- The IRS has finalized regulations on how some liabilities are treated in intragroup Section 351 transactions between members of a consolidated group. They generally adopt the 2024 proposed regulations.
- Liabilities described in Section 357(c)(3)(A), other than those also described in Section 357(c)(3)(B), are excluded from the liabilities treated as money received under Section 358(d).
- The rule adds certainty for internal restructurings. Groups should consider it when modeling and documenting intragroup Section 351 transfers and when computing consolidated return stock basis for divestitures or dispositions.
These Key Takeaways were generated by AI and reviewed by a BDO professional.
The IRS has finalized regulations (T.D. 10059) addressing the treatment of some liabilities in intragroup Section 351 transactions involving members of a consolidated group. The final regulations provide additional certainty regarding basis consequences in specified intragroup transfers.
Background
Section 357(c) generally requires gain recognition when liabilities assumed in some nonrecognition transactions exceed the adjusted basis of the transferred assets. Although the consolidated return regulations provide that Section 357(c) does not apply to transactions governed by the intercompany transaction rules, uncertainty remained regarding the stock basis consequences of some intragroup Section 351 exchanges involving liabilities described in Section 357(c)(3)(A).
Final Regulations
On October 16, the IRS finalized regulations clarifying that, in specified intragroup Section 351 transactions, liabilities described in Section 357(c)(3)(A), other than liabilities also described in Section 357(c)(3)(B), are excluded from the liabilities treated as money received under Section 358(d). Accordingly, those liabilities do not reduce the transferor's basis in the transferee stock. The regulations generally adopt the 2024 proposed regulations, with nonsubstantive revisions.
BDO Insights
- The final regulations provide useful certainty for consolidated groups undertaking internal restructurings by preventing an additional stock basis reduction for the specified liabilities. Groups should consider the rule when modeling and documenting intragroup Section 351 transfers.
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