FROM THE OFFICE OF PUBLIC AFFAIRS
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September 3, 2004
JS-1886
Treasury and IRS Issue Proposed Regulation on Stapled Stock Companies
Today, the Treasury Department and the IRS issued a proposed regulation regarding the tax treatment of arrangements involving stapled stock. A foreign corporation is considered "stapled" if its stock may only be transferred together with the stock of a domestic corporation; in other words, the stock to the two corporations is "stapled" together. Under Code section 269B, a stapled foreign corporation generally is treated as a domestic corporation for tax purposes.
The proposed regulation provides guidance on the application of the stapled stock rules, including guidance on when two corporations will be treated as stapled in cases involving multiple classes of stock. The proposed regulation also incorporates rules that were announced in Notice 2003-50 to prevent the use of the stapled stock rules in an attempt to manipulate the foreign tax credit limitation. In addition, the proposed regulation includes an anti-abuse rule to address attempts to use section 269B to produce inappropriate results; this rule permits the Commissioner to disregard stapled interests in cases where a majority of the interests in both corporations is held by the same or related parties.
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