The IRS today issued Notice 2006-85, which announced that the Treasury Department and IRS will issue regulations under § 367(b) to address triangular reorganizations under § 368(a) involving foreign corporations.  From HP-109:

The notice states responds to comments and requests for guidance regarding certain triangular reorganizations that are designed to avoid U.S. tax, including tax on the repatriation of a subsidiary’s earnings. The notice describes the transactions as involving a parent corporation (P) and a subsidiary corporation (S) where S transfers property to P in exchange for stock of P and then uses the P stock as consideration in an exchange to acquire the stock or assets of another corporation in a triangular reorganization. Taxpayers take the position that S’s transfer of property to P for P’s stock is treated as the purchase of P stock, and not a distribution from S to P, thereby effecting, in most cases, a tax-free transfer of S’s earnings to P without U.S. income tax.

The notice provides that the regulations that will be issued will apply only where P or S (or both) is a foreign corporation. Further, the regulations will make adjustments with respect to P and S such that the property transferred from S to P in exchange for P stock will have the effect of a separate distribution of property from S to P. When issued, the regulations will apply to transactions occurring on or after the date the notice was released for publication. The regulations will not, however, apply to a transaction that was completed on or after the date the notice was released for publication, provided the transaction was entered into pursuant to a written agreement which was binding before the publication of the notice and all times thereafter.

Update:

• Bloomberg: "Killer B" Corporate Tax Shelter to Be Shut Down by Treasury, by Ryan J. Donmoyer:

The U.S. Treasury Department moved to stop companies from claiming tax benefits from a type of corporate reorganization involving overseas subsidiaries dubbed the “the Killer B” transaction by tax lawyers. The department said in a notice today that it will issue regulations that disallow so-called triangular reorganizations that attempt to escape tax when they send foreign earnings to a U.S. parent company….

Willard Taylor, a partner at the law firm Sullivan & Cromwell LLP in New York, said the transaction the Treasury Department says it will ban is “quite extensively done.” “You’re dealing with big companies,” he said, declining to name any specific ones. “They do these things in big numbers.” The transaction was dubbed “the Killer B” by Tax Notes columnist Lee Sheppard in a 2000 article because the reorganization at the heart of the transaction often involves a “B” company with no true earnings or profits, thus making the organization itself a sham with no business purposes other than avoidance of tax.