Tax News

CCH (cch.taxgroup.com) reports:

The IRS and Treasury Department have issued final regulations under Code Sec. 1502 regarding basis determinations and adjustments for subsidiary stock in certain transactions involving members of a consolidated group and the determination of when subsidiary stock is treated as worthless under Code Sec. 165. The regulations affect affiliated groups of corporations filing consolidated returns and are effective on July 18, 2007.
The final regulations adopt, without modifications, proposed and temporary regulations under Reg. §1.1502-19 issued on January 26, 2006 (NPRM REG-138879-05; T.D. 9244) regarding treatment of excess loss accounts. Under the final regulations, when a member of a consolidated group has an excess loss account in stock shares of a class of a second member's stock at the time of a basis adjustment or determination under the tax code with respect to other shares of the same class of the second member's stock owned by the first member, the basis of the other shares is allocated first to equalize and eliminate the member's excess loss account. The final regulations eliminates prior reliance on the form of the transaction to determine whether an excess loss account would be reduced or eliminated.
The final regulations also adopt, without substantive modifications, proposed amendments to Reg. §1.1502-80 issued on January 23, 2007 (NPRM REG-157711-02) regarding when subsidiary stock is treated as worthless under Code Sec. 165. The final regulations provide that subsidiary stock is not treated as worthless before the earlier of the time that the subsidiary ceases to be a member of the group or the time that the stock is worthless within the meaning of Reg. §1.1502-19(c)(1)(iii). The regulation applies to tax years for which the consolidated return is due (without extensions) after July 18, 2007. However, taxpayers may apply the regulation to tax years beginning on or after January 1, 1995.
The preamble to the final regulations notes that Reg. §1.1502-19(c)(1)(iii)(A) applies when a subsidiary disposes of substantially all of its assets and the deferral of any worthless securities deduction until that time implements single-entity principles. An event identified in Reg. §1.1502-19(c)(1)(iii)( or Reg. §1.1502-19(c)(1)(iii)(C), generally dealing with debt cancellations, may occur independently of a subsidiary's disposal of substantially all of its assets. In light of the single-entity purpose of the regulations, the preamble invites comments regarding whether the regulations should refer only to the time stock is treated as worthless within the meaning of Reg. §1.1502-19(c)(1)(iii)(A).
T.D. 9341, 2007FED ¶47,047
Other References:
Code Sec. 1502
CCH Reference - 2007FED ¶33,167
CCH Reference - 2007FED ¶33,204
Tax Research Consultant
CCH Reference - TRC CONSOL: 5,204
CCH Reference - TRC CONSOL: 21,206.05
CCH Reference - TRC CONSOL: 23,154
CCH Reference - TRC CONSOL: 23,154.05
CCH Reference - TRC CONSOL: 23,202.15