James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
A Change in Form: F Reorganizations in Foreign Context
Author: James F. McDonough
Date: March 4, 2014
Key Contacts
Back
Reorganizations under IRC §368(a)(1)(F) (“F Reorganizations”) are mere changes in form, such as changing a state of incorporation. This change may be made for any number of reasons, although choice of law or no longer doing business in the state are common. F Reorganizations in the international context involve consideration of many more substantive issues.
One must consider international tax law as the backdrop. PLR 201328003 sets forth a factual background of a structure used in international settings. It involves a foreign entity that has several subsidiaries, all of whom are disregarded. Taxpayers may obtain a benefit from making the check-the-box election to convert a foreign business entity into an entity that is disregarded for federal income tax purposes (DRE). DREs allow taxpayers to navigate the complex world of international taxation more efficiently. Consider that Subpart F taxes income that is not derived from an active trade or business or is re-routed through or to tax advantaged jurisdictions. The essence of the Subpart F regime is the taxation of income that is not repatriated, for whatever reason, to the U.S. Another set of rules faced by corporations is the foreign tax credit (FTC). The U.S. taxes worldwide income, which includes income earned and taxed in foreign jurisdictions. The FTC brings with it certain computational difficulties and limitations.
Some complexity can be eliminated through the use of DRE. PLR 201328003 describes such a DRE structure that was crafted to adapt to these rules. Foreign parent (“FP”) owns Target which is formed under the laws of a foreign country. Target owns several subsidiaries. Target filed to domesticate itself in a state, which was a taxable transaction. Despite the inbound taxable event, the tiered subsidiaries were all disregarded entities. DREs are branches of the parent, in this case the Target. One of the unique features of DRE’s is that they allow what is, in effect, consolidated return groups to be formed across borders. The benefit of this feature is the ability of a corporation to combine activities of entities in several different countries to avoid, to a degree, Subpart F and FTC.
Some jurisdictions allow for cross-border consolidations and advertise this attractive feature. Although the U.S. does not permit consolidated groups to include non-U.S. companies, use of DRE’s accomplishes the same.
- Practices: Tax and Trusts & Estates
- Locations: Red Bank, NJ, New York City, Little Falls, NJ
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
How Can Trusts Be Used in Business Succession?
For many New Jersey business owners, a closely held company represents decades of work, financial investment, and personal sacrifice. Trusts in business succession planning are one of the most effective tools for protecting that value, allowing founders to control how and when the business passes to the next generation while reducing the risk of disputes, […]
Author: George McGowan
Read Before You Sign: IT Contract Pitfalls Every NJ Business Should Know
In today’s digital economy, New Jersey businesses of all sizes rely heavily on technology vendors, software providers, cloud platforms, and managed IT services. Whether your company is purchasing software, migrating data to the cloud, engaging a cybersecurity consultant, or entering into a long-term managed services agreement, a careful IT contract review can have significant operational, […]
Author: George McGowan
New York NDA Requirements for Businesses
Non-disclosure agreements (NDAs) remain a critical tool for protecting sensitive business information. However, New York NDA requirements have evolved, and businesses must ensure these agreements are carefully drafted to remain enforceable. In a competitive market like New York City, NDAs are commonly used to protect proprietary information, client relationships, and strategic plans. At the same […]
Author: Dan Brecher
New Jersey Will Contest Grounds Explained
How Courts Evaluate Testamentary Capacity and Undue Influence Will contests in New Jersey are difficult to win, given the strong presumption that a properly executed will reflects the testator’s intent. However, challenges based on lack of testamentary capacity and undue influence remain common, particularly where there are concerns about mental capacity or the involvement of […]
Author: Marc J. Comer
Legal Issues Before Bringing on Investors
Bringing on outside investors can provide the capital and strategic support a business needs to grow. However, raising capital also introduces important legal, financial, and operational considerations. Before bringing on investors, businesses should address key legal issues to reduce risk, streamline investor due diligence, and position the company for long-term success. Early preparation signals that […]
Author: Dan Brecher
SECURE 2.0 RMD Planning Strategies
How the Updated Law Shapes Retirement and Estate Planning The SECURE 2.0 Act of 2022 materially reshapes the required minimum distribution (RMD) landscape, extending tax deferral opportunities while accelerating distribution requirements for many beneficiaries. For high-net-worth individuals and families, these changes are not merely technical. They require a reassessment of retirement income strategies, beneficiary planning, […]
Author: Marc J. Comer
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.