Implications of transfer of rights in intangible property

Implications of transfer of rights

The IRS today publicly released a redacted field advice memorandum* addressing the treatment of a taxpayer’s transfer of rights in a loss corporation intangible property to a foreign subsidiary under sections 382 and 482. 20151701F (dated February 20, 2015)


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The field advice memo [PDF 142 KB] notes that:

  • The taxpayer allocated a portion of the purchase price of the loss corporation’s stock to the intangible property (IP) of the loss corporation.
  • The taxpayer had not demonstrated that the platform contribution transaction payment (PCT payment) provided under a contract was attributable solely to the loss corporation’s IP (and not to other platform contributions) as of the change date.
  • The taxpayer asserted that the entire amount that it received for the transfer of the IP rights was to be treated as recognized built-in gains under section 382 in the year the payment was properly included in income.
  • The taxpayer further claimed that under the terms of the contract, the transaction was a license of rights in the IP that, nonetheless, was to be treated as a sale for purposes of section 382. The taxpayer argued that sale treatment was appropriate because the transaction was an economic disposition of the IP.

The conclusions provided in today’s IRS field advice memo disagree with the taxpayer’s contentions. The memo disagrees that any license of property should be treated as a sale under section 382; and finds that considering only the written terms of the contract and the cost sharing arrangement, the transaction was an economic disposition of the IP rights.

The IRS memo further states that an adjustment under section 482 may be appropriate with respect to the loss corporation’s IP transferred, depending on the facts and circumstances.

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The IRS also today publicly released an earlier field advice memo in this matter. Read 20151702F[PDF 166 KB] (dated November 3, 2014). The second memo (20151701F) summarized briefly above, includes a statement that the November 2014 memo is to be ignored and replaced with 20151701F (dated February 20, 2015) because “the first version did not receive appropriate review.”

*Field advice memo documents are prepared by IRS field attorneys in the Office of Chief Counsel, are reviewed by an Associate Office, and are subsequently issued to IRS field or service center employees. The memo cannot be used or cited as precedent.

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