Gain Recognition Agreements And Outbound Stock Transfers

GRAs and Section 367(a)(1) Outbound Stock Transfer Rules Overview

Introduction to Section 367(a)(1), Outbound Stock Transfers, and Gain Recognition Agreements

Section 367(a) of the Internal Revenue Code (the "Code") governs the outbound transfer of property by a U.S. person to a foreign corporation in certain non-recognition transactions. If section 367(a) is triggered the relevant non-recognition provision is "turned off" and the U.S. person that transferred the property outbound must recognize gain on the transfer. The section 367(a) outbound transfer can be of stock or non-stock assets. If the section 367(a) outbound transfer is a stock transfer ("transferred stock") the U.S. person may be able to avoid gain recognition if: (i) the U.S. person is a five percent or greater shareholder of the recipient corporation (the "transferee foreign corporation") and (ii) the U.S. person enters into a five-year gain recognition agreement ("GRA") with respect to the