‘Busted' Reorganizations Could Be Treated as Covered Asset Acquisitions

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Sept. 19 — The government is considering expanding the types of transactions it will consider covered asset acquisitions for purposes of denying the foreign tax credit under tax code Section 901(m), Treasury Department and IRS officials said.
Under that code section, taxpayers won't get the foreign credit if they have used such acquisitions to exempt their foreign income from U.S. taxes, the officials said at the fall meeting of the American Bar Association in Denver. Currently, covered asset acquisitions include elections under tax code Section 338(h).
Both Brenda Zent, a taxation specialist in the Treasury Office of International Tax Counsel, and Douglas Poms, senior counsel in that office, said the government is thinking about including situations where taxpayers “bust” tax-free reorganizations under Section 351 so those transactions will be purposely taxable.