IRS practice unit: Corporate inversions | KPMG | GLOBAL

IRS practice unit: Corporate inversions

IRS practice unit: Corporate inversions

The IRS Large Business and International (LB&I) division publicly released a “practice unit”—part of a series of IRS examiner “job aides” and training materials intended to describe for IRS agents leading practices for specific international and transfer pricing issues and transactions. The newly released practice unit concerns corporate inversions.


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As the practice unit explains, corporate inversions may be accomplished in a variety of ways. For example, an inversion may occur in a simple exchange of domestic target stock for new foreign parent acquiring stock, a merger of a domestic corporation into a foreign parent, or a transaction involving both domestic and foreign target stock being acquired by a new foreign parent. Section 7874 was enacted to address corporate inversions, and contains provisions aimed at reducing the incentives for entering into inversions by U.S. multinational companies moving out of U.S. taxing jurisdiction. The practice unit notes that many inversions may not be captured by section 7874 if structured in a manner that limits the ownership of new foreign parent by former shareholders of the domestic target. 


The practice unit (release date of July 5, 2016) is available on the IRS practice unit webpage.

KPMG observation

The IRS practice units identify areas of strategic importance to the IRS, provide insight as to how IRS examiners will approach various transactions, and generally provide an understanding of the context in which an IRS examiner will approach a particular issue or transaction. 

Thus, taxpayers (and their tax advisers) facing an IRS examination or concerned with issue(s) presented by the practice units will want to review the relevant practice units, so as to have a better understanding of the issues that may arise either prior to or during an examination. For instance, the IRS practice units typically provide information that can help taxpayers:

  • Plan for appropriate documentation during return preparation
  • Effectively approach certain elections or certain transactions 
  • Respond appropriately to IRS correspondenceFor taxpayers selected for a pending IRS examination, the practice units can provide information that may assist with preparation for the examination.

For taxpayers actually under examination, the practice units may provide information that can assist taxpayers respond to IRS requests.

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