TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, July 14, 2012

IRS Stops Companies From Evading Repatriation Tax

IRS Logo 2Bloomberg:  IRS Ends Deals That Let Companies Avoid Repatriation Tax, by Richard Rubin:

The IRS will prevent companies from entering into transactions that allow them to tap their offshore cash stockpiles without paying taxes, the government said. “The IRS and the Treasury Department believe that these transactions raise significant policy concerns,” the agencies said in a notice today [Notice 2012-39]. The government plans to write regulations to enforce the change, and those rules will take effect today. “This is what they do when they want to close down a transaction they find objectionable and they don’t know exactly how they want to do it,” said Robert Willens, a corporate tax consultant in New York....

The IRS notice describes two types of transactions it is trying to prevent and says the agency is “aware” that taxpayers are engaging in them. One involves selling a patent from a U.S. company to a foreign subsidiary without triggering an immediate U.S. tax. In the other type of transaction, a company uses its offshore money to purchase a U.S. company and quickly reorganizes to move the purchased company outside the U.S. Willens said the second transaction is likely the way that New Brunswick, New Jersey-based Johnson & Johnson (JNJ) used one of its foreign subsidiaries to purchase Synthes Inc., based in West Chester, Pennsylvania.

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