It’s Now Easier to Bring IP Back to the USA

The IRS and Treasury just provided welcome news for taxpayers who hoped to bring intangible assets (IP) back to the USA. The final regulations, identified as T.D. 9994 and released on October 9, 2024, cancel certain ongoing tax obligations under Section 367(d) when intangible property, like patents or trademarks, is returned to U.S. persons after being transferred to a foreign corporation.

This is good news for companies looking to repatriate intellectual property because it eliminates some tax burdens and provides opportunities for leveraging other existing tax incentives and benefits.

One example is that corporate taxpayers may benefit from Section 250, which offers a deduction for Foreign-Derived Intangible Income (FDII). This means corporate taxpayers can enjoy a considerably lower effective corporate income tax rate for revenue derived from serving foreign markets, including exporting goods or services.

Another example where taxpayers may benefit is developing or improving the IP within the USA (5 years) rather than outside of the USA (15 years), to have quicker cost recovery under Section 174. However, a word of caution: eager taxpayers must thoroughly assess whether the foreign jurisdiction where the IP is housed has an exit tax on IP leaving the foreign jurisdiction, similar to the United States with its base application of Section 367(d).

These taxpayer-friendly final regulations apply to subsequent dispositions of intangible property occurring on or after October 10, 2024, the publication date in the Federal Register.

Some key provisions are briefly summarized as follows:

• Terminates the application of Section 367(d) when (1) IP is repatriated to certain U.S. persons, and this (2) affects U.S. persons who previously transferred intangible property to a foreign corporation.
• A Qualified Domestic Person (QDP) is defined as the initial U.S. transferor, a qualified successor, or a related U.S. person; the regulations exclude partnerships and S corporations from being qualified domestic persons.
• There are specific rules for determining the adjusted basis of intangible property upon repatriation.
• The Section 367(d) inclusion: deemed annual payment treated as an allowable deduction allocated to appropriate classes of gross income.
• If there are multiple transfers before repatriation, each transfer is considered independently for determining gross income attributable to a foreign branch.
• U.S. transferors must provide specific information to terminate the application of section 367(d)—relief provisions for certain failures to comply with reporting requirements.
• There are detailed examples provided to illustrate the application of the final regulations.

The newly finalized regulations under T.D. 9994 offer a significant advantage for U.S. companies eager to repatriate intellectual property. However, companies must remain vigilant about potential exit taxes in foreign jurisdictions. If you have any questions or want to discuss leveraging these new rules, contact Marcum’s Tax & Business team today.