Title 26 — Internal Revenue CodeRelease 119-73
§367 Foreign corporations
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter C— - Corporate Distributions and Adjustments › Part PART III— - CORPORATE ORGANIZATIONS AND REORGANIZATIONS › Subpart Subpart D— - Special Rule; Definitions › § 367
Summary
When a United States person transfers property to a foreign company as part of certain tax-free reorganizations or exchanges (sections 332, 351, 354, 356, or 361), the transfer is not treated the same as a normal corporate transfer for deciding how much gain must be taxed. Transfers of stock or securities are generally excluded unless rules say otherwise. A transfer of a partnership interest is treated as giving your share of the partnership’s assets. The Secretary can make rules that change these results for particular property or situations. The rule about stock exclusions does not apply to exchanges under section 361(a) or (b), except when the transferor is controlled by 5 or fewer domestic corporations (affiliated group members count as one). If no property moves in those exchanges, a foreign company is treated as a corporation unless Treasury issues rules to stop tax avoidance. Treasury must make rules about selling or trading foreign stock, when gain is taxed now or later, and how to adjust earnings and basis. Special rules apply if a U.S. person transfers intangible property to a foreign company in exchanges under section 351 or 361: the transferor is treated as if they sold the intangible for contingent payments that reflect yearly income or the sale price on later disposition, the foreign company’s earnings are reduced by amounts included in the transferor’s income, and those amounts are ordinary income. Intangible property includes things like patents, copyrights, trademarks, contracts, methods, goodwill, customer lists, and other nonphysical value. Distributions under section 355 to non-U.S. persons and certain liquidations and capital contributions have similar or related rules, and a contribution of property to capital outside these rules is treated as a sale at fair market value with gain equal to that value minus the transferor’s adjusted basis.
Full Legal Text
Title 26, §367
Internal Revenue Code — Source: USLM XML via OLRC
(a)(1)If, in connection with any exchange described in section 332, 351, 354, 356, or 361, a United States person transfers property to a foreign corporation, such foreign corporation shall not, for purposes of determining the extent to which gain shall be recognized on such transfer, be considered to be a corporation.
(2)Except to the extent provided in regulations, paragraph (1) shall not apply to the transfer of stock or securities of a foreign corporation which is a party to the exchange or a party to the reorganization.
(3)Except as provided in regulations prescribed by the Secretary, a transfer by a United States person of an interest in a partnership to a foreign corporation in an exchange described in paragraph (1) shall, for purposes of this subsection, be treated as a transfer to such corporation of such person’s pro rata share of the assets of the partnership.
(4)Paragraph (2) shall not apply in the case of an exchange described in subsection (a) or (b) of section 361. Subject to such basis adjustments and such other conditions as shall be provided in regulations, the preceding sentence shall not apply if the transferor corporation is controlled (within the meaning of section 368(c)) by 5 or fewer domestic corporations. For purposes of the preceding sentence, all members of the same affiliated group (within the meaning of section 1504) shall be treated as 1 corporation.
(5)Paragraph (1) shall not apply to the transfer of any property which the Secretary, in order to carry out the purposes of this subsection, designates by regulation.
(b)(1)In the case of any exchange described in section 332, 351, 354, 355, 356, or 361 in connection with which there is no transfer of property described in subsection (a)(1), a foreign corporation shall be considered to be a corporation except to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes.
(2)The regulations prescribed pursuant to paragraph (1) shall include (but shall not be limited to) regulations dealing with the sale or exchange of stock or securities in a foreign corporation by a United States person, including regulations providing—
(A)the circumstances under which—
(i)gain shall be recognized currently, or amounts included in gross income currently as a dividend, or both, or
(ii)gain or other amounts may be deferred for inclusion in the gross income of a shareholder (or his successor in interest) at a later date, and
(B)the extent to which adjustments shall be made to earnings and profits, basis of stock or securities, and basis of assets.
(c)(1)For purposes of this section, any distribution described in section 355 (or so much of section 356 as relates to section 355) shall be treated as an exchange whether or not it is an exchange.
(2)For purposes of this chapter, any transfer of property to a foreign corporation as a contribution to the capital of such corporation by one or more persons who, immediately after the transfer, own (within the meaning of section 318) stock possessing at least 80 percent of the total combined voting power of all classes of stock of such corporation entitled to vote shall be treated as an exchange of such property for stock of the foreign corporation equal in value to the fair market value of the property transferred.
(d)(1)Except as provided in regulations prescribed by the Secretary, if a United States person transfers any intangible property to a foreign corporation in an exchange described in section 351 or 361—
(A)subsection (a) shall not apply to the transfer of such property, and
(B)the provisions of this subsection shall apply to such transfer.
(2)(A)If paragraph (1) applies to any transfer, the United States person transferring such property shall be treated as—
(i)having sold such property in exchange for payments which are contingent upon the productivity, use, or disposition of such property, and
(ii)receiving amounts which reasonably reflect the amounts which would have been received—
(I)annually in the form of such payments over the useful life of such property, or
(II)in the case of a disposition following such transfer (whether direct or indirect), at the time of the disposition.
(B)For purposes of this chapter, the earnings and profits of a foreign corporation to which the intangible property was transferred shall be reduced by the amount required to be included in the income of the transferor of the intangible property under subparagraph (A)(ii).
(C)For purposes of this chapter, any amount included in gross income by reason of this subsection shall be treated as ordinary income. For purposes of applying section 904(d), any such amount shall be treated in the same manner as if such amount were a royalty.
(D)For purposes of the last sentence of subparagraph (A), the Secretary shall require—
(i)the valuation of transfers of intangible property, including intangible property transferred with other property or services, on an aggregate basis, or
(ii)the valuation of such a transfer on the basis of the realistic alternatives to such a transfer,
(3)The Secretary may provide by regulations that the rules of paragraph (2) also apply to the transfer of intangible property by a United States person to a partnership in circumstances consistent with the purposes of this subsection.
(4)For purposes of this subsection, the term “intangible property” means any—
(A)patent, invention, formula, process, design, pattern, or know-how,
(B)copyright, literary, musical, or artistic composition,
(C)trademark, trade name, or brand name,
(D)franchise, license, or contract,
(E)method, program, system, procedure, campaign, survey, study, forecast, estimate, customer list, or technical data,
(F)goodwill, going concern value, or workforce in place (including its composition and terms and conditions (contractual or otherwise) of its employment), or
(G)other item the value or potential value of which is not attributable to tangible property or the services of any individual.
(e)(1)In the case of any distribution described in section 355 (or so much of section 356 as relates to section 355) by a domestic corporation to a person who is not a United States person, to the extent provided in regulations, gain shall be recognized under principles similar to the principles of this section.
(2)In the case of any liquidation to which section 332 applies, except as provided in regulations, subsections (a) and (b)(1) of section 337 shall not apply where the 80-percent distributee (as defined in section 337(c)) is a foreign corporation.
(f)To the extent provided in regulations, if a United States person transfers property to a foreign corporation as paid-in surplus or as a contribution to capital (in a transaction not otherwise described in this section), such transfer shall be treated as a sale or exchange for an amount equal to the fair market value of the property transferred, and the transferor shall recognize as gain the excess of—
(1)the fair market value of the property so transferred, over
(2)the adjusted basis (for purposes of determining gain) of such property in the hands of the transferor.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Codification Another section 1131(b) of Pub. L. 105–34 enacted section 684 of this title.
Amendments
2018—Subsec. (d)(1). Pub. L. 115–141, § 401(d)(1)(D)(viii)(II), struck out “(within the meaning of section 936(h)(3)(B))” after “intangible property” in introductory provisions. Subsec. (d)(4). Pub. L. 115–141, § 401(d)(1)(D)(viii)(I), added par. (4). 2017—Subsec. (a)(3). Pub. L. 115–97, § 14102(e)(1), redesignated par. (4) as (3) and struck out former par. (3) which related to exception for transfers of certain property used in the active conduct of a trade or business. Subsec. (a)(4). Pub. L. 115–97, § 14102(e)(1), (2), redesignated par. (5) as (4) and substituted “Paragraph (2)” for “Paragraphs (2) and (3)” in heading and text. Former par. (4) redesignated (3). Subsec. (a)(5), (6). Pub. L. 115–97, § 14102(e)(1), redesignated pars. (5) and (6) as (4) and (5), respectively. Subsec. (d)(2)(D). Pub. L. 115–97, § 14221(b)(1), added subpar. (D). 2004—Subsec. (d)(2)(C). Pub. L. 108–357 inserted at end “For purposes of applying section 904(d), any such amount shall be treated in the same manner as if such amount were a royalty.” 1999—Subsec. (a)(3)(B)(i). Pub. L. 106–170 substituted “section 1221(a)” for “section 1221”. 1997—Subsec. (d)(2)(C). Pub. L. 105–34, § 1131(b)(4), amended heading and text of subpar. (C) generally. Prior to amendment, text read as follows: “For purposes of this chapter, any amount included in gross income by reason of this subsection shall be treated as ordinary income from sources within the United States.” Subsec. (d)(3). Pub. L. 105–34, § 1131(b)(5)(A), added par. (3). Subsec. (f). Pub. L. 105–34, § 1131(b)(2), added subsec. (f). 1990—Subsec. (a)(5). Pub. L. 101–508 substituted “subsection (a) or (b) of section 361” for “section 361”. 1988—Subsec. (a)(5), (6). Pub. L. 100–647 added par. (5) and redesignated former par. (5) as (6). 1986—Subsec. (a)(1). Pub. L. 99–514, § 1810(g)(4)(A), struck out “355,” after “354,”. Subsec. (d)(2)(A). Pub. L. 99–514, § 1231(e)(2), inserted at end “The amounts taken into account under clause (ii) shall be commensurate with the income attributable to the intangible.” Subsec. (e). Pub. L. 99–514, § 631(d)(1), amended subsec. (e) generally. Prior to amendment, subsec. (e), treatment of distributions described in section 336 or 355, read as follows: “In the case of any distribution described in section 336 or 355 (or so much of section 356 as relates to section 355) by a domestic corporation which is made to a person who is not a United States person, to the extent provided in
Regulations
, gain shall be recognized under principles similar to the principles of this section.” Subsec. (f). Pub. L. 99–514, § 1810(g)(1), struck out subsec. (f) which related to transitional rules in the case of any exchanges beginning before Jan. 1, 1978. Pub. L. 99–514, § 1810(g)(4)(B), in heading substituted “distributions described in section 336 or 355” for “liquidations under section 336”, and in text inserted “or 355 (or so much of section 356 as relates to section 355)”. 1984—Subsec. (a). Pub. L. 98–369, § 131(a), amended subsec. (a) generally, revising provisions of pars. (1) and (2), and adding pars. (3) to (5). Subsec. (d). Pub. L. 98–369, § 131(b), amended subsec. (d) generally, substituting provision providing special rules relating to transfers of intangibles for provision providing special rules relating to transfers of intangibles by possession corporation. Subsecs. (e), (f). Pub. L. 98–369, § 131(c), added subsec. (e) and redesignated former subsec. (e) as (f). 1982—Subsecs. (d), (e). Pub. L. 97–248 added subsec. (d) and redesignated former subsec. (d) as (e). 1976—Pub. L. 94–455, among other changes, inserted provisions permitting nonrecognition of gain if a request for a ruling that tax avoidance is not present is filed within 183 days after beginning of an exchange, relating to an organization, reorganization, and liquidation of a foreign corporation, in the case of outbound transfers, however, for all other transfers,
Regulations
are to provide the extent that earnings are to be taken into account as dividends and provisions relating to Tax Court review of the tax avoidance rulings. 1971—Subsec. (a). Pub. L. 91–681 designated existing provisions as subsec. (a), and, as so designated, inserted provisions relating to instances of an exchange, described in subsec. (b). Provisions relating to distributions described in section 355 (or so much of section 356 as relates to section 355) were stricken and were transferred to subsec. (c). Subsec. (b). Pub. L. 91–681 added subsec. (b). Subsec. (c). Pub. L. 91–681 designated as subsec. (c) provisions relating to distribution described in section 355 (or so much of section 356 as relates to section 355). Subsec. (d). Pub. L. 91–681 added subsec. (d).
Statutory Notes and Related Subsidiaries
Effective Date
of 2017 Amendment Pub. L. 115–97, title I, § 14102(e)(3), Dec. 22, 2017, 131 Stat. 2195, provided that: “The
Amendments
made by this subsection [amending this section] shall apply to transfers after December 31, 2017.” Pub. L. 115–97, title I, § 14221(c)(1), Dec. 22, 2017, 131 Stat. 2219, provided that: “The
Amendments
made by this section [amending this section and section 482 and 936 of this title] shall apply to transfers in taxable years beginning after December 31, 2017.”
Effective Date
of 2004 Amendment Pub. L. 108–357, title IV, § 406(b), Oct. 22, 2004, 118 Stat. 1498, provided that: “The amendment made by this section [amending this section] shall apply to amounts treated as received pursuant to section 367(d)(2) of the Internal Revenue Code of 1986 on or after August 5, 1997.”
Effective Date
of 1999 AmendmentAmendment by Pub. L. 106–170 applicable to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. L. 106–170, set out as a note under section 170 of this title.
Effective Date
of 1997 Amendment Pub. L. 105–34, title XI, § 1131(d), Aug. 5, 1997, 111 Stat. 980, provided that: “The
Amendments
made by this section [enacting section 684 of this title, amending this section and section 721, 814, 1035, and 6422 of this title, and repealing section 1057, 1491, 1492, and 1494 of this title] shall take effect on the date of the enactment of this Act [Aug. 5, 1997].”
Effective Date
of 1990 AmendmentAmendment by Pub. L. 101–508 effective as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 11702(j) of Pub. L. 101–508, set out as a note under section 59 of this title.
Effective Date
of 1988 Amendment Pub. L. 100–647, title I, § 1006(e)(13)(B), Nov. 10, 1988, 102 Stat. 3402, provided that: “The amendment made by subparagraph (A) [amending this section] shall apply to exchanges on or after
June 21, 1988, except that such amendment shall not apply to any exchange pursuant to any reorganization for which a plan of reorganization was adopted before
June 21, 1988.”
Effective Date
of 1986 AmendmentAmendment by section 631(d)(1) of Pub. L. 99–514 applicable to any distribution in complete liquidation, and any sale or exchange, made by a corporation after July 31, 1986, unless such corporation is completely liquidated before Jan. 1, 1987, any transaction described in section 338 of this title for which the acquisition date occurs after Dec. 31, 1986, and any distribution, not in complete liquidation, made after Dec. 31, 1986, with exceptions and special and transitional rules, see section 633 of Pub. L. 99–514, set out as an
Effective Date
note under section 336 of this title. Pub. L. 99–514, title XII, § 1231(g), Oct. 22, 1986, 100 Stat. 2563, as amended by Pub. L. 100–647, title I, § 1012(n)(1)–(3), Nov. 10, 1988, 102 Stat. 3514, provided that: “(1) In general.—Except as provided in paragraphs (2) and (3), the
Amendments
made by this section [amending this section and section 482 and 936 of this title] shall apply to taxable years beginning after December 31, 1986. “(2) Special rule for transfer of intangibles.—“(A) In general.—The
Amendments
made by subsection (e) [amending this section and section 482 of this title] shall apply to taxable years beginning after
December 31, 1986, but only with respect to transfers after
November 16, 1985, or licenses granted after such date (or before such date with respect to property not in existence or owned by the taxpayer on such date). In the case of any transfer (or license) which is not to a foreign person, the preceding sentence shall be applied by substituting ‘
August 16, 1986’ for ‘
November 16, 1985’. “(B) Special rule for [former] section 936.—For purposes of [former] section 936(h)(5)(C) of the Internal Revenue Code of 1986 the
Amendments
made by subsection (e) shall apply to taxable years beginning after
December 31, 1986, without regard to when the transfer (or license), if any, was made. “(3) Subsection (f).—The amendment made by subsection (f) [amending section 936 of this title] shall apply to taxable years beginning after
December 31, 1982. “(4) Transitional rule.—In the case of a corporation—“(A) with respect to which an election under [former] section 936 of the Internal Revenue Code of 1986 (relating to possessions tax credit) is in effect, “(B) which produced an end-product form in Puerto Rico on or before
September 3, 1982, “(C) which began manufacturing a component of such product in Puerto Rico in its taxable year beginning in 1983, and “(D) with respect to which a Puerto Rican tax exemption was granted on
June 27, 1983, such corporation shall treat such component as a separate product for such taxable year for purposes of determining whether such corporation had a significant business presence in Puerto Rico with respect to such product and its income with respect to such product. “(5) Transitional rule for increase in gross income test.—“(A) In general.—If—“(i) a corporation fails to meet the requirements of subparagraph (B) of [former] section 936(a)(2) of the Internal Revenue Code of 1986 (as amended by subsection (d)(1)) for any taxable year beginning in 1987 or 1988, “(ii) such corporation would have met the requirements of such subparagraph (B) if such subparagraph had been applied without regard to the amendment made by subsection (d)(1), and “(iii) 75 percent or more of the gross income of such corporation for such taxable year (or, in the case of a taxable year beginning in 1988, for the period consisting of such taxable year and the preceding taxable year) was derived from the active conduct of a trade or business within a possession of the United States, such corporation shall nevertheless be treated as meeting the requirements of such subparagraph (B) for such taxable year if it elects to reduce the amount of the qualified possession source investment income for the taxable year by the amount of the shortfall determined under subparagraph (B) of this paragraph. “(B) Determination of shortfall.—The shortfall determined under this subparagraph for any taxable year is an amount equal to the excess of—“(i) 75 percent of the gross income of the corporation for the 3-year period (or part thereof) referred to in [former] section 936(a)(2)(A) of such Code, over “(ii) the amount of the gross income of such corporation for such period (or part thereof) which was derived from the active conduct of a trade or business within a possession of the United States. “(C) Special rule.—Any income attributable to the investment of the amount not treated as qualified possession source investment income under subparagraph (A) shall not be treated as qualified possession source investment income for any taxable year.” Amendment by section 1810(g)(1), (4) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.
Effective Date
of 1984 Amendment Pub. L. 98–369, div. A, title I, § 131(g), July 18, 1984, 98 Stat. 665, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “(1) In general.—The
Amendments
made by this section [enacting section 6038B of this title, amending this section and section 1492, 1494, 6501, and 7482 of this title, and repealing section 7477 of this title] shall apply to transfers or exchanges after
December 31, 1984, in taxable years ending after such date. “(2) Special rule for certain transfers of intangibles.—“(A) In general.—If, after
June 6, 1984, and before
January 1, 1985, a United States person transfers any intangible property (within the meaning of [former] section 936(h)(3)(B) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) to a foreign corporation or in a transfer described in section 1491, such transfer shall be treated for purposes of section 367(a), 1492(2), and 1494(b) of such Code as pursuant to a plan having as 1 of its principal purposes the avoidance of Federal income tax. “(B) Waiver.—Subject to such terms and conditions as the Secretary of the Treasury or his delegate may prescribe, the Secretary may waive the application of subparagraph (A) with respect to any transfer. “(3) Ruling request before march 1, 1984.—The
Amendments
made by this section (and the provisions of paragraph (2) of this subsection) shall not apply to any transfer or exchange of property described in a request filed before March 1, 1984, under section 367(a), 1492(2), or 1494(b) of the Internal Revenue Code of 1986 (as in effect before such
Amendments
).”
Effective Date
of 1982 AmendmentAmendment by Pub. L. 97–248 applicable to taxable years ending after Aug. 14, 1982, see section 213(e)(3) of Pub. L. 97–248, set out as a note under section 246 of this title.
Effective Date
of 1976 Amendment Pub. L. 94–455, title X, § 1042(e), Oct. 4, 1976, 90 Stat. 1639, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “(1) The
Amendments
made by this section (other than by subsection (d)) [amending this section and section 751 and 1248 of this title] shall apply to transfers beginning after October 9, 1975, and to sales, exchanges, and distributions taking place after such date. The
Amendments
made by subsection (d) [enacting section 7477 of this title and amending section 7476 and 7482 of this title] shall apply with respect to pleadings filed with the Tax Court after the date of the enactment of this Act [Oct. 4, 1976] but only with respect to transfers beginning after
October 9, 1975. “(2) In the case of any exchange described in section 367 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect on
December 31, 1974) in any taxable year beginning after
December 31, 1962, and before the date of the enactment of this Act [Oct. 4, 1976], which does not involve the transfer of property to or from a United States person, a taxpayer shall have for purposes of such section until 183 days after the date of the enactment of this Act [Oct. 4, 1976] to file a request with the Secretary of the Treasury or his delegate seeking to establish to the satisfaction of the Secretary of the Treasury or his delegate that such exchange was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income taxes and that for purposes of such section a foreign corporation is to be treated as a foreign corporation.”
Effective Date
of 1971 Amendment Pub. L. 91–681, § 1(c), Jan. 12, 1971, 84 Stat. 2066, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The
Amendments
made by this section [amending this section and section 1492 of this title] shall apply to transfers made after
December 31, 1967; except that section 367(d) and 1492 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by this section) shall apply only with respect to transfers made after
December 31, 1970.”
Savings Provision
For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title. Applicability of Subsection (e)(2)Pub. L. 100–647, title I, § 1006(e)(13)(C), Nov. 10, 1988, 102 Stat. 3402, provided that: “section 367(e)(2) of the 1986 Code (as amended by the Reform Act [Pub. L. 99–514]) shall not apply in the case of any corporation completely liquidated before June 10, 1987, into a corporation organized in a country which has an income tax treaty with the United States.” Plan
Amendments
Not Required Until January 1, 1989For provisions directing that if any
Amendments
made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 367
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73