The Internal Revenue Service and the Treasury Department have issued long-awaited temporary and proposed regulations under Internal Revenue Code section 7874 relating to corporate inversions. The Regulations incorporate, with some significant modifications, the rules previously set forth in Notice 2009-78, which provided that, under certain conditions, the stock of a foreign acquiring corporation issued in exchange for cash, marketable securities and certain other assets should be disregarded for purposes of the “ownership test” of Code section 7874(a)(2)(B)(ii). The Regulations also introduce a much requested de minimis exception for transactions that more closely resemble outright stock purchases with a minimal equity rollover. Interestingly, the Preamble to the Regulations poses some unsettling questions about common transactions that many practitioners may not have previously viewed as raising the inversion specter.

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