Corporate Inversions and Hopscotch Loans: The Remaining Loopholes Outnumber the Restrictions

Abstract

An examination of IRS Notice 2014-52 and how it limits “hopscotch transactions” that avoid U.S. tax on foreign earnings, and points out the range of transactions that won't be affected under its terms. The hopscotch loophole isn't used only by U.S. corporations that engage in corporate inversions as defined by tax code Section 7874, although those transactions are the ones targeted by the notice. The acquisition of a US corporation with foreign subsidiaries by a foreign corporation permits the use of Hopscotch loans to avoid US taxation, and these may be done by foreign purchasers, private equity transactions with foreign parent vehicles, and other transactions. The IRS has authority to issue regulations with a broader reach.

Keywords: US Federal Income Taxation; Corporation; Section 7874; Inversion; Notice 2014-52