IRC 367 Outbound Transfers, Gain Recognition Agreements, and 367(d) IP Repatriation: Practitioner Guide

IRC 367 is one of the most technically demanding provisions in U.S. international tax law. It sits at the intersection of corporate reorganization law, transfer pricing, and CFC regime income inclusion, and it operates as a structural check on every outbound transfer of property by a U.S. person to a foreign corporation in a context that would otherwise qualify for nonrecognition treatment. This guide is written for enrolled agents, CPAs, and tax attorneys advising clients on outbound restructurings, IP transfers, gain recognition agreements, and the post-OBBBA landscape as of July 2026.

All statutory citations, regulatory references, and IRS guidance must be verified against the enacted IRC text, current Treasury regulations (including any 2024 or 2025 amendments), and current IRS.gov resources before reliance in any specific client matter. This guide does not constitute legal or tax advice.

Section 1: IRC 367 Framework -- Overview of Outbound and Other Exchanges

The Core Problem IRC 367 Solves

U.S. tax law generally permits tax-free exchanges of property in connection with corporate formations (IRC 351), reorganizations (IRC 354 and 356), and liquidations (IRC 332). These nonrecognition provisions allow taxpayers to restructure corporate ownership without triggering immediate recognition of built-in gain or loss. Without additional rules, a U.S. person holding appreciated property could contribute it to a foreign corporation in a tax-free IRC 351 transaction, and the gain would exit the U.S. tax base entirely -- taxable only if and when the foreign corporation ultimately sells the property and distributes proceeds subject to U.S. tax.

IRC 367 was enacted to address this problem. It provides that when a U.S. person transfers property to a foreign corporation in a transaction that would otherwise qualify for nonrecognition under IRC 332, 351, 354, 356, or 361, the foreign corporation is not treated as a corporation for purposes of determining the U.S. transferor's gain. The effect is that nonrecognition does not apply -- gain must be recognized currently -- unless the taxpayer qualifies for a specific exception (most importantly, the active trade or business exception under 367(a)(3) or a gain recognition agreement under Treas. Reg. 1.367(a)-8, both of which are hedged to their applicable regulatory provisions and IRS.gov guidance).

Three Subsections: 367(a), 367(b), and 367(d)

IRC 367 has three operative subsections with distinct scope and mechanics:

For purposes of IRC 367, the property categories, the definition of intangible property, and the determination of which exchanges are subject to which subsection require careful analysis of the specific facts. Practitioners should not assume a transfer falls clearly under one subsection without analyzing all three, because the presence of both tangible and intangible assets in a single transaction may trigger multiple subsections simultaneously.

Section 2: IRC 367(a) -- Outbound Transfers to Foreign Corporations

The General Gain Recognition Rule

IRC 367(a)(1) provides the baseline rule: a U.S. person that transfers property to a foreign corporation in a transaction that would otherwise qualify for nonrecognition under IRC 332, 351, 354, 356, or 361 must recognize gain on the transfer. The foreign corporation is treated as not being a corporation for this purpose. The result is that the transferor recognizes gain equal to the excess of the fair market value of the property over its adjusted basis at the time of transfer, as if the transfer were a taxable sale.

IRC 367(a) applies only to outbound transfers -- transfers by U.S. persons to foreign corporations. The subsection does not override nonrecognition for transfers by foreign persons to foreign corporations in most circumstances, though 367(b) may apply to those transactions.

Active Trade or Business Exception (IRC 367(a)(3))

IRC 367(a)(3) provides a significant exception to the general gain recognition rule: no gain is recognized on the transfer of property to a foreign corporation if the property is transferred for use in the active conduct of a trade or business outside the United States. This exception is commonly called the active trade or business exception. However, the exception has significant limitations and exclusions. The regulations exclude several categories of property from the active trade or business exception, including inventory, installment obligations, foreign currency, and certain other assets. These excluded categories are subject to immediate gain recognition even if the foreign corporation will use the property in an active trade or business. Verify the complete list of excluded property categories and the definition of "active conduct of a trade or business" against the applicable Treasury regulations and current IRS.gov guidance before relying on this exception in any client matter.

Property Categories Subject to IRC 367(a)

Property covered by IRC 367(a) includes tangible property such as equipment, real property, and assets used in a trade or business. Intangible property is carved out to IRC 367(d) (discussed in Section 5). The Treasury regulations specify categories of assets for which the active trade or business exception is unavailable regardless of the intended use in foreign business operations. These include, but may not be limited to: inventory or similar property, property with respect to which the transferor was a dealer, installment obligations, foreign currency and functional currency amounts, and certain other assets specified in the regulations. Verify the current list of excluded asset categories against Treas. Reg. 1.367(a)-5T or any successor final regulation, as well as IRS.gov, because the excluded property rules have been subject to regulatory revision.

Section 3: Gain Recognition Agreements (GRAs)

GRA Structure and Purpose

A gain recognition agreement (GRA) is an agreement entered into between a U.S. transferor and the IRS under which the transferor agrees to recognize gain on property transferred to a foreign corporation if a triggering event occurs. The GRA allows the U.S. transferor to defer gain recognition at the time of the outbound transfer -- instead of paying tax immediately on the built-in gain, the transferor agrees to pay if and when a triggering event materializes. GRAs are governed by Treas. Reg. 1.367(a)-8 (verify the current version in the Code of Federal Regulations and at IRS.gov, as this regulation has been amended multiple times). The GRA is a practical alternative for taxpayers who need to transfer property to a foreign corporation but for whom the active trade or business exception is not available or is uncertain.

GRA Filing and Annual Certification (Form 8838)

To enter into a GRA, the U.S. transferor must file the GRA (in the form prescribed by Treas. Reg. 1.367(a)-8) with its timely filed tax return (including extensions) for the year of the outbound transfer. For each subsequent year of the GRA term, the transferor must file an annual certification confirming that no triggering event has occurred and that the conditions of the GRA remain satisfied. The annual certification is made on or with Form 8838 (Consent to Extend the Time to Assess Tax Under Section 367 -- Gain Recognition Agreement). The digital filing mechanics for Form 8838, the required content of the annual certification, and the deadline for filing must be verified against the current Form 8838 instructions and IRS.gov guidance, as these requirements may have been updated since the regulations were originally issued.

GRA Term

The standard GRA term under the regulations is a period of years from the date of the outbound transfer. The regulations have historically set a 5-year standard term, but a longer term may be required in certain circumstances (for example, where the transferred property has not been disposed of within the standard term or where additional regulatory requirements apply). Practitioners must verify the current GRA term requirement against Treas. Reg. 1.367(a)-8 and IRS.gov before entering into or certifying a GRA. Do not assume the 5-year term applies in all cases without confirming it is not extended by the specific transaction facts or by regulatory updates.

Triggering Events

A triggering event under a GRA is an event that causes the deferred gain to become currently recognizable. Common triggering events under the regulations include:

• A disposition of the stock of the foreign corporation that received the transferred property (by the U.S. transferor), other than certain excepted dispositions described in the regulations.
• A disposition of the transferred property by the foreign corporation, other than certain excepted dispositions.
• The foreign corporation's ceasing to use the transferred property in an active trade or business outside the United States, where applicable.
• Failure by the U.S. transferor to file a timely annual certification.
• Other events specified in Treas. Reg. 1.367(a)-8 (verify the complete triggering event list at IRS.gov, as the regulation has been amended).

When a triggering event occurs, the U.S. transferor must recognize the original built-in gain at the time of the triggering event. In addition, interest accrues on the deferred tax from the date of the original transfer through the date of recognition. The interest rate and computation must be verified against the applicable Treasury regulations and IRS.gov guidance.

GRA Breach Consequences

A GRA breach occurs when a triggering event happens and the U.S. transferor fails to recognize the deferred gain as required. The consequences include recognition of the gain, the interest charge described above, and potential penalties. The IRS may also assert that the GRA has been invalidated and that the original transfer was taxable in the year of transfer. Practitioners should treat GRA compliance as a high-priority annual obligation: missing a Form 8838 certification is itself a triggering event under the regulations, which means the administrative obligation of annual filing is as important as the substantive gain deferral.

Section 4: IRC 367(b) -- Exchanges Involving Foreign Corporations

Scope of IRC 367(b)

IRC 367(b) addresses a different class of transactions: exchanges involving foreign corporations on either side of a nonrecognition exchange, but where the primary concern is not the transfer of appreciated property out of the U.S. tax net, but rather the avoidance of dividend income that would otherwise be recognized. The subsection applies to exchanges described in IRC 332, 354, 355, 356, or 361 involving a foreign corporation in circumstances not covered by IRC 367(a). Its most important applications are outbound section 332 liquidations (where a U.S. parent liquidates a foreign subsidiary), foreign mergers (where a U.S. corporation exchanges its stock in a reorganization involving a foreign target), and exchanges in which a foreign corporation is a party to a triangular reorganization.

Section 1248 Amounts and 367(b)

The central function of IRC 367(b) is to prevent the avoidance of IRC 1248 dividend income. IRC 1248 recharacterizes gain on the sale of CFC stock as dividend income to the extent of the CFC's earnings and profits attributable to the selling U.S. shareholder. Without IRC 367(b), a U.S. shareholder could use a tax-free reorganization to exchange CFC stock for other property without recognizing the IRC 1248 amount that a taxable sale would have triggered. IRC 367(b) requires that the exchanging shareholder include the IRC 1248 amount in income as a deemed dividend even when the reorganization otherwise qualifies for nonrecognition. The Section 1248 amount, the computation of applicable earnings and profits, and the Section 245A participation exemption interaction all require careful analysis in each transaction. Verify all Section 1248 amount computations and 367(b) notice requirements against Treas. Reg. 1.367(b)-1 et seq. and IRS.gov.

Outbound Section 332 Liquidations

When a U.S. parent corporation liquidates a foreign subsidiary in a transaction that qualifies under IRC 332, IRC 367(b) applies to the extent the U.S. parent would otherwise receive property on a tax-free basis from a foreign corporation with accumulated earnings and profits. The 367(b) regulations require specific tax treatment depending on whether the U.S. parent is a controlling U.S. shareholder and whether the foreign corporation has a section 1248 amount. The specific mechanics and the definition of a controlling U.S. shareholder must be verified against Treas. Reg. 1.367(b)-3 and current IRS.gov guidance.

Foreign Mergers and Triangular Reorganizations

Foreign mergers -- where a U.S. corporation acquires a foreign corporation in an otherwise tax-free reorganization under IRC 368 -- are subject to IRC 367(b) when U.S. shareholders exchange stock of the foreign target. The treatment of shareholders who are not controlling shareholders and the treatment of shareholders who receive boot in addition to stock all require separate analysis under the 367(b) regulations. For triangular reorganizations involving foreign corporations as the acquiring or target entity, the 367(b) regulations contain specific provisions that may require gain recognition or dividend income inclusions that would not otherwise arise. Verify the complete triangular reorganization rules against Treas. Reg. 1.367(b)-4 through 1.367(b)-7 and IRS.gov.

Section 5: IRC 367(d) -- Outbound Transfers of Intangible Property and the Deemed Royalty Regime

What IRC 367(d) Covers

IRC 367(d) applies to outbound transfers of intangible property to a foreign corporation in an exchange that would otherwise qualify for nonrecognition under IRC 351 or 361. Unlike IRC 367(a), which imposes immediate gain recognition with an active trade or business exception, IRC 367(d) does not impose immediate gain recognition at all. Instead, it treats the U.S. transferor as having sold the intangible property for payments contingent on the foreign corporation's productivity, use, or disposition of the property. These deemed payments are includible in the U.S. transferor's gross income annually over the useful life of the intangible, as if the transferor had licensed the intangible to the foreign corporation.

Definition of Intangible Property Under 367(d)

IRC 367(d)(4) incorporates the definition of intangible property from IRC 936(h)(3)(B), which includes patents, inventions, formulas, processes, designs, patterns, know-how, copyrights, literary, musical, or artistic compositions, trademarks, trade names, brand names, franchises, methods, programs, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, technical data, and similar items. The "similar items" catch-all has been an ongoing source of interpretive uncertainty, and the Treasury regulations under 367(d) address this definition. Verify the current regulatory definition of intangible property covered by 367(d) against Treas. Reg. 1.367(d)-1 (or currently applicable temporary or final regulations) and IRS.gov.

As of July 2026, there is an open question whether digital assets, digital platforms, and certain software-based intangibles that do not clearly fall into the enumerated categories in IRC 936(h)(3)(B) are subject to the 367(d) deemed royalty regime. The IRS has not issued guidance specifically addressing this question in the context of 367(d). See Section 11, Open Question 5.

The Deemed Royalty: Annual Inclusions Over Useful Life

Under the 367(d) regime, the U.S. transferor does not recognize gain at the time of the outbound transfer. Instead, for each year of the intangible's remaining useful life, the transferor includes in gross income an amount equal to the arm's length royalty that an unrelated licensee would have paid for the right to use the intangible for that year. This amount must be determined under the IRC 482 arm's length standard and supported by a contemporaneous arm's length royalty analysis. The deemed royalty is treated as ordinary income (not capital gain) and is sourced as U.S.-source income in some circumstances, which can affect foreign tax credit planning. Verify the sourcing rules and ordinary income treatment against Treas. Reg. 1.367(d)-1 and IRS.gov.

The "super royalty" concept -- reflecting Congress's intent that the royalty must be commensurate with the income attributable to the intangible -- means that the royalty is not fixed at the time of transfer. It must be updated periodically to reflect the actual profitability and productivity of the transferred intangible. This prevents taxpayers from using a low transfer price at the time of transfer and then benefiting from the intangible's subsequent appreciation offshore. Verify the super royalty adjustment mechanics and commensurate-with-income standard against Treas. Reg. 1.367(d)-1 and any guidance issued at IRS.gov.

Regulatory Framework: Treas. Reg. 1.367(d)-1 and 2024/2025 Developments

The primary regulatory authority for IRC 367(d) is Treas. Reg. 1.367(d)-1 (final regulations) and, where applicable, Treas. Reg. 1.367(d)-1T (temporary regulations, which may no longer be in effect or may have been superseded by final regulations -- verify at IRS.gov). These regulations address the mechanics of the annual inclusion, the treatment of dispositions of the transferred property by the foreign corporation, the treatment of dispositions of stock of the foreign corporation by the U.S. transferor, and the rules for IP repatriation (discussed in Section 9). Practitioners must verify the current regulatory status -- distinguishing final, temporary, and proposed regulations -- at IRS.gov before applying any 367(d) provision to a client matter. Any 2024 or 2025 regulatory developments specifically amending or supplementing these regulations must be confirmed at IRS.gov; this guide does not summarize 2024 or 2025 changes as specific enacted facts because those developments require direct verification.

Section 6: Interaction with OBBBA -- NCTI, IRC 951B, and Section 904(b)(5)

OBBBA's Core Changes Relevant to Outbound Structures

OBBBA (the One Big Beautiful Budget Act, signed July 4, 2025, effective for tax years beginning after December 31, 2025) made structural changes to the U.S. international tax regime that affect outbound structures governed by IRC 367. The three changes most directly relevant are: (1) the rename of GILTI to NCTI (Net Controlled Taxpayer Income) and the associated changes to the Section 250 deduction and FTC basket; (2) the enactment of IRC 951B and the FCFC (foreign-controlled foreign corporation) and FCUS (foreign-controlled U.S. shareholder) regimes; and (3) the Section 904(b)(5) NCTI basket FTC restriction. All interactions between these OBBBA provisions and IRC 367 described in this section are presented as open questions as of July 2026 -- no IRS guidance has been issued specifically addressing any of these interactions.

NCTI and the 367(d) Deemed Royalty Annual Inclusion

Under OBBBA, the foreign corporation that received the outbound IP transfer and pays deemed royalties under the 367(d) regime is a CFC whose income is subject to NCTI inclusion rules for its U.S. shareholder. An open question exists as to whether the 367(d) annual deemed royalty inclusion by the U.S. transferor is coordinated with, or independent of, the NCTI inclusion that the U.S. shareholder must also recognize from the CFC's net tested income for that year. If the deemed royalty reduces the CFC's tested income (because it is treated as a deductible payment from the CFC's perspective), the NCTI inclusion is correspondingly reduced; but the U.S.-side inclusion from the 367(d) regime is separately included in the transferor's gross income as ordinary income. The coordination of these two income streams -- and particularly their basket allocation for FTC purposes -- is unresolved as of July 2026. Hedge this open question entirely to future IRS guidance.

IRC 951B, FCFC, FCUS, and 367(a) Outbound Transfers

OBBBA enacted IRC 951B, which imposes NCTI-type inclusions on FCUS (foreign-controlled U.S. shareholders) with respect to FCFC (foreign-controlled foreign corporations). These new classifications create a class of foreign corporations and U.S. shareholders that were not within the traditional CFC regime under Subpart F. A significant open question exists: when a U.S. person that qualifies as an FCUS transfers property to a foreign corporation that qualifies as an FCFC in a transaction that would otherwise trigger IRC 367(a), do the traditional 367(a) gain recognition rules apply? Is the active trade or business exception available in the FCFC context? Do the GRA regulations under Treas. Reg. 1.367(a)-8 apply to FCFC-FCUS outbound transfers on the same terms as CFC-U.S. shareholder outbound transfers? As of July 2026, no IRS guidance has been issued addressing any of these questions. Practitioners advising clients with FCFC or FCUS structures should flag this uncertainty as a material open item.

Section 904(b)(5) Basket Restriction and 367 Outbound Structures

Section 904(b)(5), enacted as part of OBBBA, restricts how expenses may be allocated and apportioned in computing the NCTI basket FTC limitation. This provision affects the FTC limitation available to offset NCTI inclusions arising from CFC structures, including CFCs that received outbound property transfers under IRC 367. The 367(d) annual deemed royalty inclusion is generally U.S.-source income and is not itself subject to the foreign tax credit limitation (because it is U.S.-source). However, the NCTI inclusion from the same CFC that received the transferred property is subject to the Section 904 limitation and the Section 904(b)(5) expense allocation restriction. Practitioners must model the interaction between 367(d) income inclusions and the NCTI basket FTC limitation for the same CFC. Hedge all basket allocation mechanics and Section 904(b)(5) expense restriction rules to the enacted OBBBA and IRS.gov. For a detailed analysis of the Section 904(b)(5) restriction, see the IRC 904 FTC limitation guide linked in Section 15.

Section 7: Reporting Obligations -- Form 926, Form 8838, Form 8865, and IRC 6038B Penalties

Form 926: Return by a U.S. Transferor of Property to a Foreign Corporation

Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) is the primary information reporting form for outbound property transfers subject to IRC 367(a) and 367(d). U.S. persons (individuals, corporations, trusts, and estates) that transfer property to a foreign corporation in a section 351, 354, 356, or 361 exchange -- or in any transfer that causes IRC 367 to apply -- must generally file Form 926. Form 926 is filed with the transferor's annual income tax return for the year of the transfer. The form requires identification of the U.S. transferor and the foreign corporation, a description of the property transferred, the fair market value, and the basis. Specific information requirements vary depending on the nature of the property and the applicable subsection of IRC 367. Verify all current Form 926 content requirements and filing deadlines against the current Form 926 instructions at IRS.gov.

IRC 6038B Penalties for Failure to File Form 926

IRC 6038B imposes penalties on U.S. persons who fail to furnish the information required on Form 926 in connection with an outbound property transfer. The penalty is calculated as a percentage of the fair market value of the property transferred, subject to a maximum amount per transfer. There is an additional penalty for transfers of intangible property where the failure is intentional. The specific penalty percentages, the maximum caps, and the conditions for penalty reduction or abatement must be verified against IRC 6038B and current IRS.gov guidance. Do not state any specific penalty dollar amount as a definitive fact without hedging to IRC 6038B and current IRS.gov. The reasonable cause exception to the penalty also requires verification against IRC 6038B and IRS.gov.

Form 8838: GRA Annual Certifications

Form 8838 (Consent to Extend the Time to Assess Tax Under Section 367 -- Gain Recognition Agreement) serves as both the consent to extend the assessment statute of limitations with respect to the deferred gain and the vehicle for the annual GRA certification required by Treas. Reg. 1.367(a)-8. The U.S. transferor must file Form 8838 with its return for the year of the original transfer (to enter the GRA) and annually for each subsequent year of the GRA term. Each annual Form 8838 certifies that no triggering event has occurred during the year and that the conditions of the GRA remain satisfied. The current digital filing mechanics for Form 8838 and the required content of annual certifications should be verified against the current Form 8838 instructions at IRS.gov. Missing a Form 8838 filing is itself a GRA triggering event.

Form 8865: Transfers to Foreign Partnerships

Where the outbound transfer involves a partnership that owns or receives foreign corporate interests -- or where U.S. partners transfer property to a foreign partnership in connection with an IRC 367 transaction -- Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships) may also be required. Form 8865 contains multiple categories of reporting, including Category 1 through Category 4 filers, each with distinct thresholds and obligations. Verify which Form 8865 category applies, the applicable filing thresholds, and the interaction with Form 926 obligations for the specific transaction structure against the current Form 8865 instructions and IRS.gov guidance.

Section 8: Transfer Pricing Considerations -- IRC 482, Arm's Length Royalties, and Cost Sharing

The IRC 482 Arm's Length Standard and 367(d)

The 367(d) deemed royalty regime requires that the annual inclusion reflect an arm's length royalty for the use of the transferred intangible. This means the IRC 482 arm's length standard -- the same standard that applies to intercompany pricing of actual IP licenses between related parties -- also governs the 367(d) annual inclusion. The arm's length royalty must be benchmarked using a transfer pricing method under Treas. Reg. 1.482-4 (methods for transfers of intangible property, including the comparable uncontrolled transaction (CUT) method, the comparable profits method (CPM), and the profit split method). The royalty must also be commensurate with the income attributable to the intangible (the super royalty standard), meaning it must be updated as the intangible's income-generating profile changes over time.

The contemporaneous documentation requirements under Treas. Reg. 1.6662-6(d) that apply to IRC 482 adjustments also apply to the royalty benchmarking for 367(d) purposes. A transfer pricing study supporting the 367(d) annual inclusion amount should be prepared contemporaneously with the return, not after an IRS audit commences. Verify all transfer pricing method requirements against Treas. Reg. 1.482-4 and the documentation requirements against Treas. Reg. 1.6662-6(d) and IRS.gov. For a comprehensive analysis of IRC 482 documentation and penalty provisions, see the IRC 482 Transfer Pricing Practitioner Guide linked in Section 15.

367(d) vs. Cost-Sharing Arrangements

An alternative to an outbound 367(d) IP transfer is a cost-sharing arrangement (CSA) under Treas. Reg. 1.482-7. Under a CSA, the U.S. developer of an intangible and a foreign affiliate share the costs and risks of developing the intangible in exchange for rights to exploit the intangible in their respective territories. A CSA that is established before the intangible is fully developed is not an outbound transfer of existing intangible property for purposes of 367(d); instead, it is a prospective co-development arrangement. If an intangible has already been substantially developed before the CSA is entered into, the CSA may require a buy-in payment (platform contribution transaction, or PCT) for the foreign affiliate's right to use the pre-existing technology, which has its own pricing and transfer pricing documentation requirements. The interaction between 367(d) and CSAs -- particularly for PCTs of pre-existing intangibles under post-TCJA conditions -- is discussed further in Section 11 (Open Questions). Verify all CSA mechanics, buy-in pricing, and PCT requirements against Treas. Reg. 1.482-7 and IRS.gov.

Platform Contribution Transactions and Post-TCJA Coordination

The 2022 amendments to the cost-sharing regulations (Treas. Reg. 1.482-7) and the ongoing regulatory development of platform contribution transaction pricing create an open question about how the 367(d) deemed royalty regime coordinates with the PCT pricing rules when a U.S. developer enters into a CSA with a foreign affiliate and contributes pre-existing intangibles as a PCT. The IRS has asserted in litigation and in informal guidance that the PCTs must be priced to reflect all of the anticipated value of the intangibles, including residual anticipated profit attributable to platform contributions. The interaction of this position with the 367(d) regime -- specifically, whether the PCT pricing satisfies the 367(d) commensurate-with-income standard or whether 367(d) applies independently -- is an open question. See Section 11, Open Question 3, for further discussion.

Section 9: IP Repatriation -- Inbound Transfers and the Super Royalty Provisions

What Is IP Repatriation?

IP repatriation refers to the inbound transfer of intangible property from a foreign corporation back to a U.S. person. After a 367(d) outbound transfer, the U.S. transferor has been recognizing deemed royalty income annually. If the IP is subsequently repatriated -- transferred back to the U.S. transferor or to another U.S. person -- the 367(d) annual inclusion obligation terminates for future periods because the intangible is no longer held and used by the foreign corporation. Repatriation may be structured as a dividend, as a redemption, as a section 332 liquidation of the foreign corporation, or as a direct intercompany transfer, each with distinct tax consequences that must be analyzed under both the 367 rules and the applicable Code sections governing the form of the transaction.

Super Royalty Provisions and Inbound vs. Outbound Structures

The "super royalty" provisions of IRC 367(d) -- the commensurate-with-income requirement -- mean that the deemed royalty annual inclusion must reflect the full arm's length value of the intangible's use by the foreign corporation in each year. For intangibles that have significantly appreciated after the outbound transfer, the super royalty standard requires that the annual inclusion increase to reflect the higher arm's length royalty that would be required given the intangible's actual income-generating performance. This creates a structural pressure to repatriate IP that has appreciated significantly, because the annual deemed royalty obligation becomes increasingly burdensome. Practitioners should model the cumulative 367(d) inclusion versus the one-time tax cost of repatriation for clients with highly successful offshore intangibles.

Inbound Licensing vs. Full Repatriation

An alternative to full repatriation is an inbound licensing arrangement: the foreign corporation licenses the intangible back to the U.S. parent (or to U.S. affiliates) in exchange for U.S.-source royalty payments. Under an inbound license, the intangible remains legally owned by the foreign corporation, and the U.S. operations pay an arm's length royalty. This structure does not terminate the 367(d) annual inclusion for the U.S. transferor, but it does generate a U.S. deductible royalty expense and a foreign royalty income stream that interacts with the CFC regime and the NCTI basket. Whether full repatriation or inbound licensing produces a better outcome depends on the effective foreign tax rate, the anticipated NCTI inclusion, the NCTI basket FTC position, and the U.S. tax on the 367(d) inclusion. All mechanics must be verified against Treas. Reg. 1.367(d)-1, current IRS.gov guidance, and the OBBBA changes to the NCTI regime.

2024 and 2025 Regulatory Developments

Treasury and the IRS issued regulatory guidance in 2024 and 2025 that may affect IP repatriation mechanics under Section 367(d). This guide does not state the content of any 2024 or 2025 guidance as specific enacted facts because those developments require direct verification at IRS.gov. Practitioners advising clients on IP repatriation transactions must search IRS.gov (including the Treasury Regulations section, Revenue Procedures, Notices, and the IRS Newsroom) for any 2024 or 2025 guidance specifically addressing 367(d) repatriation before relying on the regulatory mechanics described in this guide.

Section 10: Illustrative Computation Example

The following example is provided for illustrative purposes only. Amounts Are Illustrative Only. No amount, rate, percentage, term, or outcome in this example should be treated as authoritative or as applying to any specific client situation. Verify all computation mechanics against the applicable Treasury regulations and IRS.gov before applying to a client matter.

Section 11: Open Questions -- Unresolved as of July 2026

The following open questions represent areas where the law under IRC 367 is uncertain as of July 2026, either because Treasury has not issued final guidance, because OBBBA created new structures without specific 367 coordination rules, or because the IRS has not addressed specific fact patterns. All items below are labeled "Unresolved as of July 2026" and must be treated as open items pending future guidance.

Open Question 1: IP Repatriation Final Regulation Interaction with OBBBA NCTI Basket (Unresolved as of July 2026)

When IP subject to a 367(d) outbound transfer is repatriated, the termination of the annual 367(d) inclusion may affect the CFC's tested income for NCTI purposes. Specifically, if the IP repatriation reduces the CFC's future royalty deductions (because no actual arm's length royalties are paid post-repatriation), the CFC's tested income may increase, which in turn increases the U.S. shareholder's NCTI inclusion. The basket allocation of income recognized in connection with the repatriation -- and whether that income falls in the NCTI basket or the general basket for FTC purposes -- is unresolved. No IRS guidance as of July 2026 addresses how the 367(d) final regulations interact with the OBBBA NCTI basket rules for repatriation transactions. Practitioners must flag this as a material open item for any client repatriation occurring in 2026 or later.

Open Question 2: GRA Annual Certification Digital Filing Mechanics (Unresolved as of July 2026)

The IRS has been expanding electronic filing requirements across international information forms. As of July 2026, there is no definitive IRS guidance confirming whether Form 8838 annual GRA certifications are subject to mandatory electronic filing, whether they can continue to be filed as attachments to paper or e-filed returns, or whether the IRS has updated its processing and acknowledgment system for GRA certifications. The risk of a missed certification -- which is itself a triggering event -- means that practitioners must confirm the current accepted filing mechanics for Form 8838 at IRS.gov before each annual filing. Do not rely on prior-year Form 8838 filing procedures without confirming they remain current.

Open Question 3: Section 367(d) Platform Contribution Transactions Post-TCJA Coordination (Unresolved as of July 2026)

Cost-sharing arrangement platform contribution transactions (PCTs) under Treas. Reg. 1.482-7 require arm's length buy-in payments for a foreign affiliate's right to exploit pre-existing intangibles within the CSA framework. The IRS has asserted (in litigation and in administrative positions) that PCTs for highly valuable pre-existing platforms must be priced to include all anticipated future value of the platform. The question of whether a properly priced PCT satisfies the 367(d) commensurate-with-income obligation -- or whether 367(d) applies independently and requires separate annual inclusions even when a PCT is made -- is unresolved as of July 2026. The post-TCJA coordination of 367(d) with CSA/PCT rules is an active area of IRS examination activity. Practitioners advising clients with CSA structures involving pre-existing intangibles should treat this as a contested and unresolved area.

Open Question 4: FCFC/FCUS Outbound Transfer Treatment Under 367(a) (Unresolved as of July 2026)

As noted in Section 6, OBBBA enacted IRC 951B, creating the FCFC and FCUS classifications. When a U.S. person meeting the FCUS definition transfers property to a foreign corporation meeting the FCFC definition in an otherwise tax-free exchange, it is unresolved whether: (a) the 367(a) gain recognition rules apply to the FCFC on the same terms as a CFC; (b) the active trade or business exception under 367(a)(3) is available for property transferred to an FCFC; (c) a GRA under Treas. Reg. 1.367(a)-8 is available for the FCFC-FCUS outbound transfer; and (d) the triggering event analysis under the GRA rules applies to FCFC stock dispositions and FCFC property dispositions in the same manner as CFC stock dispositions under the existing regulations. No IRS guidance has been issued as of July 2026 on any of these questions. Practitioners advising FCFC/FCUS structures should treat all of these as open items.

Open Question 5: Digital Assets and Intangible Platforms Under the 367(d) Deemed Royalty Regime (Unresolved as of July 2026)

The definition of intangible property under IRC 367(d)(4) (cross-referencing IRC 936(h)(3)(B)) was drafted before digital assets, distributed ledger protocols, software platforms delivered as services, and algorithmically driven intangibles became commercially significant. The question of whether a digital asset protocol, a smart contract platform, a software-as-a-service architecture, or an AI model constitutes intangible property within the meaning of IRC 367(d)(4) -- and whether the 367(d) deemed royalty regime applies to its outbound transfer to a foreign corporation -- is unresolved as of July 2026. The IRS has not issued guidance specifically addressing digital assets or digital platforms in the 367(d) context. This is an area of significant practical importance for technology companies and digital asset businesses considering international restructurings. Until guidance is issued, practitioners must analyze the specific characteristics of any digital intangible against the enumerated categories in IRC 936(h)(3)(B) and the "similar items" catch-all, and should treat the application of 367(d) to novel digital intangibles as uncertain.

Section 12: Practitioner Checklist for IRC 367 Outbound Transfers

Use this checklist for every outbound transfer of property to a foreign corporation. Each item corresponds to a common failure mode or high-risk area under IRC 367. All items must be verified against the applicable IRC provisions, Treasury regulations, and current IRS.gov guidance before the return is filed.

Transaction Classification and Subsection Analysis

• Identify the applicable exchange provision: Determine whether the outbound transfer is structured as an IRC 351 contribution, an IRC 361 reorganization, an IRC 332 liquidation, or another nonrecognition exchange. The applicable provision determines which subsection(s) of IRC 367 apply.
• Classify each transferred asset: Identify and classify every item of property transferred as tangible property (367(a)), intangible property (367(d)), or property that may trigger 367(b) issues. Confirm that all assets in a bundled transfer are identified and classified separately; a single transaction can trigger all three subsections simultaneously.
• Check for excluded asset categories under 367(a): For any tangible property transfer, confirm whether each asset is an excluded category for which the active trade or business exception is unavailable (inventory, installment obligations, foreign currency, etc.). Verify the current excluded category list against the applicable Treasury regulations and IRS.gov.
• Analyze 367(b) section 1248 amount: For any exchange involving a foreign corporation on either side, compute the section 1248 amount and confirm whether 367(b) requires its inclusion as a deemed dividend, even if the exchange otherwise qualifies for nonrecognition.

GRA and Active Trade or Business Exception

• Determine exception availability: For tangible property transfers, confirm whether the active trade or business exception under 367(a)(3) is available. If the property is an excluded category, or if the active trade or business status is uncertain, consider the GRA alternative.
• GRA election and Form 8838 filing: If a GRA is elected, prepare the GRA in accordance with Treas. Reg. 1.367(a)-8 and file it with the timely filed return for the year of the transfer. File Form 8838 with the same return. Set a docket reminder for annual Form 8838 certifications for each subsequent year of the GRA term.
• Triggering event monitoring: Document the conditions that would constitute triggering events for the GRA (stock dispositions, property dispositions, cessation of active business use). Implement a monitoring process to identify any triggering event within the GRA term before it causes an unreported tax liability.
• GRA term verification: Confirm the current GRA term requirement against Treas. Reg. 1.367(a)-8 and IRS.gov. Do not assume the standard 5-year term applies without verification; a longer term may be required in some circumstances.

IRC 367(d) Intangible Property

• Confirm 367(d) applies: Verify that the transferred property is intangible property as defined in IRC 367(d)(4) and IRC 936(h)(3)(B). For digital assets or novel intangibles, treat the application of 367(d) as an open question (see Section 11, Open Question 5) and obtain specialist advice.
• Transfer pricing documentation: Prepare or commission a contemporaneous transfer pricing study benchmarking the arm's length royalty under IRC 482 and Treas. Reg. 1.482-4. This study should be completed before the return is filed and retained as part of the taxpayer's books and records.
• Annual inclusion computation: For each year following the outbound transfer, compute the 367(d) annual deemed royalty inclusion based on the current arm's length royalty rate (applying the super royalty adjustment if the intangible's income profile has changed). Include the amount in gross income as ordinary income.
• Repatriation analysis: Annually model whether repatriation of the intangible produces a better result than continuing to recognize 367(d) annual inclusions. Factor in the OBBBA NCTI interaction (open question), the FTC position, and the repatriation transaction costs.

Reporting and Compliance

• Form 926 filing: File Form 926 with the return for the year of every outbound property transfer subject to IRC 367(a) or 367(d). Confirm current Form 926 content requirements, filing deadlines, and any exceptions for specific transaction types at IRS.gov.
• IRC 6038B penalty exposure: Quantify the potential IRC 6038B penalty exposure for any Form 926 filing failure. Do not state any specific penalty amount to the client without hedging to IRC 6038B and current IRS.gov; verify current penalty amounts in the instructions to Form 926.
• Form 8865 analysis: Determine whether any partnership interest or entity classification issue triggers a Form 8865 obligation alongside or instead of Form 926 for the specific structure.
• FCFC/FCUS classification check: Confirm whether any party to the outbound transfer is classified as an FCFC or FCUS under OBBBA IRC 951B. If so, flag the FCFC/FCUS outbound transfer treatment as an open question (see Section 11, Open Question 4) and document the open item in the client file.

Frequently Asked Questions

Common questions from enrolled agents, CPAs, and tax attorneys on IRC 367 outbound transfers, gain recognition agreements, and the 367(d) intangible regime.

• What is IRC 367 and why does it matter for outbound transfers?

  IRC 367 is the gateway rule that determines whether a U.S. person can benefit from nonrecognition treatment when transferring property to a foreign corporation in an otherwise tax-free exchange under IRC 332, 351, 354, 356, or 361. Without IRC 367, a U.S. person could transfer appreciated property to a foreign corporation in a tax-free reorganization or contribution, remove that gain from the U.S. tax base, and eliminate the U.S. tax liability permanently. IRC 367(a) addresses outbound transfers of property other than intangibles; 367(b) addresses exchanges involving foreign corporations (including outbound liquidations and foreign mergers); and 367(d) imposes a deemed royalty regime on outbound transfers of intangible property. All gain recognition rules, triggering events, and regulatory mechanics under IRC 367 must be verified against the applicable Treasury regulations cited in this guide and current IRS.gov guidance before applying to any specific client transaction.

• What is a gain recognition agreement (GRA) under IRC 367(a)?

  A gain recognition agreement (GRA) is a written agreement between a U.S. transferor and the IRS under which the transferor agrees to recognize gain on transferred property if a triggering event occurs during the GRA term. GRAs are governed by Treas. Reg. 1.367(a)-8 (verify the current version at IRS.gov and in the current Code of Federal Regulations, as amendments may have been issued). The transferor files the GRA with its tax return for the year of the transfer and must file annual certifications on Form 8838 for each year of the GRA term. A triggering event -- such as a disposition of the transferred stock or a disposition of the transferred property by the foreign corporation -- causes the deferred gain to become currently taxable, plus interest. The GRA term and all filing mechanics must be verified against Treas. Reg. 1.367(a)-8 and current IRS.gov guidance; the term requirements are subject to regulatory change.

• How does IRC 367(d) treat outbound transfers of intangible property?

  IRC 367(d) overrides nonrecognition treatment for outbound transfers of intangible property (as defined in IRC 367(d)(4), cross-referencing IRC 936(h)(3)(B)) to a foreign corporation in an otherwise tax-free exchange. Instead of recognizing gain at the time of transfer, the U.S. transferor is treated as having sold the intangible for payments contingent on the foreign corporation's use of the property. These deemed payments are included in the U.S. transferor's gross income annually over the useful life of the intangible as ordinary income. The deemed payments must reflect an arm's length amount under IRC 482. The mechanics of the annual inclusion, the definition of intangible property covered, the useful life determination, and the interaction with cost-sharing arrangements must be verified against Treas. Reg. 1.367(d)-1 (or its currently effective version) and current IRS.gov guidance.

• What forms must be filed to report an outbound transfer under IRC 367?

  The primary reporting form for outbound transfers of property to a foreign corporation under IRC 367 is Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation). U.S. persons who transfer property to a foreign corporation in an exchange described in IRC 367(a) or 367(d) must generally file Form 926 with their annual income tax return. Failure to file Form 926 subjects the transferor to penalties under IRC 6038B. If the outbound transfer is covered by a gain recognition agreement, the transferor must also file Form 8838 and annual GRA certifications. Partnerships that transfer property to a foreign partnership should also consider Form 8865 obligations. All filing thresholds, penalty amounts, and form-specific instructions must be verified against the current Form 926 and Form 8838 instructions at IRS.gov.

• What is IP repatriation under IRC 367(d) and how does it work?

  IP repatriation refers to the inbound transfer of intangible property from a foreign corporation back to a U.S. person. Where property was originally transferred outbound under a 367(d) deemed royalty arrangement, the repatriation of that property terminates the annual inclusion obligation for future periods. Repatriation may be structured as a direct transfer, a dividend, or a liquidation, each with different tax consequences. The "super royalty" provisions of IRC 367(d) and the interaction with the arm's length standard under IRC 482 must be analyzed for any repatriation transaction. Whether an inbound licensing structure is preferable to a full repatriation depends on facts specific to the intangible, the foreign corporation's jurisdiction, and the U.S. taxpayer's overall tax position. All mechanics must be verified against Treas. Reg. 1.367(d)-1 (or its current version), current IRS.gov guidance, and any 2024 or 2025 regulatory developments confirmed at IRS.gov.

• How does OBBBA affect outbound structures governed by IRC 367?

  OBBBA (signed July 4, 2025) renamed GILTI to NCTI and created new FCFC and FCUS regimes under IRC 951B. These changes affect outbound structures in several ways that remain subject to open questions as of July 2026. The NCTI inclusion that flows from a foreign corporation following an outbound 367(a) or 367(d) transfer now falls into the NCTI basket for FTC purposes, subject to the OBBBA haircut and no-carryover rule; however, the specific interaction between the 367(d) deemed royalty annual inclusion and the NCTI basket computation is an open question -- no IRS guidance has been issued specifically addressing the 367 and NCTI regime interaction as of July 2026. In addition, the treatment of FCFC and FCUS outbound transfers under 367(a) is unresolved; no IRS guidance addresses how the FCFC or FCUS designation affects the gain recognition rules, the GRA requirements, or the triggering event analysis. Practitioners must hedge all OBBBA interactions with IRC 367 entirely to the enacted OBBBA, applicable Treasury regulations, and future IRS guidance.

Section 14: Regulated Claims Notice

The following is a list of major assertions made in this guide and their applicable hedge. No assertion listed here should be treated as a definitive statement of current law without verification at the cited authority and at IRS.gov.

Related Practitioner Guides

The following guides cover related international tax rules that practitioners should analyze alongside IRC 367 outbound transfer considerations.

• IRC 721(c): Partnership Contributions and Gain Deferral Method -- Coordination between IRC 367(a) gain recognition agreements and the IRC 721(c) gain deferral method.
• IRC 6038B Form 926 U.S. transferor reporting -- Form 926 reporting for Section 351 and 368 outbound transfers of property to foreign corporations, the 10% FMV penalty, the $100,000 non-willful cap, GRA coordination, and the IRC 6501(c)(8) SOL extension.
• IRC 482 Transfer Pricing: Arm's Length Standard, Documentation, and APAs -- the arm's length standard and contemporaneous documentation requirements that govern the royalty benchmarking required for 367(d) annual inclusions; best method rule, IRC 6662(e) penalties, and advance pricing agreements.
• Foreign Tax Credit Form 1116 and Form 1118: OBBBA NCTI Basket Practitioner Guide -- the NCTI basket FTC haircut and no-carryover rule that affect the FTC planning for CFC structures receiving outbound 367(a) transfers; Form 1116 (individual) and Form 1118 (corporate) FTC limitation computation post-OBBBA.
• Form 5471 and Form 5472 Foreign Corporation Reporting Guide -- U.S. shareholders of CFCs that received outbound property transfers under 367(a) must file Form 5471 annually; the CFC reporting obligations under Form 5471 are interrelated with the IRC 367 gain recognition analysis and GRA annual certification.
• IRC 250 NCTI (Formerly GILTI) and FDDEI (Formerly FDII): OBBBA International Tax Practitioner Guide -- NCTI inclusion mechanics, Section 250 deduction, and the QBAI elimination under OBBBA; the NCTI inclusion that arises from CFCs receiving outbound 367(a) or 367(d) property is subject to the NCTI basket rules analyzed in this guide.
• IRC 904 Foreign Tax Credit Limitation, Basket Rules, and OBBBA Section 904(b)(5) -- the FTC limitation formula and the Section 904(b)(5) NCTI basket expense allocation restriction that affect the FTC available to offset NCTI inclusions from CFC structures that received outbound 367 property transfers; five open guidance questions for 2026 FTC planning.
• IRC 901(m) Covered Asset Acquisitions and DTP -- Section 338(g) CFC election consequences, RFA tracking, and the DTP denial framework applicable to outbound transfers that create U.S. basis step-ups.
• IRC 368 Tax-Free Reorganization Types A, B, C, D, G: Mergers and M&A Structures -- cross-border IRC 368 reorganizations involving a U.S. corporation and a foreign corporation trigger IRC 367(a) or 367(b) analysis in addition to the domestic IRC 368 requirements; a domestic corporation that transfers assets to a foreign corporation as part of a Type C or Type A reorganization must separately analyze the IRC 367(a) outbound transfer consequences, including the gain recognition agreement framework, before concluding that the reorganization is tax-free at the U.S. level.

International Tax Compliance Software for Professional Preparers

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