[Federal Register Volume 73, Number 203 (Monday, October 20, 2008)]
[Rules and Regulations]
[Pages 62204-62205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-24670]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9424]
RIN 1545-BB61


Unified Rule for Loss on Subsidiary Stock; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendment.

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SUMMARY: This document contains corrections to final regulations (TD 
9424) that were published in the Federal Register on Wednesday, 
September 17, 2008 (73 FR 53934) under sections 358, 362(e)(2), and 
1502 of the Internal Revenue Code. The final regulations apply to 
corporations filing consolidated returns, and corporations that enter 
into certain tax-free reorganizations. The final regulations provide 
rules for determining the tax consequences of a member's transfer 
(including by deconsolidation and worthlessness) of loss shares of 
subsidiary stock. In addition, the final regulations provide that 
section 362(e)(2) generally does not apply to transactions between 
members of a consolidated group. Finally, the final regulations conform 
or clarify various provisions of the consolidated return regulations, 
including those relating to adjustments to subsidiary stock basis.

DATES: Effective Date: This correction is effective October 20, 2008 
and is applicable on September 17, 2008.

FOR FURTHER INFORMATION CONTACT: Marcie P. Barese, (202) 622-7790, Sean 
P. Duffley, (202) 622-7770, or Theresa Abell (202) 622-7700 (none of 
the numbers are toll-free).

SUPPLEMENTARY INFORMATION:

Background

    The final regulations that are the subjects of this document are 
under sections 337, 358, 362, 1502 of the Internal Revenue Code.

Need for Correction

    As published, final regulations (TD 9424) contain errors that may 
prove to be misleading and are in need of clarification.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Correction of Publication

0
Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

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 1.358-6(f)(3) is amended by revising the last sentence 
to read as follows:


Sec.  1.358-6  Stock basis in certain triangular reorganizations.

* * * * *
    (f) * * *
    (3) * * * However, taxpayers may apply paragraph (b)(2)(v) of this 
section to triangular reorganizations occurring before September 17, 
2008 and on or after December 23, 1994.

0
Par. 3. Section 1.1502-13(l)(1) is amended by revising the last 
sentence to read as follows:


Sec.  1.1502-13  Intercompany transactions.

* * * * *
    (l) * * *
    (1) * * * However, taxpayers may apply paragraph (j)(5)(i)(A) of 
this section to transactions that occurred prior to September 17, 2008.
* * * * *

0
Par. 4. Section 1.1502-19(h)(1) is amended by revising the second 
sentence to read as follows:


Sec.  1.1502-19  Excess loss accounts.

* * * * *
    (h) * * *
    (1) * * * However, taxpayers may apply paragraph (c)(3)(i)(A) of 
this section to transactions that occurred prior to September 17, 2008. 
* * *
* * * * *

0
Par. 5. Section 1.1502-33(j)(1) is amended by revising the last 
sentence to read as follows:


Sec.  1.1502-33  Earnings and profits.

* * * * *
    (j) * * *
    (1) * * * However, taxpayers may apply paragraph (e)(2)(i)(A) of 
this section with respect to determinations of the earnings and profits 
of a member in consolidated return years beginning prior to September 
17, 2008.
* * * * *

0
Par. 6. Section 1.1502-36 is amended by revising the last sentence of 
the paragraph (b)(3) Example 3.(i)(D); the fourth sentence of the 
paragraph (c)(8) Example 6.(iii)(A); (d)(3)(i)(B); the third through 
fifth sentences of the paragraph (d)(5)(ii); the third sentence of the 
paragraph (d)(8) Example 6.(ii)(B); the second sentence of the 
paragraph (d)(8) Example 6.(ii)(D)(3); the fifth sentence of the 
paragraph (d)(8) Example 8.(i)(F); the first sentence of the paragraph 
(d)(8) Example 8.(ii)(E); the first sentence of the paragraph (d)(8) 
Example 8.(ii)(F); the first sentence of the paragraph (d)(8) Example 
9.(ii);the second sentence of the paragraph (g)(2) Example 5.(i); and 
the third sentence of the paragraph (g)(2) Example 5.(iii) to read as 
follows:


Sec.  1.1502-36  Unified loss rule.

* * * * *
    (b) * * *
    (3) * * *

    Example 3. * * *
    (i) * * *
    (D) * * * The results would be the same if, in addition to the 
facts in paragraph (i)(A) of this Example 3, M transferred its S 
share to X in a fully taxable transaction and, as permitted under 
paragraph (b)(1)(ii)(B) of this section, P elected to redetermine 
basis under this paragraph (b).
* * * * *
    (c) * * *
    (8) * * *
    Example 6. * * *
    (iii) * * *
    (A) * * * After taking into account the effects of all 
applicable rules of law, M's basis in the S share at the end of year 
5 is $100 (M's original $100 basis decreased under Sec.  1.1502-32 
by $40 at the end of the year 1 and then increased under Sec.  
1.1502-32

[[Page 62205]]

by $40 at end of the year 5 (the net of the $100 tax exempt income 
from the excluded COD applied to reduce attributes and the $60 
noncapital, nondeductible expense from the reduction of S's portion 
of the CNOL)).* * *
* * * * *
    (d) * * *
    (3) * * *
    (i) * * *
    (B) S's aggregate inside loss (as defined in paragraph 
(d)(3)(iii) of this section).
* * * * *
    (5) * * *
    (ii) * * * S's attribute reduction amount is allocated 
proportionately (by basis) between (among) the non-stock Category D 
asset and S's deemed single share(s) of subsidiary stock. (See 
paragraphs (d)(4)(ii)(B)(2) and (d)(4)(ii)(C) of this section 
regarding the portion of S's attribute reduction amount allocated to 
the Category D assets other than lower-tier subsidiary stock.) For 
allocation purposes, S's basis in each deemed single share of S1 
stock is its deemed basis (determined under paragraphs (d)(5)(i)(B) 
and (d)(5)(i)(C) of this section), reduced by--
* * * * *
    (8) * * *
    Example 6. * * *
    (ii) * * *
    (B) * * * However, S's gain recognized on the transfer of Share 
E is computed and immediately adjusts members' bases in subsidiary 
stock under Sec.  1.1502-32 (because M and S are not members of the 
same group immediately after the transaction, the sale is not an 
intercompany transaction subject to Sec.  1.1502-13).
* * * * *
    (D) * * *
    (3) * * * See paragraph (d)(5)(v)(A) of this section.* * *
* * * * *
    Example 8. * * *
    (F) * * * Under Sec.  1.1502-32(c)(1)(ii)(A)(1) this $90 expense 
is allocated to the transferred loss shares of S stock in proportion 
to the loss in the shares, or $.90 per share.* * *
* * * * *
    (ii) * * *
    (E) * * * The facts are the same as in paragraph (ii)(A) of this 
Example 8, except that P elects under paragraph (d)(6) of this 
section to reduce M's basis in the S shares by the full attribute 
reduction amount of $22, in lieu of S reducing its attributes.* * *
    (F) * * * The facts are the same as in paragraph (ii)(A) of this 
Example 8.***
    Example 9. * * *
    (ii) * * * However, S1's gain recognized on the transfer of the 
S2 share is computed and immediately adjusts members' bases in 
subsidiary stock under Sec.  1.1502-32.
* * * * *
    (g) * * *
    (2) * * *
    Example 5. * * *
    (i) * * * S owns Asset 1 with a basis of $100 and a value of 
$20.* * *
    (iii) * * * However, because all the shares are transferred, the 
group's income is clearly reflected. * * *
* * * * *

LaNita Van Dyke,
Chief, Publications and Regulations Branch, Legal Processing Division, 
Associate Chief Counsel (Procedure and Administration).
 [FR Doc. E8-24670 Filed 10-17-08; 8:45 am]
BILLING CODE 4830-01-P