IRS Moves Against Newly Inverted US Companies

by Mike Godfrey, Tax-News.com, Washington

14 November 2002

The US Treasury Department and the Internal Revenue Service issued temporary regulations on Tuesday, requiring shareholders in companies which relocated offshore this year to declare and pay tax on profits realized when the company perfomed its corporate inversion.

According to reports in the national and international media following the Treasury's announcement, the move will affect shareholders in companies such as Cooper Industries and Nabors Industries, which recently moved their headquarters to Bermuda.

Previously, reporting was not required when a shareholder transferred shares in the US entity for shares in the new offshore corporation, despite the fact that such a move will ususally give rise to a taxable capital gain.

The IRS also proposed temporary measures requiring companies to report to the tax agency and their shareholders any large transaction which could be subject to tax. This would include certain corporate mergers, reorganizations and changes in ownership, according to the IRS.

Speaking on Tuesday, Assistant Treasury Secretary for Tax Policy, Pamela Olson observed that:

'The regulations issued today will serve to remind shareholders in taxable inversion transactions that they must report their gain from the transactions on their tax returns.'

The IRS has announced that it will be cross-checking the information contained on the new Form 1099 with taxpayers' returns on a regular basis.

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