The § 367 Cross-Border Transfer Rules Seem to Counteract Other

question 88

Essay

The § 367 cross-border transfer rules seem to counteract other favorable tax provisions that allow the taxpayer to defer gross income (e.g. §§ 351 and 368.) What is the rationale for eliminating this deferral? Provide two examples of transactions to which § 367 would apply.

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Definitions:

Functional Currency

The functional currency is the currency of the primary economic environment in which an entity operates and conducts its business transactions.

Balance Sheet Items

Components that make up a balance sheet, including assets, liabilities, and shareholders' equity.

Historic Rate

The exchange rate used to convert foreign currency transactions to the reporting currency at the date of the transaction, for accounting purposes.

Income Statement Items

Elements found in the income statement, including revenues, expenses, gains, and losses, which together determine the net income of a company.