---
kind: "range"
citation: "26 C.F.R. §§ 1.7874-7–1.7874-9"
title: "26"
from: "1.7874-7"
to: "1.7874-9"
count: 3
url: "https://uscodex.org/cfr/26/1.7874-7..1.7874-9"
---

# §1.7874-7. Disregard of certain stock attributable to passive assets.

- (a) **Scope.** This section identifies certain stock of a foreign acquiring corporation that is attributable to passive assets and that is disregarded in determining the ownership fraction by value. [Paragraph (b)](#b) of this section sets forth the general rule regarding when stock of a foreign acquiring corporation is excluded from the denominator of the ownership fraction under this section. [Paragraph (c)](#c) of this section provides a de minimis exception to the application of the general rule of [paragraph (b)](#b) of this section. [Paragraph (d)](#d) of this section provides rules for the treatment of partnerships, and [paragraph (e)](#e) of this section provides definitions. [Paragraph (f)](#f) of this section provides examples illustrating the application of the rules of this section. [Paragraph (g)](#g) of this section provides dates of applicability. The rules provided in this section are also subject to [section 7874(c)(4)](/cfr/26/7874.md?p=c-4). See [§ 1.7874-1(d)(1)](/cfr/26/1.7874-1.md?p=d-1) for rules addressing the interaction of this section with the expanded affiliated group rules of [section 7874(c)(2)(A)](/cfr/26/7874.md?p=c-2-A) and [§ 1.7874-1](/cfr/26/1.7874-1.md).
- (b) **General rule.** If, on the completion date, more than fifty percent of the gross value of all foreign group property constitutes foreign group nonqualified property, then, for purposes of determining the ownership percentage by value (but not vote) described in [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii), stock of the foreign acquiring corporation is excluded from the denominator of the ownership fraction in an amount equal to the product of—
  - (1) The value of the stock of the foreign acquiring corporation, other than stock that is described in [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii) and stock that is excluded from the denominator of the ownership fraction under [§ 1.7874-1(b)](/cfr/26/1.7874-1.md?p=b), [§ 1.7874-4(b)](/cfr/26/1.7874-4.md?p=b), [§ 1.7874-8(b)](/cfr/26/1.7874-8.md?p=b), [§ 1.7874-9(b)](/cfr/26/1.7874-9.md?p=b), or section [§ 7874(c)(4)](/cfr/26/7874.md?p=c-4); and
  - (2) **The foreign group nonqualified property fraction.**
- (c) **De minimis ownership.** [Paragraph (b)](#b) of this section does not apply if—
  - (1) The ownership percentage described in [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii), determined without regard to the application of [paragraph (b)](#b) of this section and §§ [1.7874-4(b)](/cfr/26/1.7874-4.md?p=b) and [1.7874-10(b)](/cfr/26/1.7874-10.md?p=b), is less than five (by vote and value); and
  - (2) On the completion date, each five percent former domestic entity shareholder or five percent former domestic entity partner, as applicable, owns (applying the attribution rules of [section 318(a)](/cfr/26/318.md?p=a) with the modifications described in [section 304(c)(3)(B)](/cfr/26/304.md?p=c-3-B)) less than five percent (by vote and value) of the stock of (or a partnership interest in) each member of the expanded affiliated group. For this purpose, a five percent former domestic entity shareholder (or five percent former domestic entity partner) is a former domestic entity shareholder (or former domestic entity partner) that, before the domestic entity acquisition, owned (applying the attribution rules of [section 318(a)](/cfr/26/318.md?p=a) with the modifications described in [section 304(c)(3)(B)](/cfr/26/304.md?p=c-3-B)) at least five percent (by vote and value) of the stock of (or a partnership interest in) the domestic entity.
- (d) **Treatment of partnerships.** For purposes of this section, if one or more members of the modified expanded affiliated group own, in the aggregate, more than 50 percent (by value) of the interests in a partnership, the partnership is treated as a corporation that is a member of the modified expanded affiliated group.
- (e) **Definitions.** In addition to the definitions provided in [§ 1.7874-12](/cfr/26/1.7874-12.md), the following definitions apply for purposes of this section.
  - (1) **Foreign group nonqualified property—**
    - (i) **General rule.** Foreign group nonqualified property means foreign group property described in [§ 1.7874-4(h)(2)](/cfr/26/1.7874-4.md?p=h-2), other than the following:
      - (A) **Property that gives rise to income described in section 954(h), determined—** (1) In the case of property held by a foreign corporation, by substituting the term “foreign corporation” for the term “controlled foreign corporation;” and

        (2) In the case of property held by a domestic corporation, by substituting the term “domestic corporation” for the term “controlled foreign corporation,” without regard to the phrase “other than the United States” in [section 954(h)(3)(A)(ii)(I)](/cfr/26/954.md?p=h-3-A-ii-I), and without regard to any inference that the tests in [section 954(h)](/cfr/26/954.md?p=h) should be calculated or determined without taking transactions with customers located in the United States into account.

      - (B) Property that gives rise to income described in [section 954(i)](/cfr/26/954.md?p=i), determined by substituting the term “foreign corporation” for the term “controlled foreign corporation.”
      - (C) Property that gives rise to income described in section [1297(b)(2)(A)](/cfr/26/1297.md?p=b-2-A) or [(B)](/cfr/26/1297.md?p=b-2-B) (determined without regard to other passive foreign investment company rules).
      - (D) Property held by a domestic corporation that is subject to tax as an insurance company under subchapter L of chapter 1 of subtitle A of the Internal Revenue Code, provided that the property is required to support, or is substantially related to, the active conduct of an insurance business.
    - (ii) **Special rule.** Foreign group nonqualified property also means any foreign group property that, in a transaction related to the domestic entity acquisition, is acquired in exchange for other property, including cash, if such other property would be described in [paragraph (e)(1)(i)](#e-1-i) of this section had the transaction not occurred.
  - (2) Foreign group property means any property (including excluded property, as described in [paragraph (e)(3)(ii)](#e-3-ii) of this section)) held on the completion date by the modified expanded affiliated group, other than—
    - (i) Property that is directly or indirectly acquired in the domestic entity acquisition;
    - (ii) Stock or a partnership interest in a member of the modified expanded affiliated group; and
    - (iii) **An obligation of a member of the modified expanded affiliated group.**
  - (3) **Foreign group nonqualified property fraction—**
    - (i) **In general.** Foreign group nonqualified property fraction means a fraction calculated with the following numerator and denominator:
      - (A) The numerator of the fraction is the gross value of all foreign group nonqualified property, other than excluded property (as described in [paragraph (e)(3)(ii)](#e-3-ii) of this section).
      - (B) The denominator of the fraction is the gross value of all foreign group property, other than excluded property (as described in [paragraph (e)(3)(ii)](#e-3-ii) of this section)
    - (ii) **Excluded property.** For purposes of [paragraph (e)(3)](#e-3) of this section, excluded property means property that gives rise to stock that is excluded from the ownership fraction with respect to the domestic entity acquisition under [§ 1.7874-4(b)](/cfr/26/1.7874-4.md?p=b), [§ 1.7874-8(b)](/cfr/26/1.7874-8.md?p=b), [§ 1.7874-9(b)](/cfr/26/1.7874-9.md?p=b), or [section 7874(c)(4)](/cfr/26/7874.md?p=c-4). For this purpose, only property that was directly or indirectly acquired in a prior domestic entity acquisition (as described in [§ 1.7874-8(g)(4)](/cfr/26/1.7874-8.md?p=g-4)) or covered foreign acquisition (as described in [§ 1.7874-9(d)(4)](/cfr/26/1.7874-9.md?p=d-4)) with respect to the domestic entity acquisition may be considered to give rise to stock that is excluded from the ownership fraction with respect to the domestic entity acquisition under [§ 1.7874-8(b)](/cfr/26/1.7874-8.md?p=b) or [§ 1.7874-9(b)](/cfr/26/1.7874-9.md?p=b). If only a portion of the consideration provided in a prior domestic entity acquisition or covered foreign acquisition consisted of stock of the foreign acquiring corporation, then only a pro rata portion of a property directly or indirectly acquired in the prior domestic entity acquisition or covered foreign acquisition may be considered excluded property, based on a fraction the numerator of which is the amount of the consideration that consisted of stock of the foreign acquiring corporation and the denominator of which is the total amount of consideration.
  - (4) **Modified expanded affiliated group—** means, with respect to a domestic entity acquisition, the group described in either [paragraph (e)(4)(i)](#e-4-i) of this section or [paragraph (e)(4)(ii)](#e-4-ii) of this section. A member of the modified expanded affiliated group is an entity included in the modified expanded affiliated group.
    - (i) When the foreign acquiring corporation is not the common parent corporation of the expanded affiliated group, the expanded affiliated group determined as if the foreign acquiring corporation was the common parent corporation.
    - (ii) When the foreign acquiring corporation is the common parent corporation of the expanded affiliated group, the expanded affiliated group.
- (f) **Examples.** The following examples illustrate the rules of this section.
- (g) **Applicability dates.** This section applies to domestic entity acquisitions completed on or after July 12, 2018. For domestic entity acquisitions completed before July 12, 2018, see [§ 1.7874-7T](/cfr/26/1.7874-7T.md), as contained in [26 CFR part 1](/cfr/26/part1.md) revised as of April 1, 2017. However, to the extent this section differs from [§ 1.7874-7T](/cfr/26/1.7874-7T.md), as contained in [26 CFR part 1](/cfr/26/part1.md) revised as of April 1, 2017, taxpayers may elect to consistently apply the differences to domestic entity acquisitions completed before July 12, 2018.

# §1.7874-8. Disregard of certain stock attributable to serial acquisitions.

- (a) **Scope.** This section identifies stock of a foreign acquiring corporation that is disregarded in determining an ownership fraction by value because it is attributable to certain prior domestic entity acquisitions. [Paragraph (b)](#b) of this section sets forth the general rule regarding the amount of stock of a foreign acquiring corporation that is excluded from the denominator of the ownership fraction by value under this section, and [paragraphs (c) through (f)](#c..f) of this section provide rules for determining this amount. [Paragraph (g)](#g) provides definitions. [Paragraph (h)](#h) of this section provides examples illustrating the application of the rules of this section. [Paragraph (i)](#i) of this section provides dates of applicability. This section applies after taking into account [§ 1.7874-2(e)](/cfr/26/1.7874-2.md?p=e). See [§ 1.7874-1(d)(1)](/cfr/26/1.7874-1.md?p=d-1) for rules addressing the interaction of this section with the expanded affiliated group rules of [section 7874(c)(2)(A)](/cfr/26/7874.md?p=c-2-A) and [§ 1.7874-1](/cfr/26/1.7874-1.md).
- (b) **General rule.** This [paragraph (b)](#b) applies to a domestic entity acquisition (relevant domestic entity acquisition) when the foreign acquiring corporation (including a predecessor, as defined in [§ 1.7874-10(f)(1)](/cfr/26/1.7874-10.md?p=f-1)) has completed one or more prior domestic entity acquisitions. When this [paragraph (b)](#b) applies, then, for purposes of determining the ownership percentage by value (but not vote) described in [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii), stock of the foreign acquiring corporation is excluded from the denominator of the ownership fraction in an amount equal to the sum of the excluded amounts computed separately with respect to each prior domestic entity acquisition and each relevant share class.
- (c) **Computation of excluded amounts.** With respect to each prior domestic entity acquisition and each relevant share class, the excluded amount is the product of—
  - (1) The total number of prior acquisition shares, reduced by the sum of the number of allocable redeemed shares for all redemption testing periods; and
  - (2) The fair market value of a single share of stock of the relevant share class on the completion date of the relevant domestic entity acquisition.
- (d) **Computation of allocable redeemed shares—**
  - (1) **In general.** With respect to each prior domestic entity acquisition and each relevant share class, the allocable redeemed shares, determined separately for each redemption testing period, is the product of the number of redeemed shares during the redemption testing period and the redemption fraction.
  - (2) **Redemption fraction.** The redemption fraction is determined separately with respect to each prior domestic entity acquisition, each relevant share class, and each redemption testing period, as follows:
    - (i) The numerator is the total number of prior acquisition shares, reduced by the sum of the number of allocable redeemed shares for all prior redemption testing periods.
    - (ii) **The denominator is the sum of—**
      - (A) The number of outstanding shares of the foreign acquiring corporation stock as of the end of the last day of the redemption testing period; and
      - (B) **The number of redeemed shares during the redemption testing period.**
- (e) **Rules for determining redemption testing periods—**
  - (1) **In general.** Except as provided in [paragraph (e)(2)](#e-2) of this section, a redemption testing period with respect to a prior domestic entity acquisition is the period beginning on the day after the completion date of the prior domestic entity acquisition and ending on the day prior to the completion date of the relevant domestic entity acquisition.
  - (2) **Election to use multiple redemption testing periods.** A foreign acquiring corporation may establish a reasonable method for dividing the period described in [paragraph (e)(1)](#e-1) of this section into shorter periods (each such shorter period, a redemption testing period). A reasonable method would include a method based on a calendar convention (for example, daily, monthly, quarterly, or yearly), or on a convention that triggers the start of a new redemption testing period whenever a share issuance occurs that exceeds a certain threshold. In order to be reasonable, the method must be consistently applied with respect to all prior domestic entity acquisitions and all relevant share classes.
- (f) **Appropriate adjustments required to take into account share splits and similar transactions.** For purposes of this section, appropriate adjustments must be made to take into account changes in a foreign acquiring corporation's capital structure, including, for example, stock splits, reverse stock splits, stock distributions, recapitalizations, and similar transactions. Thus, for example, in determining the total number of prior acquisition shares with respect to a relevant share class, appropriate adjustments must be made to take into account a stock split with respect to that relevant share class that occurs after the completion date with respect to a prior domestic entity acquisition.
- (g) **Definitions.** In addition to the definitions provided in [§ 1.7874-12](/cfr/26/1.7874-12.md), the following definitions apply for purposes of this section.
  - (1) A binding contract means an instrument enforceable under applicable law against the parties to the instrument. The presence of a condition outside the control of the parties (including, for example, regulatory agency approval) does not prevent an instrument from being a binding contract. Further, the fact that insubstantial terms remain to be negotiated by the parties to the contract, or that customary conditions remain to be satisfied, does not prevent an instrument from being a binding contract. A tender offer that is subject to [section 14(d)](/cfr/26/14.md?p=d) of the Securities and Exchange Act of 1934, ([15 U.S.C. 78n(d)(1)](/usc/15/78n.md?p=d-1)), and Regulation 14D ([17 CFR 240.14d-1 through 240.14d-103](/cfr/17/240.14d-1..240.14d-103.md)) and that is not pursuant to a binding contract, is treated as a binding contract made on the date of its announcement, notwithstanding that it may be modified by the offeror or that it is not enforceable against the offerees.
  - (2) A relevant share class means, with respect to a prior domestic entity acquisition, each separate legal class of shares in the foreign acquiring corporation from which prior acquisition shares were issued. See also [paragraph (f)](#f) of this section (requiring appropriate adjustments in certain cases).
  - (3) **Total number of prior acquisition shares—** means, with respect to a prior domestic entity acquisition and each relevant share class, the total number of shares of stock of the foreign acquiring corporation that were described in [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii) as a result of that acquisition (without regard to whether the 60 percent test of [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii) was satisfied), other than stock treated as received by former domestic entity shareholders or former domestic entity partners under [§ 1.7874-10(b)](/cfr/26/1.7874-10.md?p=b) or [section 7874(c)(4)](/cfr/26/7874.md?p=c-4), adjusted as appropriate under [paragraph (f)](#f) of this section.
  - (4) **A <I>prior domestic entity acquisition</I>—**
    - (i) **General rule.** Except as provided in this [paragraph (g)(4)](#g-4), a prior domestic entity acquisition means, with respect to a relevant domestic entity acquisition, a domestic entity acquisition that occurred within the 36-month period ending on the signing date of the relevant domestic entity acquisition.
    - (ii) **Exception.** A domestic entity acquisition is not a prior domestic entity acquisition if it is described in paragraph [(g)(4)(ii)(A)](#g-4-ii-A) or [(B)](#g-4-ii-B) of this section.
      - (A) **De minimis.** A domestic entity acquisition is described in this [paragraph (g)(4)(ii)(A)](#g-4-ii-A) if—

        (1) The ownership percentage described in [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii) with respect to the domestic entity acquisition was less than five (by vote and value); and

        (2) The fair market value of the stock of the foreign acquiring corporation described in [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii) as a result of the domestic entity acquisition (without regard to whether the 60 percent test of [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii) was satisfied) did not exceed $50 million, as determined on the completion date with respect to the domestic entity acquisition.

      - (B) **Foreign-parented group.** A domestic entity acquisition is described in this [paragraph (g)(4)(ii)(B)](#g-4-ii-B) if—

        (1) Before the domestic entity acquisition and any related transaction, the domestic entity was a member of a foreign-parented group (as described in [§ 1.7874-6(f)(1)](/cfr/26/1.7874-6.md?p=f-1)); and

        (2) The domestic entity acquisition qualified for the internal group restructuring exception under [§ 1.7874-1(c)(2)](/cfr/26/1.7874-1.md?p=c-2).

  - (5) A redeemed share means a share of stock in a relevant share class that was redeemed (within the meaning of [section 317(b)](/cfr/26/317.md?p=b)).
  - (6) A signing date means the first date on which the contract to effect the relevant domestic entity acquisition is a binding contract, or if another binding contract to effect a substantially similar acquisition was terminated with a principal purpose of avoiding [section 7874](/cfr/26/7874.md), the first date on which such other contract was a binding contract.
- (h) **Examples.** The following examples illustrate the rules of this section.
- (i) **Applicability dates.** Except as provided in this [paragraph (i)](#i), this section applies to domestic entity acquisitions completed on or after April 4, 2016, regardless of when a prior domestic entity acquisition was completed. Paragraphs [(g)(3)](#g-3) and [(g)(4)(ii)](#g-4-ii) of this section apply to domestic entity acquisitions completed on or after July 12, 2018. However, taxpayers may elect to consistently apply paragraphs [(g)(3)](#g-3) and [(g)(4)(ii)](#g-4-ii) of this section to domestic entity acquisitions completed on or after April 4, 2016, and before July 12, 2018. For domestic entity acquisitions completed on or after April 4, 2016, and before July 12, 2018, see § [1.7874-8T(g)(3)](/cfr/26/1.7874-8T.md?p=g-3) and [(g)(4)(ii)](/cfr/26/1.7874-8T.md?p=g-4-ii) as contained in [26 CFR part 1](/cfr/26/part1.md) revised as of April 1, 2017.

# §1.7874-9. Disregard of certain stock in third-country transactions.

- (a) **Scope.** This section identifies certain stock of a foreign acquiring corporation that is disregarded in determining the ownership fraction. [Paragraph (b)](#b) of this section provides a rule that, in a third-country transaction, excludes from the denominator of the ownership fraction stock in the foreign acquiring corporation held by former shareholders of an acquired foreign corporation by reason of holding certain stock in that foreign corporation. [Paragraph (c)](#c) of this section defines a third-country transaction, and [paragraph (d)](#d) of this section provides other definitions. [Paragraph (e)](#e) of this section provides operating rules. [Paragraph (f)](#f) of this section provides an example illustrating the application of the rules of this section. [Paragraph (g)](#g) of this section provides the dates of applicability. See [§ 1.7874-1(d)(1)](/cfr/26/1.7874-1.md?p=d-1) for rules addressing the interaction of this section with the expanded affiliated group rules of [section 7874(c)(2)(A)](/cfr/26/7874.md?p=c-2-A) and [§ 1.7874-1](/cfr/26/1.7874-1.md).
- (b) **Exclusion of certain stock of a foreign acquiring corporation from the ownership fraction.** When a domestic entity acquisition is a third-country transaction, stock of the foreign acquiring corporation held by reason of holding stock in the acquired foreign corporation (within the meaning of [paragraph (e)(4)](#e-4) of this section) is, to the extent the stock otherwise would be included in the denominator of the ownership fraction, excluded from the denominator of the ownership fraction pursuant to this paragraph.
- (c) **Third-country transaction.** A domestic entity acquisition is a third-country transaction if the following requirements are satisfied:
  - (1) The foreign acquiring corporation completes a covered foreign acquisition pursuant to a plan (or series of related transactions) that includes the domestic entity acquisition.
  - (2) After the covered foreign acquisition and all related transactions are complete, the foreign acquiring corporation is not a tax resident of the foreign country in which the acquired foreign corporation was a tax resident before the covered foreign acquisition and all related transactions.
  - (3) The ownership percentage described in [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii), determined without regard to the application of [paragraph (b)](#b) of this section, is at least 60.
- (d) **Definitions.** In addition to the definitions provided in [§ 1.7874-12](/cfr/26/1.7874-12.md), the following definitions apply for purposes of this section.
  - (1) A foreign acquisition means a transaction in which a foreign acquiring corporation directly or indirectly acquires substantially all of the properties held directly or indirectly by an acquired foreign corporation (within the meaning of [paragraph (e)(2)](#e-2) of this section).
  - (2) An acquired foreign corporation means a foreign corporation whose properties are acquired in a foreign acquisition.
  - (3) **Foreign ownership percentage—** means, with respect to a foreign acquisition, the percentage of stock (by vote or value) of the foreign acquiring corporation held by reason of holding stock in the acquired foreign corporation (within the meaning of [paragraph (e)(3)](#e-3) of this section).
  - (4) **Covered foreign acquisition—**
    - (i) **In general.** Except as provided in paragraphs [(d)(4)(ii)](#d-4-ii) and [(iii)](#d-4-iii) of this section, a covered foreign acquisition means a foreign acquisition in which, after the acquisition and all related transactions are complete, the foreign ownership percentage is at least 60.
    - (ii) **Substantial business activities exception.** A foreign acquisition is not a covered foreign acquisition if, on the completion date, the following requirements are satisfied:
      - (A) **The foreign acquiring corporation is a tax resident of a foreign country.**
      - (B) The expanded affiliated group has substantial business activities in the country in which the foreign acquiring corporation is a tax resident when compared to the total business activities of the expanded affiliated group. For this purpose, the principles of [§ 1.7874-3](/cfr/26/1.7874-3.md) apply and the determination of whether there are substantial business activities is made without regard to the domestic entity acquisition.
    - (iii) **No income tax exception.** A foreign acquisition is not a covered foreign acquisition if—
      - (A) Before the acquisition and all related transactions, the acquired foreign corporation was created or organized in, or under the law of, a foreign country that does not impose corporate income tax and was not a tax resident of any other foreign country; and
      - (B) After the acquisition and all related transactions are complete, the foreign acquiring corporation is created or organized in, or under the law of, a foreign country that does not impose corporate income tax and is not a tax resident of any other foreign country.
  - (5) A tax resident of a foreign country has the meaning set forth in [§ 1.7874-3(d)(11)](/cfr/26/1.7874-3.md?p=d-11).
- (e) **Operating rules.** The following rules apply for purposes of this section.
  - (1) **Acquisition of multiple foreign corporations that are tax residents of the same foreign country.** When multiple foreign acquisitions occur pursuant to the same plan (or a series of related transactions) and two or more of the acquired foreign corporations were tax residents of the same foreign country before the foreign acquisitions and all related transactions, then those foreign acquisitions are treated as a single foreign acquisition and those acquired foreign corporations are treated as a single acquired foreign corporation for purposes of this section.
  - (2) **Acquisition of properties of an acquired foreign corporation.** For purposes of determining whether a foreign acquisition occurs, the principles of [section 7874(a)(2)(B)(i)](/cfr/26/7874.md?p=a-2-B-i) and § [1.7874-2(c)](/cfr/26/1.7874-2.md?p=c) and [(d)](/cfr/26/1.7874-2.md?p=d) (regarding acquisitions of properties of a domestic entity and acquisitions by multiple foreign corporations) apply with the following modifications:
    - (i) The principles of [§ 1.7874-2(c)(1)](/cfr/26/1.7874-2.md?p=c-1) (providing rules for determining whether there is an indirect acquisition of properties of a domestic entity), including [§ 1.7874-2(b)(5)](/cfr/26/1.7874-2.md?p=b-5) (providing rules for determining the proportionate amount of properties indirectly acquired), apply by substituting the term “foreign” for “domestic” wherever it appears.
    - (ii) The principles of [§ 1.7874-2(c)(2)](/cfr/26/1.7874-2.md?p=c-2) (regarding acquisitions of stock of a foreign corporation that owns a domestic entity) apply by substituting the term “domestic” for “foreign” wherever it appears.
  - (3) **Computation of foreign ownership percentage.** For purposes of determining a foreign ownership percentage, the principles of all rules applicable to calculating an ownership percentage apply (including §§ [1.7874-2](/cfr/26/1.7874-2.md), [1.7874-4](/cfr/26/1.7874-4.md), [1.7874-5](/cfr/26/1.7874-5.md), [1.7874-7](/cfr/26/1.7874-7.md), and [section 7874(c)(4)](/cfr/26/7874.md?p=c-4)) with the following modifications:
    - (i) Stock of a foreign acquiring corporation described in [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii) is not taken into account.
    - (ii) The principles of this section, [section 7874(c)(2)(A)](/cfr/26/7874.md?p=c-2-A), and §§ [1.7874-1](/cfr/26/1.7874-1.md), [1.7874-6](/cfr/26/1.7874-6.md), [1.7874-8](/cfr/26/1.7874-8.md), and [1.7874-10](/cfr/26/1.7874-10.md) do not apply.
    - (iii) The principles of [§ 1.7874-7](/cfr/26/1.7874-7.md) apply by, in addition to the exclusions listed in [§ 1.7874-7(e)(2)(i) through (iii)](/cfr/26/1.7874-7.md?p=e-2-i..e-2-iii), also excluding from the definition of foreign group property any property held directly or indirectly by the acquired foreign corporation immediately before the foreign acquisition and directly or indirectly acquired in the foreign acquisition.
  - (4) **Stock held by reason of holding stock in an acquired foreign corporation.** For purposes of determining stock of a foreign acquiring corporation held by reason of holding stock in an acquired foreign corporation, the principles of [section 7874(a)(2)(B)(ii)](/cfr/26/7874.md?p=a-2-B-ii) and §§ [1.7874-2(f)](/cfr/26/1.7874-2.md?p=f) and [1.7874-5](/cfr/26/1.7874-5.md) apply.
  - (5) **Change in the tax residency of a foreign corporation.** For purposes of this section, a change in a country in which a foreign corporation is a tax resident is treated as a transaction. Further, for purposes of this section, if a foreign acquiring corporation changes the country in which it is a tax resident in a manner that would not otherwise be considered to result in a foreign acquisition (for example, by changing where it is managed and controlled), then the foreign acquiring corporation is treated as—
    - (i) Both an acquired foreign corporation and a foreign acquiring corporation; and
    - (ii) Directly or indirectly acquiring all of the properties held directly or indirectly by the acquired foreign corporation solely in exchange for stock of the foreign acquiring corporation.
- (f) **Example.** The following example illustrates the rules of this section.
- (g) **Applicability dates.** This section applies to domestic entity acquisitions completed on or after July 12, 2018. For domestic entity acquisitions completed before July 12, 2018, see [§ 1.7874-9T](/cfr/26/1.7874-9T.md), as contained in [26 CFR part 1](/cfr/26/part1.md) revised as of April 1, 2017. However, to the extent this section differs from [§ 1.7874-9T](/cfr/26/1.7874-9T.md), as contained in [26 CFR part 1](/cfr/26/part1.md) revised as of April 1, 2017, taxpayers may elect to consistently apply the differences to domestic entity acquisitions completed before July 12, 2018.