Tax News

CCH (cch.taxgroup.com) reports:

The IRS has issued temporary and proposed regulations providing guidance for calculating and apportioning the Code Sec. 11(b)(1) additional tax and the reduction in the alternative minimum tax (AMT) exemption amount among component members of controlled groups. The regulations also update and clarify the allocation of tax benefit items where a component member has a short tax year not including a December 31 date. The temporary rules further explain the concepts of a group's testing date and a member's testing period for purposes of determining which members and which tax years of those members are subject to the controlled group rules. The temporary regulations take effect on December 26, 2007.
Temporary Regulations
Two methods for apportioning the amount of additional tax under Code Sec. 11(b)(1) are provided under the temporary regulations --the proportionate method and the first-in-first-out (FIFO) method.
Under the proportionate method, the additional tax is allocated to any component member to which a tax bracket amount was apportioned in the same proportion as the portion of the tax benefit from the tax bracket that was allocated to that member bears to the total tax benefit amount provided to all members from the use of that tax bracket. The regulations set forth the steps for applying the method. Under the FIFO method, the first dollars of the additional tax are to be allocated proportionately to each member to which a tax bracket amount was apportioned, starting with the lowest tax bracket and continuing on successively to each next higher tax bracket until the entire amount of the additional tax has been fully apportioned among the members.
In addition, the temporary regulations provide guidance in calculating and apportioning the reduction in the AMT exemption amount. In particular, any reduction to the AMT exemption amount is apportioned to the component members in the same manner as the exemption amount. The current rules for allocating tax benefit items where a component member has a short tax year not including a December 31 date are also updated and clarified.
The temporary regulations further provide explanations of two concepts --a group's testing date and a member's testing period. A testing date is defined as the date that a controlled group is required to use in determining which of its members and which of their tax years will be subject to the controlled group rules. Generally, a group's testing date is the December 31 date included within all the members' tax years, whether such corporations are on a calendar or fiscal year. However, if a component member has a short tax year that does not include a December 31 date, then the last day of its short tax year serves as the member's testing date.
A testing period is the period of time that a controlled group member uses to determine its status as either a component member or an excluded member. The testing period begins on the first day of a member's tax year that ends on the day before its testing date. Thus, in the case of a member on a fiscal tax year, the portion of its tax year beginning after December 31 and ending on the last day of its tax year is not taken into account in determining its status as a component member or an excluded member.
Finally, the temporary regulations republish Temporary Reg. §1.1502-47T(s), which provides rules for life-nonlife consolidated groups to calculate their consolidated taxable income. This temporary regulation was inadvertently removed by T.D. 9342, I.R.B. 2007-35, 451, when other portions of Temporary Reg. §1.1502-47T were published as final regulations.
Proposed Regulations
The text of the temporary regulations also serves as the text of proposed regulations. Written or electronic comments and a request for public hearing must be received by March 25, 2008.
T.D. 9369, 2008FED ¶47,008
Proposed Regulations, NPRM REG-104713-07, 2008FED ¶49,780
Other References:
Code Sec. 1502
CCH Reference - 2007FED ¶33,193A
Code Sec. 1561
CCH Reference - 2007FED ¶33,341
CCH Reference - 2007FED ¶33,344
CCH Reference - 2007FED ¶33,344C
Code Sec. 1563
CCH Reference - 2007FED ¶33,361C
Tax Research Consultant
CCH Reference - TRC CCORP: 42,050
CCH Reference - TRC CCORP: 42,200
CCH Reference - TRC CCORP: 45,268
CCH Reference - TRC CONSOL: 7,106