[Federal Register Volume 67, Number 48 (Tuesday, March 12, 2002)]
[Proposed Rules]
[Pages 11070-11071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5851]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-102740-02]
RIN 1545-BA52


Loss Limitation Rules

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations and notice of public hearing.

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SUMMARY: This document contains proposed regulations under sections 
337(d) and 1502 of the Internal Revenue Code. These regulations permit 
certain losses recognized on sales of subsidiary stock by members of a 
consolidated group. The regulations apply to corporations filing 
consolidated returns, both during and after the period of affiliation, 
and also affect purchasers of the stock of members of a consolidated 
group. The text of the temporary regulations published in this issue of 
the Federal Register also serves as the text of these proposed 
regulations. This document also provides notice of a public hearing on 
these proposed regulations.

DATES: Written or electronic comments must be received by July 10, 
2002. Requests to speak (with outlines of oral comments to be 
discussed) at the public hearing scheduled for July 17, 2002, at 10 
a.m., must be received by June 26, 2002.

ADDRESSES: Send submissions to: CC:ITA:RU (REG-102740-02), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand delivered Monday through Friday 
between the hours of 8 a.m. and 6 p.m. to CC:ITA:RU (REG-102740-02), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC 20044. Alternatively, taxpayers may submit 
electronic comments directly to the IRS Internet site at www.irs.gov/regs. The public hearing will be held in the Internal Revenue Service 
Auditorium, in the Internal Revenue Service Building, 1111 Constitution 
Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Sean P. Duffley, (202) 622-7530, or Lola L. Johnson, (202) 622-7550; 
concerning submissions of comments, the hearing, and/or to be placed on 
the building access list to attend the hearing, LaNita VanDyke (202) 
622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information in this notice of proposed rulemaking 
has been submitted to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Comments on the collection of information should be sent to 
the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S, 
Washington, DC 20224. Comments on the collection of information should 
be received by May 6, 2002. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
     How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start up-costs and the costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in this proposed regulation is in 
Secs. 1.337(d)-2T, 1.1502-20T, and 1.1502-32T. The collection of 
information is required to allow the taxpayer to make certain elections 
to determine the amount of allowable loss under Sec. 1.337(d)-2T, 
Sec. 1.1502-20 as currently in effect, or under Sec. 1.1502-20 modified 
so that the amount of allowable loss determined pursuant to 
Sec. 1.1502-20(c)(1) is computed by taking into account only the 
amounts computed under Sec. 1.1502-20(c)(1)(i) and (ii); to allow the 
taxpayer to reapportion a section 382 limitation in certain cases; to 
allow the taxpayer to waive certain loss carryovers; and to ensure that 
loss is not disallowed under Sec. 1.337(d)-2T and basis is not reduced 
under Sec. 1.337(d)-2T to the extent the taxpayer establishes that the 
loss or basis is not attributable to the recognition of built-in gain 
on the disposition of an asset. The collection of information is 
required to obtain a benefit. The likely respondents are corporations 
that file consolidated income tax returns.
    Estimated total annual reporting burden: 30,000 hours.
    Estimated average annual burden hours per respondent: 2 hours.
    Estimated number of respondents: 15,000.
    Estimated annual frequency of responses: once.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to the collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating

[[Page 11071]]

to sections 337(d) and 1502. The text of those regulations also serves 
as the text of these proposed regulations. The preamble to the 
temporary regulations contains a full explanation of the reasons 
underlying the issuance of the proposed regulations.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It is hereby 
certified that these regulations do not have a significant economic 
impact on a substantial number of small entities. This certification is 
based on the fact that these regulations will primarily affect 
affiliated groups of corporations that have elected to file 
consolidated returns, which tend to be larger businesses, and, 
moreover, that any burden on taxpayers is minimal. Therefore, a 
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the 
Internal Revenue Code, these regulations will be submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on their impact on small business.

Comments and Public Hearing

    The IRS and Treasury are undertaking a study of the various 
approaches that could be implemented to give full effect to section 
337(d) and to reflect the single entity principles of the consolidated 
return rules. Among the approaches the IRS and Treasury are studying is 
one that would deny positive investment adjustments for gain recognized 
and income attributable to the disposition or consumption of built-in 
gain assets held by the subsidiary at the time it joined the 
consolidated group. In addition, the IRS and Treasury are considering 
allowing selling groups to deduct subsidiary stock losses that would 
otherwise reflect duplicated loss, if the subsidiary reduces its 
attributes (including net operating loss carryovers and asset basis) 
immediately prior to the disposition. Comments are requested concerning 
any approaches that may be employed to allow appropriate losses in a 
manner that is administrable for both taxpayers and the government.
    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any electronic and written comments (a 
signed original and eight (8) copies) that are submitted timely to the 
IRS. All comments will be available for public inspection and copying. 
A public hearing has been scheduled for July 17, 2002, at 10 a.m., in 
the IRS Auditorium, IRS Building, 1111 Constitution, NW., Washington, 
DC. Because of access restrictions, visitors will not be admitted 
beyond the building lobby more than 15 minutes before the hearing 
starts.

Drafting Information

    The principal authors of these regulations are Sean P. Duffley and 
Lola L. Johnson, Office of Associate Chief Counsel (Corporate). 
However, other personnel from the IRS and Treasury participated in 
their development.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are proposed to be amended as 
follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 1.337(d)-2 is added to read as follows:


Sec. 1.337(d)-2  Loss limitation window period.

    [The text of this proposed section is the same as the text of 
Sec. 1.337(d)-2T published elsewhere in this issue of the Federal 
Register].
    Par. 3. In Sec. 1.1502-20, paragraph (i) is added to read as 
follows:


Sec. 1.1502-20  Disposition or deconsolidation of subsidiary stock.

    [The text of this proposed section is the same as the text of 
Sec. 1.1502-20T(i) published elsewhere in this issue of the Federal 
Register].
    Par. 4. In Sec. 1.1502-32, paragraph (b)(4)(v) is added to read as 
follows:


Sec. 1.1502-32  Investment adjustments.

    [The text of this proposed section is the same as the text of 
Sec. 1.1502-32T(b)(4)(v) published elsewhere in this issue of the 
Federal Register].

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.

[FR Doc. 02-5851 Filed 3-7-02; 3:17 pm]
BILLING CODE 4830-01-P