New Proposed 'Killer B' Regulations Reduce Compliance Sting

On October 5, the U.S. Treasury released long-awaited proposed regulations regarding inbound cross-border reorganizations, implementing (with modifications) policies that had been announced in 2014 and 2016 notices. These proposed regulations are the latest in a long-running battle against different variations of the so-called "Killer B" transaction, triangular reorganizations designed to effect the tax-free repatriation of earnings held by non-U.S. subsidiaries of U.S. corporations.

In the classic "Killer B" transaction, a foreign subsidiary (FS) of a U.S. parent (USP) would purchase USP stock from USP in exchange for property (including cash), and then use that USP stock to acquire stock of another foreign subsidiary of USP (FT) from a domestic affiliate of USP (USS). Although the result of the transaction was the repatriation of the property used to purchase USP stock, taxpayers would take the position that the purchase of USP stock was tax-free under Section