The Treasury Department recently published a notice of proposed
rulemaking (REG-139633-08) announcing the withdrawal of
proposed regulations that required an exchange of net value in
certain nonrecognition transactions subject to Sections 351, 368,
and 332.
In 2005, the IRS published the net value proposed regulations
(REG–163314–03). The proposed
regulations were intended to replace a disparate and sometimes
contradictory group of authorities on net value requirements with
an “appropriate unifying standard” applicable to the
major nonrecognition rules under subchapter C (e.g. Sections 351,
368, and 332).
The proposed regulations applied to contributions under Section
351 and reorganizations under Section 368 by adding the following
requirements: (1) that the fair market value of the property
transferred be greater than the amount of liabilities assumed by
the transferee; and (2) that immediately after the transfer, the
transferee’s assets have a fair market value
