New IRS Guidance Addresses Transfers of Intangible Assets to Foreign Corporations

The United States Internal Revenue Service recently issued guidelines on how it intends to treat certain transfers of patents, trademarks and other intangible assets from U.S. corporations to foreign entities.  In Notice 2012-39, the IRS addressed its concern that “that certain taxpayers are engaging in transactions intended to repatriate earnings from foreign corporations without the appropriate recognition of income.”

Section 367(d) of the Internal Revenue Code governs the tax treatment of income or gain arising from certain transfers of  intangible property by a U.S. entity to a foreign corporation.  In the Notice, the IRS announced its plan to issue regulations that “will ensure that, with respect to all outbound section 367(d) transfers, the total income to be taken into account under section 367(d) is either included in income by the U.S. transferor in the year of the reorganization or, where appropriate, over time by one or more qualified successors.”

The Notice provides examples of transactions that will be covered by the regulations.  Although the regulations are not yet published as of the date of this post, the Notice states that they will be effective to all transactions that occur July 13, 2012 or later.  Thus, corporations considering an outbound transfer of intangible assets should carefully study the Notice to ensure that they understand the tax implications of the transaction under the upcoming rules.

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