-
lished as final regulations in theFederal
Register.
Comments requested that taxpayers be
allowedtorelyonthe modifications to
Example 4of §1.367(b)–4(b)(1)(iii) and
§1.1248–8, and the regulations under sec-
tion 1248(f) for all open tax years. Other
comments requested that these regulations
be effective on the date the regulations are
published as final regulations in theFed-
eral Register, rather than 30 days after
such date.
The Treasury Department and the IRS
do not believe that taxpayers should be
able to rely on the modifications toEx-
ample 4of §1.367(b)–4(b)(1)(iii) and
§1.1248–8, and the regulations under sec-
tion 1248(f) prior to the effective date.
Taxpayers must apply section 1248(f),
which does not include the exceptions pro-
vided in §1.1248(f)–2 for such prior peri-
ods. Accordingly, distributions described
in section 1248(f)(1) during such period
result in an inclusion unless the exception
described in section 1248(f)(2) applies.
Similarly, taxpayers must take into ac-
countExample 4of §1.367(b)–4(b)(1)(iii)
(before amendment by these final regula-
tions) for such prior periods. The Treasury
Department and the IRS also believe,
because the regulations under sections
367(b) and 1248(f) operate together with
the rules of §1.367(a)–7, the provisions
2013–17 I.R.B.953April 22, 2013

should be subject to consistent effective
dates. Therefore, the final regulations re-
tain the 30-day delay in the effective date
for these rules.
Modifications to §1.1248–6 apply to a
sale, exchange, or other disposition of the
stock of a domestic corporation on or after
September 21, 1987.
Subject to rules implementing the ef-
fective dates announced in Notice 87–64
1987–2 C.B. 375, the final regulations un-
der section 1248(f) are applicable as of the
date that is 30 days following the issuance
of the final regulations.
Availability of IRS Documents
IRS notices cited in this preamble are
made available by the Superintendent of
Documents, U.S. Government Printing Of-
fice, Washington, DC 20402.
Effect on Other Documents
The following publication is obsolete as
of April 18, 2013:
Notice 87–64, 1987–2 C.B. 375.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. Section 553(b) of the
Administrative Procedure Act (5 U.S.C.
Chapter 5) and the Regulatory Flexibility
Act (5 U.S.C. Chapter 6) apply to these
regulations.
It is hereby certified that the collection
of information contained in this regulation
will not have a significant economic im-
pact on a substantial number of small en-
tities. Accordingly, a regulatory flexibil-
ity analysis is not required. These regu-
lations primarily will affect large domestic
corporations that transfer property to a for-
eign corporation in certain corporate reor-
ganizations. Thus, the number of affected
small entities will not be substantial. Small
domestic corporations could be sharehold-
ers of a larger domestic corporation in-
volved in a transaction subject to the reg-
ulations, and the small domestic corpora-
tions could be required to make certain ad-
justments to basis and holding period un-
der the regulations. However, the excep-
tions requiring the adjustments are elective
and, moreover, the Treasury Department
and the IRS do not anticipate the number of
these shareholders to be substantial. Fur-
thermore, the Treasury Department and the
IRS estimate that any small entities that
are affected by the regulations will likely
face a burden of approximately ten hours
(at an hourly rate of $200) from the ad-
justments made to the basis of the stock
received in the reorganization. Consider-
ing that the collections of information en-
able taxpayers to defer or avoid the recog-
nition of potentially large amounts of gain,
the Treasury Department and the IRS be-
lieve that $2,000 is not a significant eco-
nomic impact. Pursuant to section 7805(f),
the notice of proposed rule making pre-
ceding this regulation was submitted to the
AdministratoroftheSmallBusinessAd-
ministration for comment on its impact on
small business.
Drafting Information
The principal authors of these regu-
lations are Robert B. Williams, Jr. of
the Office of Associate Chief Counsel
(International) and Sean W. Mullaney,
formerly of the Office of Associate
Chief Counsel (International); however,
other personnel from the Treasury
Department and the IRS participated in
their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR Parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part1isamendedbyaddingentriesinnu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.367(a)–1 also issued under 26
U.S.C. 367(a).
Section 1.367(a)–1T also issued under
26 U.S.C. 367(a).
Section 1.367(a)–3 also issued under 26
U.S.C. 367(a).
Section 1.367(a)–7 also issued under 26
U.S.C. 367(a), (b), (c), and 337(d).
Section 1.367(a)–8 also issued under 26
U.S.C. 367(a).
Section 1.367(b)–0 also issued under 26
U.S.C. 367(b).
Section 1.367(b)–4(b)(1) also issued
under 26 U.S.C. 367(b).
Section 1.367(b)–6 also issued under 26
U.S.C. 367(b).
Section 1.367(e)–1(a) also issued under
26 U.S.C. 367(e).
Section 1.1248–1 also issued under 26
U.S.C. 1248(a)
Section 1.1248–6 also issued under 26
U.S.C. 1248(e).
Section 1.1248–8(b)(2)(iv) also issued
under 26 U.S.C. 367(b), 1248(a), (c), and
(f).
Section 1.1248(f)–1 also issued under
26 U.S.C. 367(b) and 1248(f).
Section 1.1248(f)–2 also issued under
26 U.S.C. 367(b) and 1248(f).
Section 1.1248(f)–3 also issued under
26 U.S.C. 367(b) and 1248(f).
Section1.6038B–1alsoissuedunder26
U.S.C. 6038B.
Par. 2. Section 1.367(a)–1 is amended
by:
1. Adding paragraphs (b)(4)(i)(B) and
(C).
2. Adding paragraph (g)(4).
The additions read as follows:
§1.367(a)–1 Transfers to foreign
corporations subject to section 367(a):
In general.
(a) through (b)(4)(i)(A) [Reserved].
For further guidancesee §1.367(a)–1T(a)
through (b)(4)(i)(A).
(B) Appropriate adjustments to earn-
ings and profits, basis, and other affected
items will be made according to otherwise
applicable rules, taking into account the
gain recognized under section 367(a)(1).
For purposes of applying section 362, the
foreign corporation’s basis in the prop-
erty received is increased by the amount
of gain recognized by the U.S. transferor
under section 367(a) and the regulations
issued pursuant to that section. To the ex-
tent the regulations provide that the U.S.
transferor recognizes gain with respect to
a particular item of property, the foreign
corporation increases its basis in that item
of property by the amount of such gain
recognized. For example, §§1.367(a)–3,
1.367(a)–4T, and 1.367(a)–5T provide that
gain is recognized with respect to partic-
ular items of property. To the extent the
regulations do not provide that gain recog-
nized by the U.S. transferor is with respect
to a particular item of property, such gain
April 22, 20139542013–17 I.R.B.

is treated as recognized with respect to
items of property subject to section 367(a)
in proportion to the U.S. transferor’s gain
realized in such property, after taking into
account gain recognized with respect to
particular items of property transferred un-
der any other provision of section 367(a).
For example, §1.367(a)–6T provides that
branch losses must be recaptured by the
recognition of gain realized on the trans-
fer but does not associate the gain with
particular items of property. See also
§1.367(a)–1T(c)(3) for rules concerning
transfers by partnerships or of partnership
interests.
(C) The transfer will not be recharacter-
ized for U.S. Federal tax purposes solely
because the U.S. person recognizes gain in
connection with the transfer under section
367(a)(1). For example, if a U.S. person
transfers appreciated stock or securities to
a foreign corporation in an exchange de-
scribed in section 351, the transfer is not
recharacterized as other than an exchange
described in section 351 solely because the
U.S. person recognizes gain in the transfer
under section 367(a)(1).
(b)(4)(ii) through (d)(2) [Re-
served].For further guidance see
§1.367(a)–1T(b)(4)(ii) through (d)(2).
*****
(d)(4) through (g)(3) [Reserved]. For
further guidance see §1.367(a)–1T(d)(4)
through (g)(3).
(4) The rules in paragraphs (b)(4)(i)(B)
and (b)(4)(i)(C) of this section apply to
transfers occurring on or after April 18,
2013. For guidance with respect to para-
graph (b)(4)(i)(B) of this section before
April 18, 2013, see 26 CFR part 1 revised
as of April 1, 2012.
Par. 3. Section 1.367(a)–1T is amended
by revising paragraph (b)(4)(i)(B) and
adding paragraphs (b)(4)(i)(C) and (g)(4)
to read as follows:
§1.367(a)–1T Transfers to foreign
corporations subject to section 367(a): In
general (temporary).
*****
(b) * * *
(4) * * *
(i) * * *
(B) [Reserved]. For further guidance
see §1.367(a)–1(b)(4)(i)(B).
(C) [Reserved]. For further guidance
see §1.367(a)–1(b)(4)(i)(C).
*****
(g) * * *
(4) [Reserved]. For further guidance
see §1.367(a)–1(g)(4).
Par. 4. Section 1.367(a)–3 is amended
by:
1. Revising the second sentence of
paragraph (a)(3).
2. Revising paragraphs (b)(1) and
(c)(1).
3. Adding a sentence at the end of para-
graph (d)(2)(vi)(D)(2).
4. Revising paragraph (d)(3),Example
6A(ii).
5. Adding a sentence between the
second and third sentences of paragraph
(d)(3),Example 8(ii).
6. Revising the first sentence of para-
graph (d)(3),Example 8B(ii).
7. Revising the first sentence of para-
graph (d)(3),Example 8C(ii).
8. Revising the third sentence of para-
graph (d)(3),Example 10(ii).
9. Revising paragraph (d)(3),Example
11(ii).
10. Revising the second and third sen-
tences of paragraph (d)(3),Example 12
(ii), and removing the last sentence.
11. Revising paragraph (d)(3),Example
16(ii).
12. Revising the paragraph (g) subject
heading.
13. Revising paragraph (g)(1)(v)(A)
and (B).
The revisions and additions to read as
follows:
§1.367(a)–3 Treatment of transfers of
stock or securities to foreign corporations.
(a) * * *
(3)***Foradditionalrulesregarding
a transfer of stock or securities in an ex-
change described in section 361(a) or (b),
see §1.367(a)–7. * * *
(b)Transfers of stock or securities of
foreign corporations—(1)General rule.
Except as provided in paragraph (e) of this
section, a transfer of stock or securities of
a foreign corporation by a U.S. person to a
foreign corporation that would otherwise
be subject to section 367(a)(1) under para-
graph (a) of this section will not be subject
to section 367(a)(1) if either—
*****
(c)Transfers of stock or securities of
domestic corporations—(1)General rule.
Except as provided in paragraph (e) of this
section, a transfer of stock or securities of
a domestic corporation by a U.S. person to
a foreign corporation that would otherwise
be subject to section 367(a)(1) under para-
graph (a) of this section will not be subject
to section 367(a)(1) if the domestic corpo-
ration the stock or securities of which are
transferred (referred to as the U.S. target
company) complies with the reporting re-
quirements in paragraph (c)(6) of this sec-
tion and if each of the following four con-
ditions is met:
*****
(d) * * *
(2) * * *
(vi)***
(D) * * *
(2) * * * For this purpose, a disposi-
tion by the foreign acquiring corporation
of stock of the domestic controlled cor-
poration more than 5 years after comple-
tion of the transfer described in paragraph
(d)(2)(vi)(A) of this section is deemed to
not have a principal purpose of tax avoid-
ance.
*****
(3) * * *
Example 6A.***
(ii)Result. The transfer of the Business A assets
by Z to F does not constitute an indirect stock transfer
under paragraph (d) of this section, and, subject to
the conditions and requirements of section 367(a)(5)
and §1.367(a)–7(c), the Business A assets qualify
for the section 367(a)(3) active trade or business
exception and are not subjectto section 367(a)(1).
The transfer of the Business B and C assets by Z to F
must first be tested under sections 367(a)(1), (a)(3),
and (a)(5). Z recognizes $20 of gain on the outbound
transfer of the Business Cassets, as those assets do
not qualify for an exception to section 367(a)(1).
Subject to the conditions and requirements of section
367(a)(5) and §1.367(a)–7(c), the Business B assets
qualify for the active trade or business exception un-
der section 367(a)(3). Pursuant to paragraphs (d)(1)
and (d)(2)(vii)(A)(2) of this section, V is deemed
to transfer the stock of a foreign corporation to F
in a section 354 exchange subject to the rules of
paragraphs (b) and (d) of this section. V must enter
into the gain recognition agreement in the amount of
$30 to preserve Z’s nonrecognition treatment with
respect to its transfer of Business B assets. Under
paragraphs (d)(2)(i) and (d)(2)(ii) of this section,
F is the transferee foreign corporation and R is the
transferred corporation.
*****
Example 8. ***
(ii) * * * Subject to the conditions and require-
ments of section 367(a)(5) and §1.367(a)–7(c), the
Business B assets qualify for the active trade or busi-
ness exception under section 367(a)(3). * * *
*****
Example 8B.***
2013–17 I.R.B.955April 22, 2013

(ii)***Undersection367(a)(5)and
§1.367(a)–7(b), the active trade or business excep-
tion under section 367(a)(3) does not apply to Z’s
transfer of assets to R. * * *
Example 8C.***
(ii)***Undersection367(a)(5)and
§1.367(a)–7(b), the active trade or business excep-
tion under section 367(a)(3) does not apply to Z’s
transfer of assets to R. * * *
*****
Example 10.***
(ii) * * * Subject to the conditions and require-
ments of section 367(a)(5) and §1.367(a)–7(c), the
Business B assets qualify for the active trade or busi-
ness exception under section 367(a)(3). * * *
Example 11.***
(ii)Result. Under paragraph (d)(1)(ii) of this sec-
tion, V is treated as indirectly transferring Z stock
to F. V must recognize gain on its indirect transfer
of Z stock to F under section 367(a) (and section
1248 will be applicable) if V does not enter into a
gain recognition agreement with respect to the indi-
rect stock transfer in accordance with §1.367(a)–8.
Under paragraph (b)(2) of this section, if V enters into
a gain recognition agreement with respect to the in-
direct stock transfer, the exchange will be subject to
the provisions of section 367(b) and the regulations
pursuant to such section as well as section 367(a).
Under §1.367(b)–4(b), however, no income inclusion
is required because, immediately after the exchange,
F and Z are controlled foreign corporations with re-
spect to which V is a section 1248 shareholder. Under
paragraphs (d)(2)(i) and (d)(2)(ii) of this section, the
transferee foreign corporation is F, and the transferred
corporation is Z (the acquiring corporation). If F dis-
poses (within the meaning of §1.367(a)–8(j)(1)) of all
(or a portion) of Z stock within the term of the gain
recognition agreement, V must either file an amended
return for the year of the indirect stock transfer and
include in income, with interest, the gain realized but
not recognized on the initial exchange or if a valid
election under §1.367(a)–8(c)(2)(vi) was made, cur-
rently recognize the gain and pay the related interest.
Under paragraph (d)(2)(v)(B) of this section, to de-
termine whether, for purposes of the gain recognition
agreement, Z (the transferred corporation) disposes of
substantially all of its assets, only the assets held by Z
immediately before the transaction are taken into ac-
count. Because D is wholly owned by F, a foreign cor-
poration, the control requirement of section 367(a)(5)
and §1.367(a)–7(c)(1) cannot be satisfied. Therefore,
section 367(a)(5) and §1.367(a)–7(b) preclude the ap-
plication of the active trade or business exception un-
der section 367(a)(3) to any property transferred by D
to Z. Thus, under section 367(a)(1), D must recognize
the gross amount of gain in each asset transferred to
Z, or $40.
Example 12.***
(ii) * * * Subject to the conditions and require-
ments of section 367(a)(5) and §1.367(a)–7(c), the
active trade or business exception under section
367(a)(3) applies to E’s transfer of Business X assets.
E’s transfer of its N stock could qualify for non-
recognition treatment if D satisfies the requirements
in §1.367(a)–3T(e)(3).* * *
*****
Example 16.***
(ii)Result. The section 368(a)(1)(D) reorgani-
zation is not an indirect stock transfer described in
paragraph (d) of this section. Moreover, the section
354 exchange by D of F1 stock for F2 stock is not an
exchange described under section 367(a). See para-
graph (a)(2)(ii) of this section.
*****
(g)Effective/applicability dates.
(1) * * *
(v) * * *
(A) Except as provided in para-
graphs (g)(1)(v)(B) of this section and
§1.367(a)–3T(g)(1)(ix), the rules of para-
graph (d)(2)(vi) of this section apply only
to transactions occurring on or after Jan-
uary 23, 2006. See §1.367(a)–3(d)(2)(vi),
as contained in 26 CFR part 1 revised as
of April 1, 2005, for transactions occur-
ring on or after July 20, 1998, and before
January 23, 2006.
(B) (1) For purposes of paragraph
(d)(2)(vi)(B)(1)ofthissectionascon-
tained in 26 CFR part 1 revised as of April
1, 2007, except as provided in paragraph
(g)(1)(v)(B)(3) of this section, the fol-
lowing conditions must be satisfied for
transactions occurring on or after Decem-
ber 28, 2007, and before March 18, 2013:
the conditions and requirements of section
367(a)(5) and paragraph (g)(1)(v)(B)(2)of
this section must be satisfied with respect
to the domestic acquired corporation’s
transfer of assets to the foreign acquir-
ing corporation and those conditions and
requirements apply before the applica-
tion of the exception under paragraph
(d)(2)(vi)(B)(1)ofthissectionascon-
tained in 26 CFR part 1 revised as of April
1, 2007.
(2) The domestic acquired corpora-
tion is controlled (within the meaning of
section 368(c)) by five or fewer (but at
least one) domestic corporations (control-
ling domestic corporations) immediately
before the reorganization, appropriate ba-
sis adjustments under section 367(a)(5)
are made to the stock received by the
controlling domestic corporations in the
reorganization, and any other conditions
as provided in regulations under section
367(a)(5) are satisfied. For purposes of
determining whether the domestic ac-
quired corporation is controlled by five or
fewer domestic corporations, all members
of the same affiliated group within the
meaning of section 1504 are treated as
one corporation. Any adjustments to stock
basis required under section 367(a)(5)
must be made to the stock received by the
controlling domestic corporation in the
reorganization so the appropriate amount
of built-in gain in the property transferred
by the domestic acquired corporation to
the foreign acquiring corporation in the
section 361 exchange is reflected in the
stock received. The basis adjustment re-
quirement cannot be satisfied by adjusting
the basis in stock of the foreign acquiring
corporation held by the controlling domes-
tic corporation before the reorganization.
To the extent the appropriate amount of
built-in gain in the property transferred
by the domestic acquired corporation to
the foreign acquiring corporation in the
section 361 exchange cannot be preserved
in the stock received by the controlling
domestic corporationin the reorganiza-
tion, the domestic acquired corporation’s
transfer of property to the foreign acquir-
ing corporation is subject to section 367(a)
and (d).
(3) For transactions occurring on or af-
ter August 19, 2008, and before March 18,
2013, the following condition also applies:
to the extent any of the re-transferred as-
sets constitute property to which section
367(d) applies, the exception under para-
graph (d)(2)(iv)(B)(1)ofthissection,as
containedin26CFRpart1revisedasof
April 1, 2007, applies only if the property
to which section 367(d) applies is treated
as property subject to section 367(a) for
purposes of satisfying the conditions and
requirements of section 367(a)(5).
******
Par. 5. Section 1.367(a)–7 is added to
read as follows:
§1.367(a)–7 Outbound transfers of
property described in section 361(a) or
(b).
(a)Scope and purpose. This section
provides rules under section 367(a)(5) that
apply to the transfer of certain property (in-
cluding stock or securities) by a domes-
tic corporation (U.S. transferor) to a for-
eign corporation (foreign acquiring corpo-
ration) in a section 361 exchange. This
section applies only to the transfer of sec-
tion 367(a) property. See section 367(d)
for rules applicable to transfers of section
367(d) property. Paragraph (b) of this sec-
tion provides the general rule requiring the
recognition of gain on the transfer of sec-
tion 367(a) property, while paragraph (c)
April 22, 20139562013–17 I.R.B.

of this section provides an elective excep-
tion to the general rule that is available if
certain requirements are satisfied. Para-
graph (d) of this section provides rules
for applying the elective exception to a
section 361 exchange followed by succes-
sive distributions to which section 355 ap-
plies. Paragraph (e) of this section pro-
vides rules for recognizing gain on section
367(a) property, reasonable cause relief
provisions, an anti-abuse rule, and special
rules that take into account income inclu-
sions under §1.367(b)–4 and gain recogni-
tion under §1.367(a)–6T. Paragraph (f) of
this section provides definitions, and para-
graph (g) of this section provides exam-
ples. Paragraph (h) of this section provides
applicable cross-references, paragraph (i)
of this section is reserved, and paragraph
(j) of this section provides effective/appli-
cability dates.
(b)General rule—(1)Nonrecogni-
tion exchanges enumerated in section
367(a)(1). Except to the extent provided
in paragraphs (b)(2) and (c) of this section,
the exceptions to section 367(a)(1) pro-
vided in section 367(a) and the regulations
underthatsectiondonot apply to a transfer
ofsection367(a)propertybyaU.S.trans-
feror to a foreign acquiring corporation
in a section 361 exchange, and the U.S.
transferor shall recognize any gain (but not
loss) realized with respect to the section
367(a) property under section 367(a)(1).
Realized gain is recognized pursuant to
the prior sentence notwithstanding the
application of any other nonrecognition
provision enumerated in section 367(a)(1)
to the transfer (such as section 351 or 354).
(2)Nonrecognition exchanges not enu-
meratedinsection367(a)(1).Totheex-
tent a transfer of items of property de-
scribed in paragraph (b)(1) of this section
also qualifies for nonrecognition under a
provision that is not enumerated in section
367(a)(1) (such as section 1036), the U.S.
transferor recognizesgain or loss realized
on the transfer of such items of property,
but the amount of loss recognized on the
property shall not exceed the amount of
gain recognized on the property. See sec-
tion 337(d).
(c)Elective exception. Except to the
extent provided in paragraph (d) of this
section, paragraph (b) of this section does
not apply to the transfer of section 367(a)
property by a U.S. transferor to a foreign
acquiring corporation in a section 361
exchange if the conditions of paragraphs
(c)(1), (c)(2), (c)(3), and (c)(4) of this sec-
tion are satisfied, and an election to apply
the exception provided by this paragraph
(c) is made in the manner provided by
paragraph (c)(5) of this section. If this
paragraph (c) applies to the section 361 ex-
change, see, for example, §§1.367(a)–2T,
1.367(a)–3T, 1.367(a)–4T, 1.367(a)–5T,
or 1.367(a)–6T, as applicable, for addi-
tional requirements that must be satisfied
in order for the U.S. transferor to not rec-
ognize gain under section 367(a)(1) on
thetransferofsection367(a)propertyin
the section 361 exchange. Nothing in this
section provides for the nonrecognition
of gain not otherwise permitted under an-
other provision of the Internal Revenue
Code (Code) or the regulations.
(1)Control. Immediately before the
reorganization, the U.S. transferor is con-
trolled (within the meaning of section
368(c)) by five or fewer, but at least one,
control group members. For illustrations
of this rule, see paragraph (g) of this sec-
tion,Example 4andExample 5.
(2)Gain recognition—(i)Non-con-
trol group members. The U.S. transferor
recognizes gain equal to the product of
the inside gain multiplied by the aggre-
gate ownership interest percentage of all
non-control group members, reduced (but
not below zero) by the sum of the amounts
described in paragraphs (c)(2)(i)(A),
(c)(2)(i)(B), and (c)(2)(i)(C) of this sec-
tion.
(A) Gain recognized with re-
spect to stock or securities under
§1.367(a)–3T(e)(3)(iii)(B) (including any
portion treated as a deemed dividend un-
der section 1248(a));
(B) Gain recognized with respect to
stock or securities under §1.367(a)–6T
(including any portion treated as a deemed
dividend under section 1248(a)) attribut-
able to non-control group members (as de-
termined pursuant to §1.367(a)–7(e)(5));
and
(C) A deemed dividend included in
income under §1.367(b)–4 attributable
to non-control group members (as deter-
mined pursuant to §1.367(a)–7(e)(4)).
(ii)Control group members. With re-
spect to each control group member, the
U.S. transferor recognizes gain equal to the
amount, if any, by which the amount de-
scribed in paragraph (c)(2)(ii)(A) of this
section exceeds the amount described in
paragraph (c)(2)(ii)(B) of this section.
(A) The product of the inside gain
multiplied by such control group mem-
ber’s ownership interest percentage, re-
duced (but not below zero) by the sum
of the amounts described in paragraphs
(c)(2)(ii)(A)(1), (c)(2)(ii)(A)(2), and
(c)(2)(ii)(A)(3) of this section (attributable
inside gain).
(1) Gain recognized with re-
spect to stock or securities under
§1.367(a)–3T(e)(3)(iii)(C) (including any
portion treated as a deemed dividend un-
der section 1248(a)) attributable to the
control group member;
(2) Gain recognized with respect to
stock or securities under §1.367(a)–6T
(including any portion treated as a deemed
dividend under section 1248(a)) attribut-
able to the control group member (as de-
termined pursuant to §1.367(a)–7(e)(5));
and
(3) A deemed dividend included in in-
come under §1.367(b)–4 attributable to the
control group member (as determined pur-
suant to §1.367(a)–7(e)(4)).
(B) The product of the section 367(a)
percentage multiplied by the fair market
value of the stock received by the U.S.
transferor in the section 361 exchange and
distributed to the control group member
under section 354, 355, or 356.
(iii)Illustration of rules. For an illus-
tration of gain recognition under paragraph
(c)(2)(i) of this section, see paragraph (g)
of this section,Example 1. For an illus-
tration of gain recognition under paragraph
(c)(2)(ii) of this section, see paragraph (g)
of this section,Example 2.
(3)Basis adjustments required for con-
trol group members—(i)General rule.Ex-
cept as provided in paragraph (c)(3)(iv)
of this section, if there is any attribut-
able inside gain (determined under para-
graph (c)(2)(ii)(A) of this section) with re-
spect to a control group member, then such
control group member’s aggregate basis
in the stock received in exchange for (or
with respect to, as applicable) stock or se-
curities of the U.S. transferor under sec-
tion 354, 355, or 356, as determined un-
der section 358 and the regulations under
that section (section 358 basis), is reduced
by the amount in paragraph (c)(3)(i)(A),
(c)(3)(i)(B), or (c)(3)(i)(C) of this section,
as applicable.
2013–17 I.R.B.957April 22, 2013

(A) If the control group member has
outside gain, the amount, if any, by which
the attributable inside gain, reduced by any
gain recognized by the U.S. transferor with
respect to the control group member under
paragraph (c)(2)(ii) of this section, exceeds
the control group member’s outside gain.
(B) If the control group member has
outside loss, the amount, if any, by which
the attributable inside gain, reduced by any
gain recognized by the U.S. transferor with
respect to the control group member under
paragraph (c)(2)(ii) of this section, exceeds
the control group member’s outside loss
(for this purpose, treating the outside loss
as a negative amount).
(C) If the control group member has no
outside gain or outside loss, the amount of
the attributable inside gain, reduced by any
gain recognized by the U.S. transferor with
respect to the control group member under
paragraph (c)(2)(ii) of this section.
(ii)Stock received in the section 361 ex-
change. This paragraph (c)(3) applies only
to stock received by the U.S. transferor in
the section 361 exchange and distributed to
the control group member in exchange for
(or with respect to, as applicable) stock or
securities of the U.S. transferor.
(iii)Pro rata adjustments. The section
358 basis of each share of stock received
by the control group member must be re-
ducedpro ratabasedontherelativesec-
tion 358 basis of all shares of stock re-
ceived by the control group member.
(iv)Successive distributions to which
section 355 applies. Paragraph (c)(3) of
this section does not apply to a control
group member that distributes the stock of
a foreign acquiring corporation received
from the U.S. transferor in a distribution
satisfying the requirements of section 355
(section 355 distribution) that is in connec-
tion with a transaction described in para-
graph (d) of this section (relating to suc-
cessive section 355 distributions). If para-
graph (c)(3) of this section does not ap-
ply to a control group member pursuant
to this paragraph (c)(3)(iv), then paragraph
(c)(3) of this section shall apply to the final
distributee (as defined in paragraph (d) of
this section) that receives the stock of the
foreign acquiring corporation in the final
section 355 distribution described in para-
graph (d) of this section.
(v)Illustration of rules. For illustra-
tions of the adjustment to stock basis un-
derparagraph(c)(3)(i)ofthissection,see
paragraph (g) of this section,Example 1
andExample 2, §1.367(a)–3T(e)(8),Ex-
ample 3, and §1.1248(f)–2(e),Example 3.
For an illustration of the adjustment to
stock basis under paragraph (c)(3)(iii) of
this section, see paragraph (g) of this sec-
tion,Example 3.
(4)Agreement to amend or file a
U.S. income tax return—(i)General
rule. Except as provided in paragraph
(c)(4)(ii) of this section, the U.S. trans-
feror complies with the requirements of
§1.6038B–1(c)(6)(iii), relating to the re-
quirement to report gain that was not
recognized by the U.S. transferor upon
certain subsequent dispositions by the
foreign acquiring corporation of section
367(a) property received from the U.S.
transferor in the section 361 exchange.
(ii)Exception. To the extent sec-
tion 367(a) property transferred in the
section 361 exchange is subject to
§1.367(a)–3T(e) (relating to transfers of
stock or securities bya domestic corpora-
tion to a foreign corporation in a section
361 exchange), §1.6038B–1(c)(6)(iii)
does not apply with respect to the transfer
of that property.
(5)Election and reporting require-
ments—(i)General rule.TheU.S.trans-
feror and each control group member elect
to apply the provisions of paragraph (c)
of this section in the manner provided
under paragraph (c)(5)(ii) or (c)(5)(iii) of
this section, as applicable, and by enter-
ing into a written agreement described
in paragraph (c)(5)(iv) of this section. If
a control group member distributes the
stock of the foreign acquiring corporation
received from the U.S. transferor in a sec-
tion 355 distribution that is in connection
with a transaction described in paragraph
(d) of this section, the final distributee that
receives that stock in the final section 355
distribution elects to apply the provisions
of this paragraph (c) and enters into the
written agreement instead of the control
group member. For this purpose, the term
control group memberwill be replaced by
the termfinal distributee, as appropriate.
(ii)Control group member—(A)Time
and manner of making election. Each con-
trol group member elects to apply the pro-
visions of paragraph (c) of this section
by including a statement (in the form and
with the content specified in paragraph
(c)(5)(ii)(B) of this section) on or with a
timely filed return for the taxable year in
which the reorganization occurs. If the
control group member is a member of a
consolidated group but is not the common
parent of the consolidated group, the com-
mon parent makes the election on behalf of
the control group member.
(B)Form and content of election state-
ment. The statement must be entitled,
“ELECTION TO APPLY EXCEPTION
UNDER §1.367(a)–7(c),” and set forth:
(1) The name and taxpayer identifica-
tion number (if any) of the control group
member, the U.S. transferor, the foreign
acquiring corporation and, in the case of
a triangular reorganization (within the
meaning of §1.358–6(b)(2)), the corpo-
ration that controls the foreign acquiring
corporation; the control group member’s
ownership interest percentage in the U.S.
transferor; and the percentage of voting
stock and non-voting stock of the U.S.
transferor owned by the control group
member for purposes of satisfying the
control requirement of paragraph (c)(1) of
this section;
(2) If the control group member is a
member of a consolidated group but is not
the common parent, the name and taxpayer
identification number of the common par-
ent;
(3) The amount of the adjustment (if
any) to stock basis required under para-
graph (c)(3) of this section, the resulting
adjusted basis in the stock, and the fair
market value of the stock, or if no stock
was received, indicate no stock was re-
ceived; and
(4) The date on which the written agree-
ment described in paragraph (c)(5)(iv) of
this section was entered into.
(iii)Statement by U.S. transferor
.
The U.S. transferor elects to apply the
provisions of paragraph (c) of this sec-
tion in the form and manner set forth in
§1.6038B–1(c)(6)(ii).
(iv)Written agreement.TheU.S.trans-
feror and each control group member must
enter into a written agreement satisfying
the conditions of this paragraph on or be-
fore the due date (including extensions) for
the U.S. transferor’s tax return for the tax-
able year in which the reorganization oc-
curs. Each party to the agreement must re-
tain the original or a copy of the agreement
in the manner specified by §1.6001–1(e).
Each party to the agreement must provide a
copy of the agreement to the Internal Rev-
enue Service within 30 days of the receipt
April 22, 20139582013–17 I.R.B.

of a request for the copy of the agreement.
The written agreement must—
(A) State the document constitutes an
agreement entered into pursuant to para-
graph (c)(5) of this section;
(B) Identify the U.S. transferor, the
foreign acquiring corporation, the corpo-
ration that controls the foreign acquiring
corporation (in thecase of a triangular
reorganization within the meaning of
§1.358–6(b)(2)), and each control group
member, and provide the taxpayer identi-
fication number (if any) for each corpora-
tion;
(C) State the amount of gain (if any)
recognized by the U.S. transferor under
paragraph (c)(2) of this section; and
(D) With respect to each control group
member, state the amount of the adjust-
ment (if any) to stock basis required under
paragraph (c)(3) of this section, the result-
ing adjusted basis in the stock, and the fair
market value of the stock. Alternatively,
if a control group member did not receive
any stock, indicate that no stock was re-
ceived.
(d)Section 361 exchange followed by
successive distributions to which section
355 applies. If the U.S. transferor dis-
tributes stock of the foreign acquiring cor-
poration received in the section 361 ex-
change to a control group member in a
section 355 distribution and, as part of a
plan or series of related transactions, that
stock is further distributed in one or more
successive section 355 distributions, para-
graph (c) of this section can apply to the
section 361 exchange only to the extent
each subsequent section 355 distribution is
to a member of the affiliated group (within
the meaning of section 1504) that includes
the U.S. transferor immediately before the
reorganization. In that case, each affili-
ated group member that receives stock of
the foreign acquiring corporation in the fi-
nal section 355 distribution (final distribu-
tee) is subject to the requirements of para-
graphs (c)(3) and (c)(5) of this section. If
this paragraph (d) applies, then for pur-
poses of applying paragraphs (c)(3), (c)(5)
or (e)(2) of this section the termcontrol
group memberis replaced by the termfi-
nal distributee, as appropriate.
(e)Other rules—(1)Section 367(a)
property with respect to which gain is
recognized. Except as otherwise provided
in this paragraph (e)(1), gain recognized
by the U.S. transferor pursuant to para-
graph (c)(2) of this section will be treated
as recognized with respect to the section
367(a) property transferredinthesection
361 exchange in proportion to the amount
of gain realized by the U.S. transferor on
the transfer of each item of section 367(a)
property. This paragraph (e)(1) will be ap-
plied after taking into account any gain or
deemed dividends (including any deemed
dividends under section 1248(a)) recog-
nized by the U.S. transferor on the transfer
ofthesection367(a)propertyinthesec-
tion 361 exchange pursuant to all other
provisions of sections 367(a) and (b) and
the regulations under that section. See, for
example, §§1.367(a)–2T, 1.367(a)–3T(e),
1.367(a)–4T, 1.367(a)–5T, 1.367(a)–6T,
and 1.367(b)–4. If the U.S. transferor rec-
ognizes gain (including gain treated as a
deemed dividend undersection 1248(a))
pursuant to §1.367(a)–3T(e)(3)(iii)(B)
or (e)(3)(iii)(C) with respect to stock
or securities transferred in the section
361 exchange, the realized gain in such
stock or securities shall not be taken
into account for purposes of applying
this paragraph (e)(1) to gain recognized
under paragraph (c)(2) of this section at-
tributable to U.S. transferor shareholders
described in §1.367(a)–3T(e)(3)(iii)(B)
or (e)(3)(iii)(C). Accordingly, gain recog-
nized under paragraph(c)(2) attributable
to such U.S. transferorshareholders shall
not be treated as recognized with respect
to such stock or securities under this para-
graph. Furthermore, to the extent gain rec-
ognized by the U.S. transferor under para-
graph (c)(2) is treated as recognized with
respect to stock in a foreign corporation
transferred in the section 361 exchange to
which section 1248(a) applies, the portion
of such gain treated as a deemed divi-
dend under section 1248(a) is the product
of the amount of the gain multiplied by
the ratio of the amount that would be
treated as a deemed dividend under section
1248(a) if all gain in the transferred stock
were recognized under §1.367(a)–7(b)
and the amount of gain realized in the
transferred stock. See §1.367(a)–1T(b)(4)
and §1.367(a)–1(b)(4)(i)(B) for additional
rules on the character, source, and adjust-
ments relating to gain recognized under
section 367(a)(1), and §1.367(b)–2(e) for
rules on the timing, treatment, and effect
of amounts included in income as deemed
dividends pursuant to regulations under
section 367(b).
(2) [Reserved]. For further guidance
see §1.367(a)–7T(e)(2).
(3)Anti-abuse rule. Any property of
the U.S. transferor acquired with a prin-
cipal purpose of affecting any determina-
tion under this section (including, for ex-
ample, the section 367(a) percentage, in-
side gain, or inside basis) shall not be
taken in account for purposes of any de-
termination under this section. Nothing
in this paragraph (e)(3) constitutes a lim-
itation on or modification to judicial doc-
trines, including step-transaction or sub-
stance-over-form.
(4)Certain income inclusions under
§1.367(b)–4—(i)Income inclusion at-
tributable to U.S. transferor shareholder
described in §1.367(a)–3T(e)(3)(iii)(A).If
pursuant to §1.367(a)–3T(e)(3)(iii)(B) or
(e)(3)(iii)(C) the U.S. transferor is required
to recognize gain on the transfer of foreign
stock (all or a portion of which is treated as
a deemed dividend under section 1248(a)),
and if pursuant to §1.367(b)–4(b)(1)(i) the
U.S. transferor is also required to include
in income as a deemed dividend the sec-
tion 1248 amount (within the meaning of
§1.367(b)–2(c)) in the foreign stock, then
the section 1248 amount included in in-
come under §1.367(b)–4(b)(1)(i) is attrib-
utable to each U.S. transferor shareholder
described in §1.367(a)–3T(e)(3)(iii)(A)
pursuant to this paragraph (e)(4)(i). The
portion of the section 1248 amount attrib-
utable to each U.S. transferor shareholder
described in §1.367(a)–3T(e)(3)(iii)(A) is
the portion of the section 1248 amount
that bears the same ratio as such U.S.
transferor shareholder’s ownership in-
terest percentage bears to the aggre-
gate ownership interest percentage of all
U.S. transferor shareholders described in
§1.367(a)–3T(e)(3)(iii)(A).
(ii)Ordering rules for determin-
ing section 1248 amount.Thesec-
tion 1248 amount (within the mean-
ing of §1.367(b)–2(c)) included in in-
come as a deemed dividend under
§1.367(b)–4(b)(1)(i) is determined af-
ter taking into account any gain recog-
nized under §§1.367(a)–3T(e)(3)(iii)(B)
or (e)(3)(iii)(C) or 1.367(a)–6T that is
treated as a deemed dividend under sec-
tion 1248(a). See §1.367(a)–3T(e)(7) and
paragraph (e)(5)(ii) of this section for rules
to determine the amount of gain recog-
nized under §§1.367(a)–3T(e)(3)(iii)(B)
or (e)(3)(iii)(C) or 1.367(a)–6T, respec-
2013–17 I.R.B.959April 22, 2013

tively, that is treated as a deemed dividend
under section 1248(a).
(5)Certaingainunder
§1.367(a)–6T—(i)Gain attributable to
U.S. transferor shareholder described
in §1.367(a)–3T(e)(3)(iii)(A). If pur-
suant to §1.367(a)–3T(e)(3)(iii)(B) or
(e)(3)(iii)(C), the U.S. transferor is re-
quired to recognize gain on the transfer
of stock or securities, and if pursuant to
§1.367(a)–6T the U.S. transferor is also
required to recognize gain, then gain
recognized under §1.367(a)–6T (including
any portion treated as a deemed dividend
under section 1248(a)) to the extent
treated as recognized with respect to the
stock or securities, is attributable to each
U.S. transferor shareholder described in
§1.367(a)–3T(e)(3)(iii)(A) pursuant to
this paragraph (e)(5)(i). The portion of
the gain (including any portion treated
as a deemed dividend under section
1248(a)) that is attributable to each
U.S. transferor shareholder described in
§1.367(a)–3T(e)(3)(iii)(A) is the portion
of the gain that bears the same ratio as such
U.S. transferor shareholder’s ownership
interest percentage bears to the aggregate
ownership interest percentage of all
U.S. transferor shareholders described in
§1.367(a)–3T(e)(3)(iii)(A).
(ii)Gain subject to section 1248(a).If
the U.S. transferor recognizes gain under
§1.367(a)–6T with respect to transferred
stock that is stock in a foreign corporation
to which section 1248(a) applies, the por-
tion of such gain treated as a deemed div-
idend under section 1248(a) is determined
after taking into account any gain recog-
nized under §1.367(a)–3T(e)(3)(iii)(B) or
(e)(3)(iii)(C) and the amount of such gain
treated as a deemed dividend under section
1248(a) pursuant to §1.367(a)–3T(e)(7).
(f)Definitions. The following defini-
tions apply for purposes of this section:
(1)Control group, control group mem-
ber, and non-control group member—(i)
General rule. Except as provided in para-
graph (f)(1)(ii) of this section, thecontrol
groupis the group of five or fewer, but
at least one, domestic corporations that
controls (within the meaning of section
368(c)) the U.S. transferor immediately
before the reorganization. If the U.S.
transferor is owned directly by more than
five domestic corporations immediately
before the reorganization, but some com-
bination of five or fewer domestic cor-
porations controls the U.S. transferor, the
U.S. transferor must designate the five or
fewer domestic corporations that comprise
the control group on Form 926,Return by
a U.S. Transferor of Property to a Foreign
Corporation. For purposes of identifying
the control group, members of an affili-
ated group (within the meaning of section
1504) are treated as a single corporation.
Except as provided in paragraph (f)(1)(ii)
of this section, acontrol group memberis
a domestic corporation that is part of the
control group. Anon-control group mem-
beris a shareholder of the U.S. transferor
immediately before the reorganization that
is not a control group member.
(ii)Exception for certain entities.Reg-
ulated investment companies (as defined
in section 851(a)), real estate investment
trusts (as defined in section 856(a)), and
S corporations (as defined in section
1361(a)) cannot be control group mem-
bers.
(2)Deductible liabilityis any liability
of the U.S. transferor that is assumed in
the section 361 exchange if payment of the
liability would give rise to a deduction.
(3)Fair market valueis the fair market
value determined without regard to mort-
gages, liens, pledges, or other liabilities.
For this purpose, the fair market value
of any property subject to a nonrecourse
indebtedness shall be treated as being not
less than the amount of any nonrecourse
indebtedness to which such property is
subject.
(4)Inside basisis the aggregate basis of
the section 367(a) property transferred by
the U.S. transferor in the section 361 ex-
change and, except as otherwise provided
in this paragraph (f)(4), increased by any
gain recognized or any deemed dividend
included in income by the U.S. transferor
under section 367 on the transfer of the
section367(a)propertyinthesection361
exchange, but not including any gain rec-
ognized under paragraph (c)(2) of this sec-
tion. If the U.S. transferor transfers stock
or securities and recognizes gain under
§1.367(a)–3T(e)(3)(iii)(B) or (e)(3)(iii)(C)
with respect to such stock or securities,
then inside basis is not increased for gain
recognized or deemed dividends included
in income that are described in paragraph
(f)(4)(i), (f)(4)(ii), or (f)(4)(iii) of this sec-
tion.
(i)Gainrecognizedunder
§1.367(a)–3T(e)(3)(iii)(B) or (e)(3)(iii)(C)
(including any portion treated as a deemed
dividend under section 1248(a));
(ii) Gain recognized under
§1.367(a)–6T (including any portion
treated as a deemed dividend under
section 1248(a)) attributable to U.S.
transferor shareholders described in
§1.367(a)–3T(e)(3)(iii)(A) (as determined
pursuant to §1.367(a)–7(e)(5));
(iii) A deemed dividend included in in-
come under §1.367(b)–4(b) attributable to
U.S. transferor shareholders described in
§1.367(a)–3T(e)(3)(iii)(A) (as determined
pursuant to §1.367(a)–7(e)(4)).
(5)Inside gainistheamount(butnot
below zero) by which the aggregate fair
market value of the section 367(a) property
transferred in the section 361 exchange ex-
ceeds the sum of:
(i) The inside basis; and
(ii) The product of the section 367(a)
percentage multiplied by the aggregate de-
ductible liabilities of the U.S. transferor.
(6)Outside gain or lossis the product
of the section 367(a) percentage multiplied
by the difference between—
(i) The aggregate fair market value of
the stock received by a control group mem-
ber in exchange for (or with respect to, as
applicable) stock or securities of the U.S.
transferor under section 354, 355, or 356,
and
(ii) The control group member’s aggre-
gate section 358 basis (as defined in para-
graph (c)(3) of this section) in such stock
received, determined without regard to any
adjustment to that basis under paragraph
(c)(3) of this section.
(7)Ownership interest percentageis the
ratio of the fair market value of the stock
in the U.S. transferor owned by a share-
holder to the fair market value of all of
the outstanding stock of the U.S. trans-
feror. Except as provided in this paragraph
(f)(7), the ownership interest percentage
of a shareholder is determined immedi-
ately before the reorganization. For pur-
poses of determining the ownership inter-
est percentage with respect to each share-
holder, however, the numerator and de-
nominator of the fraction are first reduced
as described in this paragraph (f)(7). The
numerator is reduced (but not below zero)
by any distributions by the U.S. transferor
of money or other property (within the
meaningofsection356)tosuchshare-
holder pursuant to the plan of reorganiza-
tion, but only to the extent such money or
April 22, 20139602013–17 I.R.B.

other property is not provided by the for-
eign acquiring corporation in exchange for
property of the U.S. transferor acquired in
the section 361 exchange. Furthermore,
the denominator of the fraction is reduced
(but not below zero) by all such distribu-
tions by the U.S. transferor to all share-
holders. For illustrations of this definition,
see paragraph (g) of this section,Example
4andExample 5.
(8)Section 361 exchangeis an ex-
change described in section 361(a) or (b).
(9)Section 367(a) percentageis the ra-
tio of the aggregate fair market value of the
section 367(a) property transferred by the
U.S. transferor in the section 361 exchange
to the aggregate fair market value of all
property transferred by the U.S. transferor
in the section 361 exchange.
(10)Section 367(a) property. Except
as provided in paragraph (e)(3) of this sec-
tion,section 367(a) propertyis any prop-
erty, as defined in §1.367(a)–1T(d)(4),
other than section 367(d) property.
(11)Section 367(d) propertyis property
described in section 936(h)(3)(B).
(12)Timely filed returnis a U.S. income
taxreturnfiledonorbeforetheduedate
set forth in section 6072(b), including any
extensions of time to file the return granted
under section 6081.
(13)U.S. transferor shareholderis a
person that is either a control group mem-
ber or a non-control group member.
(g)Examples. Therulesofthissec-
tion are illustrated by the examples set
forth in this paragraph (g). See also
§1.367(a)–3T(e)(8),Example 2andEx-
ample 3. The analysis of the following
examples is limited to a discussion of is-
sues under this section. Unless otherwise
indicated, for purposes of the following
examples: DP1, DP2, and DC are do-
mestic corporations that do not join in the
filing of a consolidated return and none
of which is a regulated investment com-
pany, a real estate investment trust, or an S
corporation; FP and FA are foreign corpo-
rations created or organized under the laws
ofCountryBandareunrelatedtoDP1,
DP2, and DC; each corporation has a sin-
gle class of stock outstanding; each share
of stock of DC owned by a shareholder of
DC has an identical stock basis; Business
A consists solely of section 367(a) prop-
erty whose fair market value exceeds its
basis and that, but for the application of
this section, would qualify for the active
foreign trade or business exception under
§1.367(a)–2T; the fair market value of any
FA stock received in a reorganization is
equal to the fair market value of property
exchanged therefor; FA is not a surro-
gate foreign corporation for purposes of
section 7874 because one or more of the
conditions of section 7874(a)(2)(B) is not
satisfied; DC has no liabilities; DP1 and
DP2 satisfy the requirements of paragraph
(c)(5) of this section, and DC satisfies the
requirements of §1.6038B–1(c)(6)(ii).
Example 1.Tainted assets and non-control group
ownership.(i)Facts. DP1, DP2, and FP own 50%,
30%, and 20%, respectively, of the outstanding stock
of DC. DP1 and DP2 are members of the same affili-
ated group within the meaning of section 1504. DP1’s
DC stock has a $120x basis and $100x fair market
value. DP2’s DC stock has a $50x basis and $60x
fair market value. DC owns inventory with a $40x
basis and a $100x fair market value. DC also owns
Business A (excluding the inventory) with a $10x ba-
sis and $100x fair market value. In a reorganization
described in section 368(a)(1)(F), DC transfers the in-
ventory and Business A to FA, a newly formed cor-
poration, in exchange for all of the outstanding stock
of FA. DC’s transfer of the inventory and Business
A to FA qualifies as a section 361 exchange. DP1,
DP2, and FP exchange the DC stock for a proportion-
ate amount of FA stock pursuant to section 354.
(ii)Result. (A) Under section 367(a)(3)(B)(i),
DC must recognize $60x gain ($100x fair market
value less $40x basis) on the transfer of the in-
ventory to FA. The basis of the inventory in the
hands of FA is increased by the gain recognized of
$60x (that is, increased from $40x to $100x). See
§1.367(a)–1(b)(4)(i)(B). Under section 367(a)(5)
and paragraph (b) of this section, DC’s transfer of
Business A to FA is subject to the general rule of
section 367(a)(1). As a result, DC must also gener-
ally recognize $90x gain ($100x fair market value
less $10x basis) on the transfer of Business A to FA
notwithstanding the application of section 361 (or
any other nonrecognition provision enumerated in
section 367(a)(1)). However, if the conditions and
requirements of paragraph (c) of this section are met,
DC’s transfer of Business A to FA would qualify
for the active foreign trade or business exception
provided by section 367(a)(3) and §1.367(a)–2T.
(B) The requirement of paragraph (c)(1) of this
section is satisfied because DC is controlled (within
the meaning of section 368(c)) by five or fewer do-
mestic corporations immediately before the reorgani-
zation (in this case, by a single domestic corporation
because DP1 and DP2 together own 80% of the stock
of DC). DP1 and DP2 are treated as a single domestic
corporation for this purpose under paragraph (f)(1)(i)
of this section because DP1 and DP2 are members of
the same affiliated group.
(C) Paragraph (c)(2)(i) of this section would be
satisfied only if DC recognizes $18x gain on the
transfer of Business A, which is the amount of inside
gain attributable to FP, a non-control group member.
The $18x gain equals the product of the inside gain
($90x) multiplied by FP’s ownership interest per-
centage (20%) in DC, reduced by $0x (the sum of the
amounts described in paragraphs (c)(2)(i)(A) through
(c)(2)(i)(C) of this section). Under paragraph (f)(5)
of this section, the $90x inside gain is the amount by
which the aggregate fair market value ($200x) of the
section 367(a) property (inventory and Business A)
exceeds $110x, the sum of the inside basis of $110x
and the product of the section 367(a) percentage
(100%) multiplied by the deductible liabilities of DC
($0x). Under paragraph (f)(4) of this section, the
inside basis equals the $50x aggregate basis of the
section 367(a) property transferred in the section 361
exchange, increased by the $60x gain recognized by
DC on the transfer of the inventory to FA, but not
by the $18x gain recognized by DC under paragraph
(c)(2)(i) of this section attributable to FP. The section
367(a) percentage is 100% because the only assets
transferred are the inventory and Business A, which
are section 367(a) property. Under paragraph (e)(1)
of this section, the $18x gain recognized under para-
graph (c)(2)(i) of this section is treated as recognized
with respect to Business A. FA’s basis in Business A
as determined under section 362 is increased for the
$18x gain recognized. See §1.367(a)–1(b)(4)(i)(B).
(D) Paragraph (c)(2)(ii) of this section is not
applicable with respect to either DP1 or DP2 be-
cause the attributable inside gain with respect to
each such shareholder can be preserved in the FA
stock received. As stated in paragraph (ii)(C) of this
Example 1, the amount of the inside gain is $90x.
The attributable inside gain with respect to DP1 of
$45x (equal to the product of $90x inside gain mul-
tiplied by DP1’s 50% ownership interest percentage,
reduced by $0x (the sum of the amounts described in
paragraphs (c)(2)(ii)(A)(1) through (c)(2)(ii)(A)(3)
of this section)) does not exceed $100x (equal to the
product of the section 367(a) percentage of 100%
multiplied by $100x fair market value of FA stock
received by DP1). Similarly, the attributable in-
side gain with respect to DP2 of $27x (equal to the
product of $90x inside gain multiplied by DP2’s
30% ownership interest percentage, reduced by $0x
(the sum of the amounts described in paragraphs
(c)(2)(ii)(A)(1) through (c)(2)(ii)(A)(3)ofthissec-
tion)) does not exceed $60x (equal to the product of
the section 367(a) percentage of 100% multiplied by
$60x fair market value of FA stock received by DP2).
(E) Each control group member (DP1 and DP2)
separately computes any required adjustment to
stock basis under paragraph (c)(3) of this section.
DP1’s section 358 basis in the FA stock received of
$120x (the amount of DP1’s basis in the DC stock
exchanged) is reduced to preserve the attributable
inside gain with respect to DP1, less any gain recog-
nized with respect to DP1 under paragraph (c)(2)(ii)
of this section. Because DC does not recognize
gain on the section 361 exchange with respect to
DP1 under paragraph (c)(2)(ii) of this section (as
determined in paragraph (ii)(D) of thisExample 1),
the attributable inside gain of $45x with respect to
DP1 is not reduced under paragraph (c)(3)(i)(B) of
this section. DP1’s outside loss in the FA stock is
$20x, the product of the section 367(a) percentage of
100% multiplied by $20x loss (equal to the difference
between $100x fair market value and $120x section
358 basis in FA stock). Thus, DP1’s $120x section
358 basis in the FA stock must be reduced by $65x
(excess of $45x, reduced by $0x, over $20x outside
loss) to $55x.
(F) DP2’s aggregate section 358 basis in the FA
stock received of $50x (the amount of DP2’s basis
2013–17 I.R.B.961April 22, 2013

in the DC stock exchanged)is reduced to preserve
the attributable inside gain with respect to DP2, less
any gain recognized with respect to DP2 under para-
graph (c)(2)(ii) of this section. Because DC does not
recognize gain on the section 361 exchange with re-
spect to DP2 (as determined in paragraph (ii)(D) of
thisExample 1), the attributable inside gain of $27x
with respect to DP2 is not reduced under paragraph
(c)(3)(i)(A) of this section. DP2’s outside gain in the
FA stock is $10x, the product of the section 367(a)
percentage of 100% multiplied by $10x gain (equal
to the difference between $60x fair market value and
$50x section 358 basis in FA stock). Thus, DP2’s
$50x section 358 basis in the FA stock must be re-
duced by $17x (excess of $27x, reduced by $0x, over
the $10x outside gain) to $33x.
(G) Paragraph (c)(4) of this section would be sat-
isfied only if DC complies with the requirements of
§1.6038B–1(c)(6)(iii), including filing with its timely
filed return for the year of the reorganization a state-
ment agreeing to file an amended return reporting the
gain realized but not recognized on the section 361
exchange in certain cases if a significant amount of
the section 367(a) property received in the section
361 exchange is disposed of, directly or indirectly, in
one or more related transactions within the prescribed
60-month period.
Example 2.Triangular reorganization involving
an exchange of section 367(a) property for foreign
stock and cash.(i)Facts. (A) DP1 wholly owns DC.
DP1 and DC file a consolidated return. DP1’s DC
stock has a $170x basis and $200x fair market value.
DC owns Business A, which has a $10x basis and
$200x fair market value. FP wholly owns FA.
(B) In a triangular reorganization described
in section 368(a)(1)(A) by reason of section
368(a)(2)(D), DC transfers Business A to FA in ex-
change for $180x of FP stock and $20x cash. DC’s
transfer of Business A to FA qualifies as a section
361 exchange. DP1 exchanges its DC stock for
$180x of FP stock and $20x cash pursuant to section
356. The triangular reorganization constitutes an
indirect stock transfer under §1.367(a)–3(d)(1)(i),
and DP1 properly files a gain recognition agreement
under §1.367(a)–8 with respect to the transfer. See
also §1.367(a)–3(d)(2)(vii).
(ii)Result. (A) Under section 367(a)(5) and
paragraph (b) of this section, DC’s transfer of Busi-
ness A to FA is subject to the general rule of section
367(a)(1). As a result, DC must generally recognize
$190x gain ($200x fair market value less $10x basis)
on the transfer of Business A to FA notwithstanding
the application of section 361 (or any other nonrecog-
nition exchange enumerated in section 367(a)(1)).
However, if the requirements of paragraph (c) of this
section are satisfied, DC’s transfer of Business A
to FA would qualify for the active foreign trade or
business exception provided in section 367(a)(3) and
§1.367(a)–2T.
(B) The requirement of paragraph (c)(1) of this
section is satisfied because DC is controlled (within
the meaning of section 368(c)) by five or fewer do-
mestic corporations immediately before the reorgani-
zation (in this case, by a single domestic corporation,
DP1).
(C) DC is not required to recognize gain under
paragraph (c)(2)(i) of thissection because, immedi-
ately before the reorganization, DC is wholly owned
by DP1, a control group member. In addition, DP1’s
ownership interest percentage is 100%. Paragraph
(c)(2)(ii) of this section would be satisfied only if
DC recognizes $10x gain, computed as the amount
by which the attributable inside gain with respect
to DP1 of $190x (the product of $190x inside gain
multiplied by DP1’s ownership interest percentage
of 100%, reduced by $0x (the sum of the amounts in
paragraphs (c)(2)(ii)(A)(1) through (c)(2)(ii)(A)(3)
of this section)) exceeds $180x (the product of the
section 367(a) percentage of 100% multiplied by
$180x fair market value of FP stock received by
DP1). Under paragraph (f)(5) of this section, the
$190x inside gain is the amount by which the $200x
aggregate fair market value of Business A exceeds
$10x (the sum of the inside basis of $10x and the
product of the section 367(a) percentage (100%)
multiplied by the deductible liabilities of DC ($0x)).
Under paragraph (f)(4) of this section, the inside
basis equals the $10x aggregate basis of the section
367(a) property transferred in the section 361 ex-
change (not increased by the $10x gain recognized
by DC under paragraph (c)(2)(ii) of this section).
The section 367(a) percentage is 100% because the
only asset transferred is Business A, which is sec-
tion 367(a) property. Under §1.1502–32(b)(2), DP1
increases the basis of its DC stock by the $10x gain
recognized, that is, from $170x to $180x. Under
paragraph (e)(1) of this section, the $10x gain rec-
ognized under paragraph (c)(2)(ii) of this section is
treated as recognized with respect to Business A.
FA’s basis in Business A as determined under section
362 is increased for the $10x gain recognized. See
§1.367(a)–1(b)(4)(i)(B).
(D) Paragraph (c)(3) of this section would be sat-
isfied only if DP1’s section 358 basis in the FP stock
is reduced by the amount by which the attributable
inside gain with respect to DP1, reduced by any gain
recognized by DC with respect to DP1 under para-
graph (c)(2)(ii) of this section, exceeds DP1’s outside
gain in the FP stock. DP1’s section 358 basis in the FP
stock is $180x, computed as $180x basis in DC stock,
as determined in paragraph (ii)(C) of thisExample
2
, decreased by $20x cash received and increased by
$20x gain recognized under section 356 (such amount
equal to the lesser of the $20x cash received and the
$20x gain in the DC stock, computed as $200x fair
market value less $180xbasis). Because DC recog-
nizes $10x gain on the section 361 exchange with re-
spect to DP1 under paragraph (c)(2)(ii) of this sec-
tion as determined in paragraph (ii)(C) of thisExam-
ple 2, the $190x attributable inside gain with respect
to DP1 is reduced by $10x to $180x under paragraph
(c)(3)(i)(C) of this section. DP1’s outside gain in the
FP stock is $0x, the product of the section 367(a)
percentage of 100% multiplied by $0x gain (the dif-
ference between $180x fair market value and $180x
section 358 basis in FP stock). Thus, DP1’s section
358 basis in the FP stock ($180x) must be reduced
by $180x ($190x attributable inside gain reduced by
$10x) to $0x.
(E) Paragraph (c)(4)(i) of this section would be
satisfied only if DC complies with the requirements
of §1.6038B–1(c)(6)(iii), including filing with its tax
return for the year of the reorganization a statement
agreeing to file an amended return reporting the gain
on the section 361 exchange in certain cases if a sig-
nificant amount of the section 367(a) property re-
ceived in the section 361 exchange is disposed of, di-
rectly or indirectly, in one or more related transactions
within the prescribed 60-month period.
Example 3.Adjustment to basis of multiple blocks
of stock; transfer of section 367(d) property.(i)Facts.
(A) DP1 wholly owns DC. One half of DP1’s shares
of stock in DC, each with an identical basis, has an ag-
gregate basis of $60x and fair market value of $100x
(Block 1). The other one half of DP’s shares of stock
in DC, each with an identical basis, has an aggregate
basis of $120x and fair market value of $100x (Block
2). DC owns Business A ($15x basis and $150x fair
market value) (excluding the patent) and a patent ($0x
basis and $50x fair market value). The patent is sec-
tion 367(d) property.
(B) In a reorganization described in section
368(a)(1)(F), DC transfers Business A and the patent
to FA, a newly formed corporation, in exchange for
2sharesofFAstock. DC’stransferofBusiness
A and the patent to FA qualifies as a section 361
exchange. DP1 exchangesBlock1andBlock2for
the two shares of FA stock pursuant to section 354.
Pursuant to §1.358–2(a)(2)(i), one share of the FA
stock corresponds to Block 1 (Share 1) and the other
share of FA stock corresponds to Block 2 (Share 2).
The basis of Share 1 and Share 2 correspond to the
basis of Block 1 and Block 2, respectively.
(ii)Result. (A) Under section 367(a)(5) and
paragraph (b) of this section, DC’s transfer of Busi-
ness A to FA is subject to the general rule of section
367(a)(1). As a result, DC must generally recognize
$135x of gain on the transfer of Business A to FA
notwithstanding the application of section 361 (or
any other nonrecognition exchange described in
section 367(a)(1)). However, if the requirements of
paragraph (c) of this section are met, DC’s transfer
of Business A to FA would qualify for the active for-
eign trade or business exception provided in section
367(a)(3). For rules applicable to DC’s transfer of
the patent to FA, see section 367(d).
(B) The requirement of paragraph (c)(1) of this
section is satisfied because DC is controlled (within
the meaning of section 368(c)) by five or fewer do-
mestic corporations immediately before the reorgani-
zation (in this case, by a single domestic corporation,
DP1).
(C) Paragraph (c)(2)(i) of this section is not ap-
plicable because, immediately before the reorganiza-
tion, DC is wholly owned by DP1, a control group
member. In addition, DP1’s ownership interest per-
centage is 100%. Paragraph (c)(2)(ii) of this section
is not applicable because the attributable inside gain
with respect to DP1 can be preserved in the FA stock
received. The attributable inside gain with respect to
DP1 of $135x (equal to the product of $135x inside
gain multiplied by DP1’s 100% ownership interest
percentage, reduced by $0x (the sum of the amounts
in paragraphs (c)(2)(ii)(A)(1) through (c)(2)(ii)(A)(3)
of this section)) does not exceed $150x (equal to the
product of the section 367(a) percentage of 75% mul-
tiplied by $200x fair market value of FA stock re-
ceived by DP1). Under paragraph (f)(5) of this sec-
tion, the $135x inside gain is the amount by which
the aggregate fair market value of Business A ($150x)
exceeds $15x, the sum of the inside basis of Business
A ($15x) and the product of the section 367(a) per-
centage (75%) multiplied by the deductible liabilities
of DC ($0x). Under paragraph (f)(4) of this section,
the inside basis equals the $15x aggregate basis of the
section 367(a) property transferred in the exchange.
April 22, 20139622013–17 I.R.B.

The section 367(a) percentage of 75% is equal to the
ratio of the fair market value of the section 367(a)
property ($150x for Business A) to the fair market
value of all the property transferred ($200x, the sum
of $150x for Business A and $50x for the patent).
(D) Under paragraph (c)(3) of this section, DP1’s
aggregate section 358 basis of $180x in the stock of
FA (computed as the sum of $60x basis in Share 1
and $120x basis in Share 2) is reduced by the amount
by which the attributable inside gain with respect to
DP1, reduced by any gain recognized by DC with re-
spect to DP1 under paragraph (c)(2)(ii) of this sec-
tion, exceeds DP1’s outside gain in the FP stock re-
ceived. Because DC recognizes no gain on the sec-
tion 361 exchange with respect to DP1 under para-
graph (c)(2)(ii) of this section as determined in para-
graph (ii)(C) of thisExample 3, the $135x attribut-
able inside gain with respect to DP1 is not reduced
under paragraph (c)(3)(i)(A) of this section. DP1’s
outside gain in Share 1 and Share 2 in the aggregate
is $15x, the product of the section 367(a) percentage
of 75% multiplied by $20x (the difference between
$200x aggregate fair market value and $180x aggre-
gate section 358 basis in the FA stock received by
DP1). Thus, DP1’s section 358 basis in the FA stock
($180x) must be reduced by $120x (the excess of
$135x attributable inside gain, reduced by $0x, over
$15x outside gain) to $60x.
(E) Under paragraph (c)(3)(iii) of this section, the
$120x reduction to basis is allocated between Share
1 and Share 2 based on the relative section 358 ba-
sis of each share. Therefore, the basis in Share 1 is
reduced by $40x ($120x multiplied by $60x/$180x).
As adjusted, DP1’s basis in Share 1 is $20x ($60x
less $40x). The basis in Share 2 is reduced by $80x
($120x multiplied by $120x/$180x). As adjusted,
DP1’s basis in Share 2 is $40x ($120x less $80x).
(F) Paragraph (c)(4)(i) of this section would be
satisfied only if DC complies with the requirements
of §1.6038B–1(c)(6)(iii), including filing with its tax
return for the year of the reorganization, a statement
agreeing to file an amended return reporting the gain
realized but not recognized on the section 361 ex-
change in certain cases if a significant amount of
the section 367(a) property received in the section
361 exchange is disposed of, directly or indirectly, in
one or more related transactions within the prescribed
60-month period.
Example 4.Control requirement and ownership
interest percentage; non-qualified property provided
by foreign acquiring corporation.(i)Facts.DP1and
FP own 80% and 20%, respectively, of the outstand-
ing stock of DC. DC owns Business A with a basis
of $0x and $100x fair market value. DP1’s DC stock
has a fair market value of $80x, and FP’s DC stock
has a fair market value of $20x. In a reorganization
described in section 368(a)(1)(D), DC transfers Busi-
ness A to FA in exchange for $80x of FA stock and
$20x cash. DC’s transfer of Business A to FA qual-
ifies as a section 361 exchange. DP1 exchanges its
$80x of DC stock for $60x of FA stock and $20x cash,
and FP exchanges its $20x of DC stock for $20x of
FA stock.
(ii)Result. (A) The requirement of paragraph
(c)(1) of this section is satisfied because DC is con-
trolled (within the meaning of section 368(c)) by five
or fewer domestic corporations immediately before
the reorganization (in this case, by a single domestic
corporation, DP1). The fact that the $20x cash is dis-
tributed solely to DP1 does not change the analysis
of the control requirement. The control requirement
is determined immediately before the reorganization
and is not affected by distributions of property.
(B) Pursuant to paragraph (f)(7) of this sec-
tion, the ownership interest percentages of DP1
and FP immediately before the reorganization are
80% ($80x/($80x + $20x)) and 20% ($20x/($80x +
$20x)), respectively. The fact that the $20x of cash is
distributed solely to DP1 does not change this result.
The distribution of the $20x of cash is not taken
into account for purposes of the ownership interest
percentage computation because the $20x of cash
distributed by DC is provided by FA to DC in the
section 361 exchange.
Example 5.Control requirement and ownership
interest percentage; non-qualified property provided
by U.S. transferor.(i)Facts. The facts are the same as
inExample 4, except as follows. Business A has a fair
market value of $80x (and not $100x) and DC also
owns inventory with a basis of $0x and fair market
value of $20x. DC transfers Business A, but not the
inventory, to FA in exchange for $80x of FA stock.
DP1 exchanges its $80x of DC stock for $60x of FA
stock and the $20x of inventory, and FP exchanges its
$20xofDCstockfor$20xofFAstock.
(ii)Result. (A) The requirement of paragraph
(c)(1) of this section is satisfied because DC is con-
trolled (within the meaning of section 368(c)) by five
or fewer domestic corporations immediately before
the reorganization (in this case, by a single domes-
tic corporation, DP1). The fact that the $20x of in-
ventory is not transferred to FA, but is instead dis-
tributed solely to DP1, does not change the analysis
of the control requirement. The control requirement
is determined immediately before the reorganization,
and is not affected by distributions of property.
(B) Pursuant to the general rule of paragraph
(f)(7) of this section, the ownership interest per-
centages of DP1 and FP immediately before the
reorganization would be 80% ($80x/($80x + $20x))
and 20% ($20x/($80x + $20x)), respectively. In this
case, however, the distribution of the $20x inventory
to DP1 is taken into account for purposes of com-
puting the ownership interest percentage of DP1 and
FP because the inventory is not provided by FA to
DC in the section 361 exchange. With respect to
DP1, the numerator of the ownership interest per-
centage computation is $60x, computed as the fair
market value of DC stock owned by DP1 immedi-
ately before the reorganization but reduced by the
fair market value of the inventory distributed to DP1
($80x less $20x). With respect to FP, the numerator
of the ownership interest percentage computation is
$20x, the fair market value of the DC stock owned
by FP immediately before the reorganization. With
respect to both DP1 and FP, the denominator of the
ownership interest percentage computation is $80x,
computed as the fair market value of all DC stock
immediately before the reorganization, but reduced
by the fair market value of the inventory distributed
to DP1 ($100x, less $20x). Accordingly, the owner-
ship interest percentage of DP1 is 75% ($60x/$80x),
and the ownership interest percentage of FP is 25%
($20x/$80x).
(h)Applicable cross-references.For
rules relating to the character, source, and
adjustments resulting from gain recog-
nized by a U.S. transferor under section
367(a), see §1.367(a)–1(b)(4)(i)(B) and
§1.367(a)–1T(b)(4). For rules relating to
transfers of stock or securities in a sec-
tion 361 exchange, see §1.367(a)–3T(e).
For rules relating to the acquisition of
the stock or assets of a foreign corpora-
tion by another foreign corporation, see
§1.367(b)–4. For rules relating to trans-
fers of section 367(d) property by a U.S.
transferor to a foreign corporation, see
section 367(d). For rules relating to distri-
butions of stock of a foreign corporation
by a domestic corporation under section
355 or 361, see §§1.367(b)–5, 1.367(e)–1,
and 1.1248(f)–1 through 1.1248(f)–3. For
additional rules relating to certain report-
ing requirements of a U.S. transferor, see
§1.6038B–1. For rules regarding expa-
triated entities, see section 7874 and the
regulations under that section.
(i) [Reserved].
(j)Effective/applicability date.This
section applies to transfers occurring on or
after April 18, 2013.
Par. 6. Section 1.367(a)–8 is amended
by:
1. Adding paragraph (c)(6).
2. Revising the first sentence of para-
graph (j)(9).
The addition and revision read as fol-
lows:
§1.367(a)–8 Gain recognition agreement
requirements.
*****
(c)***
(6)Cross-reference. For gain recogni-
tion agreements entered into pursuant to
certain outbound asset reorganizations, see
§1.367(a)–3T(e)(6).
*****
(j)***
(9)Gain recognition agreement filed
in connection with indirect stock transfers
and certain triangular asset reorganiza-
tions. With respect to a gain recogni-
tion agreement entered into in connec-
tion with an indirect stock transfer (as
defined in §1.367(a)–3(d)), or a trian-
gular asset reorganization described in
§1.367(a)–3T(e)(6)(iv), an indirect dispo-
sition of the transferred stock or securities.
***
*****
2013–17 I.R.B.963April 22, 2013

Par. 7. Section 1.367(b)–0 is amended
by:
1.Revising the entry for
§1.367(b)–4(b)(1)(ii).
2.Revising the heading for
§1.367(b)–6.
3.Revising the entry for
§1.367(b)–6(a).
The revisions read as follows:
§1.367(b)–0 Table of contents.
*****
§1.367(b)–4 Acquisition of foreign
corporate stock or assets by a foreign
corporation in certain nonrecognition
transactions.
*****
(b) * * *
(1) * * *
(ii)Special Rules
*****
§1.367(b)–6 Effective/applicability dates
and coordination rules.
(a)Effective/applicability dates
*****
Par. 8. Section 1.367(b)–4 is amended
by:
1. Revising paragraph (a).
2. Revising paragraphs (b)(1)(i)(B)(2),
(b)(1)(ii), and (b)(1)(iii),Example 4.
3. Adding paragraph (b)(1)(iii),Exam-
ple 5.
The revisions and addition read as fol-
lows:
§1.367(b)–4 Acquisition of foreign
corporate stock or assets by a foreign
corporation in certain nonrecognition
transactions.
(a)Scope. This section applies to an
acquisitionbyaforeigncorporation(the
foreign acquiring corporation) of the stock
of a foreign corporation in an exchange
describedinsection351orofthestockor
assets of a foreign corporation in a reorga-
nization described in section 368(a)(1) (in
either case, the foreign acquired corpora-
tion). For rules applicable when, pursuant
to section 304(a)(1), a foreign acquiring
corporation is treated as acquiring the
stock of a foreign acquired corporation
in a transaction to which section 351(a)
applies, see §1.367(b)–4T(e). For pur-
poses of this section, the termtriangular
reorganizationmeans a reorganization
described in §1.358–6(b)(2)(i) through
(b)(2)(v) (forward triangular merger, trian-
gular C reorganization, reverse triangular
merger, triangular B reorganization, and
triangular G reorganization, respectively).
In the case of a triangular reorganization
other than a reverse triangular merger,
the surviving corporation is the foreign
acquiring corporation that acquires the
assets or stock of the foreign acquired cor-
poration, and the reference to controlling
corporation (foreign or domestic) is to
the corporation that controls the surviving
corporation. In the case of a reverse tri-
angular merger, the surviving corporation
is the entity that survives the merger, and
the controlling corporation (foreign or do-
mestic) is the corporation that before the
merger controls the merged corporation.
In the case of a reverse triangular merger,
this section applies if stock of the foreign
surviving corporation is exchanged for
stock of a foreign corporation in control
of the merging corporation; in such a
case, the foreign surviving corporation is
treated as a foreign acquired corporation
for purposes of this section. A foreign
corporation that undergoes a reorgani-
zation described in section 368(a)(1)(E)
is treated as both the foreign acquired
corporation and the foreign acquiring cor-
poration for purposes of this section. See
§1.367(a)–3(b)(2) for transactions subject
to the concurrent application of sections
367(a) and (b).
(b) * * *
(1) * * *
(i) * * *
(B) * * *
(2) Immediately after the exchange,
the foreign acquiring corporation or the
foreign acquired corporation (in the case
of the acquisition of the stock of a foreign
acquired corporation) is not a controlled
foreign corporation as to which the United
States person described in paragraph
(b)(1)(i)(A) of this section is a section
1248 shareholder.
(ii)Special rules—(A)Receipt of
foreign stock in an exchange to which
§1.367(a)–7(c) applies. If an exchang-
ing shareholder is a domestic corporation
that transfers stock of a foreign acquired
corporation in an exchange under section
361(a) or (b) (section 361 exchange) to
which the exception to section 367(a)(5) in
§1.367(a)–7(c) applies, and the exchang-
ing shareholder receives stock in either the
foreign acquiring corporation or foreign
controlling corporation (in the case of a
triangular reorganization), such exchange
will not be described in paragraph (b)(1)(i)
of this section only if immediately after
the exchanging shareholder’s receipt of
the foreign stock in the section 361 ex-
change, but prior to, and without taking
into account, the exchanging shareholder’s
distribution of the foreign stock under
section 361(c)(1), the foreign acquired
corporation, foreign acquiring corpora-
tion, and foreign controlling corporation
(in the case of a triangular reorganization)
are controlled foreign corporations as to
which the exchanging shareholder is a
section 1248 shareholder. See paragraph
(b)(1)(iii) of this section,Example 4,for
an illustration of this rule. If an exchange
is not described in paragraph (b)(1)(i) of
this section as a result of the application
of this paragraph, see §§1.1248(f)–1(b)(3)
and 1.1248(f)–2(c), as applicable. For
adjustments to the basis of stock of the
foreign surviving corporation in certain
triangular reorganizations, see paragraph
(b)(1)(ii)(B)(2)(i)ofthissection.
(B)Special rules for certain triangular
reorganizations—(1)Receipt of domestic
stock. In the case of a triangular reor-
ganization in which the stock received
in the exchange is stock of a domestic
controlling corporation, such exchange
is not described in paragraph (b)(1)(i) of
this section if immediately after the ex-
change the following foreign corporations
are controlled foreign corporations as to
which the domestic controlling corpora-
tion is a section 1248 shareholder—
(i) The foreign acquired corporation
and foreign surviving corporation, in the
case of a section 354 exchange of the
stock of the foreign acquired corporation
pursuant to a triangular B reorganization.
(ii) The foreign surviving corporation,
in the case of a section 354 or section 356
exchange of the stock of the foreign ac-
quired corporation pursuant to a forward
triangular merger, triangular C reorgani-
zation, reverse triangular merger, or tri-
angular G reorganization. See paragraph
(b)(1)(iii) of this section,Example 3Bfor
an illustration of this rule.
(iii) The foreign acquired corporation
and foreign surviving corporation, in the
April 22, 20139642013–17 I.R.B.

case of a section 361 exchange of the
stock of the foreign acquired corporation
by an exchanging shareholder that is a
foreign corporation described in para-
graph (b)(1)(i)(A)(2)ofthissectionand
that is a foreign acquired corporation the
assets of which are acquired in a triangu-
lar reorganization described in paragraph
(b)(1)(ii)(B)(1)(ii) of this section.
(iv) The foreign acquired corporation
and foreign surviving corporation, in the
case of a section 361 exchange of the
stock of the foreign acquired corporation
by an exchanging shareholder that is a do-
mestic corporation described in paragraph
(b)(1)(i)(A)(1) of this section and that is
acquired in a triangular reorganization to
which the exception to section 367(a)(5)
in §1.367(a)–7(c) applies. See paragraph
(b)(1)(iii) of this section,Example 5for an
illustration of this rule.
(2)Adjustments to basis of stock of
foreign surviving corporation—(i)Section
361 exchanges to which §1.367(a)–7(c)
applies. If stock of the foreign acquired
corporation is acquired by the foreign
surviving corporation in a section 361
exchange by reason of triangular reorga-
nization (other than a triangular B reorga-
nization) to which the exception to section
367(a)(5) provided in §1.367(a)–7(c) ap-
plies, and if paragraph (b)(1)(i) of this
section does not apply to the section 361
exchange by reason of (b)(1)(ii)(A) of this
section (if the stock received is stock of a
foreign controlling corporation) or by rea-
son of (b)(1)(ii)(B)(1)(iv)ofthissection(if
the stock received is stock of a domestic
controlling corporation), then the con-
trolling corporation (foreign or domestic)
must apply the principles of §1.367(b)–13
to adjust the basis of the stock of the
foreign surviving corporation so that the
section 1248 amount in the stock of the
foreign acquired corporation (determined
when the foreign surviving corporation
acquires such stock) is reflected in the
stock of the foreign surviving corporation
immediately after the exchange. See para-
graph (b)(1)(iii) of this section,Example
5, for an illustration of this rule.
(ii)Other exchanges. See §1.367(b)–13
for rules regarding the adjustment to the
basis of the stock of the foreign surviving
corporation in exchanges pursuant to trian-
gular reorganizations that are not subject
to paragraph (b)(1)(ii)(B)(2)(i)ofthissec-
tion.
(iii) * * *
Example 4.(i)Facts. DC1, a domestic corpo-
ration, owns all of the outstanding stock of DC2, a
domestic corporation. DC2 owns various assets, in-
cluding all of the outstanding stock of FC2, a for-
eign corporation. The stock of FC2 has a value of
$100, and DC2 has a basis of $30 in the stock. The
section 1248 earnings and profits attributable to the
FC2 stock held by DC2 is $20. DC2 does not own
any stock other than the FC2 stock. FC1 is a foreign
corporation that is unrelated to DC1, DC2, and FC2.
In a reorganization described in section 368(a)(1)(C),
FC1 acquires all of the assets of DC2 in exchange
for the assumption of DC2’s liabilities and voting
stock of FC1 that represents 20% of the outstand-
ing voting stock of FC1. DC2 distributes the FC1
stock to DC1 under section 361(c)(1), and the DC2
stock held by DC1 is canceled. The exception to
section 367(a)(5) provided in §1.367(a)–7(c) applies
to the section 361 exchange. DC1 properly files a
gain recognition agreement that satisfies the condi-
tions of §§1.367(a)–3T(e)(6) and 1.367(a)–8 to qual-
ify for nonrecognition treatment under section 367(a)
with respect to DC2’s transfer of the FC2 stock to
FC1. See §1.367(a)–3T(e). FC1 is not a surrogate
foreign corporation (within the meaning of section
7874) because DC1 does not hold at least 60% of the
stock of FC1 by reason of holding stock of DC2.
(ii)Result. DC2, the exchanging shareholder, is
a U.S. person and a section 1248 shareholder with
respect to FC2, the foreign acquired corporation.
Whether DC2 is required to include in income the
section 1248 amount attributable to the FC2 stock
under paragraph (b)(1)(i) of this section depends
on whether, immediately after DC2’s section 361
exchange of the FC2 stock for FC1 stock (and before
the distribution of the FC1 stock to DC1 under sec-
tion 361(c)(1)), FC1 and FC2 are controlled foreign
corporations as to which DC2 is a section 1248 share-
holder. See paragraph (b)(1)(ii)(A) of this section.
If, immediately after the section 361 exchange (and
before the distribution of the FC1 stock to DC1 under
section 361(c)(1)), FC1 and FC2 are both controlled
foreign corporations as to which DC2 is a section
1248 shareholder, then DC2 is not required to include
in income the section 1248 amount attributable to the
FC2 stock under paragraph (b)(1)(i) of this section
because neither condition in paragraph (b)(1)(i)(B)
of this section is satisfied. Alternatively, if immedi-
ately after the section 361 exchange (and before the
distribution of the FC1 stock to DC1 under section
361(c)(1)) either FC1 or FC2 is not a controlled for-
eign corporation as to which DC2 is a section 1248
shareholder, then, pursuant to paragraph (b)(1)(i) of
this section, DC2 must include in income the section
1248 amount attributable to the FC2 stock. For the
treatment of DC2’s transfer of assets other than the
FC2 stock to FC1, see section 367(a)(1) and (a)(3)
and the regulations under that section. Furthermore,
because DC2’s transfer of any other assets to FC1
is pursuant to a section 361 exchange, see section
367(a)(5) and §1.367(a)–7. If any of the assets trans-
ferred are intangible assets for purposes of section
367(d), see section 367(d). With respect to DC2’s
distribution of the FC1 stock to DC1 under section
361(c)(1), see section 1248(f)(1), and §§1.1248(f)–1
and 1.1248(f)–2.
Example 5.(i)Facts. DC1, a domestic corpora-
tion, wholly owns DC2, a domestic corporation. The
DC2 stock has a $100x fair market value, and DC1
has a basis of $30x in the stock. DC2’s only asset is
all of the outstanding stock of FC2, a foreign corpo-
ration. The FC2 stock has a $100x fair market value,
and DC2 has a basis of $30x in the stock. There are
$20x of earnings and profits attributable to the FC2
stock for purposes of section 1248. USP, a domestic
corporation unrelated toDC1, DC2, and FC2, wholly
owns FC1, a foreign corporation. In a triangular
reorganization described in section 368(a)(1)(C),
DC2 transfers all the FC2 stock to FC1 in exchange
solely for voting stock of USP, and distributes the
USP stock to DC1 under section 361(c)(1). DC1
exchanges its DC2 stockfor the USP stock under
section 354. DC2’s transfer of the FC2 stock to FC1
isdescribedinsection361(a)andtherefore,under
section 367(a)(5) and §1.367(a)–7, is generally sub-
ject to section 367(a)(1). However, the exception to
section 367(a)(5) provided in §1.367(a)–7(c) applies
to the section 361 exchange. In addition, DC1 is not
required to adjust the basis of its USP stock (deter-
mined under section 358) under section 367(a)(5)
and §1.367(a)–7(c)(3). DC1 properly files a gain
recognition agreement that satisfies the conditions of
§§1.367(a)–3T(e)(6) and 1.367(a)–8 to qualify for
nonrecognition treatment under section 367(a) with
respect to DC2’s transfer of the FC2 stock to FC1.
See §1.367(a)–3T(e).
(ii)Result. Immediately after the exchange,
FC1 and FC2 are controlled foreign corporations
as to which USP is a section 1248 shareholder be-
cause USP directly and indirectly owns all the FC1
stock and FC2 stock, respectively. Because DC2
receives stock of a domestic corporation (USP) in
exchange for the FC2 stock and, immediately after
the exchange, FC1 and FC2 are controlled foreign
corporations as to which USP is a section 1248
shareholder, DC2’s exchange of the FC2 stock for the
USP stock is not described in paragraph (b)(1)(i) of
this section. See paragraph (b)(1)(ii)(B)(1)(iv)ofthis
section. Therefore, DC2 is not required to include in
income the section 1248 amount in the FC2 stock.
Under paragraph (b)(1)(ii)(B)(2)(i
) of this section,
USP must apply the principles of §1.367(b)–13 to
adjust the basis of its FC1 stock to preserve the sec-
tion 1248 amount ($20x) in the FC2 stock. Under the
principles of §1.367(b)–13, each share of FC1 stock
held by USP after the exchange must be divided into
portions, one portion attributable to the FC1 stock
owned before the exchange and one portion attribut-
able to the FC2 stock received in the exchange. The
$30x basis in the FC2 stock and the $20x earnings
and profits attributable to the FC2 stock before the
exchange are attributable to the divided portions of
theFC1stocktowhichtheFC2stockrelates.
*****
Par. 9.Section1.367(b)–6isamended
by revising the section heading and para-
graph (a)(1) to read as follows:
§1.367(b)–6 Effective/applicability dates
and coordination rules.
(a)Effective/applicability dates—(1)
In general. (i) Except as otherwise pro-
vided in this paragraph (a)(1) and para-
graph (a)(2) of this section, §§1.367(b)–1
2013–17 I.R.B.965April 22, 2013

through 1.367(b)–5, and this section, ap-
ply to section 367(b) exchanges that occur
on or after February 23, 2000.
(ii) The rules of §§1.367(b)–3 and
1.367(b)–4, as they apply to reorganiza-
tions described in section 368(a)(1)(A)
(including reorganizations described in
section 368(a)(2)(D) or (a)(2)(E)) involv-
ing a foreign acquiring or foreign acquired
corporation, apply only to transfers occur-
ring on or after January 23, 2006.
(iii) The second sentence of para-
graph §1.367(b)–4(a) applies to section
304(a)(1) transactions occurring on or af-
ter February 23, 2006; however, taxpayers
may rely on this sentence for all section
304(a)(1) transactionsoccurringinopen
taxable years.
(iv) Section 1.367(b)–1(c)(2)(v),
(c)(3)(ii)(A), (c)(4)(iv),(c)(4)(v),
§1.367(b)–2(j)(1)(i) and (l), and
§1.367(b)–3(e) and (f), apply to
section 367(b) exchanges that
occur on or after November 6,
2006. For guidance with respect to
§1.367(b)–1(c)(3)(ii)(A), (c)(4)(iv), and
(c)(4)(v) and §1.367(b)–2(j)(1)(i) for
exchanges that occur before November
6, 2006, see 26 CFR part 1 revised as of
April 1, 2006.
(v)Section1.367(b)–4(a),
§1.367(b)–4(b)(1)(i)(B)(2),
§1.367(b)–4(b)(1)(ii),
§1.367(b)–4(b)(1)(iii),Example 4andEx-
ample 5apply to section 367(b) exchanges
that occur on or after April 18, 2013. For
guidance with respect to §1.367(b)–4(a),
§1.367(b)–4(b)(1)(i)(B)(2),
§1.367(b)–4(b)(1)(ii)and
§1.367(b)–4(b)(1)(iii),Example 4,for
exchanges that occur before April 18,
2013, see 26 CFR part 1 revised as of
April 1, 2012.
*****
Par. 10. Section 1.367(e)–1 is amended
by:
1. Revising the fifth sentence of para-
graph (a).
2. Revising paragraph (e).
3. Revising the paragraph (f) subject
heading.
The revisions read as follows:
§1.367(e)–1 Distributions described in
section 367(e)(1).
(a)Purpose and scope.***Paragraph
(e) of this section provides cross-refer-
ences. * * *
*****
(e)Cross-references. For additional
rules relating to the distribution of the
stock of a foreign corporation by a do-
mestic corporation, see §§1.367(a)–3T(e),
1.367(a)–7, 1.367(b)–5, and 1.1248(f)–1
through 1.1248(f)–3. See the regulations
under section 6038B for reporting require-
ments for distributions under this section.
(f)Effective/applicability date.***
*****
Par. 11–12. In §1.1248–1, for each
entry in the table below in the “Section”
column, remove the language in the “Re-
move” column and add the language in the
“Add” column in its place, and:
1. Revise paragraphs (c) and (e).
2. Add paragraph (g)(3).
SectionRemoveAdd
1.1248–1(a)(1), second to last sentence1248(f)1248(g)
1.1248–1(a)(1), last sentence1248(g)1248(h)
1.1248–3(a)(6), first sentence1.1248–41.1248–2
1.1248–3(a)(6), first sentence1.1248–71.1248–8
1.1248–7(a)(1), second to last sentence1248(g)1248(h)
§1.1248–1 Treatment of gain from certain
sales or exchanges of stock in certain
foreign corporations.
*****
(c)Gain recognized. Section 1248(a)
applies to a sale or exchange of stock in a
foreign corporation only if gain is recog-
nized in whole or in part upon the sale or
exchange. Thus, for example, if a United
States person exchanges stock in a foreign
corporation and no gain is recognized on
the exchange under section 332, 351, 354,
355, 356, or 361, taking into account the
application of section 367, then no amount
is includible in the gross income of the per-
son as a dividend under section 1248(a).
But see §§1.1248(f)–1 and 1.1248(f)–2,
providing that a domestic distributing cor-
poration must include in gross income
amounts under section 1248(f) as a re-
sult of certain foreign stock distributed
pursuant to section 337, 355(c)(1), or
361(c)(1) (in certain cases without re-
gard to the amount of gain realized by the
domestic distributing corporation in the
distribution).
*****
(e)Exceptions.Under section 1248(g),
this section and §§1.1248–2 through
1.1248–8 do not apply to:
(1) Distributions to which section 303
(relating to distributions in redemption of
stock to pay death taxes) applies; or
(2) Any amount to the extent that the
amount is, under any other provision of
the Internal Revenue Code (Code), treated
as—
(i) A dividend;
(ii) Gain from the sale of an asset which
is not a capital asset; or
(iii) Gain from the sale of an asset held
for not more than 1 year.
*
****
(
g)Effective/applicability date.***
(
3) Paragraphs (c) and (e) of this section
a
pply to transactions occurring on or after
A
pril 18, 2013.
P
ar. 13. Section 1.1248–6 is amended
b
y:
1
. Adding a sentence at the end of para-
g
raph (a).
2
. Adding paragraphs (d) and (e).
T
he additions read as follows:
§1.1248–6 Sale or exchange of stock in
certain domestic corporations.
(a)***Seeparagraph(d)ofthissec-
tion for a rule suspending the application
of this section in certain circumstances.
April 22, 20139662013–17 I.R.B.

*****
(d)Temporary suspension of section
1248(e). Section 1248(e) and the rules
ofthissectiondonotapplytoasale,ex-
change, or other disposition of the stock
of a domestic corporation during a period
when capital gains are taxed at a rate that
equals or exceeds the rate at which ordi-
nary income is taxed.
(e)Effective/applicability date. Para-
graph (d) of this section applies to a sale,
exchange, or other disposition of the stock
of a domestic corporation on or after
September 21, 1987.
Par. 14. Section 1.1248–8 is amended
by:
1.Revising paragraphs (a)(3),
(b)(1)(iv)(A), and (b)(2)(i).
2. Adding paragraph (b)(2)(iv).
3. Revising paragraph (d).
The revisions and addition read as fol-
lows:
§1.1248–8 Earnings and profits
attributable to stock following certain
non-recognition transactions.
(a) * * *
(3)Section 381 transactions.Stock
of a foreign corporation that receives
assets in a transfer to which section
361(a) or (b) appliesin connection with
a reorganization described in section
368(a)(1)(A), (C), (D), (F), or (G), or in a
distribution to which section 332 applies,
and to which section 381(c)(2)(A) and
§1.381(c)(2)–1(a) apply. See paragraph
(b)(6) of this section; or
*****
(b) * * *
(1) * * *
(iv) * * *
(A) In a restructuring transaction qual-
ifying as a nonrecognition transaction
within the meaning of section 7701(a)(45)
and described in section 354, 356, or
361(a) or (b), stock in an acquired corpora-
tion for stock in either a foreign acquiring
corporation or a foreign corporation that
is in control, within the meaning of sec-
tion 368(c), of an acquiring corporation
(whether domestic or foreign); or
*****
(2) * * *
(i)Exchanging shareholder exchanges
property that is not stock of a foreign ac-
quired corporation with respect to which
the exchanging shareholder is a section
1248 shareholder or a foreign corporate
shareholder. Except as provided in para-
graph (b)(2)(iv) of this section, where the
exchanging shareholder exchanges in a
restructuring transaction property that is
not stock of a foreign acquired corpora-
tion with respect to which the exchanging
shareholder is a section 1248 shareholder
or a foreign corporate shareholder imme-
diately before the transaction, the earnings
and profits attributable to the stock that
the exchanging shareholder receives in
the restructuring transaction will be de-
termined in accordance with §1.1248–2
or §1.1248–3, whichever is applicable,
without regard to any portion of the sec-
tion 1223(1) holding period in that stock
that is before the restructuring transaction.
See paragraph (b)(7),Example 1of this
section.
*****
(iv)Exchanging shareholder exchanges
stock of a domestic acquired corporation
for stock of a foreign corporation with re-
spect to which the exchanging shareholder
is a section 1248 shareholder after the
exchange. If there is a restructuring trans-
action described in §1.1248(f)–1(b)(3)
to which the exception provided by
§1.1248(f)–2(c) applies with respect to a
distribution by a domestic acquired corpo-
ration of stock of a foreign corporation to
one or more exchanging shareholders, the
earnings and profits attributable to a por-
tion of a share of stock as provided under
§1.1248(f)–2(c)(2) (or a whole share, if
no division is required) will be determined
pursuant to paragraphs (b)(2)(iv)(A) and
(b)(2)(iv)(B) of this section.
(A) The earnings and profits attribut-
able to a portion of a share of stock as
provided under §1.1248(f)–2(c)(2)(i) (or
a whole share, if no division is required)
will be determined in accordance with
§1.1248–2 or §1.1248–3 (and this section,
as applicable), without regard to any por-
tion of the section 1223(1) holding period
in that portion of a share (or whole share)
that is before the restructuring transaction.
(B) The earnings and profits attribut-
able to a portion of a share of stock as
provided under §1.1248(f)–2(c)(2)(ii) (or
whole share, if no division is required) is
the amount in paragraph (b)(2)(iv)(B)(1)
of this section, increased by the amounts
described in paragraph (b)(2)(iv)(B)(2)of
this section.
(1) The amount equal to the prod-
uct of the ratio of the value of the share
of stock to the value of all shares of
stock received by the exchanging share-
holder multiplied by the amount in para-
graph (b)(2)(iv)(B)(1)(i)ofthissection,
reduced by the amount in paragraph
(b)(2)(iv)(B)(1)(ii) of this section.
(i) The amount equal to the product of
the exchanging shareholder’s ownership
interest percentage (within the mean-
ing of §1.367(a)–7(f)(7)) in the domestic
acquired corporation multiplied by the
earnings and profits attributable to the
block of stock of the foreign corporation
transferred in the section 361 exchange
that relates to the portion (or whole share),
determined in accordance with §1.1248–2
or §1.1248–3 (and this section, as applica-
ble) immediately before the restructuring
transaction (and without taking into ac-
count the application of sections 367 and
1248 to the transfer of the stock of the
foreign corporation in the section 361 ex-
change).
(ii) The amount of any dividend in-
cluded in the domestic acquiring corpora-
tion’s gross income under section 1248(a)
on the transfer of the block of stock of the
foreign corporation, which relates to the
portion or whole share, in the section 361
exchange by reason of gain recognized un-
der §§1.367(a)–6T or 1.367(a)–7(c)(2) at-
tributable to the exchanging shareholder.
(2) The earnings and profits deter-
mined in accordance with §1.1248–2 or
§1.1248–3 (and this section, as applica-
ble), without regard to any portion of the
section1223(1)holdingperiodinthat
stock that is before the restructuring trans-
action. See §1.1248(f)–2(e),Example 2
andExample 3.
*****
(d)Effective/applicability dates—(1)
General rule. Except as provided in para-
graph (d)(2) of this section, this section
applies to income inclusions that occur on
or after July 30, 2007.
(2)Exception. Paragraph (b)(2)(iv) of
this section applies to restructuring trans-
actions occurring on or after April 18,
2013.
Par. 15. Section 1.1248(f)–1 is added
to read as follows:
2013–17 I.R.B.967April 22, 2013

§1.1248(f)–1 Certain nonrecognition
distributions.
(a)Scope and purpose. This section
and §§1.1248(f)–2 and 1.1248(f)–3 pro-
vide rules under section 1248(f) that apply
when a domestic corporation (domes-
tic distributing corporation) distributes
stock of a foreign corporation (foreign
distributed corporation) in a distribution to
which section 337, 355(c)(1), or 361(c)(1)
applies. Paragraph (b) of this section
provides the general rule that requires
the domestic distributing corporation, de-
pending on the type of distribution, to
include in gross income either the section
1248 amount or the total section 1248(f)
amount. Paragraph (c) of this section
provides definitions that apply for pur-
poses of this section and §§1.1248(f)–2
and 1.1248(f)–3. Section 1.1248(f)–2
provides exceptionsto the general rule
contained in paragraph (b) of this section
that apply, depending on the type of dis-
tribution. Section 1.1248(f)–3 provides
reasonable cause relief procedures for fail-
ures to timely comply with certain filing
requirements and effective/applicability
dates.
(b)General rule—(1)Section 337 dis-
tribution. This paragraph (b)(1) applies
if a domestic distributing corporation that
is a section 1248 shareholder of a foreign
distributed corporation distributes stock of
the foreign distributed corporation in a dis-
tribution to which section 337 applies (sec-
tion 337 distribution). Except as provided
in §1.1248(f)–2(a), the domestic distribut-
ing corporation must, notwithstanding any
other provision of subtitle A of the In-
ternal Revenue Code (Code), include in
gross income as a dividend the section
1248 amount with respect to the stock of
the foreign distributed corporation. This
paragraph (b)(1) applies only to the extent
the domestic distributing corporation does
not recognize gain with respect to the stock
of the foreign distributed corporation as a
result of the section 337 distribution under
another provision of subtitle A of the Code.
(2)Existing stock distribution under
section 355 or 361. This paragraph (b)(2)
applies to the extent a domestic distribut-
ing corporation distributes stock of the
foreign distributed corporation that is not
received in a section 361 exchange that is
part of the plan of distribution, provided
the distribution is described in section
355(c)(1) or section 361(c)(1) (existing
stock distribution). Except as provided in
§1.1248(f)–2(b), the domestic distributing
corporation must, notwithstanding any
other provision of subtitle A of the Code,
include in gross income as a dividend the
section 1248 amount with respect to the
stock of the foreign distributed corpora-
tion. This paragraph (b)(2) only applies to
the extent the domestic distributing corpo-
ration does not recognize gain with respect
to the stock of the foreign distributed cor-
poration as a result of the existing stock
distribution under another provision of
subtitle A of the Code.
(3)New stock distribution under sec-
tion 361. This paragraph (b)(3) applies
to the extent a domestic distributing cor-
poration distributes stock of the foreign
distributed corporation that is received
in a section 361 exchange that is part of
the plan of distribution (and, to the extent
applicable, also distributes any cash or
other property), provided the distribution
is described in section 361(c)(1) (new
stock distribution). Except as provided in
§1.1248(f)–2(c), the domestic distributing
corporation must, notwithstanding any
other provision of subtitle A of the Code,
include in gross income as a dividend the
total section 1248(f) amount with respect
to the stock of each foreign corporation
transferred in the section 361 exchange.
This paragraph (b)(3) applies without re-
gard to the amount of gain realized by the
domestic distributing corporation in the
new stock distribution.
(c)Definitions. Except as otherwise
provided, the following definitions ap-
ply for purposes of this section and
§§1.1248(f)–2 and 1.1248(f)–3:
(1)80-percent distributeeis a corpora-
tion described in section 337(c).
(2)Block of stockhas the meaning pro-
vided in §1.1248–2(b).
(3)Distributeeis a shareholder of the
domestic distributing corporation that re-
ceives one or more shares of stock of a for-
eign distributed corporation in an existing
stockdistribution(asdefinedinparagraph
(b)(2) of this section) or a new stock dis-
tribution (as defined in paragraph (b)(3) of
this section).
(4)Hypothetical section 1248 amount
is, with respect to each distributee or
non-stock distributee, the amount in para-
graph (c)(4)(i) of this section, reduced by
the amount in paragraph (c)(4)(ii) of this
section computed with respect to the stock
of each foreign corporation transferred
in the section 361 exchange by the do-
mestic distributing corporation for which
there is not an income inclusion under
§1.367(b)–4(b)(1)(i).
(i) The amount that the domestic dis-
tributing corporation would have included
in income as a deemed dividend under
§1.367(b)–4(b)(1)(i) if the requirements
of §1.367(b)–4(b)(1)(ii)(A) (involving the
receipt of foreign stock in an exchange
to which §1.367(a)–7(c) applies) had not
been satisfied and that would have been at-
tributable to such distributee or non-stock
distributee under §1.367(a)–7(e)(4) (pro-
viding rules to attribute deemed income
inclusions under §1.367(b)–4 to persons
described in §1.367(a)–3T(e)(3)(iii)(A)).
(ii) The amount of gain recognized by
the domestic distributing corporation un-
der §1.367(a)–7(c)(2) attributable to such
distributee or non-stock distributee and al-
locable to the stock of such foreign corpo-
ration under §1.367(a)–7(e)(1), but only to
the extent such gain is treated as a dividend
under section 1248(a).
(5)Non-stock distributeeis a share-
holder of the domestic distributing corpo-
ration that receives cash or other property
but no shares of stock of the foreign
distributed corporation in a new stock dis-
tribution(asdefinedinparagraph(b)(3)of
this section).
(6)Postdistribution amountis the sec-
tion 1248 amount with respect to the stock
(oraportionofashareofstock)ofthe
foreign distributed corporation received
by a distributee, computed immediately
after the distribution, but without taking
into account any adjustments to the basis
of the stock under §1.1248(f)–2(b)(3) (in
the case of an existing stock distribution)
or adjustments to the basis of stock or in-
come inclusions under §1.1248(f)–2(c)(3)
(in the case of a new stock distribution).
The postdistribution amount in the stock
of a foreign distributed corporation re-
ceivedinanexistingstockdistribution
is determined based on the distributee’s
holding period in the stock as adjusted
under §1.1248(f)–2(b)(2). The postdistri-
bution amount in the stock (or a portion
of a share of stock, as applicable) of a for-
eign distributed corporation received in a
new stock distribution is determined after
applying the rules in §§1.1248–8(b)(2)(iv)
and 1.1248(f)–2(c)(2).
April 22, 20139682013–17 I.R.B.

(7)Section 358 basisis the basis in
stock as determined under section 358.
(8)Section 361 exchangeis an ex-
change described in section 361(a) or (b).
(9)Section1248amountis the net pos-
itive earnings and profits (if any) attribut-
able to the stock of the foreign distributed
corporation, determined in accordance
with §1.1248–2 or §1.1248–3 (taking into
account §1.1248–8, if applicable), and
that would be included in gross income
as a dividend under section 1248(a) if the
stock were sold by the domestic distribut-
ing corporation in a transaction in which
all realized gain is recognized.
(10)Section 1248(f) amountis the
amount in paragraph (c)(10)(i) of this
section, reduced by the amount in para-
graph (c)(10)(ii) of this section computed
with respect to the stock of each foreign
corporation transferred in the section 361
exchange by the domestic distributing cor-
poration for which the domestic distribut-
ing corporation does not have an income
inclusion under §1.367(b)–4(b)(1)(i).
(i) The amount that the domestic
distributing corporation would have in-
cluded in income as a dividend under
§1.367(b)–4(b)(1)(i) if the requirements
of §1.367(b)–4(b)(1)(ii)(A) (involving the
receipt of foreign stock in an exchange
to which §1.367(a)–7(c) applies) had not
been satisfied.
(ii) The amount of gain recognized by
the domestic distributing corporation un-
der §1.367(a)–7(c)(2) and allocable to the
stock of such foreign corporation under
§1.367(a)–7(e)(1), but only to the extent
such gain is treated as a dividend under
section 1248(a).
(11)Section 1248(f) block amountis the
portion of the section 1248(f) amount, as
defined in paragraph (c)(10) of this sec-
tion, that relates to a block of stock of the
foreign corporation if more than a single
block of stock of the foreign corporation is
transferred in the section 361 exchange.
(12)Section 1248 shareholderis a do-
mestic corporation that satisfies the own-
ership requirements ofsection 1248(a)(2)
with respect to a foreign corporation, ex-
cept that a domestic corporation, other
than a domestic distributing corporation,
that is a regulated investment company
(as defined in section 851(a)), a real es-
tate investment trust (as defined in section
856(a)), or an S corporation (as defined in
section 1361(a)) cannot be a section 1248
shareholder.
(13)Timely filed returnis a U.S. income
taxreturnfiledonorbeforetheduedate
set forth in section 6072(b), including any
extensions of time to file the return granted
under section 6081.
(14)Total section 1248(f) amountis the
sum of each section 1248(f) amount (as de-
fined in paragraph (c)(10) of this section).
Par. 16. Section 1.1248(f)–2 is added
to read as follows:
§1.1248(f)–2 Exceptions for certain
distributions and attribution rules.
(a)Section 337 stock distribution—(1)
General exception. In the case of a
section 337 distribution (as defined in
§1.1248–1(b)(1)),§1.1248(f)–1(b)(1)
shall not apply to the distribution of stock
of the foreign distributed corporation to
the 80-percent distributee if the condi-
tions of paragraphs (a)(1)(i), (a)(1)(ii) and
(a)(1)(iii) of this section are satisfied.
(i)80-percent distributee is a section
1248 shareholder. Immediately after the
section 337 distribution, the 80-percent
distributee is a section 1248 shareholder
with respect to the foreign distributed cor-
poration.
(ii)Holding period. The 80-percent
distributee is treated as holding the stock
of the foreign distributed corporation re-
ceived in the section 337 distribution for
the period during which the stock was held
by the domestic distributing corporation.
(iii)Basis. The 80-percent distributee’s
basis in the stock of the foreign distributed
corporation received in the section 337 dis-
tribution does not exceed the domestic dis-
tributing corporation’s basis in such stock
at the time of the section 337 distribution.
(2)Elective exception. If the condi-
tions of paragraph (a)(1)(ii) or (a)(1)(iii) of
this section are not otherwise satisfied, the
domestic distributing corporation and the
80-percent distributee may elect to make
adjustments to the 80-percent distributee’s
holding period or basis in the stock of the
foreign distributed corporation, as appro-
priate, such that the conditions described
in paragraphs (a)(1)(ii) and (iii) of this sec-
tion are satisfied. The conditions and pro-
cedures for making the election are de-
scribed in paragraph (a)(3) of this section.
See paragraphs (a)(4) and (5) of this sec-
tion for adjustments that are required as a
result of making the election.
(3)Election and reporting—(i)State-
ment required by domestic distributing
corporation and 80-percent distribu-
tee—(A)In general. The domestic dis-
tributing corporation and the 80-percent
distributee make the election described
in paragraph (a)(2) of this section by
each including a statement, described
in paragraph (a)(3)(i)(B) of this section,
with a timely filed return for the taxable
year during which the section 337 dis-
tribution occurs, and by entering into a
written agreement described in paragraph
(a)(3)(ii) of this section. If the domestic
distributing corporation or the 80-percent
distributee are members of a consoli-
dated group at the time of the section 337
distribution but not the common parent,
the common parent of the consolidated
group makes the election on behalf of the
domestic distributing corporation or the
80-percent distributee. The election de-
scribed in paragraph (a)(2) of this section
and made pursuant to this paragraph (a)(3)
is irrevocable.
(B)Form and content. The statement of
election must be entitled, “STATEMENT
TO ELECT TO APPLY EXCEPTION
UNDER §1.1248(f)–2(a)(2),” state that
the domestic distributing corporation and
the 80-percent distributee have entered
into a written agreement described in para-
graph (a)(3)(ii) of this section, set forth
the date of the agreement and the names
of the parties to the agreement, and the
adjustments to the 80-percent distributee’s
holding period and/or basis determined
under section 334 in the stock of the for-
eign distributed corporation received in
the section 337 distribution required under
paragraphs (a)(4) and (a)(5) of this section.
(ii)Written agreement.Thedomestic
distributing corporation and the 80-percent
distributee must enter into a written agree-
ment described in this paragraph (a)(3)(ii)
on or before the due date (including ex-
tensions) of the domestic distributing cor-
poration’s U.S. income tax return for the
taxable year during which the section 337
distribution occurs. Both the domestic dis-
tributing corporation and the 80-percent
distributee must retain the original or a
copy of the agreement as part of its records
in the manner specified by §1.6001–1(e).
Both the domestic distributing corporation
and the 80-percent distributee must pro-
2013–17 I.R.B.969April 22, 2013

vide a copy of the agreement to the In-
ternal Revenue Service within 30 days of
the receipt of a request for the agreement
in connection with an examination of the
taxable year during which the section 337
distribution occurs. The written agreement
must—
(A) State the document is an agreement
under paragraph (a)(3)(ii) of this section;
(B) Provide the name and taxpayer
identification number (if any) of the
domestic distributing corporation, the
80-percent distributee, and the foreign
distributed corporation;
(C) With respect to the 80-percent dis-
tributee, state the holding period in the
stock of the foreign distributed corporation
received in the section 337 distribution as
adjusted under paragraph (a)(4) of this sec-
tion; and
(D) With respect to the 80-percent dis-
tributee, identify the basis as determined
under section 334 of the stock of the for-
eign distributed corporation received in the
section 337 distribution and the adjust-
ment (if any) to such basis under paragraph
(a)(5) of this section.
(4)Holding period adjustment.For
purposes of section 1248, immediately
after the section 337 distribution, the
80-percent distributee’s holding period
in the stock of the foreign distributed
corporation received in the section 337
distribution shall equal the domestic dis-
tributing corporation’s holding period in
such stock at the time of the section 337
distribution.
(5)Basis adjustments. If the domestic
distributing corporation’s section 1248
amount with respect to the stock of the
foreign distributed corporation received
by the 80-percent distributee in the section
337 distribution exceeds the 80-percent
distributee’s postdistribution amount with
respect to such stock (excess amount),
the 80-percent distributee’s basis as de-
termined under section 334 in such stock
shall be reduced by the excess amount.
(b)Existing stock distribution under
sections 355 or 361. In the case of an
existing stock distribution (as defined in
§1.1248(f)–1(b)(2)), §1.1248(f)–1(b)(2)
shall not apply to the distribution of stock
of the foreign distributed corporation to
a distributee that is a section 1248 share-
holder with respect to the foreign dis-
tributed corporation immediately after the
distribution if the domestic distributing
corporation and all distributees that are
section 1248 shareholders elect to apply
the provisions of this paragraph (b) in
accordance with paragraph (b)(1) of this
section. See paragraphs (b)(2) and (3) of
this section for adjustments that may be
requiredifanelectionismadetoapplythe
provisions of this paragraph (b).
(1)Election and reporting—(i)State-
ment required by domestic distributing
corporation and section 1248 sharehold-
ers—(A)In general. The domestic dis-
tributing corporation and all distributees
that are section 1248 shareholders elect to
apply the provisions of paragraph (b) of
this section by each including a statement,
described in paragraph (b)(1)(i)(B) of this
section, with a timely filed return for the
taxable year during which the existing
stock distribution occurs and by enter-
ing into a written agreement described
in paragraph (b)(1)(ii) of this section. If
the domestic distributing corporation or a
section 1248 shareholder is a member of
a consolidated group but not the common
parent, the common parent of the consol-
idated group makes the election on behalf
of the domestic distributing corporation
or section 1248 shareholder. The election
made under this paragraph (b)(1) is irrev-
ocable.
(B)Form and content. The statement
of election must be entitled, “ELEC-
TION TO APPLY EXCEPTION UNDER
§1.1248(f)–2(b),” state that the domestic
distributing corporation and all distribu-
tees that are section 1248 shareholders
have entered into a written agreement
described in paragraph (b)(1)(ii) of this
section, the date of the agreement and the
names of the parties tothe agreement, and
set forth any required adjustment to each
section 1248 shareholder’s holding period
or section 358 basis (if any) in the stock
of the foreign distributed corporation re-
ceived in the existing stock distribution
under paragraph (b)(2) or (b)(3) of this
section, respectively.
(ii)Written agreement. The domes-
tic distributing corporation and the section
1248 shareholders must enter into a writ-
ten agreement describedin this paragraph
(b)(1)(ii) on or before the due date (includ-
ing extensions) of the domestic distribut-
ing corporation’s U.S. income tax return
for the taxable year during which the exist-
ing stock distribution occurs. Each party to
the agreement must retain the original or a
copy of the agreement as part of its records
in the manner specified by §1.6001–1(e).
Each party to the agreement must provide a
copy of the agreement to the Internal Rev-
enue Service within 30 days of the receipt
of a request for the agreement in connec-
tion with an examination of the taxable
year during which the existing stock dis-
tribution occurs. The written agreement
must—
(A) State the document is an agreement
under paragraph (b)(1)(ii) of this section;
(B) Provide the name and taxpayer
identification number (if any) of the do-
mestic distributing corporation, the foreign
distributed corporation, and each section
1248 shareholder;
(C) With respect to each section 1248
shareholder, state the holding period in the
stock of the foreign distributed corporation
received in the existing stock distribution
as adjusted under paragraph (b)(2) of this
section; and
(D) With respect to each section 1248
shareholder, identify the basis under sec-
tion 358 of the stock of the foreign dis-
tributed corporation received in the exist-
ing stock distribution and the adjustment
(if any) to the basis under paragraph (b)(3)
of this section.
(2)Holding period adjustments.For
purposes of section 1248, immediately af-
ter the existing stock distribution, each sec-
tion 1248 shareholder’s holding period in
each share of stock of the foreign dis-
tributed corporation received in the exist-
ing stock distribution will be equal to the
domestic distributing corporation’s hold-
ing period in the share of stock at the time
of the existing stock distribution.
(3)Basis adjustments. If the domestic
distributing corporation’s section 1248
amount with respect to a share of stock
of the foreign distributed corporation re-
ceivedbyasection1248shareholderin
the existing stock distribution exceeds the
section 1248 shareholder’s postdistribu-
tion amount with respect to the share of
stock (excess amount), the section 1248
shareholder’s section 358 basis in the
share of stock is reduced by the excess
amount. For an illustration of the rule in
this paragraph (b)(3), see paragraph (e) of
this section,Example 1andExample 3.
(c)New stock distribution under section
361. In the case of a new stock distribu-
tion (as defined in §1.1248(f)–1(b)(3)),
the amount that the domestic distribut-
April 22, 20139702013–17 I.R.B.

ing corporation is required to include
in gross income as a dividend under
§1.1248(f)–1(b)(3) (total section 1248(f)
amount) is reduced by the sum of the
portions of any section 1248(f) amount
attributable under paragraph (d) of this
section to stock of the foreign distributed
corporation distributed to distributees that
are section 1248 shareholders, but only
if the domestic distributing corporation
and all the distributees that are section
1248 shareholders elect to apply the pro-
visions of this paragraph (c) in accordance
with paragraph (c)(1)ofthissection. See
paragraphs (c)(2), (c)(3), and (c)(4) of
this section for adjustments or income
inclusions that are required if an election
is made to apply the provisions of this
paragraph (c). The adjustments or income
inclusions provided in paragraphs (c)(2),
(c)(3), and (c)(4) of this section apply after
any adjustments required under section
367(a)(5) and §1.367(a)–7(c). For illustra-
tions of this exception, see paragraph (e)
of this section,Example 2andExample 3
and §1.367(a)–3(e)(8),Example 3.
(1)Election and reporting—(i)State-
ment required by domestic distributing
corporation and section 1248 sharehold-
ers—(A)In general. The domestic dis-
tributing corporation and all distributees
that are section 1248 shareholders elect to
apply the provisions of paragraph (c) of
this section by each including a statement,
in the form and containing the informa-
tion listed in paragraph (c)(1)(i)(B) of this
section, with a timely filed return for the
taxable year during which the new stock
distributionoccursandbyenteringintoa
written agreement described in paragraph
(c)(1)(ii) of this section. If the domestic
distributing corporation or a section 1248
shareholder is a member of a consolidated
group at the time of the new stock distri-
bution but is not the common parent, the
common parent of the consolidated group
makes the election on behalf of the domes-
tic distributing corporation or section 1248
shareholder. The election made under this
paragraph (c)(1) is irrevocable.
(B)Form and content. The statement
of election must be entitled, “ELEC-
TION TO APPLY EXCEPTION UNDER
§1.1248(f)–2(c),” state that the domestic
distributing corporation and each distribu-
tee that is a section 1248 shareholder have
entered into a written agreement described
in paragraph (c)(1)(ii) of this section, the
date of the agreement and the names of
the parties to the agreement, and describe,
with respect to each section 1248 share-
holder, the extent to which the shares of
stock of the foreign distributed corpora-
tion received in the new stock distribution
are divided into portions under paragraph
(c)(2) of this section, any adjustments to
the section 358 basis of the stock under
paragraph (c)(3) of this section, and the
amount the domestic distributing corpo-
ration must include in gross income as a
dividend under paragraph (c)(3) of this
section.
(ii)Written agreement.Thedomestic
distributing corporation and all distribu-
tees that are section 1248 shareholders
must enter into a written agreement de-
scribed in this paragraph (c)(1)(ii) on or
before the due date (including extensions)
of the domestic distributing corporation’s
U.S. income tax return for the taxable year
during which the new stock distribution
occurs. Each party to the agreement must
retain the original or a copy of the agree-
ment as part of its records in the manner
specified by §1.6001–1(e). Each party to
the agreement must provide a copy of the
agreement to the Internal Revenue Service
within 30 days of the receipt of a request
for the agreement in connection with an
examination of the taxable year during
which the new stock distribution occurs.
The written agreement must—
(A) State the document is an agreement
under paragraph (c)(1)(ii) of this section;
(B) Provide the name and taxpayer
identification number (if any) of the do-
mestic distributing corporation, the foreign
distributed corporation, and each section
1248 shareholder;
(C) With respect to each section 1248
shareholder, describe the extent to which
the shares of stock of the foreign dis-
tributed corporation are divided into
portions under paragraph (c)(2) of this
section;
(D) With respect to each section 1248
shareholder, state the amount of earnings
and profits attributable to the stock (or
each block of stock, as applicable) of each
foreign corporation transferred in the sec-
tion 361 exchange that is attributable un-
der §1.1248–8(b)(2)(iv) to the stock of the
foreign distributed corporation received in
the new stock distribution;
(E) With respect to each section 1248
shareholder, state the amount of the section
1248(f) amount with respect to the stock
(or each block of stock, as applicable) of
each foreign corporation transferred in the
section 361 exchange that is attributable
under §1.1248(f)–2(d) to the stock of the
foreign distributed corporation received in
the new stock distribution;
(F) With respect to each section 1248
shareholder, state the amount of the adjust-
ment to the section 358 basis of the stock
of the foreign distributed corporation un-
der paragraph (c)(3) of this section; and
(G) With respect to each section 1248
shareholder, state the amount the domes-
tic distributing corporation must include
in gross income as a dividend under para-
graph (c)(3) of this section.
(2)Portions. If the domestic distribut-
ing corporation transfers property, other
than a single block of stock of a foreign
corporation with respect to which the do-
mestic distributing corporation is a section
1248 shareholder immediately before the
section 361 exchange, to the foreign dis-
tributed corporation in the section 361 ex-
change that precedes the new stock dis-
tribution, then each share of stock of the
foreign distributed corporation received by
a distributee that is a section 1248 share-
holder must be divided into portions as fol-
lows:
(i) One portion attributable to all prop-
erty transferred in the section 361 ex-
change, other than property that is stock of
a foreign corporation with respect to which
the domestic distributing corporation is
a section 1248 shareholder immediately
before the section 361 exchange; and
(ii) One portion attributable to each
block of stock of each foreign corporation
transferred in the section 361 exchange
with respect to which the domestic dis-
tributing corporation is a section 1248
shareholder immediately before the sec-
tion 361 exchange. For the determination
of the earnings and profits attributable to
the stock (or block of stock, as applicable)
of each foreign corporation transferred in
the section 361 exchange that are attrib-
utable to a portion of a share of stock of
the foreign distributed corporation, see
§1.1248–8(b)(2)(iv). For the determina-
tion of the section 1248(f) amount with
respect to the stock (or block of stock, as
applicable) of each foreign corporation
transferred in the section 361 exchange
that is attributable to a portion of a share
2013–17 I.R.B.971April 22, 2013

of stock of the foreign distributed corpora-
tion, see paragraph (d)(2) of this section.
(3)Basis adjustments and income in-
clusions. If the section 1248(f) amount
attributable to a portion of a share of stock
(or whole share, if no division is required)
(as determined under paragraph (d) of
this section) of the foreign distributed
corporation received by a distributee that
is a section 1248 shareholder in the new
stock distribution exceeds the section 1248
shareholder’s postdistribution amount in
the portion (or whole share, if no divi-
sion is required) (excess amount), then
the section 1248 shareholder’s section 358
basis in the portion as determined under
paragraph (c)(4) of this section (or whole
share, if no division is required), as ad-
justed under §1.367(a)–7(c)(3), is reduced
by the excess amount, but not below zero.
To the extent the excess amount exceeds
the section 358 basis in the portion (or
whole share, if no division is required),
the domestic distributing corporation must
include that portion of the section 1248(f)
amount attributable to the portion of the
share (or whole share, if no division is
required) in gross income as a dividend.
For an illustration of this rule, see para-
graph (e) of this section,Example 2,and
§1.367(a)–3(e)(8),Example 3.
(4)Divided shares of stock—(i)Basis.
The basis of a portion of a share of stock
of the foreign distributed corporation cre-
ated under paragraph (c)(2) of this section
is the product of the section 1248 share-
holder’s section 358 basis, as adjusted un-
der §1.367(a)–7(c)(3), in the share of stock
multiplied by the ratio of the basis deter-
mined under section 362 (taking into ac-
count any gain or deemed dividends rec-
ognized under section 367) of the property
(section 362 basis) to which the portion re-
lates, to the aggregate section 362 basis of
all property received by the foreign dis-
tributed corporation in the section 361 ex-
change. For illustrations of this rule, see
paragraph (e) of this section,Example 2,
and §1.367(a)–3(e)(8),Example 3.
(ii)Fair market value. The fair mar-
ket value of a portion of a share of stock
of the foreign distributed corporation cre-
ated under paragraph (c)(2) of this section
is the product of the fair market value of
the share of stock multiplied by the ratio
of the fair market value of the property to
which the portion relates to the aggregate
fair market value of all property received
by the foreign distributed corporation in
the section 361 exchange. For illustra-
tions of this rule, see paragraph (e) of this
section,Example 2, and §1.367(a)–3(e)(8),
Example 3.
(iii)Subsequent exchanges. For pur-
poses of determining the gain realized on
thesaleorexchangeofashareofstockof
the foreign distributed corporation that has
divided portions under paragraph (c)(2) of
this section, the amount realized on the sale
or exchange of the share will be allocated
to each divided portion based on the rel-
ative fair market value of the property to
which the portion relates as determined at
the time of the reorganization.
(iv)Duration of divided shares.Shares
of stock of the foreign distributed corpo-
ration that are divided into portions under
paragraph (c)(2) of this section must be di-
vided so long as section 1248(a) would ap-
ply to a sale or exchange of the shares.
(d)Attribution of all or a portion of sec-
tion 1248(f) amount to certain stock of the
foreign distributed corporation. This para-
graph (d) applies if there is a new stock
distribution for which an election under
§1.1248(f)–2(c)(1) is made. This para-
graph (d) provides rules for attributing all
or a portion, as applicable, of the section
1248(f) amount with respect to the stock
of each foreign corporation transferred in
the section 361 exchange by the domestic
distributing corporation to shares of stock,
or to portions of shares of stock, as appli-
cable, received in the foreign distributed
corporation and distributed to one or more
distributees that aresection1248share-
holders with respect to the foreign dis-
tributed corporation.Paragraph (d)(1) of
this section provides rules to attribute the
applicable section 1248(f) amount among
shares of stock of the foreign distributed
corporation received by one or more dis-
tributees that are section 1248 sharehold-
ers. If shares of stock are divided into por-
tions under paragraph (c)(2) of this section,
paragraph (d)(2) of this section provides
additional rules to attribute the applicable
section 1248 amount to portions of shares
of stock received by one or more distribu-
tees that are section 1248 shareholders.
(1)Attribution of all or a portion of sec-
tion 1248(f) amount among shares of stock.
With respect to one or more shares of stock
of the foreign distributed corporation dis-
tributed to a distributee that is a section
1248 shareholder, the portion of the sec-
tion 1248(f) amount with respect to the
stock of the foreign corporation transferred
in the section 361 exchange that is equal to
the distributee’s hypothetical section 1248
amount is attributed among those shares of
stock of the foreign distributed corporation
based on the ratio of the value of a share
distributed to the distributee to the value
of all shares of stock distributed to the dis-
tributee (attributable share amount).
(2)Attribution of all or a portion of sec-
tion 1248(f) amount to portions of a share
of stock—(i)Single block of stock.Ifasin-
gle block of stock of the foreign corpora-
tion is transferred in the section 361 ex-
change, the attributable share amount (as
determined under paragraph (d)(1) of this
section) is attributed to the portion of the
share that relates to the single block of
stock of the foreign corporation.
(ii)Multiple blocks of stock. If multi-
ple blocks of stock of the foreign corpo-
rationaretransferredinthesection361
exchange, the attributable share amount
(as determined under paragraph (d)(1) of
the section) is attributed among the por-
tions of the share that relate to such mul-
tiple blocks of stock of the foreign cor-
poration. The portion of the attributable
share amount that is attributable to a por-
tion to which a block of stock relates is that
amount that bears the same ratio that the
section 1248(f) block amount with respect
to that block of stock bears to the section
1248(f) amount with respect to the stock of
the foreign corporation.
(e)Examples. The rules of this section
are illustrated by the following examples.
See also §1.367(a)–3T(e)(8),Example 3.
For purposes of the examples, unless oth-
erwise indicated: DP and DC are domes-
tic corporations; X is a United States cit-
izen; FP is a foreign corporation; CFC1,
CFC2, and FA are controlled foreign cor-
porations; each corporation has a single
class of stock outstanding and uses the cal-
endar year as its taxable year; each share-
holder of a corporation owns a single block
of stock in the corporation; DC owns Busi-
ness A, which consists solely of property
whose fair market value exceeds its basis
and could satisfy the requirements of the
active foreign trade or business exception
under section 367(a)(3) and §1.367(a)–2T;
DC owns no other assets and has no liabili-
ties; the requirements in §1.367(a)–7(c)(5)
are satisfied; no earnings and profits of a
foreign corporation are described in sec-
April 22, 20139722013–17 I.R.B.

tion 1248(d); and none of the foreign cor-
porations in the examples is a surrogate
foreign corporation (within the meaning of
section 7874) as a result of the transac-
tions described in the examples because
one or more of the conditions of section
7874(a)(2)(B) is not satisfied.
Example 1.Existing stock distribution under
section 355(c)(1); gain recognition and adjustment
to stock basis.(i)Facts.DP,FP,andXown80%,
10%, and 10%, respectively, of the outstanding stock
of DC. DP’s DC stock has a $140x basis, $160x
fair market value, and a 2-year holding period. DC
wholly owns CFC1. DC’s CFC1 stock has a $50x
basis, $100x fair market value (therefore a gain of
$50x), $25x of earnings and profits attributable to it
for purposes of section 1248, and a $25x section 1248
amount (computed as the lesser of $50x gain in the
CFC1 stock and $25x of section 1248 earnings and
profits), and a 3-year holding period. On December
31, year 3, DC distributes all of the CFC1 stock to
DP, FP, and X on apro-ratabasis in a distribution to
which section 355 applies. The fair market value of
the CFC1 stock received by DP, FP, and X is $80x,
$10x, and $10x, respectively. After the distribution,
DP’s stock in DC has a fair market value of $80x and
DP’s section 358 basis in the CFC1 stock is $70x (a
pro rataportion, or 50%, of DP’s $140x basis in the
DC stock immediately before the distribution). See
§1.358–2(a)(iv).
(ii)Result. (A) Under §1.367(e)–1(b)(1), DC
must recognize $5x gain on the distribution of CFC1
stock to FP (10% of the $50x gain in the CFC1
stock). Under §1.367(b)–5(b)(1)(ii), DC must also
recognize $5x gain on the distribution of CFC1 stock
to X (10% of the $50x gain in the CFC1 stock). Of
the aggregate $10x gain recognized by DC, $5x is
recharacterized as a dividend under section 1248(a),
computed as 20% of the $25x section 1248 amount
with respect to the CFC1 stock. See §1.1248–1 for
additional consequences.
(B) DC’s distribution of CFC1 stock to DP is de-
scribed in section 1248(f)(1) and §1.1248(f)–1(b)(2)
because the distribution is pursuant to section
355(c)(1) (an existing stock distribution). As a result,
the general rule is that DC must include in gross
income as a dividend the section 1248 amount with
respect to the CFC1 stock distributed to DP, or $20x
(computed as 80% of the $25x section 1248 amount).
However, if DP and DC make the election under
paragraph (b)(1) of this section, §1.1248(f)–1(b)(2)
will not apply to DC’s distribution of CFC1 stock to
DP. If DP and DC make the election, then:
(1) Under paragraph (b)(2) of this section, for pur-
poses of section 1248, immediately after the distribu-
tion DP will have a 3-year holding period in the CFC1
stock, the same holding period DC had in the CFC1
stock at the time of the distribution.
(2) Under paragraph (b)(3) of this section, DP’s
section 358 basis in the CFC1 stock ($70x) is re-
duced by $10x, the amount by which DC’s section
1248 amount with respect to the CFC1 stock ($20x)
distributed to DP exceeds DP’s postdistribution
amount with respect to the CFC1 stock ($10x). Un-
der §1.1248(f)–1(c)(6), DP’s postdistribution amount
equals the amount that DP would include in gross
income as a dividend under section 1248(a) if DP
sold the CFC1 stock immediately after the distribu-
tion, or $10x, which is computed as the lesser of the
$10x gain in the CFC1 stock ($80x fair market value,
less $70x basis) and $20x of section 1248 earnings
and profits attributable to the CFC1 stock, taking
into account DP’s 3-year holding period in the stock
as required by paragraph (b)(2) of this section. As
adjusted under paragraph (b)(3) of this section, DP’s
basis in the CFC1 stock is $60x ($70x basis, less
$10x required basis reduction).
Example 2.New stock distribution under section
361(c)(1); adjustment to stock basis.(i)Facts.DP
wholly owns DC. DP’s DC stock has a $180x basis
and $200x fair market value. DC wholly owns CFC1
and CFC2. DC’s CFC1 stock has a $70x basis, $100x
fair market value (therefore a gain of $30x), $40x
of earnings and profits attributable to it for purposes
of section 1248, and a section 1248 amount of $30x
(computed as the lesser of the $30x gain in CFC1
stock and $40x section 1248 earnings and profits).
DC’s CFC2 stock has a $130x basis, $100x fair mar-
ket value (therefore a loss of $30x), $80x of earnings
and profits attributable to it for purposes of section
1248, and a section 1248 amount of $0x (computed
as the lesser of the $0x gain and $80x section 1248
earnings and profits). On December 31, Year 1, in
a reorganization described in section 368(a)(1)(F),
DC transfers the CFC1 stock and the CFC2 stock to
FA, a newly formed corporation, in exchange for 100
shares of FA stock. DC distributes the 100 shares of
FA stock to DP. DC’s transfer of the CFC1 stock and
CFC2 stock to FA in exchange for FA stock qualifies
as a section 361 exchange, and DC’s distribution
of the 100 shares of FA stock to DP is pursuant to
section 361(c)(1). DP exchanges its DC stock for
the 100 shares of FA stock pursuant to section 354.
Immediately after the transaction, DP wholly owns
FA. DP and DC elect to apply the provisions of
§1.367(a)–7(c) in accordance with §1.367(a)–7(c)(5).
Pursuant to §1.367(a)–3T(e)(3)(iii)(A), DP prop-
erly files a gain recognition agreement with respect
to the CFC1 stock that satisfies the conditions of
§§1.367(a)–3T(e)(6) and 1.367(a)–8.
(ii)Result. (A) DC does not recognize gain under
§1.367(a)–3T(e)(2) with respect to the transfer of
the CFC1 stock to FA because the three conditions
in §1.367(a)–3T(e)(3)(i), (e)(3)(ii), and (e)(3)(iii)
are satisfied. First, §1.367(a)–3T(e)(3)(i) is satisfied
because the requirements of §1.367(a)–7(c) are sat-
isfied, including that an election is made to apply
§1.367(a)–7(c). Second, the requirements under
§1.367(a)–3T(e)(3)(ii) related to transfers of domes-
tic stock are not applicable because CFC1 is a foreign
corporation. Third, because DC owns all the stock
of FA immediately after DC’s receipt of the FA stock
in the section 361 exchange but prior to, and without
taking into account, DC’s distribution of the FA stock
to DP, for purposes of satisfying the requirements
of §1.367(a)–3T(e)(3)(iii), DP properly files a gain
recognition agreement with respect to the CFC1 stock
that satisfies the conditions of §§1.367(a)–3T(e)(6)
and 1.367(a)–8. Furthermore, DC is not required to
recognize gain under §1.367(a)–7(c)(2)(ii), and DP
is not required to reduce its $180x section 358 basis
in the FA stock under §1.367(a)–7(c)(3), because the
inside gain (within the meaning of §1.367(a)–7(f)(5))
is $0x ($200x aggregate fair market value of CFC1
stock and CFC2 stock, less $200x aggregate basis
of CFC1 stock and CFC2 stock). In addition, DC is
not required to include in income as a deemed divi-
dend the $30x section 1248 amount with respect to
the CFC1 stock under §1.367(b)–4(b)(1)(i) because
immediately after DC’s receipt of the FA stock in the
section 361 exchange but prior to, and without taking
into account, DC’s distribution of the FA stock to
DP, CFC1 and FA are controlled foreign corporations
astowhichDCisasection1248shareholder. See
§1.367(b)–4(b)(1)(ii)(A). With respect to the transfer
of the CFC2 stock to FA, DC’s section 1248 amount
with respect to the CFC2 stock is $0x; therefore,
§1.367(b)–4(b)(1)(i) has no application.
(B) Under §1.1248(f)–1(b)(3), as a result of
the section 361(c)(1) distribution of the FA stock
to DP (a new stock distribution), the general rule
is that DC must include in gross income as a div-
idend the total section 1248(f) amount (defined
in §1.1248(f)–1(c)(14)). The total section 1248(f)
amount is $30x, the sum of the section 1248(f)
amount (defined in §1.1248(f)–1(c)(10)) with re-
spect to the CFC1 stock ($30x) and CFC2 stock
($0x). The section 1248(f) amount with respect to
the CFC1 stock is the amount that DC would have
included in income as a deemed dividend under
§1.367(b)–4(b)(1)(i) with respect to the CFC1 stock
if the requirements under §1.367(b)–4(b)(1)(ii)(A)
had not been satisfied ($30x), less the amount of gain
recognized by DC under §1.367(a)–7(c)(2) that is
allocable to the CFC1 stock under §1.367(a)–7(e)(1)
and treated as a dividend under section 1248(a) ($0x).
Similarly, the section 1248(f) amount with respect
to the CFC2 stock is the amount that DC would
have included in income as a deemed dividend under
§1.367(b)–4(b)(1)(i) with respect to the CFC2 stock
if the requirements under §1.367(b)–4(b)(1)(ii)(A)
had not been satisfied ($0x), less the amount of gain
recognized by DC under §1.367(a)–7(c)(2) that is
allocable to the CFC2 stock under §1.367(a)–7(e)(1)
and treated as a dividend under section 1248(a) ($0x).
(C) If, however, DP and DC make the election
provided in paragraph (c)(1) of this section, the
amount that DC is required to include in gross in-
come as a dividend under §1.1248(f)–1(b)(3) (the
total section 1248(f) amount of $30x) is reduced to
the extent the section 1248(f) amount with respect
to the CFC1 stock ($30x) and CFC2 stock ($0x) is
attributable under paragraph (d) of this section to
the shares of FA stock distributed to one or more
distributees that are section 1248 shareholders of FA.
The only distributee is DP, and DP is a section 1248
shareholder with respect to FA. If DP and DC elect
to apply paragraph (c) of this section, then:
(1) Under paragraph (d)(1) of this section, the por-
tion of the section 1248(f) amount with respect to the
CFC1 stock that is attributed to the shares of FA stock
distributed to DP is equal to DP’s hypothetical sec-
tion 1248 amount (as defined in §1.1248(f)–1(c)(4))
with respect to the CFC1 stock. Because DP is the
only shareholder of DC, DP’s hypothetical section
1248 amount equals the section 1248(f) amount with
respect to the CFC1 stock ($30x). The $30x hypo-
thetical section 1248 amount is attributedpro rata
(based on relative values) among the 100 shares of
FA stock distributed to DP, and the attributable share
amount (as defined in paragraph (d)(1) of this sec-
tion) is $.30x. Paragraph (d)(1) of this section has no
application with respect to the CFC2 stock because
there is no section 1248(f) amount with respect to the
CFC2 stock.
2013–17 I.R.B.973April 22, 2013

(2) If the shares of FA stock are divided into por-
tions, the rules of paragraph (d)(2) of this section ap-
ply to attribute the attributable share amount ($.30x)
to portions of shares of FA stock distributed to DP.
Under paragraph (c)(2)(ii) of this section, the 100
shares of FA stock are divided into two portions, one
portion related to the single block of CFC1 stock and
one portion related to the single block of CFC2 stock.
Under paragraph (d)(2)(i) of this section, the attribut-
able share amount of $.30x is attributed to the portion
of the 100 shares of FA stock that relates to the single
block of CFC1 stock. Thus, all of the $30x section
1248(f) amount with respect to the CFC1 stock is at-
tributable to the 100 shares of FA stock.
(3) Because the election under paragraph (c)(1) of
this section is made, the total section 1248(f) amount
($30x) that DC is otherwise required to include in
gross income as a dividend under §1.1248(f)–1(b)(3)
is reduced by $30x, the portion of the section 1248(f)
amount with respect to the CFC1 stock that is attrib-
utable under paragraph (d) of this section to the shares
of FA stock distributed to DP. Thus, the amount DC
is required to include in gross income as a dividend
under §1.1248(f)–1(b)(3) is $0x ($30x less $30x).
(4) Under paragraph (c)(4)(i) of this section, the
basis of each portion is the product of DP’s section
358 basis in the share of FA stock multiplied by the
ratio of the section 362 basis of the property (CFC1
stock or CFC2 stock, as applicable) to which the por-
tion relates, to the aggregate section 362 basis of all
property (CFC1 stock andCFC2 stock) received by
FA in the section 361 exchange. Under paragraph
(c)(4)(ii) of this section, the fair market value of each
portion is the product of the fair market value of the
share of FA stock multiplied by the ratio of the fair
market value of the property (CFC1 stock or CFC2
stock, as applicable) to which the portion relates, to
the aggregate fair market value of all property (CFC1
stock and CFC2 stock) received by FA in the section
361 exchange. The section 362 basis of the CFC1
stock and CFC2 stock is $70x and $130x, respec-
tively, for a total section 362 basis of $200x. The
CFC1 stock and CFC2 stock each has a fair market
value of $100x, for a total fair market value of $200x.
Therefore, the portions attributable to the CFC1 stock
have an aggregate basis of $63x ($180x multiplied by
$70x/$200x) and fair market value of $100x ($200x
multiplied by $100x/$200x), resulting in aggregate
gain in such portions of $37x (or $.37x per portion
in each of the 100 shares). The portions attributable
to the CFC2 stock have an aggregate basis of $117x
($180x multiplied by $130x/$200x) and fair market
value of $100x ($200x multiplied by $100x/$200x),
resulting in aggregate losses in such portions of $17x
(or $.17x per portion in each of the 100 shares).
(5) Under §1.1248–8(b)(2)(iv), the $40x earnings
and profits attributable to the single block of CFC1
stock are attributed to the portions of the 100 shares
of FA stock that relate to the CFC1 stock. Simi-
larly, the $80x of earnings and profits attributable to
the single block of CFC2 stock are attributed to the
portions of the 100 shares of the FA stock that re-
late to the CFC2 stock. Thus, DP’s postdistribution
amount (defined in §1.1248(f)–1(c)(6)) with respect
to the portions of the shares of FA attributable to the
CFC1 stock is $37x, the lesser of the aggregate gain
in the portions attributable to the CFC1 stock of $37x
(computed in paragraph (ii)(C)(4)ofthisExample 2)
and the $40x earnings and profits attributable to such
portions. Furthermore, DP’s postdistribution amount
with respect to the portions of the shares of FA attrib-
utable to the CFC2 stock is $0x, the lesser of the ag-
gregate gain in the portions attributable to the CFC2
stock of $0x (computed in paragraph (ii)(C)(4)ofthis
Example 2to be an aggregate loss of $17x) and the
$80x earnings and profits attributable to such por-
tions.
(6) Under paragraph (c)(3) of this section, DP’s
section 358 basis in the portions of the 100 shares of
FA stock attributable to the CFC1 stock ($63x, com-
puted in paragraph (ii)(C)(4)ofthisExample 2)isre-
duced by the amount (if any) by which the section
1248(f) amount attributable to such portions under
paragraph (d) of this section ($30x, as computed in
paragraph (ii)(C)(2)ofthisExample 2) exceeds DP’s
postdistribution amount with respect to such portions
($37x, computed in paragraph (ii)(C)(5)ofthisEx-
ample 2). Thus, there is no basis reduction in the
portions of the 100 shares of FA stock attributable
to the CFC1 stock. DP’s section 358 basis in the
portions of the 100 shares of FA stock attributable
to the CFC2 stock is not reduced because the sec-
tion 1248(f) amount attributable to such portions un-
der paragraph (d) of this section is $0x (computed in
paragraph (ii)(C)(2)ofthis
Example 2), which equals
DP’s postdistribution amount with respect to such
portions of $0x (as computed in paragraph (ii)(C)(5)
of thisExample 2).
Example 3.Combined existing stock distribution
and new stock distribution under sections 355(c)(1)
and 361(c)(1).(i)Facts. DPownsall100outstand-
ing shares of stock of DC. DP’s DC stock has a $180x
basis (each of the 100 shares having a basis of $18),
$200x fair market value, and 2-year holding period.
DC owns all 60 shares of the outstanding stock of
CFC1; all such shares constitute a single block of
stock. DC’s CFC1 stock has a $50x basis, $60x fair
market value, $30x of earnings and profits attribut-
able to it for purposes of section 1248, a $10x section
1248 amount (computed as the lesser of $10x gain
and $30x of section 1248 earnings and profits), and a
3-year holding period. DC also owns all 40 shares of
the outstanding stock of CFC2; all such shares con-
stitute a single block of stock. DC’s CFC2 stock has a
$30x basis, $40x fair market value, $20x of earnings
and profits attributable to it for purposes of section
1248, and a $10x section 1248 amount (computed
as the lesser of $10x gain and $20x of section 1248
earnings and profits). DC also owns Business A,
which has a fair market value of $100x. On Decem-
ber 31, year 4, in a divisive reorganization described
in section 368(a)(1)(D), DC transfers the CFC2 stock
to CFC1 in exchange for 40 shares of newly issued
CFC1 stock. DC’s transfer of the CFC2 stock to
CFC1 qualifies as a section 361 exchange. DC then
distributes the 100 shares of CFC1 stock (60 shares
held prior to the transaction and 40 shares received in
the section 361 exchange) toDPinatransactionthat
qualifies under section 355. DP properly files a gain
recognition agreement with respect to the CFC2 stock
that satisfies the conditions of §§1.367(a)–3T(e)(6)
and 1.367(a)–8. DP and DC properly make the elec-
tions provided in §1.367(a)–7(c)(5) and paragraphs
(b) and (c) of this section.
(ii)Result. (A) DC does not recognize gain under
§1.367(a)–3T(e)(2) with respect to the transfer of the
CFC2 stock to CFC1 because the three conditions
in §1.367(a)–3T(e)(3)(i), (e)(3)(ii), and (e)(3)(iii)
are satisfied. First, §1.367(a)–3T(e)(3)(i) is sat-
isfied because the requirements of §1.367(a)–7(c)
are satisfied, includingthat an election is made to
apply §1.367(a)–7(c). Second, the requirements
under §1.367(a)–3T(e)(3)(ii) related to transfers of
domestic stock are not applicable because CFC2 is
a foreign corporation.Third, because DC and DP
own all the stock of CFC1 for purposes of satis-
fying the requirements of §1.367(a)–3T(e)(3)(iii),
DP properly files a gain recognition agreement with
respect to the CFC2 stock that satisfies the conditions
of §§1.367(a)–3T(e)(6) and 1.367(a)–8. See para-
graph (ii)(G) of this example for the computation
of the amount of gain subject to the gain recogni-
tion agreement. In addition, DC is not required to
include in income as a dividend the $10x section
1248 amount with respect to the CFC2 stock un-
der §1.367(b)–4(b)(1)(i) because immediately after
DC’s receipt of the CFC1 stock in the section 361
exchange but prior to, and without taking into ac-
count, DC’s distribution of the CFC1 stock to DP,
CFC1 and CFC2 are controlled foreign corporations
astowhichDCisasection1248shareholder. See
§1.367(b)–4(b)(1)(ii)(A).
(B) DC is not required to recognize gain un-
der §1.367(a)–7(c)(2)(i) because DP, a control
group member (as defined in §1.367(a)–7(f)(1)),
owns 100% of DC. DC is not required to rec-
ognize gain under §1.367(a)–7(c)(2)(ii) because
the amount described in §1.367(a)–7(c)(2)(ii)(A)
($10x) does not exceed the amount described in
§1.367(a)–7(c)(2)(ii)(B) ($40x). The $10x described
in §1.367(a)–7(c)(2)(ii)(A) equals the product of the
inside gain (as defined in §1.367(a)–7(f)) ($10x)
multiplied by DP’s ownership interest percentage (as
defined in §1.367(a)–7(f)) (100%), reduced by the
sum of the amounts in §1.367(a)–7(c)(2)(ii)(A)(1),
(c)(2)(ii)(A)(2), and (c)(2)(ii)(A)(3) ($0x). Under
§1.367(a)–7(f)(5), the $10x of inside gain is the
amount by which the aggregate fair market value of
the section 367(a) property (CFC2 stock with a fair
market value of $40x) exceeds the sum of the inside
basis ($30x) of such property, and $0x (the product
of the section 367(a) percentage (100%) multiplied
by DC’s deductible liabilities assumed by CFC1
($0x)). Under §1.367(a)–7(f)(4), the $30x inside
basis equals the aggregate basis of the section 367(a)
property transferred in the section 361 exchange
($30x), increased by any gain or deemed dividends
recognized by DC with respect to the section 367(a)
property under section 367 ($0x). The $40x de-
scribed in §1.367(a)–7(c)(2)(ii)(B) is the product of
the section 367(a) percentage (100%) multiplied by
the fair market value of the 40 shares of CFC1 stock
received by DC in the section 361 exchange and
distributed to DP ($40x).
(C) Under section 358, DP must allocate the
$180x basis in its 100 shares of DC stock between the
100 shares of DC stock (fair market value of $100x)
and the 100 shares of CFC1 stock (fair market value
of $100x) held after the distribution based on the rel-
ative fair market values of the shares. Accordingly,
after the allocation of the basis under section 358,
but prior to the application of §1.367(a)–7(c)(3), the
basis of DP’s DC stock is $90x and the basis of DP’s
CFC1 stock is $90x. With respect to the $90x basis
in the 100 shares of CFC1 stock, $36x is attributable
to the 40 shares of CFC1 stock received by DC in the
section 361 exchange ($90x multiplied by 40/100),
April 22, 20139742013–17 I.R.B.

and $54x is attributable to the 60 shares of CFC1
stock owned by DC prior to the section 361 exchange
($90x multiplied by 60/100). See §1.358–2(a)(2)(iv).
(D) Pursuant to §1.367(a)–7(c)(3)(ii), any
adjustment to DP’s basis in the CFC1 stock re-
quired under §1.367(a)–7(c)(3)(i) can only be made
with respect to the 40 shares of CFC1 stock re-
ceived by DC in the section 361 exchange. Under
§1.367(a)–7(c)(3)(i)(A), DP must reduce its section
358 basis ($36x) in the 40 shares of CFC1 stock by
$6x, the amount by which DP’s attributable inside
gain ($10x), reduced by the sum of the amounts
in §1.367(a)–7(c)(2)(ii)(A)(1), (c)(2)(ii)(A)(2), and
(c)(2)(ii)(A)(3) ($0x) (as computed in paragraph
(ii)(B) of thisExample 3) exceeds DP’s outside gain
(as defined in §1.367(a)–7(f)) ($4x). DP’s $4x out-
side gain equals the product of the section 367(a)
percentage (as defined in §1.367(a)–7(f)) (100%)
multiplied by the amount by which the fair market
value ($40x) of the 40 shares of CFC1 stock is greater
than DP’s section 358 basis in the stock ($36x).
After the $6x reduction to stock basis required un-
der §1.367(a)–7(c)(3), but before the application of
§1.1248(f)–2(c)(3), DP’s basis in the 40 shares of
CFC1 stock is $30x.
(E) DC’s distribution of the 40 shares of newly
issued CFC1 stock is subject to §1.1248(f)–1(b)(3)
(a new stock distribution). Except as provided in
§1.1248(f)–2(c), under §1.1248(f)–1(b)(3) DC must
include in gross income as a dividend the total section
1248(f) amount (as defined in §1.1248(f)–1(c)(14)).
The total section 1248(f) amount is $10x, the
sum of the section 1248(f) amount (as defined in
§1.1248(f)–1(c)(10)) with respect to the stock of
each foreign corporation transferred in the section
361 exchange. Only the CFC2 stock is transferred
in the section 361 exchange; therefore, the total sec-
tion 1248(f) amount is equal to the section 1248(f)
amount with respect to the CFC2 stock ($10x).
The $10x section 1248(f) amount with respect to
the CFC2 stock is the amount that DC would have
included in income as a deemed dividend under
§1.367(b)–4(b)(1)(i) with respect to the CFC2 stock
if the requirements of §1.367(b)–4(b)(1)(ii)(A) had
not been satisfied ($10x), reduced by the amount
of gain recognized by DC under §1.367(a)–7(c)(2)
allocable to the CFC2 stock and treated as a dividend
under section 1248(a) (in this case, $0x, as described
in paragraph (ii)(B) of thisExample 3).
(F) However, because DC and DP (a section 1248
shareholder of CFC1 immediately after the distribu-
tion) elect to apply the provisions of §1.1248(f)–2(c)
(as provided in §1.1248(f)–2(c)(1)), the amount that
DC is required to include in income as a dividend
under §1.1248(f)–1(b)(3) ($10x total section 1248(f)
amount as computed in paragraph (ii)(E) of this
Example 3) is reduced by the sum of the portions
of the section 1248(f) amount with respect to the
CFC2 stock that is attributable (under the rules of
§1.1248(f)–2(d)) to the 40 shares of CFC1 stock
distributed to DP. As stated in the facts, the election
is made to apply §1.1248(f)–2(c).
(1) Under paragraph (d)(1) of this section, the
portion of the section 1248(f) amount with respect
to the CFC2 stock that is attributed to the 40 shares
of CFC1 stock distributed to DP is equal to DP’s
hypothetical section 1248 amount (as defined in
§1.1248(f)–1(c)(4)) with respect to the CFC2 stock.
Because DP is the only shareholder of DC, DP’s
hypothetical section 1248 amount equals the sec-
tion 1248(f) amount with respect to the CFC2 stock
($10x). The $10x hypothetical section 1248 amount
is attributedpro rata(based on relative values)
amongthe40sharesofCFC1stockdistributedto
DP, and the attributable share amount (as defined in
paragraph (d)(1) of this section) is $.25x.
(2) The 40 shares of CFC1 stock are not divided
into portions under paragraph (c)(2) of this section
because the only property transferred by DC to CFC1
is a single block of stock of CFC2. If the 40 shares
of CFC1 stock were required to be divided into
portions, however, the rules of paragraph (d)(2) of
this section apply to attribute the attributable share
amount ($.25x) to portions of shares of CFC1 stock
distributed to DP.
(3) Because the election under paragraph (c)(1) of
this section is made, the total section 1248(f) amount
($10x) that DC is otherwise required to include in
gross income as a dividend under §1.1248(f)–1(b)(3)
is reduced by $10x, the portion of the section 1248(f)
amount with respect to the CFC2 stock that is attrib-
utable under paragraph (d) of this section to the 40
shares of CFC1 stock distributed to DP. Thus, the
amount DC is required to include in gross income as a
dividend under §1.1248(f)–1(b)(3) is $0x ($30x less
$30x).
(4) Under §1.1248–8(b)(2)(iv), the $20x earnings
and profits attributable to the single block of CFC2
stock are attributedpro ratato the 40 shares of CFC1
stock. Thus, DP’s postdistribution amount (defined
in §1.1248(f)–1(c)(6)) with respect to the 40 shares
of CFC1 stock attributable to the CFC2 stock is $10x,
the lesser of the aggregate gain in the 40 shares of
CFC1 stock of $10x ($40x fair market value, less
$30x section 358 basis, as described in paragraph
(ii)(D) of thisExample 3
) and the $20x earnings and
profits attributable to such shares.
(5) Under paragraph (c)(3) of this section, DP’s
section 358 basis in the 40 shares of CFC1 stock
($30x) is reduced by the amount (if any) by which the
section 1248(f) amount attributable to such shares un-
der paragraph (d) of this section ($10x, as computed
in paragraph (ii)(E) of thisExample 3) exceeds DP’s
postdistribution amount with respect to such shares
($10x). Thus, there is no basis reduction in the 40
shares of CFC1 stock.
(G) Pursuant §1.367(a)–3T(e)(6), the amount
of gain subject to the gain recognition agreement
entered into by DP with respect to the CFC2 stock is
$10x, which is the product of DP’s ownership interest
percentage (100%) multiplied by the gain realized by
DC in the 361 exchange priortotakingintoaccount
the application of any other provision of section
367 ($10x), reduced by the sum of the amounts
described in §1.367(a)–3T(e)(6)(i)(A), (e)(6)(i)(B),
(e)(6)(i)(C), and (e)(6)(i)(D) ($0x).
(H) DC’s distribution of the 60 shares of CFC1
stock it held before the section 361 exchange is
subject to §1.1248(f)–1(b)(2) (an existing stock dis-
tribution); however, because DC and DP make the
election provided in paragraph (b)(1) of this section,
§1.1248(f)–1(b)(2) does not apply to the distribution.
(1) Under paragraph (b)(2) of this section, for pur-
poses of section 1248, DP will have a 3-year holding
period in the 60 shares of CFC1 stock received, the
same holding period that DC had in the 60 shares of
CFC1 stock.
(2) Under paragraph (b)(3) of this section, DP’s
section 358 basis in the 60 shares of CFC1 stock re-
ceived ($54x, as computed in paragraph (ii)(C) of this
Example 3) is reduced by $4x, the amount by which
DC’s section 1248 amount ($10x) with respect to the
60 shares of CFC1 stock exceeds DP’s postdistribu-
tion amount ($6x) with respect to the 60 shares of
CFC1 stock. Under §1.1248(f)–1(c)(6), DP’s post-
distribution amount with respect to the 60 shares of
CFC1 stock equals the amount that DP would include
in gross income as a dividend under section 1248(a) if
DP sold the 60 shares of CFC1 stock immediately af-
ter the distribution, or $6x, which is computed as the
lesser of the $6x gain in the such shares of CFC1 stock
($60x fair market value, less $54x basis) and $30x of
section 1248 earnings and profits attributable to the
CFC1 stock, taking into account DP’s 3-year holding
period in the stock as required by paragraph (b)(2)
of this section. As adjusted under paragraph (b)(3)
of this section, DP’s basis in the 60 shares of CFC1
stock is $50x ($54x basis, less $4x basis reduction).
(f)Applicable cross-references.For
rules relating to the attribution of earnings
and profits to the stock of a foreign cor-
poration following certain nonrecognition
transactions, see §1.1248–8. For rules
relating to a transfer of property by a do-
mestic corporation to a foreign corporation
in a section 361 exchange that precedes a
new stock distribution, see §1.367(a)–7. If
the property transferred includes stock of
a corporation, see also §§1.367(a)–3T(e)
and 1.367(b)–4. For other rules that may
apply if a domestic corporation distributes
the stock of a foreign corporation in a
new stock distribution or an existing stock
distribution satisfying the requirements of
section 355, see §§1.367(b)–5(b)(1) and
1.367(e)–1.
Par. 17. Section 1.1248(f)–3 is added
to read as follows:
§1.1248(f)–3 Reasonable cause and
effective/applicability dates.
(a)Reasonable cause for failure to com-
ply [Reserved]. For further guidance, see
§1.1248(f)–3T(a).
(b)Effective/applicability date—(1)
General rule. Except as provided in
paragraph (b)(2)(ii) of this section,
§§1.1248(f)–1 and 1.1248(f)–2 apply to
distributions occurring on or after April
18, 2013.
(2)Transactions described in Notice
87–64—(i)Gain not otherwise recog-
nized. For distributions occurring on or
after September 21, 1987, and before April
18, 2013, section 1248(f)(1) shall not ap-
ply to the extent the domestic distributing
corporation recognizes gain with respect
2013–17 I.R.B.975April 22, 2013

to the stock of the foreign distributed
corporation as a result of the distribution
under another provision of subtitle A of
the Internal Revenue Code.
(ii)Section 355 distributions.Tax-
payers may apply the provisions of
§1.1248(f)–2(b) to distributions occurring
on or after September 21, 1987.
Par. 18. Section 1.6038B–1 is amended
by:
1. Revising paragraph (c)(6).
2. Revising paragraph (f)(3).
3. Revising the paragraph heading and
the first sentence of paragraph (g)(1).
4. Adding paragraph (g)(5).
The addition and revisions read as fol-
lows:
§1.6038B–1 Reporting of certain transfers
to foreign corporations.
*****
(c) * * *
(6)Transfers subject to section
367(a)(5)—(i)In general. This para-
graph (c)(6) applies to a domestic cor-
poration (U.S. transferor) that transfers
section367(a)property(asdefinedin
§1.367(a)–7(f)(10)) to a foreign corpora-
tion in a section 361 exchange (as defined
in §1.367(a)–7(f)(8)) and to which the
provisions of §1.367(a)–7(c) apply. Para-
graph (c)(6)(ii) of this section establishes
thetimeandmannerfortheU.S.trans-
feror to elect to apply the provisions of
§1.367(a)–7(c). Paragraph (c)(6)(iii) of
this section establishes the manner for the
U.S. transferor to satisfy the requirement
of §1.367(a)–7(c)(4).
(ii)Election.TheU.S.transferor elects
to apply the provisions of §1.367(a)–7(c)
by including a statement entitled, “ELEC-
TION TO APPLY EXCEPTION UN-
DER §1.367(a)–7(c),” with its timely
filed return (within the meaning of
§1.367(a)–7(f)(12)) for the taxable year
during which the reorganization oc-
curs and that includes the information
described in paragraphs (c)(6)(ii)(A),
(c)(6)(ii)(B), (c)(6)(ii)(C), (c)(6)(ii)(D),
(c)(6)(ii)(E), (c)(6)(ii)(F), (c)(6)(ii)(G),
and (c)(6)(ii)(H) of this section. See
§1.367(a)–7(c)(5)(ii) for the statement
required to be filed by a control group
member (as defined in §1.367(a)–7(f)(1))
or final distributee (as defined in
§1.367(a)–7(d)).
(A) The name and taxpayer identifica-
tion number (if any) of each control group
member and final distributee (if any),
the foreign acquiringcorporation, and
in the case of a triangular reorganization
(within the meaning of §1.358–6(b)(2))
the corporation that controls the foreign
acquiring corporation, and the owner-
ship interest percentage (as defined in
§1.367(a)–7(f)(7)) in the U.S. transferor
of each control group member.
(B) A calculation of the gain recog-
nized (if any) by the U.S. transferor under
§1.367(a)–7(c)(2)(i) and (c)(2)(ii), and the
basis adjustments (if any) required to be
made by each control group member un-
der §1.367(a)–7(c)(3).
(C)ThedateonwhichtheU.S.
transferor and each control group mem-
ber or final distributee entered into
the written agreement described in
§1.367(a)–7(c)(5)(iv).
(D) The amount of any deductible lia-
bility (as defined by §1.367(a)–7(f)(2)).
(E) The fair market value (as defined by
§1.367(a)–7(f)(3)) ofproperty transferred
to the foreign acquiring corporation in the
section 361 exchange.
(F) The inside basis (as defined by
§1.367(a)–7(f)(4)).
(G) The inside gain (as defined by
§1.367(a)–7(f)(5)).
(H) The section 367(a) percentage (as
defined by §1.367(a)–7(f)(9)).
(iii)Agreement to amend U.S. trans-
feror’s tax return.TheU.S.trans-
feror complies with the requirement of
§1.367(a)–7(c)(4)(i)by attaching a state-
ment to its timely filed return (within
the meaning of §1.367(a)–7(f)(12)) for
the taxable year in which the reorgani-
zation occurs, entitled “STATEMENT
UNDER §1.367(a)–7(c)(4) FOR TRANS-
FERS OF ASSETS TO A FOREIGN
CORPORATIONINASECTION361
EXCHANGE.” The statement must cer-
tify that if a significant amount of the
section 367(a) property received by the
foreign acquiring corporation from the
U.S. transferor in the section 361 exchange
is disposed of, directly or indirectly, in
one or more related transactions described
in paragraph (c)(6)(iii)(B) of this section
occurring within the sixty (60) month
period that begins on the date of distri-
bution or transfer (within the meaning of
§1.381(b)–1(b)), then the exception pro-
vided in §1.367(a)–7(c) will not apply to
the section 361 exchange. Accordingly,
the U.S. transferor will recognize the gain
realized but not recognized in the section
361 exchange, computed as if the excep-
tion provided in §1.367(a)–7(c) had never
applied. A U.S. income tax return (or
amended U.S. income tax return, as the
case may be) for the year in which the
reorganization occurred reporting the gain
must be filed. If the section 361 exchange
occurs in connection with a triangular
reorganization (within the meaning of
§1.358–6(b)(2)) and the corporation that
controls the foreign acquiring corpora-
tion is foreign, an indirect disposition of
the section 367(a) property includes the
disposition by such controlling foreign
corporation of the stock of the foreign
acquiring corporation.
(A)Disposition of a significant
amount—(1)General rule. Except as
provided in paragraphs (c)(6)(iii)(A)(2)
and (c)(6)(iii)(A)(3)ofthissection,for
purposes of this paragraph (c)(6)(iii), a
disposition of a significant amount occurs
if, in one or more related transactions, the
foreign acquiring corporation disposes of
an amount of the section 367(a) property
received from the U.S. transferor in the
section 361 exchange that is greater than
40 percent of the fair market value of all
of the section 367(a) property transferred
in the section 361 exchange.
(2)Exception for certain nonrecogni-
tion exchanges. Section 367(a) property
that is subsequently transferred (retrans-
ferred property) pursuant to a nonrecogni-
tion provision is not treated as disposed of
for purposes of paragraph (c)(6)(iii)(A)(1)
of this section, provided such transfer
satisfies, and is treated in a manner con-
sistent with the principles underlying
§1.367(a)–8(k). Thus, for example, if
section 367(a) property is subsequently
transferredtoaforeigncorporationinex-
change solely for stock in a transaction
described in section 351, such retrans-
ferred property is not treated as disposed of
for purposes of paragraph (c)(6)(iii)(A)(1)
of this section; in such a case, however,
a subsequent disposition of either the
retransferred property by the transferee
foreign corporation, or of the stock of the
transferee foreign corporation received in
exchange for the retransferred property,
is subject to the provisions of paragraph
(c)(6)(iii)(A)(1)ofthissection.
April 22, 20139762013–17 I.R.B.

(3)Exception for dispositions occur-
ring in the ordinary course of business.
Dispositions of section 367(a) property de-
scribed in section 1221(a)(2) occurring in
the ordinary course of business of the for-
eign acquiring corporation are not treated
as disposed of for purposes of paragraph
(c)(6)(iii)(A)(1)ofthissection.
(B)Gain recognition transaction—(1)
General rule. A transaction is described
in this paragraph (c)(6)(iii)(B) if the trans-
action is entered into with a principal pur-
pose of avoiding the U.S. tax that would
have been imposed on the U.S. transferor
on the disposition of the property trans-
ferred to the foreign acquiring corporation
in the section 361 exchange. A disposition
may have a principal purpose of tax avoid-
ance even if the tax avoidance purpose is
outweighed by other purposes when taken
together.
(2)Presumptive tax avoidance.For
purposes of this paragraph (c)(6)(iii)(B),
the principal purpose of the foreign acquir-
ing corporation’s disposition of a signifi-
cant amount of the section 367(a) property
within the two-year period that begins on
the date of distribution or transfer (within
the meaning of §1.381(b)–1(b)) (whether
in a recognition or nonrecognition transac-
tion) will be presumed to be the avoidance
of the U.S. tax that would have been im-
posed on the U.S. transferor on the dispo-
sition of the property transferred to the for-
eign acquiring corporation in the section
361 exchange. However, this presumption
will not apply if it is demonstrated to the
satisfaction of the Director of Field Opera-
tions, Large Business & International (or
any successor to the roles and responsi-
bilities of such person (Director) that the
avoidance of U.S. tax was not a principal
purpose of the disposition.
(3)Interest. If additional tax is required
to be paid as a result of a transaction de-
scribed in paragraph (c)(6)(iii)(B) of this
section, then interest must be paid on that
amount at rates determined under section
6621 with respect to the period between
the date prescribed for filing the U.S. trans-
feror’s income tax return for the year in
which the reorganization occurs and the
date on which the additional tax for that
year is paid.
*****
(f) * * *
(3)Reasonable cause for failure to
comply [Reserved]. For further guidance,
see §1.6038B–1T(f)(3).
*****
(g)Effective/applicability dates.(1)
Exceptasprovidedinparagraphs (g)(2)
through (g)(5) of this section, this section
applies to transfers occurring on or after
July 20, 1998, except for transfers of cash
made in tax years beginning on or before
February 5, 1999 (which are not required
to be reported under section 6038B), and
except for transfers described in paragraph
(e) of this section, which applies to trans-
fers that are subject to §§1.367(e)–1(f) and
1.367(e)–2(e). * * *
*****
(5) Paragraphs (c)(6) and (f)(3) of this
section apply to transfers occurring on or
after April 18, 2013. For guidance with
respect to paragraphs (c)(6) and (f)(3) of
this section before April 18, 2013, see 26
CFR part 1 revised as of April 1, 2012.
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 19. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 20. In §602.101, the following
entries are added in numerical order to the
table in paragraph (b) to read as follows:
§602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section where
Identified and described
Current OMB
control No.
*****
1.367(a)–7...........................................................
1545–2183
*****
1.367(a)–8...........................................................
1545–2183
*****
1.1248(f)–2...........................................................
1545–2183
*****
1.6038B–1...........................................................
1545–2183
*****
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved February 15, 2013.
Mark J. Mazur,
Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on March 18,
2013, 8:45 a.m., and published in the issue of the Federal
Register for March 19, 2013, 78 F.R. 17024)
2013–17 I.R.B.977April 22, 2013

Part III. Administrative, Procedural, and Miscellaneous
Nonconventional Source Fuel
Credit, 2012 Section 45K
Inflation Adjustment Factor
and Section 45K Reference
Price
Notice 2013–25
SECTION 1. PURPOSE
This notice publishes the nonconven-
tional source fuel credit, inflation adjust-
ment factor, and reference price under
§ 45K of the Internal Revenue Code for
coke or coke gas (other than from petro-
leum based products) for calendar year
2012. The inflation adjustment factor is
used to determine the credit allowable
under § 45K for coke or coke gas. The cal-
endar year 2012 inflation-adjusted credit
applies to the sales of barrel-of-oil equiva-
lent of coke or coke gas sold by a taxpayer
to an unrelated person during the 2012
calendar year, the domestic production of
which is attributable to the taxpayer.
SECTION 2. BACKGROUND
Section 45K(a) provides for a credit
for producing fuel from a nonconventional
source, measured in barrel-of-oil equiva-
lent of qualified fuel, the production of
which is attributable to the taxpayer and is
sold by the taxpayer to an unrelated per-
son during the taxable year. For calendar
year 2012, the credit is available only for
coke or coke gas. The credit amount for
coke or coke gas is equal to the product of
$3.00 and the appropriate inflation adjust-
ment factor.
Section 45K(d)(1) provides that the
credit applies only to sales of qualified
fuels the production of which is within
the United States (within the meaning of
§ 638(1)) or a possession of the United
States (within the meaning of § 638(2)).
Section 45K(d)(2)(A) requires that the
Secretary, not later than April 1 of each cal-
endar year, determine and publish in the
Federal Register the inflation adjustment
factor and the reference price for the pre-
ceding calendar year.
Section 45K(d)(2)(B) defines “inflation
adjustment factor” for a calendar year as
a fraction the numerator of which is the
GNP implicit price deflator for the calen-
dar year and the denominator of which is
the GNP implicit price deflator for calen-
dar year 1979. The term “GNP implicit
price deflator” means the first revision of
the implicit price deflator for the gross na-
tional product as computed and published
by the Department of Commerce.
Section 45K(d)(2)(C) defines “refer-
ence price” to mean with respect to a
calendar year the Secretary’s estimate of
the annual average wellhead price per bar-
rel for all domestic crude oil the price of
which is not subject to regulation by the
United States.
Section 45K(d)(5) provides that the
term “barrel-of-oil equivalent” with re-
spect to any fuel generally means that
amount of the fuel that has a Btu content
of 5.8 million.
Section 45K(g)(1) provides that in the
case of a facility for producing coke or
coke gas (other than from petroleum based
products), which was placed in service
before January 1, 1993, or after June
30, 1998, and before January 1, 2010,
§ 45K(g) shall apply with respect to coke
or coke gas produced in such facility and
sold during the period beginning on the
later of January 1, 2006, or the date that
such facility is placed in service, and end-
ingonthedatewhichis4yearsafterthe
date such period began.
Section 45K(g)(2)(A) provides that the
amount of coke or coke gas sold during any
taxable year that may be taken into account
to compute the credit under § 45K with
respect to any facility shall not exceed an
average barrel-of-oilequivalent of 4,000
barrels per day.
Section 45K(g)(2)(B) provides that
in determining the amount of credit al-
lowable to coke or coke gas sold after
2005, the reference to the GNP implicit
price deflator for calendar year 1979 is
replaced with the GNP implicit price de-
flator for calendar year 2004 for purposes
of § 45K(d)(2)(B). Accordingly, for pur-
poses of § 45K(g), the inflation adjustment
factor for a calendar year is a fraction the
numerator of which is the GNP implicit
price deflator for the calendar year and the
denominator of which is the GNP implicit
price deflator for calendar year 2004.
Section 45K(g)(2)(D) provides that the
phaseout of the credit under § 45K(b)(1)
does not apply in the case of facilities pro-
ducing coke or coke gas.
SECTION 3. REFERENCE PRICE
The reference price for calendar year
2012 is $94.53.
SECTION 4. INFLATION
ADJUSTMENT AND CREDIT
AMOUNT
The inflation adjustment factor for cal-
endar year 2012 is 1.1922. The noncon-
ventional source fuel credit is $3.58 per
barrel-of-oil equivalent ($3.00 x 1.1922).
SECTION 5. DRAFTING
INFORMATION
The principal author of this notice
is Martha M. Garcia of the Office of
Associate Chief Counsel (Passthroughs
& Special Industries).For further
information regarding this notice, contact
Ms. Garcia at (202) 622–3110 (not a
toll-free call).
26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also: Part I, § 911, 1.911–1.)
Rev. Proc. 2013–23
SECTION 1. PURPOSE
.01 This revenue procedure provides in-
formation to any individual who failed to
meet the eligibility requirements of section
911(d)(1) of the Internal Revenue Code be-
cause adverse conditions in a foreign coun-
try precluded the individual from meeting
those requirements for taxable year 2012.
.02 This revenue procedure lists the
countries for which the eligibility require-
ments of section 911(d)(1) are waived for
taxable year 2012.
SECTION 2. BACKGROUND
.01 Sections 911(a) and (c)(4) of the
Code allow a “qualified individual,” as de-
fined in section 911(d) to exempt from tax-
April 22, 20139782013–17 I.R.B.

ation the individual’s foreign earned in-
come and the housing cost amount.
.02 Section 911(d)(1) of the Code de-
fines the term “qualified individual” as an
individual whose tax home is in a foreign
country and who is (A) a citizen of the
United States and establishes to the satis-
faction of the Secretary of the Treasury that
the individual has been abona fideresident
of a foreign country or countries for an un-
interrupted period that includes an entire
taxable year, or (B) a citizen or resident of
the United States who, during any period
of 12 consecutive months, is present in a
foreign country or countries during at least
330 full days.
.03Section911(d)(4)oftheCodepro-
vides an exception to the eligibility re-
quirements of section 911(d)(1). An in-
dividual will be treated as a qualified in-
dividual with respect to a period in which
the individual was abona fideresident of,
or was present in, a foreign country, if the
individual left the country during a period
for which the Secretary of the Treasury, af-
ter consultation with the Secretary of State,
determines that individuals were required
to leave because of war, civil unrest, or
similar adverse conditions that precluded
the normal conduct of business. An in-
dividual must establish that but for those
conditions the individual could reasonably
have been expected to meet the eligibility
requirements.
.04 For 2012, the Secretary of the Trea-
sury, in consultation with the Secretary of
State, has determined that war, civil unrest,
or similar adverse conditions precluded the
normal conduct of business in the follow-
ing countries beginning on the specified
date:
Date of Departure
CountryOn or after
Central African RepublicDecember 28, 2012
Sudan
September 15, 2012
Tunisia
September 15, 2012
Accordingly, for purposes of section
911 of the Code, an individual who left one
of the foregoing countries on or after the
specified departure date during 2012 shall
be treated as a qualified individual with re-
spect to the period during which that indi-
vidual was present in, or was abona fide
resident of, such foreign country, if the in-
dividual establishes a reasonable expecta-
tion of meeting the requirements of section
911(d) but for those conditions.
.06 To qualify for relief under section
911(d)(4) of the Code, an individual must
have established residency, or have been
physically present, in the foreign country
on or prior to the date that the Secretary
of the Treasury determines that individuals
were required to leave the foreign coun-
try. Individuals who establish residency,
or are first physicallypresent, in the for-
eign country after the date that the Secre-
tary prescribes shall not be treated as quali-
fied individuals under section 911(d)(4) of
the Code. For example, individuals who
are first physically present or establish res-
idency in the Central African Republic af-
ter December 28, 2012, are not eligible to
qualify for the exception provided in sec-
tion 911(d)(4) of the Code for taxable year
2012.
SECTION 3. INQUIRIES
A taxpayer who needs assistance on
how to claim this exclusion, or on how to
file an amended return, should contact a lo-
cal IRS Office or, for a taxpayer residing
or traveling outside the United States, the
nearest overseas IRS office.
SECTION 4. DRAFTING
INFORMATION
The principal author of this revenue
procedureisKateY.HwaoftheOfficeof
Associate Chief Counsel (International).
For further information regarding this
revenue procedure, contact Kate Y. Hwa
at (202) 622–3840 (not a toll-free call).
2013–17 I.R.B.979April 22, 2013

Part IV. Items o
fGeneralInterest
Revised Exhib
it:
Acknowledgem
ent Letter
Employee Plan
sVoluntary
Correction P
rogram (VCP)
Submissions
Announceme
nt 2013–21
The telepho
ne number that taxpay-
ers use to in
quire about the status of a
Voluntary Cor
rection Program (“VCP”)
submission th
at has been sent to the IRS
has changed as
of March 27, 2013. The
new number is 6
26–927–2011. Accord-
ingly, this re
quires a revision to the Ac-
knowledgeme
nt Letter, attached to Rev.
Proc. 2013–1
2, 2013–4 I.R.B. 313. The
Acknowledge
ment Letter is revised to in-
clude the upd
ated telephone number. The
previous nu
mber shown on the Acknowl-
edgement Le
tter, including submissions
made under Rev
. Proc. 2008–50, 2008–2
C.B. 464, will
no longer be in service as
of such date.
APPENDIX D
ACKNOWLEDGEMENT LETTER
[][INSERTNAMEAND
[]ADDRESSOFPLAN
[]SPONSOR OR
[]AUTHORIZED REPRESENTATIVE
[]AT LEFT]
Applicant’s Name:
Plan Name:
[insert pla
n name]
Plan No.
[insert plan number]
Control No.:
(to be completed by IRS)
Received Date:
(to be com
pleted by IRS)
The Inter
nal Revenue Service, Employee Plans Voluntary Compliance, has receivedyour VCP submission for the above-captioned
plan. You
r request has been assigned the control number listed above. This number should be referred to in any communication
to us conc
erning your submission. If a determination letter application was included with your VCP submission, any
acknowle
dgement letter issued by the Service with regard to suchapplication will be mailed to you under separate cover.
You will b
e contacted when the VCP case is assigned to an agent. If you need to inquire about the status of your case prior to that
date, ple
ase call (626) 927–2011 (not a toll-free number). Please leaveamessagewiththenameoftheplan,theControlNumber,
your name
, and a phone number where you can be reached.
Thank you
.
April 22, 20139802013–17 I.R.B.

Notice and Request for
Comments About the Internal
Revenue Bulletin Index System
Announcement 2013–22
SUMMARY:The IRS is soliciting com-
ments from the public on the proposal to
eliminate the Bulletin Index from the IRB.
DATE:Written comments should be re-
ceived on or before August 3, 2013 to be
assured consideration.
ADDRESS:If you have comments
concerning this issue, direct all writ-
ten comments to Gerald J. Shields,
LL.M., Internal Revenue Service, Tax
Products Coordinating Committee,
SE:W:CAR:MP:T:M:S, 1111 Constitution
Avenue NW, IR–6526, Washington, DC
20224. Do not send any tax forms to this
address.
SUPPLEMENTARY INFORMATION:
Background
The IRS provides a method for re-
searching tax laws, regulations, and other
tax matters published in the IRB called the
’’Bulletin Index.’’ Generally, the Bulletin
Index appears in the IRB issue at the end
of the month. Due to budgetary restraints,
the IRS proposes to eliminate the Bulletin
Index. The IRS invites the general public
and other Federal agencies to take this
opportunity to comment on the proposed
elimination of the Bulletin Index.
The Bulletin Index provides a method
for researching matters published in the
IRB (which is the authoritative instrument
of the Commissioner for announcing offi-
cial rulings and procedures of the Internal
Revenue Service and for publishing Public
Laws, Treasury Decisions, and other items
of general interest). The indexes are in-
tended only as aids to the reader in iden-
tifying the subject matter covered. They
may not be relied upon as authoritative in-
terpretations. The IRS proposes to elimi-
nate the Bulletin Index because of the ex-
cessive costs incurred to produce this sec-
tion of the IRB.
As a cost cutting measure, the IRS is
no longer printing paper copies of the IRB.
Also, the IRS will not create the Cumula-
tive Bulletin after the 2008–2 edition. See
Announcement 2013–12, 2013–11 I.R.B.
651, for more information about the paper
copies of the IRB.
Effect on other Documents:
Announcement 2013–12 is supple-
mented.
Shared Responsibility
Payment for Not Maintaining
Minimum Essential Coverage;
Correction
Announcement 2013–27
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to notice of pro-
posed rulemaking and notice of public
hearing.
SUMMARY: This document contains
corrections to a notice of proposed rule-
making and notice of public hearing
(REG–148500–12, 2013–13 I.R.B. 716)
that was published in theFederal Regis-
teron Friday, February 1, 2013 (78 FR
7314). The proposed regulations relate
to the requirement to maintain minimum
essential coverage enacted by the Patient
Protection and Affordable Care Act and
the Health Care and Education Recon-
ciliation Act of 2010, as amended by the
TRICARE Affirmation Act and Public
Law 111–173. These proposed regula-
tions provide guidance on the liability for
the shared responsibility payment for not
maintaining minimum essential coverage.
FOR FURTHER INFORMATION
CONTACT: Sue-Jean Kim or
John B. Lovelace, (202) 622–4960 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The notice of proposed rulemak-
ing and notice of public hearing
(REG–148500–12) that is the subject of
these corrections are under Section 5000A
of the Internal Revenue Code.
Need for Correction
As published, the notice of proposed
rulemaking and notice of public hearing
(REG–148500–12) contains errors that
may prove to be misleading and are in
need of clarification.
Correction of Publication
Accordingly, the notice of proposed
rulemaking and notice of public hearing
(REG–148500–12), that was the subject
of FR Doc. 2013–02141, is corrected as
follows:
1. On page 7316, in the preamble, col-
umn 1, under the paragraph heading “Ex-
empt Individuals”, line 7 of the third full
paragraph, the language “consultation with
the Secretary of ” is corrected to read “con-
sultation with the Secretary of the”.
2. On page 7316, in the preamble,
column 3, under the paragraph heading
“Computation of Shared Responsibility
Payment”, lines 5 and 6 from the top of
the column, the language “the following
amounts: (1) The flat dollar amount, or
(2) the percentage of” is corrected to read
“the following amounts: (1) the flat dollar
amount, or (2) the percentage of”.
3. On page 7316, in the preamble, col-
umn 3, under the paragraph heading “Min-
imum Essential Coverage”, lines 3 through
32 of the third and fourth full paragraph of
the column, the language “following: (1)
Coverage under a specified government
sponsored program, (2) coverage under an
eligible employer-sponsored plan, (3) cov-
erage under a health plan offered in the in-
dividual market within a State, (4) cover-
age under a grandfathered health plan, and
(5) other health benefits coverage that the
Secretary of Health and Human Services,
in coordination with the Secretary, recog-
nizes for purposes of section 5000A(f).
Under section 5000A(f)(1)(A), speci-
fied government sponsored programs in-
clude the following: (1) The Medicare pro-
gram under part A of title XVIII of the
Social Security Act, (2) the Medicaid pro-
gram under title XIX of the Social Secu-
rity Act, (3) the Children’s Health Insur-
ance Program (CHIP) under title XXI of
the Social Security Act, (4) medical cov-
erage under chapter 55 of title 10, United
States Code, including the TRICARE pro-
gram, (5) veterans health care programs
under chapter 17 or 18 of title 38, as de-
termined by the Secretary of Veterans Af-
fairs, in coordinationwith the Secretary of
Health and Human Services and the Secre-
tary of Treasury, (6) a health plan” is cor-
2013–17 I.R.B.981April 22, 2013

rected to read “following: (1) coverage un-
der a specified government sponsored pro-
gram; (2) coverage under an eligible em-
ployer-sponsored plan; (3) coverage un-
der a health plan offered in the individual
market within a State; (4) coverage under
a grandfathered health plan; and (5) other
health benefits coverage that the Secretary
of Health and Human Services, in coordi-
nation with the Secretary, recognizes for
purposes of section 5000A(f).
Under section 5000A(f)(1)(A), speci-
fied government sponsored programs in-
clude the following: (1) the Medicare pro-
gram under part A of title XVIII of the So-
cial Security Act; (2) the Medicaid pro-
gram under title XIX of the Social Secu-
rity Act; (3) the Children’s Health Insur-
ance Program (CHIP) under title XXI of
the Social Security Act; (4) medical cov-
erage under chapter 55 of title 10, United
States Code, including the TRICARE pro-
gram; (5) veterans health care programs
under chapter 17 or 18 of title 38, as de-
termined by the Secretary of Veterans Af-
fairs, in coordination with the Secretary of
Health and Human Services and the Secre-
tary of Treasury; (6) a health plan”.
4. On page 7317, in the preamble, col-
umn 1, under the paragraph heading “Min-
imum Essential Coverage”, line 1 from the
top of the column, the language “to Peace
Corps volunteers, and (7) the” is corrected
to read “to Peace Corps volunteers; and (7)
the”.
5. On page 7317, in the preamble, col-
umn 2, under the paragraph heading “Min-
imum Essential Coverage”, line 6 of the
first full paragraph of the column, the lan-
guage “possession for the month or (2) if
the” is corrected to read “possession for the
month, or (2) if the”.
6. On page 7318, in the preamble, col-
umn 2, under the paragraph heading “i. In
General”, lines 6 through 10 of the first
full paragraph of the column, the language
“either of the following: (1) A govern-
mental plan (within the meaning of section
2791(d)(8) of the Public Health Service
Act (PHSA) (42 U.S.C. 300gg–91(d)(8))
or (2) any other plan or” is corrected to
read “either of the following: (1) a govern-
mental plan (within the meaning of section
2791(d)(8) of the Public Health Service
Act (PHSA) (42 U.S.C. 300gg–91(d)(8)),
or (2) any other plan or”.
7. On page 7321, in the preamble,
column 1, under the paragraph heading
“B. Credit Allowable Under Section 36B”,
lines 9 through 14 of the second full para-
graph of the column, the language “The
monthly premiums for the month for one
or more qualified health plans in which
the taxpayers or a member of the taxpay-
ers family (coverage family) is enrolled
through the Exchange serving the rating
area where they reside” is corrected to read
“the monthly premiums for the month for
one or more qualified health plans in which
the taxpayers or a member of the taxpay-
ers family (coverage family) is enrolled
through the Exchange serving the rating
area where they reside,”.
8. On page 7321, in the preamble, col-
umn 2, under the paragraph heading “f.
Household Income Below Return Filing
Threshold”, line 9 of the second full para-
graph of the column, the language “as a
dependent also is exempt as well” is cor-
rected to “as a dependent also is exempt”.
§ 1.5000A–1 [Corrected]
9. On page 7325, column 1, para-
graph (d)(4), the language “Rating area.
Rating areahas the same meaning as in
§ 1.38B–1(n).” is corrected to read “Rating
area.Rating areahas the same meaning as
in § 1.36B–1(n).”.
§ 1.5000A–2 [Corrected]
10. On page 7325, column 2, line 4 of
paragraph (b)(7), the language “of the Na-
tional Defense authorization” is corrected
to read “of the National Defense Autho-
rization”.
11. On page 7325, column 3, line 7
of paragraph (c)(1), the language “by an
employer to the employee, which” is cor-
rected to read “by an employer to the em-
ployee that”.
§ 1.5000A–3 [Corrected]
12. On page 7326, column 3, line 8
of paragraph (e)(3)(ii)(A), the language
“(whether though salary reduction or” is
corrected to read “(whether through salary
reduction or”.
13. On page 7327, column 3, line 9
of paragraph (e)(4)(ii)(B)(1), the language
“plan though the Exchange) that would”
is corrected to read “plan through the Ex-
change) that would”.
14. On page 7328, column 2, line 16
of paragraph (e)(4)(iii)Example 2.(ii),
the language “$2,600. Under paragraph
(f)(2) of this section,” is corrected to read
“$2,600. Under paragraph (e)(1) of this
section,”.
LaNita VanDyke,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on March 22,
2013, 8:45 a.m., and published in the issue of the Federal
Register for March 25, 2013, 78 F.R. 17900)
Noncompensatory
Partnership Options;
Correction
Announcement 2013–28
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correcting amendment.
SUMMARY: This document contains cor-
rections to final regulations (T.D. 9612,
2013–13 I.R.B. 678) that were published in
theFederal Registeron Tuesday, Febru-
ary 5, 2013 (78 FR 7997) relating to the tax
treatment of noncompensatory options and
convertible instruments issued by a part-
nership. The final regulations generally
provide that the exercise of a noncompen-
satory option does not cause the recogni-
tion of immediate income or loss by ei-
ther the issuing partnership or the option
holder. The final regulations also mod-
ify the regulations under section 704(b) re-
garding the maintenance of the partners’
capital accounts and thedetermination of
the partners’ distributive shares of partner-
ship items. The final regulations also con-
tain a characterization rule providing that
the holder of a noncompensatory option is
treated as a partner under certain circum-
stances. DATES: This correction is effec-
tive on March 25, 2013, and is applicable
on or after February 5, 2013.
FOR FURTHER INFORMATION
CONTACT: Benjamin Weaver, at (202)
622–3050 (not a toll-free number).
April 22, 20139822013–17 I.R.B.

SUPPLEMENTARY INFORMATION:
Background
The final regulationsthat are the subject
of this document are under sections 171,
704, 721, 761, 1272, 1273, and 1275 of the
Internal Revenue Code.
Need for Correction
As published, the final regulations
(T.D. 9612) contain errors that may prove
to be misleading and are in need of clarifi-
cation.
*****
Correction of Publication
Accordingly, 26 CFR part 1 is cor-
rected by making the following correcting
amendments:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.704–1 is amended
by revising the table in paragraph (b)(5)
Example 35(ii), and the first sentence of
paragraph (b)(5)Example 35(iii) to read as
follows:
§1.704–1 Partner’s distributive share.
*****
(b) * * *
(5) * * *
Example 35. ***
(ii)***
KLM
Tax
Book
Tax
Book
Tax
Book
Initial capital account
$10,000$10,000$10,000$10,000
00
Year 1 net income
$1,000$1,000$1,000$1,000
00
Year 2 net income
$1,000$1,000$1,000$1,000
00
Year 3 net income
$1,000$1,000$1,000$1,000
00
Year 4 initial capital account . . . . . . . .
$13,000$13,000$13,000$13,000
00
(iii) At the beginning of Year 4, at a time when
property D, LLC’s only asset, has a value of $33,000
and basis of $24,000 ($30,000 original basis less
$6,000 depreciation in Years 1 through 3), and
LLC has accumulated undistributed cash of $12,000
($15,000 gross income less $3,000 of interest pay-
ments) in LLC, M converts the debt into a 1/3 interest
in LLC. * * *
*****
Par. 3. Section 1.761–3 is amended by:
a. Revising the second sentence of
paragraph (b)(3);
b. Revising paragraph (f) introductory
text;
c. Removing “1” from paragraph (f)
Example heading; and
d. Revising the second sentence in the
paragraph (f) Example.
The revisions read as follows:
§1.761–3 Certain option holders treated
as partners.
*****
(b) * * *
(3)***Inaddition,anoptionin-
cludes convertible debt (as defined in
§1.721–2(g)(2)) and convertible equity (as
defined in §1.721–2(g)(3)). * * *
*****
(f)Example. The following example il-
lustrates the provisions of this section. For
purposes of the example, assume that PRS
is a partnership for Federal tax purposes,
none of the noncompensatory option hold-
ers or partners are related persons, and that
general principles of law do not apply to
treat the noncompensatory option as a part-
nership interest. The example reads as fol-
lows:
Example. * * * In exchange for a premium of
$10x, PRS issues a noncompensatory option to A to
acquire a 10 percent interest in PRS for $110x at any
time during a 3-year period commencing on the date
on which the option is issued. * * *
*****
LaNita VanDyke,
Chief,
Publications and Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
2013–17 I.R.B.983April 22, 2013

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
April 22, 2013i2013–17 I.R.B.

Numerical Finding List
1
Bulletins 2013–1 through 2013–17
Announcements:
2013-1, 2013-1 I.R.B.251
2013-2, 2013-2 I.R.B.271
2013-3, 2013-2 I.R.B.271
2013-4, 2013-4 I.R.B.440
2013-5, 2013-3 I.R.B.306
2013-6, 2013-3 I.R.B.307
2013-7, 2013-3 I.R.B.308
2013-8, 2013-4 I.R.B.440
2013-9, 2013-4 I.R.B.441
2013-10, 2013-3 I.R.B.311
2013-11, 2013-6 I.R.B.483
2013-12, 2013-11 I.R.B.651
2013-13, 2013-9 I.R.B.532
2013-14, 2013-11 I.R.B.651
2013-15, 2013-11 I.R.B.652
2013-16, 2013-14 I.R.B.738
2013-17, 2013-16 I.R.B.911
2013-19, 2013-14 I.R.B.760
2013-20, 2013-14 I.R.B.761
2013-21, 2013-17 I.R.B.980
2013-22, 2013-17 I.R.B.981
2013-23, 2013-16 I.R.B.940
2013-26, 2013-16 I.R.B.940
2013-27, 2013-17 I.R.B.981
2013-28, 2013-17 I.R.B.982
Notices:
2013-1, 2013-3 I.R.B.281
2013-2, 2013-6 I.R.B.473
2013-3, 2013-7 I.R.B.484
2013-4, 2013-9 I.R.B.527
2013-5, 2013-9 I.R.B.529
2013-6, 2013-10 I.R.B.540
2013-7, 2013-6 I.R.B.477
2013-8, 2013-7 I.R.B.486
2013-9, 2013-9 I.R.B.529
2013-10, 2013-8 I.R.B.503
2013-11, 2013-11 I.R.B.610
2013-12, 2013-10 I.R.B.543
2013-13, 2013-12 I.R.B.659
2013-14, 2013-13 I.R.B.712
2013-15, 2013-14 I.R.B.739
2013-16, 2013-14 I.R.B.740
2013-18, 2013-14 I.R.B.742
2013-19, 2013-14 I.R.B.743
2013-20, 2013-15 I.R.B.902
2013-21, 2013-15 I.R.B.903
2013-22, 2013-15 I.R.B.904
2013-23, 2013-16 I.R.B.906
2013-24, 2013-16 I.R.B.909
2013-25, 2013-17 I.R.B.978
Proposed Regulations:
REG-155929-06, 2013-11 I.R.B.650
REG-106918-08, 2013-13 I.R.B.714
REG-141066-09, 2013-3 I.R.B.289
REG-148873-09, 2013-7 I.R.B.494
REG-102966-10, 2013-10 I.R.B.579
REG-140649-11, 2013-12 I.R.B.666
REG-118315-12, 2013-14 I.R.B.746
REG-122707-12, 2013-5 I.R.B.450
REG-148500-12, 2013-13 I.R.B.716
Revenue Procedures:
2013-1, 2013-1 I.R.B.1
2013-2, 2013-1 I.R.B.92
2013-3, 2013-1 I.R.B.113
2013-4, 2013-1 I.R.B.126
2013-5, 2013-1 I.R.B.170
2013-6, 2013-1 I.R.B.198
2013-7, 2013-1 I.R.B.233
2013-8, 2013-1 I.R.B.237
2013-9, 2013-2 I.R.B.255
2013-10, 2013-2 I.R.B.267
2013-11, 2013-2 I.R.B.269
2013-12, 2013-4 I.R.B.313
2013-13, 2013-6 I.R.B.478
2013-14, 2013-3 I.R.B.283
2013-15, 2013-5 I.R.B.444
2013-16, 2013-7 I.R.B.488
2013-17, 2013-11 I.R.B.612
2013-18, 2013-8 I.R.B.503
2013-19, 2013-11 I.R.B.648
2013-20, 2013-14 I.R.B.744
2013-21, 2013-12 I.R.B.660
2013-23, 2013-17 I.R.B.978
Revenue Rulings:
2013-1, 2013-2 I.R.B.252
2013-2, 2013-10 I.R.B.533
2013-3, 2013-8 I.R.B.500
2013-4, 2013-9 I.R.B.520
2013-5, 2013-9 I.R.B.525
2013-6, 2013-13 I.R.B.701
2013-7, 2013-11 I.R.B.608
2013-8, 2013-15 I.R.B.763
2013-9, 2013-15 I.R.B.764
Tax Conventions:
2013-16, 2013-14 I.R.B.738
Treasury Decisions:
9601, 2013-10 I.R.B.535
9603, 2013-3 I.R.B.273
9605, 2013-11 I.R.B.587
9606, 2013-11 I.R.B.586
9607, 2013-6 I.R.B.469
Treasury Decisions— Continued:
9608, 2013-3 I.R.B.274
9609, 2013-12 I.R.B.655
9610, 2013-15 I.R.B.765
9611, 2013-13 I.R.B.699
9612, 2013-13 I.R.B.678
9613, 2013-15 I.R.B.900
9614, 2013-17 I.R.B.947
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2012–27 through 2012–52 is in Internal Revenue Bulletin
2012–52, dated December 27, 2012.
2013–17 I.R.B.iiApril 22, 2013

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2013–1 through 2013–17
Announcements:
2012-42
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2013-12
Supplemented by
Ann. 2013-22, 2013-17 I.R.B.981
Notices:
2000-45
Modified and superseded by
Notice 2013-18, 2013-14 I.R.B.742
2010-60
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2011-14
Amplified and supplemented by
Notice 2013-7, 2013-6 I.R.B.477
2011-34
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2011-38
Obsoleted by
REG-148873-09, 2013-7 I.R.B.494
2011-53
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2012-60
Superseded by
Notice 2013-1, 2013-3 I.R.B.281
2013-1
Modified and superseded by
Notice 2013-16, 2013-14 I.R.B.740
87-64
Obsoleted by
T.D. 9614, 2013-17 I.R.B.947
Proposed Regulations:
REG-140668-07
Corrected by
Ann. 2013-6, 2013-3 I.R.B.307
Revenue Procedures:
87-57
Modified by
Rev. Proc. 2013-13, 2013-6 I.R.B.478
Revenue Procedures— Continued:
2004-66
Modified and superseded by
Rev. Proc. 2013-11, 2013-2 I.R.B.269
2008-35
Modified and superseded by
Rev. Proc. 2013-14, 2013-3 I.R.B.283
2008-50
Modified and superseded by
Rev. Proc. 2013-12, 2013-4 I.R.B.313
2011-14
Modified by
Rev. Proc. 2013-20, 2013-14 I.R.B.744
2011-49
Modified by
Rev. Proc. 2013-6, 2013-1 I.R.B.198
2011-52
Modified and partly superseded by
Rev. Proc. 2013-15, 2013-5 I.R.B.444
2011-55
Amplified and supplemented by
Notice 2013-7, 2013-6 I.R.B.477
2011-61
Superseded by
Rev. Proc. 2013-17, 2013-11 I.R.B.612
2011-62
Superseded by
Rev. Proc. 2013-18, 2013-8 I.R.B.503
2012-1
Superseded by
Rev. Proc. 2013-1, 2013-1 I.R.B.1
2012-2
Superseded by
Rev. Proc. 2013-2, 2013-1 I.R.B.92
2012-3
Superseded by
Rev. Proc. 2013-3, 2013-1 I.R.B.113
2012-4
Superseded by
Rev. Proc. 2013-4, 2013-1 I.R.B.126
2012-5
Superseded by
Rev. Proc. 2013-5, 2013-1 I.R.B.170
2012-6
Superseded by
Rev. Proc. 2013-6, 2013-1 I.R.B.198
2012-7
Superseded by
Rev. Proc. 2013-7, 2013-1 I.R.B.233
Revenue Procedures— Continued:
2012-8
Superseded by
Rev. Proc. 2013-8, 2013-1 I.R.B.237
2012-9
Superseded by
Rev. Proc. 2013-9, 2013-2 I.R.B.255
2012-10
Superseded by
Rev. Proc. 2013-10, 2013-2 I.R.B.267
2012-30
Corrected and clarified by
Ann. 2013-3, 2013-2 I.R.B.271
Updated by
Ann. 2013-10, 2013-3 I.R.B.311
2012-46
Corrected by
Ann. 2013-11, 2013-6 I.R.B.483
2013-1
Corrected by
Ann. 2013-9, 2013-4 I.R.B.441
2013-6
Revised by
Ann. 2013-15, 2013-11 I.R.B.652
Corrected by
Ann. 2013-13, 2013-9 I.R.B.532
2013-14
Modified by
Rev. Proc. 2013-19, 2013-11 I.R.B.648
Revenue Rulings:
92-19
Supplemented in part by
Rev. Rul. 2013-4, 2013-9 I.R.B.520
Treasury Decisions:
9564
Corrected by
Ann. 2013-4, 2013-4 I.R.B.440
Amended by
Ann. 2013-7, 2013-3 I.R.B.308
9604
Corrected by
Ann. 2013-19, 2013-14 I.R.B.760
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2012–27 through 2012–52 is in Internal Revenue Bulletin 2012–52, dated December 27,
2012.
April 22, 2013iii2013–17 I.R.B.

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