Divisive Reorganizations

For purposes of international reorganization rules, the terms ''distributing corporation'' and ''controlled corporation'' have the same meaning. However, a distinction is made between the distributing group and the controlled group when the issue revolves around allocation of earnings and profit. The US preserves its tax jurisdiction over the US shareholder of the distributing foreign corporation who exchanges stock of same in return for stock of the controlled corporation. The rules governing these and related exchanges are contained in Code Section 367. The statutory aim of that section is to inhibit the repatriation of controlled foreign corporation (CFC) earnings and profits by US shareholders. The Internal Revenue Service (IRS) has been strongly criticized for its interpretation of this section and its ramifications. However, in light of the inherent complexity surrounding transactions of this nature, it is suggested the IRS has done a commendable job of putting together an equitable regulatory framework.