Proposed regulations have been released that would dramatically change the treatment of goodwill and going concern value transferred by a US person to a foreign corporation. Taxand USA discusses.
Under existing regulations, the transfer of goodwill and going concern value to a foreign corporation can qualify for non-recognition of gain or loss if it is transferred for use in the active conduct of a trade or business outside the US.
The proposed regulations present difficult choices for taxpayers now considering the incorporation of foreign operations that are now conducted in pass-through format; and they may change the calculus for taxpayers contemplating the choice of entity for start-up operations outside the US.
Discover more: The government giveth, the government taketh away
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Assuming that the proposed regulations take effect, they may make it undesirable to transfer operations to a foreign corporation. Alternatively, if the taxpayer decides to proceed with an outbound transfer, it will need to decide whether to elect immediate gain recognition or deferred/periodic gain recognition for goodwill and going concern value.
