[Federal Register Volume 69, Number 165 (Thursday, August 26, 2004)]
[Rules and Regulations]
[Pages 52419-52421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19476]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9154]
RIN 1545-BD64


Extension of Time To Elect Method for Determining Allowable Loss

AGENCY: Internal Revenue Service (IRS), Treasury.

[[Page 52420]]


ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations under section 
1502 of the Internal Revenue Code of 1986. The temporary regulations 
extend the time for consolidated groups to elect to apply a method for 
determining allowable loss on a disposition of subsidiary stock, and 
permit consolidated groups to revoke such elections. The temporary 
regulations affect 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 these 
temporary regulations serves as the text of the proposed regulations 
set forth in the notice of proposed rulemaking on this subject in the 
Proposed Rules section in this issue of the Federal Register.

DATES: Effective Date: These regulations are effective August 26, 2004.
    Applicability Date: For dates of applicability, see Sec.  1.1502-
20T(i)(6)(v).

FOR FURTHER INFORMATION CONTACT: Theresa Abell (202) 622-7700 or Martin 
Huck (202) 622-7750 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in these regulations has 
been previously reviewed and approved by the Office of Management and 
Budget under control number 1545-1774. Responses to this collection of 
information are required to obtain a benefit. This collection of 
information is revised by these regulations. These amended regulations 
are being issued without prior notice and public procedure pursuant to 
the Administrative Procedure Act (5 U.S.C. 553). For this reason, the 
revised collection of information contained in these regulations has 
been reviewed and, pending receipt and evaluation of public comments, 
approved by the Office of Management and Budget under control number 
1545-1774.
    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.
    For further information concerning this collection of information, 
and where to submit comments on the collection of information and the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble of the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.
    Books or records relating to a 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 and Explanation of Provisions

    On March 7, 2002, the IRS and Treasury Department issued 
regulations (the 2002 regulations) permitting consolidated groups to 
calculate allowable loss or the basis reduction required on certain 
dispositions and deconsolidations of subsidiary stock by applying Sec.  
1.1502-20 in its entirety, Sec.  1.1502-20 without regard to the 
duplicated loss factor of the loss disallowance formula, or Sec.  
1.337(d)-2T. If a consolidated group chose to apply either Sec.  
1.1502-20 without regard to the duplicated loss factor of the loss 
disallowance formula, or Sec.  1.337(d)-2T, the 2002 regulations 
required the consolidated group to file an election under Sec.  1.1502-
20T(i) to apply the chosen provision. The 2002 regulations also 
included several correlative rules to address cases in which, as a 
result of the election, additional losses became available to the 
subsidiary the stock of which was disposed of.
    Concurrently with the publication of these temporary regulations, 
the IRS and Treasury Department are publishing Notice 2004-58 (2004-39 
I.R.B.) (September 27, 2004). That Notice sets forth a method that the 
IRS will accept for determining whether subsidiary stock loss is 
disallowed and subsidiary stock basis is reduced under Sec.  1.337(d)-
2T.
    Given the availability of the method described in Notice 2004-58, 
the IRS and Treasury Department are publishing these temporary 
regulations to permit taxpayers to make, amend, or revoke elections 
under Sec.  1.1502-20T(i). These temporary regulations give taxpayers 
the ability to take the Notice into account in choosing a method for 
determining allowable loss. In general these regulations allow 
taxpayers to elect into, or out of, the application of Sec.  1.1502-20 
in its entirety, Sec.  1.1502-20 without regard to the duplicated loss 
factor of the loss disallowance formula, or Sec.  1.337(d)-2T. Under 
these regulations, a taxpayer that was permitted to make an election 
under Sec.  1.1502-20T(i), but did not previously make such an 
election, may make an election to apply either Sec.  1.1502-20 without 
regard to the duplicated loss factor, or Sec.  1.337(d)-2T. These 
regulations also permit a taxpayer that previously made an election to 
apply Sec.  1.1502-20 without regard to the duplicated loss factor to 
revoke the election and apply Sec.  1.1502-20 in its entirety, or to 
amend the election in order to apply Sec.  1.337(d)-2T. In addition, 
these regulations permit a taxpayer that previously made an election to 
apply Sec.  1.337(d)-2T to revoke the election and apply Sec.  1.1502-
20 in its entirety or to amend the election in order to apply Sec.  
1.1502-20 without regard to duplicated loss factor. Finally, these 
regulations extend relief to acquiring groups by amending Sec.  1.1502-
32T(b)(4)(b)(vii)(C) to change its date of applicability from May 7, 
2003, to August 26, 2004.
    If a group revokes an election to apply either Sec.  1.1502-20 
without regard to the duplicated loss factor, or Sec.  1.337(d)-2T, and 
applies Sec.  1.1502-20 in its entirety, no election under Sec.  
1.1502-20(g) will be available, even if the group had previously made 
an election under Sec.  1.1502-20(g) to reattribute losses of the 
subsidiary the stock of which was disposed of.
    Pursuant to these regulations, an election under Sec.  1.1502-
20T(i) must be made, amended, or revoked by including the statement 
required with a timely filed (including extensions) original return for 
a taxable year that includes any date on or before August 26, 2004, or 
with or as part of an amended return filed before the date the original 
return for the taxable year that includes August 26, 2004, is due 
(including any extensions). The new election or the revocation or 
amendment of a prior election, however, only will affect open years.

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. These temporary 
regulations provide relief to consolidated groups by extending the time 
to elect a method for determining allowable loss. The extension of time 
allows taxpayers to take into account concurrent guidance in choosing a 
method for determining allowable loss. It is necessary to provide the 
extension of time immediately. Accordingly, good cause is found for 
dispensing with prior notice and comment pursuant to 5 U.S.C. 553(b) 
and for dispensing with a delayed effective date pursuant to 5 U.S.C. 
553(d). For applicability of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6), see the notice of proposed

[[Page 52421]]

rulemaking on this subject in the Proposed Rules section of this issue 
of the Federal Register. The IRS and Treasury Department request 
comments from small entities that believe they might be adversely 
affected by these regulations. Pursuant to section 7805(f) of the 
Internal Revenue Code, these temporary regulations will be submitted to 
the Chief Counsel for the Advocacy of the Small Business Administration 
for comment on their impact.

Drafting Information

    The principal authors of these regulations are Theresa Abell and 
Martin Huck of the Office of Associate Chief Counsel (Corporate). 
However, other personnel from the Treasury Department and the IRS 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 1 amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read, in 
part, as follows:

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


0
Par. 2. Section 1.1502-20T(i) is amended by:
0
1. Revising the first sentence of paragraph (i)(4).
0
2. Redesignating paragraph (i)(6) as (i)(7).
0
3. Adding new paragraph (i)(6).
    The revision and addition read as follows:


Sec.  1.1502-20T  Disposition or deconsolidation of subsidiary stock 
(temporary).

* * * * *
    (i) * * *
    (4) Time and manner of making the election. An election to 
determine allowable loss or basis reduction by applying the provisions 
described in paragraph (i)(2)(i) or (ii) of this section is made by 
including the statement required by this paragraph with or as part of 
any timely filed (including any extensions) original return for a 
taxable year that includes any date on or before August 26, 2004, or 
with or as part of an amended return filed before the date the original 
return for the taxable year that includes August 26, 2004, is due 
(including any extensions). * * *
* * * * *
    (6) Revocation or amendment of prior elections--(i) In general. 
Notwithstanding anything to the contrary in this paragraph (i), if a 
consolidated group made an election under paragraph (i) of this section 
to apply the provisions described in paragraph (i)(2)(i) or (ii) of 
this section, the consolidated group may revoke or amend that election 
as provided in this paragraph (i)(6).
    (ii) Time and manner of revoking or amending an election. An 
election to apply the provisions described in paragraph (i)(2)(i) or 
(ii) of this section is revoked or amended by including the statement 
required by paragraph (i)(6)(iii) of this section with or as part of 
any timely filed (including any extensions) original return for a 
taxable year that includes any date on or before August 26, 2004, or 
with or as part of an amended return filed before the date the original 
return for the taxable year that includes August 26, 2004, is due 
(including any extensions).
    (iii) Required statement--(A) Revocation. To revoke an election to 
apply the provisions described in paragraph (i)(2)(i) or (ii) of this 
section, the consolidated group must file a statement entitled 
``Revocation of Election Under Section 1.1502-20T(i).'' The statement 
must include the name and employer identification number (E.I.N.) of 
the subsidiary and of the member(s) that disposed of the subsidiary 
stock.
    (B) Amendment. To amend an election to apply the provisions 
described in paragraph (i)(2)(i) or (ii) of this section, the 
consolidated group must file a statement entitled ``Amendment of 
Election Under Section 1.1502-20T(i).'' The statement must include the 
following information--
    (1) The name and employer identification number (E.I.N.) of the 
subsidiary and of the member(s) that disposed of the subsidiary stock; 
and
    (2) The provision the taxpayer elects to apply to determine 
allowable loss or basis reduction (described in paragraph (i)(2)(i) or 
(ii) of this section).
    (iv) Special rule. If a consolidated group revokes an election made 
under paragraph (i) of this section, an election described in Sec.  
1.1502-20(g) to reattribute losses will not be respected, even if such 
election was filed with the group's return for the year of the 
disposition.
    (v) This paragraph (i)(6) is applicable on and after August 26, 
2004.
* * * * *

0
Par. 3. Section Sec.  1.1502-32T(b)(4)(vii)(C) is amended by removing 
the language ``May 7, 2003'' and adding the language ``August 25, 
2004'' each time it appears.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: August 19, 2004.
Gregory F. Jenner,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 04-19476 Filed 8-25-04; 8:45 am]
BILLING CODE 4830-01-P