Internal Revenue Bulletins  
Announcement 2006-102 December 26, 2006

Stock Transfer Rules: Carryover of Earnings and Taxes; Correction


Internal Revenue Service (IRS), Treasury.


Correcting amendments.


This document contains corrections to final regulations (T.D. 9273, 2006-37 I.R.B. 394) that were published in the Federal Register on Tuesday, August 8, 2006 (71 FR 44887) addressing the carryover of certain tax attributes, such as earnings and profits and foreign income tax accounts, when two corporations combine in a corporate reorganization or liquidation that is described in both sections 367(b) and section 381 of the Internal Revenue Code.


The correction is effective August 8, 2006.


Jeffrey L. Parry, (202) 622-3850 (not a toll-free number).



The final regulations that are the subject of this correction are under sections 367(b) and 381 of the Internal Revenue Code.

Need for Correction

As published, final regulations (T.D. 9273) contain errors that may prove to be misleading and are in need of clarification.

* * * * *

Correction of Publication

Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments:


Paragraph 1. The authority citation for part 1 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 7. Section 1.367(b)-7(f)(1)(iii) Example 1 (iii) is amended by revising the last sentence of paragraph (A) and paragraph (B) to read as follows:

§ 1.367(b)-7 Carryover of earnings and profits and foreign income taxes in certain foreign-to-foreign non-recognition transactions.

* * * * *

(f) * * *

(1) * * *

(iii) * * *

Example (1) * * *

(A) * * * The 100u offset under section 952(c)(1)(B) does not result in a reduction of the hovering deficit for purposes of section 316 or section 902.

(B) Foreign surviving corporation A’s 100u of subpart F income not included in income by USP will accumulate and be added to its post-1986 undistributed earnings as of the beginning of 2009. This 100u of post-transaction earnings will be offset by the (100u) hovering deficit. Because the amount of earnings offset by the hovering deficit is 100% of the total amount of the hovering deficit, all $25 of the related taxes are added to the post-1986 foreign income taxes pool as well. Accordingly, foreign surviving corporation A has the following post-1986 undistributed earnings and post-1986 foreign income taxes on January 1, 2009:

Separate category Earnings & profits Foreign taxes
Positive E&P Hovering deficit Foreign taxes available Foreign taxes associated with hovering deficit
General 0u (0u) $45 $0

* * * * *

LaNita Van Dyke,
Chief, Publications and Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).


(Filed by the Office of the Federal Register on December 6, 2006, 8:45 a.m., and published in the issue of the Federal Register for December 7, 2006, 71 F.R. 70875)

Internal Revenue Bulletin 2006-52


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