Nestle Holdings Inc. v. Commissioner, 152 F.3d 83, (2d Cir. 1998) (relief-from-royalty valuation method inappropriate for valuing purchased trademarks)
E. I. du Pont de Nemours & Co. v. United States, 200 Ct. Cl. 391 (1973) (perpetual and irrevocable grant of patent rights pursuant to nonexclusive, royalty-free license (i.e., grant of less than "all substantial rights") constituted "transfer" of "property" within meaning of section 351; compare Rev. Rul. 69-156, 1969-1 C.B. 101). See also Duncan v. Commissioner, 9 T.C. 468 (1947), acq. (although not sale/exchange for capital gain/loss purposes, surrender of judgment claims in exchange for stock constituted transfer for purposes of 1939 version of section 351), R. & J. Furniture Co. v. Commissioner, 20 T.C. 857 (1953), acq., rev'd per curiam on other grounds, 221 F.2d 795 (6th Cir. 1955) (exchange of leasehold interest, and other assets, for stock of lessee qualified as transfer of property for purposes of 1939 version of section 351), H. B. Zachry Co. v. Commissioner, 49 T.C. 73 (1967) (transfer of less than entire interest in mineral property in exchange for stock of transferee qualified for purposes of section 351).
For legislative materials related to the Rev. Rul. 69-156 v. du Pont issue, see for example:
Joint Committee on Taxation, Description of Modified Chairman's Mark Relating to Expiring Tax Provisions (JCX-73-99), October 19, 1999:
Present Law
Generally, no gain or loss is recognized if one or more persons transfer property to a corporation solely in exchange for stock in the corporation and, immediately after the exchange such person or persons are in control of the corporation. Similarly, no gain or loss is recognized in the case of a contribution of property in exchange for a partnership interest. Neither the Internal Revenue Code nor the regulations provide the meaning of the requirement that a person "transfer property" in exchange for stock (or a partnership interest). The Internal Revenue Service interprets the requirement consistent with the "sale or other disposition of property" language in the context of a taxable disposition of property. See, e.g., Rev. Rul. 69-156, 1969-1 C.B. 101. Thus, a transfer of less than "all substantial rights" to use property will not qualify as a tax-free exchange and stock received will be treated as payments for the use of property rather than for the property itself. These amounts are characterized as ordinary income. However, the Claims Court has rejected the Service's position and held that the transfer of a nonexclusive license to use a patent (or any transfer of "something of value") could be a "transfer" of "property" for purposes of the nonrecognition provision. See E.I. DuPont de Nemours & Co. v. U.S., 471 F.2d 1211 (Ct. Cl. 1973).
Description of Proposal
The proposal would treat a transfer of an interest in intangible property constituting less than all of the substantial rights of the transferor in the property as a transfer of property for purposes of the nonrecognition provisions regarding transfers of property to controlled corporations and partnerships. Consistent reporting by the transferor and transferee would be required. Furthermore, in the case of a transfer of less than all of the substantial rights, the transferor would be required to allocate the basis of the intangible between the retained rights and the transferred rights based upon respective fair market values.
No inference is intended as to the treatment of these or similar transactions prior to the effective date.
H. Rept. 106-289 (August 4, 1999), Taxpayer Refund and Relief Act of 1999 (H.R. 2488, vetoed by President Clinton on September 23, 1999), legislative language of Conference Committee proposing amendment of section 351:
(h) Treatment of Transfers of Intangible Property.-
(1) Transfers of less than all substantial rights.-
(A) In general.- A transfer of an interest in intangible property (as defined in section 936(h)(3)(B)) shall be treated under this section as a transfer of property even if the transfer is of less than all of the substantial rights of the transferor in the property.
Joint Committee on Taxation, General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984 (JCS-41-84), December 31, 1984:
[The special rules (including the sourcing rule) of section 367(d), as amended by the Deficit Reduction Act of 1984] apply only to situations involving a transfer of the intangible property to a foreign corporation. See generally E.I. Dupont de Nemours & Co. v. United States, 471 F.2d 1211 (Ct. Cl. 1973) (holding that the grant of a non-exclusive license with respect to a patent constituted a "transfer of property" within the meaning of section 351). In any case in which the IRS determines that an adjustment under section 482 (relating to the allocation of income and deductions among taxpayers) is appropriate because a foreign corporation obtained the use of the intangible property without sufficient compensation therefor, the special rule for transfers of intangibles will have no application to amounts included in the income of a U.S. taxpayer pursuant to such an adjustment.
For a reconciliation of du Pont with the general inapplicability of section 367(d) to actual licenses, see Davis, Other Transfers Under Sections 367 and 1491, 920 Tax Mgmt. Port. A-49-50 (perpetual, irrevocable and royalty-free grant of rights in du Pont "not really a license at all" for tax purposes, even if labeled as such). See also Temp. Treas. Reg. § 1.367(d)-1T(g)(4)(i) and (ii).
Treasury and IRS, A Study of Intercompany Pricing under Section 482 of the Code (1988 White Paper), 1988-2 C.B. 458:
Sales and licenses of intangibles are generally not subject to section 367(d), since they are not transactions described in section 351 or 361. The temporary regulations state that, when an actual license or sale has occurred, an adjustment to the consideration received by the transferor shall be made solely under section 482, without reference to section 367(d). n143 [citing Treas. Reg. § 1.367(d)-1T(g)(4)(i)] However, if the purported sale or license to the related person is for no consideration n144 [Id.] or if the terms of the purported sale or license differ so greatly from the substance of an arm's length transfer that the transfer should be considered a sham, n145 [citing Treas. Reg. § 1.367(d)-1T(g)(4)(ii)] the transfer will be treated as falling within section 367(d).
In essence, the commensurate with income standard treats related party transfers of intangibles as if an intangible had been transferred for a license payment that reflects the intangible's value throughout its useful life, a result similar to section 367(d). Because the section 367(d) source of income rule can apply to certain transactions cast in the form of a sale or license, the temporary regulations could be amended to specify which sales or licenses are subject to both the commensurate with income standard and the U.S. source income characterization of section 367(d). Moreover, a license payment that is less than some specific percentage of the appropriate arm's length amount could be considered so devoid of economic substance that the arm's length charge should be subject to section 367(d). Thus, those related party transfers which deviate substantially from the proper commensurate with income payment would be subject to 367(d), even if cast in the form of a sale or license.
Office of Tax Policy, Department of the Treasury, Corporate Inversion Transactions: Tax Policy Implications, May 2002
Announcement 98-69, 1998-30 I.R.B. 16
Tretiak, U.S. Section 367(a) Stock Transfers in 1998: All You Need to Know!, 17 Tax Notes Int'l 39 (July 6, 1998)
Albaugh & McLeighton, Complex Rules Burden Outbound Transfers of Tangibles and Intangibles, Tax Advisor, Feb 1997, at 104
GCM 38114 (1979) (reference to Treasury International Tax Counsel opposition to proposed du Pont acquiescence)
GCM 36922 (1976) (proposed acquiescence to E. I. du Pont de Nemours & Co. v. United States, 200 Ct. Cl. 391 (1973))
Rev. Rul. 69-156, 1969-1 C.B. 101 (grant of less than all substantial rights in patent did not constitute transfer of property within meaning of section 351)
PLR 200448013 (No gain recognition on outbound 332 liquidation involving outbound transfer of domestic subsidiary stock by domestic parent to foreign parent).
PLR 200440009 (Proposed merger will qualify for non-recognition treatment).
PLR 200427015 (Application of section 367(b) regulations to inbound F reorganization, including determination of "all earnings and profits amount").
PLR 200422047 (Restructuring of foreign operations qualifies as F reorganization).
PLR 200122026 (Ruling under section 1.367(a)-3(c)(9) re exception to section 367(a)(1) general rule).
PLR 199902005 (Restructuring to save foreign taxes is tax-free -- Sections 355 and 368(a)(1)(D)).
PLR 9831030 (Distribution by domestic corporation to foreign corporation is tax-free -- Section 367)
PLR 9804009 (Foreign corporation restructuring tax-free -- Section 355(a)(1) and Section 368(a)(1)(D))
PLR 9806013 (Global restructuring of businesses tax-free -- Section 355(a)(1) and Section 368(a)(1)(D))
Outbound Section 332 Liquidation
Section 351 Transfer to Controlled Corporation
Section 355 Distribution of USRPHC
Section 368(a)(1)(C) Type C Reorganization
Form 926 Return by a U.S. Transferor of Property to a Foreign Corporation (Rev. December 2003)
Form 966 Corporate Dissolution or Liquidation (Rev. April 2004)
Form 8023 Elections Under Section 338 for Corporations Making Qualified Stock Purchases (Rev. October 2002)
Form 8023 Instructions (Rev. October 2002)
Form 8806 Information Return for Acquisition of Control or Substantial Change in Capital Structure (Rev. December 2003)
Form 8838 Consent to Extend the Time to Assess Tax Under Section 367 - Gain Recognition Agreement (Rev. April 2004)
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