Friday, March 29, 2019
Doron Narotzki (Akron) presents Code Section 304: The Gift That Keeps on Giving at Florida today as part of its Tax Colloquium Series:
One central focus of the Tax Cuts and Jobs Act (TCJA) was to encourage U.S. international firms to “bring back earning to the U.S.” In an attempt to achieve this goal, the legislation enacted new Code Section 245A, which provides for a 100% dividend received deduction (DRD) to U.S. corporations for certain foreign-sourced dividend distributions. Code Section 304 requires the reclassification of stock sales between affiliated corporations as dividends. However, for many years, Code Section 304 was not fulfilling the original “antiavoidance” tax policy that was behind its legislation, as is explained in this paper. Currently, the TCJA has created a unique opportunity to utilize Code Section 304 and Code Section 245A via a much more powerful tax-planning tool.
By utilizing the rules related to redemptions by related corporations under (purportedly) anti-abuse provisions of Internal Revenue Code, Code Section 304 combined with the new 100% DRD of Code Section 245A, extracting earnings from affiliated foreign corporations tax-free has never been easier. The goal of this paper is to discuss the interaction between Code Sections 304 and 245A and the micro-policy behind these two code sections. This paper will discuss these two Code Sections, explain how they interact with each other, and finally suggest a legislative solution to fix this result and to achieve parity between domestic U.S. corporations and foreign corporations