IRS to Issue Inversion Regulations ‘in the Coming Months’

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Dec. 4 — The IRS is “very far along” in drafting the regulations implementing Notices 2014-52 and 2015-79, which are designed to dampen the incentive for U.S. companies to move to lower-tax countries through mergers, an IRS official said.

Daniel M. McCall, special counsel to the Internal Revenue Service deputy associate chief counsel (International), told tax practitioners Dec. 3 that temporary regulations will be issued “in the coming months” to replace the less formal notices on corporate inversion transactions.

In the 2014 notice, Treasury outlined proposed rules to curb tax-free access to U.S. company earnings held overseas and maneuvers to skirt ownership requirements by altering a company's size to gain tax benefits from an inversion (185 DTR G-8, 9/24/14).

Notice 2015-79, issued in November, is for the most part prospective but signals the government's continued efforts to make these deals tougher and less attractive (224 DTR GG-1, 11/20/15).

McCall, who previously practiced international tax at Skadden, Arps, Slate, Meagher & Flom LLP in Washington, said the regulations implementing the inversion notices will address “most if not all of the issues that have been raised.” More regulations relating to inversion deals will follow in the future, he added.

“We do intend to issue additional guidance and we are still very mindful of the type of planning that's out there. We're always interested in what's new and what else is being done,” McCall said during a Practising Law Institute conference in Los Angeles. “I don't see this as the last attempt at writing guidance dealing with inversions.”

‘Congressional Inaction.’

McCall also pointed to the fact that Treasury Secretary Jacob J. Lew has expressed that all inversion-related problems can't be resolved through the executive branch alone. The issue requires congressional action, he explained.

“Treasury Secretary Lew has been very clear that the best way to address inversion transactions is through comprehensive business tax reform, and at the same time the administration has decided not to let congressional inaction on that topic prevent a response to inversion transactions,” McCall told tax professionals. “What the first notice and the second notice and any future guidance represent is the government doing what it can to address inversion transactions.”

Section 901(m) Guidance

McCall further assured PLI conference attendees that regulations providing guidance for Section 901(m) of the Internal Revenue Code, which was enacted in 2010 to limit certain foreign tax credit benefits, is coming “relatively soon.”

“As complex as the project is, I'm optimistic that not too far into the next year we will have guidance, pretty substantial guidance,” McCall said. “It's pretty far along.”

McCall told Bloomberg BNA after the panel that Section 901 is “one of the main tax code provisions that deals with the foreign tax credit” and that there are “all sorts of tighteners,” such as 901(m), that have been enacted over decades.

To contact the reporter on this story: David McAfee in Los Angeles at dmcafee@bna.com
To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com