The IRS on Wednesday issued final regulations (T.D. 9994) that, in certain cases, terminate the continued application of Sec. 367(d) when intangible property is repatriated to certain U.S. persons after being previously transferred to a foreign corporation.

Sec. 367(d) provides rules for outbound transfers of intangible property by a U.S. person to a foreign corporation. Specifically, the U.S. transferor is treated as receiving amounts that reasonably reflect the amounts that would have been received annually in the form of such payments over the useful life of the intangible property or, in the case of a direct or indirect disposition of the intangible property following the transfer, at the time of the disposition.

The final regulations make slight changes to the proposed regulations (REG-124064-19) published in May 2023. For example, the final regulations clarify Prop. Regs. Sec. 1.367(d)-1(f)(5) by striking the last clause that appeared in the second sentence, which described the consequences of a failure to comply.

The IRS noted in the preamble to the proposed regulations that both it and Treasury were aware that some taxpayers are considering whether to repatriate previously transferred intangible property. The regulations in Sec. 367(d) do not distinguish between subsequent transfers of intangible property made to a related U.S. or foreign person, so there is a concern that, in certain cases, the Sec. 367(d) regulations "can inappropriately require the U.S. transferor to continue recognizing an annual section 367(d) inclusion even if the subsequent transfer is to a related U.S. person that will recognize the income derived from the intangible property," the IRS said.

Continuing to apply Sec. 367(d) in these situations "could result in excessive U.S. taxation and may disincentivize certain repatriations of intangible property," according to the IRS. Thus, the proposed regulations would, in certain cases, terminate the continued application of Sec. 367(d) if intangible property is repatriated to certain U.S. persons that are subject to U.S. taxation with respect to the income derived from the intangible property.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.