[Code of Federal Regulations]
[Title 26, Volume 4]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.367(a)-5T]

[Page 274-275]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.367(a)-5T  Property subject to section 367(a)(1) regardless of 
use in trade or business (temporary).

    (a) In general. Section 367(a)(1) shall apply to a transfer of 
property described in this section regardless of whether the property is 
transferred for use in the active conduct of a trade or business. 
Certain exceptions to the operation of this rule are provided in this 
section, and a special gain limitation rule is provided in paragraph 
(e). A transfer of property described in this section is subject to 
section 367(a)(1) even if the transfer is a compulsory transfer 
described in Sec. 1.367(a)-4T(f).
    (b) Inventory, etc. Regardless of use in an active trade or 
business, section 367(a)(1) shall apply to the transfer of--
    (1) Stock in trade of the taxpayer or other property of a kind which 
would properly be included in the inventory of the taxpayer if on hand 
at the close of the taxable year, or property held by the taxpayer 
primarily for sale to customers in the ordinary course of its trade or 
business; and
    (2) A copyright, a literary, musical, or artistic composition, a 
letter or memorandum, or similar property, held by--
    (i) A taxpayer whose personal efforts created such property;
    (ii) In the case of a letter, memorandum, or similar property, a 
taxpayer from whom such property was prepared or produced; or
    (iii) A taxpayer in whose hands the basis of such property is 
determined, for purposes of determining gain from a sale or exchange, in 
whole or part by reference to the basis of such property in the hands of 
a taxpayer described in subdivision (i) or (ii) of this paragraph 
(b)(2).

For purposes of this section, the term inventory includes raw materials 
and supplies, partially completed goods, and finished products.
    (c) Installment obligations, etc. Regardless of use in an active 
trade or business, section 367(a)(1) shall apply to the transfer of 
installment obligations, accounts receivable, or similar property, but 
only to the extent that the principal amount of any such obligation has 
not previously been included by the taxpayer in its taxable income.
    (d) Foreign currency, etc.--(1) In general. Regardless of use in an 
active trade or business, section 367(a)(1) shall apply to the transfer 
of foreign currency or other property denominated in foreign currency, 
including installment obligations, futures contracts, forward contracts, 
accounts receivable, or any other obligation entitling its payee to 
receive payment in a currency other than U.S. dollars.
    (2) Exception for certain obligations. If transferred property 
denominated in a foreign currency--
    (i) Is denominated in the currency of the country in which the 
transferee foreign corporation is organized; and
    (ii) Was acquired in the ordinary course of the business of the 
transferor that will be carried on by the transferee foreign 
corporation,

then section 367(a)(1) shall apply to the transfer only to the extent 
that gain is required to be recognized with respect to previously 
realized income reflected in installment obligations subject to 
paragraph (c) of this section. The rule of this paragraph (d)(2) shall 
not apply to transfers of foreign currency.
    (3) Limitation of gain required to be recognized. If section 
367(a)(1) applies to a transfer of property described in this paragraph, 
then the gain required to be recognized shall be limited to--
    (i) The gain realized upon the transfer of property described in 
this paragraph (d), minus
    (ii) Any loss realized as part of the same transaction upon the 
transfer of property described in this paragraph (d).

This limitation applies in lieu of the rule in Sec. 1.367(a)-1T(b)(1). 
No loss shall be recognized with respect to property described in this 
paragraph (d).
    (e) Intangible property. Regardless of use in an active trade or 
business, a transfer of intangible property pursuant to section 332 
shall be subject to section 367(a)(1), unless it constitutes foreign 
goodwill or going concern value, as defined in Sec. 1.367(a)-
1T(d)(5)(iii). For rules concerning

[[Page 275]]

transfers of intangible property pursuant to section 351 or 361, see 
section 367(d) and Sec. 1.367(d)-1T.
    (f) Leased tangible property. Regardless of use in an active trade 
or business, section 367(a)(1) shall apply to a transfer of tangible 
property with respect to which the transferor is a lessor at the time of 
the transfer, unless--
    (1) With respect to property that will not be leased by the 
transferee to third persons, the transferee was the lessee of the 
property at the time of the transfer; or
    (2) With respect to property that will be leased by the transferee 
to third persons, the transferee satisfies the conditions set forth in 
Sec. 1.367(a)-4T(c)(1) or (2).

[T.D. 8087, 51 FR 17949, May 16, 1986]