Final Regulations Retroactively Affect Nonrecognition On Outbound Transfers Of Foreign Goodwill

The Treasury Department and the IRS recently issued final regulations relating to certain transfers of property by U.S. persons to foreign corporations (T.D. 9803). These final regulations generally adopt proposed regulations (REG–139483–13) issued in 2015, as well as portions of temporary regulations (T.D. 8087) issued in 1986. The final regulations eliminate the so-called "foreign goodwill exception" and limit the scope of the active trade or business exception relating to certain transfers of property by U.S. persons to foreign corporations.

The regulations primarily affect domestic corporations that transfer property to foreign corporations in certain outbound nonrecognition exchanges. The final regulations eliminate favorable treatment for foreign goodwill and going concern value. First, the regulations remove the foreign goodwill exception that provides that foreign goodwill and going concern value is not subject to Section 367(d). Second, the regulations narrow