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Section 367: An Enigma, Julie W. Weston

Washington Law Review

Section 367 of the Internal Revenue Code of 1954 was enacted in its original form in 1932 in order to close what Congress considered to be a serious tax loophole available to domestic corporations and individuals carrying on business through the use of foreign corporations or contemplating the use of foreign corporations to realize large gains without paying taxes. The loophole resulted from the operation of the nonrecognition provisions of the Code dealing with the organization and reorganization of corporations. By using these provisions, individuals and corporations—both foreign and domestic—could transfer greatly appreciated property and unrealized profits on a tax-free …