The Treasury Department and the IRS issued a notice on Aug. 19 proposing to tweak rules that currently “may serve as an impediment to publicly traded foreign corporations redomiciling into the United States.”
The proposed regulations in Notice 2025-45 would modify rules pertaining to certain transactions involving the transfer of U.S. real property interests. In addition, the proposed regulations would revise the rules that apply to inbound asset reorganizations under Section 368(a)(1)(F) of the Internal Revenue Code that constitute a “covered inbound F reorganization.”
The notice also announces that the Treasury Department and the IRS intend to clarify that qualification of a potential F reorganization wouldn’t be affected by a disposition of stock in either the transferor corporation or the resulting corporation if that disposition isn’t included in the plan of reorganization.
Section 897, enacted as part of the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), is the primary provision that subjects foreign persons to U.S. tax on dispositions of U.S. real estate. It provides that gain or loss from the disposition of a U.S. real property interest by a nonresident alien individual or a foreign corporation is treated as effectively connected with a U.S. trade or business, thereby making it taxable in the U.S.
According to the IRS, Section 368(a)(1)(F) of the tax code defines an F reorganization as “a mere change in identity, form, or place of organization of one corporation, however effected. A mere change can consist of a transaction that involves an actual or deemed transfer of property by a transferor corporation to a resulting corporation (each term as defined in §1.368- 2(m)(1)).”
A transaction in which a foreign corporation redomiciles into the United States may qualify as an F reorganization, the IRS said.
Current regulations under §1.368-2(m) impose several requirements for qualification, including the “identity of stock ownership” test, which mandates that the same persons own all of the stock of the transferor immediately before and of the resulting corporation immediately after, and in identical proportions, law firm Greenburg Traurig stated in an Aug. 22 blog post about Notice 2025-45.
“This ownership continuity rule has created uncertainty in practice, particularly in the context of publicly traded corporations,” Greenburg Traurig says in the blog post. “Because shareholders regularly buy and sell stock on the open market, it is not uncommon for transfers of stock to occur in close proximity to the steps of an F reorganization. Taxpayers and practitioners have questioned whether such incidental transactions, if not formally part of the reorganization plan, could nonetheless disqualify the transaction from F reorganization treatment.”
The proposed regulations create a new framework for covered inbound F reorganizations, where a publicly traded foreign corporation (with stock traded on an established securities market for at least three years) redomiciles into the United States as a publicly traded domestic corporation (with at least one year of trading history), the law firm says.
In Notice 2025-45, the Treasury Department and the IRS believe that such redomiciliation transactions “do not give rise to policy concerns under Section 897 because they do not create a risk of inappropriate avoidance of Section 897.”
In its blog post, Greenburg Traurig says the proposed regulations would present the following implications to taxpayers:
1. Facilitating redomiciliations: The proposed changes are intended to remove tax and compliance barriers for publicly traded foreign corporations seeking to redomicile into the U.S. for valid business reasons. This is particularly relevant for multinational groups and foreign public companies with significant U.S. operations or investor bases.
2. Reduced compliance burden: By limiting the scope of required declarations and filings, the proposed rules would ease the administrative burden on both corporations and shareholders, especially in the context of widely held, publicly traded entities.
3. Certainty in planning: The clarification regarding the “identity of stock ownership” requirement provides greater certainty for taxpayers planning F reorganizations, ensuring that unrelated stock sales do not inadvertently disqualify a transaction.
4. Resolution of the “subject to tax” concern: A key practical challenge under the existing regulations has been the “subject to tax” requirement for nonrecognition. Because most shareholders of a publicly traded corporation hold less than 5%, their stock would generally not constitute a U.S. real property interest under Section 897(c)(3). This technicality risked creating a mismatch between the intended policy and the compliance outcome, potentially forcing gain recognition even when no tax base was eroded. The proposed rules effectively eliminate this “foot fault” by aligning FIRPTA’s small-shareholder exception with inbound F reorganizations, ensuring that transactions aren’t inadvertently disqualified simply because the vast majority of public shareholders don’t hold U.S. real property interests.
5. Foreign tax considerations: While Notice 2025-45 eases U.S. federal tax treatment for inbound F reorganizations, taxpayers should be mindful that favorable U.S. rules don’t automatically extend to other jurisdictions. A redomiciliation may trigger corporate exit taxes, shareholder-level taxation, or other consequences (such as stamp duties) under foreign law. Accordingly, companies should consult local counsel to evaluate potential non-U.S. tax implications before undertaking such transactions.
Treasury and the IRS are soliciting comments on the proposed rules, with a deadline of Oct. 20, 2025.
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Tags: corporate tax, IRS, Taxes, Treasury Department
