Code Sec. 367(a) and (d) subject to taxation a transfer of tangible and intangible property by a U.S. person to a foreign corporation in an otherwise tax-free transaction. While for many years exceptions were provided for transfers of certain types of property, the Tax Cuts and Jobs Act (“TCJA”) amended Code Sec. 367, removing the exceptions and broadening the definition of intangible property.

Specifically, Code Sec. 367(a)(1) provides generally that gain realized on the transfer of property by a U.S. person to a foreign corporation is subject to taxation. Former Code Sec. 367(a)(3) had provided an exception for property transferred to a foreign corporation for use in an active trade or business outside the United States. For example, this exception was available for the transfer of a foreign plant and equipment. The exception did not apply to a transfer of inventory, accounts receivable, intangible property within the meaning of former Code Sec. 936(h)(3) (B), or foreign currency. The TCJA eliminated this exception, such that gain on a transfer of property by a US person to a foreign corporation is now subject to immediate taxation, except for property subject to Code Sec. 367(d).

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Originally published by International Tax Journal: November/December 2019