The IRS released an internal Advice Memorandum (AM 2022-003 or the ‘AM’) on 23 September, concluding that a transferee foreign corporation (‘FC’) may prepay annual Section 367(d) income inclusions (‘annual Section 367(d) inclusions’, colloquially referred to as ‘Section 367(d) deemed royalties’) when it transfers “money or other property” (‘boot’) in connection with a Section 351 transfer of intangible property subject to Section 367(d), but not in other situations. Therefore, the AM takes the position that FC may not prepay annual Section 367(d) inclusions after the initial transfer has occurred.
The memorandum represents the first time the IRS has addressed prepayments (advance payments) of annual Section 367(d) inclusions made after the initial outbound transfer. The conclusion of the AM is consistent with prior nonbinding guidance regarding such advance payments made in the initial Section 351 transfer involving boot.