Treatment of Excess Loss Accounts, 39313-39315 [E7-13839]
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Federal Register / Vol. 72, No. 137 / Wednesday, July 18, 2007 / Rules and Regulations
Designation of ACE Truck Manifest
System as the Approved Data
Interchange System
In a notice published October 27,
2006 (71 FR 62922), CBP designated the
Automated Commercial Environment
(ACE) Truck Manifest System as the
approved EDI for the transmission of
required data and announced that the
requirement that advance electronic
cargo information be transmitted
through ACE would be phased in by
groups of ports of entry.
ACE will be phased in as the required
transmission system at some ports even
while it is still being tested at other
ports. However, the use of ACE to
transmit advance electronic truck cargo
information will not be required in any
port in which CBP has not first
conducted the test.
The October 27, 2006, document
identified all land border ports in the
states of Washington and Arizona and
the ports of Pembina, Neche, Walhalla,
Maida, Hannah, Sarles, and Hansboro in
North Dakota as the first group of ports
where use of the ACE Truck Manifest
System is mandated. Subsequently, CBP
announced on January 19, 2007 (72 FR
2435) that, after 90 days notice, the use
of the ACE Truck Manifest System will
be mandatory at all land border ports in
the states of California, Texas and New
Mexico. On February 23, 2007 (72 FR
8109), CBP announced that, after 90
days notice, the ACE Truck Manifest
System will be mandatory at all land
border ports in Michigan and New York.
On April 13, 2007 (72 FR 18574), CBP
announced that, after 90 days notice, the
ACE Truck Manifest System will be
mandatory at all land border ports in
Vermont and New Hampshire, and at
the land border ports in North Dakota at
which ACE had not been required by
any previous notice. On May 8, 2007 (72
FR 25965), CBP announced that, again
after 90 days notice, the ACE Truck
Manifest System will be mandatory at
all land border ports in the states of
Idaho and Montana, as well.
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ACE Mandated at Land Border Ports of
Entry in Maine and Minnesota
Applicable regulations (19 CFR
123.92(e)) require CBP, 90 days prior to
mandating advance electronic
information at a port of entry, to publish
notice in the Federal Register informing
affected carriers that the EDI system is
in place and fully operational.
Accordingly, CBP is announcing in this
document that, effective 90 days from
the date of publication of this notice,
truck carriers entering the United States
through land border ports of entry in the
states of Maine and Minnesota will be
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required to present advance electronic
cargo information regarding truck cargo
through the ACE Truck Manifest
System.
Although other systems that have
been deemed acceptable by CBP for
transmitting advance truck manifest
data will continue to operate and may
still be used in the normal course of
business for purposes other than
transmitting advance truck manifest
data, use of systems other than ACE will
no longer satisfy advance electronic
cargo information requirements at the
ports of entry announced in this
document as of October 16, 2007.
Compliance Sequence
CBP has now either required the use
of ACE for the transmission of advance
electronic truck cargo information, or
provided 90 days notice that it intends
to do so, at every land border port in
which CBP originally planned to require
the use of ACE, with the exception of
the land border ports in the state of
Alaska.
Following the testing of the ACE truck
manifest system at the land border ports
in Alaska, CBP expects to announce in
a Federal Register notice that it is
providing 90 days’ notice before ACE
will be the mandatory transmission
system for those ports as well.
Dated: July 12, 2007.
Deborah J. Spero,
Acting Commissioner, Customs and Border
Protection.
[FR Doc. E7–13848 Filed 7–17–07; 8:45 am]
BILLING CODE 9111–14–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9341]
RIN 1545–BE87
Treatment of Excess Loss Accounts
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
AGENCY:
SUMMARY: This document contains final
regulations under section 1502. Section
1.1502–19(d) governs basis
determinations and adjustments of
subsidiary stock in certain transactions
involving members of a consolidated
group. Section 1.1502–80(c) governs the
determination of when subsidiary stock
is treated as worthless under section
165. These final regulations affect
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39313
affiliated groups of corporations filing
consolidated returns.
DATES: Effective Date: These final
regulations are effective on July 18,
2007.
Applicability Dates: Section 1.1502–
19(d) applies to transactions occurring
on or after July 18, 2007. Section
1.1502–80(c) applies to taxable years for
which the original consolidated Federal
income tax return is due (without
extensions) after July 18, 2007.
FOR FURTHER INFORMATION CONTACT: For
questions regarding § 1.1502–19(d),
contact Theresa M. Kolish, (202) 622–
7530 (not a toll-free number). For
questions regarding § 1.1502–80(c),
contact Theresa Abell, (202) 622–7700
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On January 26, 2006, the IRS and
Treasury Department published a notice
of proposed rulemaking (REG–138879–
05, 71 FR 4319) by cross-reference to a
temporary regulation under § 1.1502–19
(TD 9244, 71 FR 4264). Prior to the
publication of the proposed and
temporary regulations, the direction of a
transaction determined whether an
excess loss account would be reduced or
eliminated. For example, if P had
owned all the stock of S with an excess
loss account of $100 and all of the stock
of T with a basis of $150, and T had
merged into S in a reorganization
described in section 368(a)(1)(D) in
which P received additional shares of S
stock, under § 1.1502–19(d), P’s excess
loss account in its original shares of S
stock was first eliminated. Therefore, P’s
original S shares would have had an
aggregate basis of $0 and P’s new S
shares would have had an aggregate
basis of $50. However, if S instead had
merged into T in a reorganization
described in section 368(a)(1)(D) in
which P received additional shares of T
stock, § 1.1502–19(d) would not have
applied because P did not already have
T shares with an excess loss account.
Therefore, P’s original T shares would
have had a basis of $150 and P’s new
T shares would have had an excess loss
account of $100.
The IRS and Treasury Department
found the electivity of the rule based on
the direction of the transaction to be
undesirable. Accordingly, the IRS and
Treasury Department added § 1.1502–
19T(d), which provides that, if a
member would otherwise determine
shares of a class of S’s stock (a new
share) to have an excess loss account
and such member owns one or more
other shares of the same class of S’s
stock, the basis of such other shares is
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Federal Register / Vol. 72, No. 137 / Wednesday, July 18, 2007 / Rules and Regulations
allocated to eliminate and equalize any
excess loss account that would
otherwise be in the new shares.
No public hearing regarding the
proposed regulation was requested or
held. However, a few informal
comments regarding the proposed and
temporary regulations were received. In
particular, the commentators noted that
§ 1.1502–19T(d) would appear to apply
in the earlier example if P had excess
loss accounts in its shares of both S and
T. For example, assume that P owned S
and T (which were of equal value), P
had a $50 excess loss account in its S
stock and a $100 excess loss account in
its T stock, and T merged into S in a
reorganization described in section
368(a)(1)(D) in which additional shares
were issued. Under § 1.1502–19T(d), the
excess loss accounts in the two blocks
of S stock would be equalized so that P
would have a $75 excess loss account in
each block. The commentators asked
whether this outcome was intended.
The IRS and Treasury Department
believe that the excess loss accounts in
this example should be equalized and
affirm that § 1.1502–19 does apply
under the facts of presented. This
application eliminates the disparity
between excess loss accounts in order to
better reflect P’s investment in its
subsidiary stock. The proposed
regulation under § 1.1502–19 is adopted
by this Treasury decision and the
temporary regulation is removed.
Additionally, on January 23, 2007, the
IRS and Treasury Department published
a notice of proposed rulemaking (REG–
157711–02, 72 FR 2964) under § 1.1502–
80(c) regarding when the stock of a
member is treated as worthless under
section 165. The proposed regulation is
adopted without substantive
modification by this Treasury Decision,
and is applicable to tax years for which
the original consolidated Federal
income tax return is due (without
extensions) after July 18, 2007. Section
1.1502–80T is removed.
Consistent with the prior final
regulations, these 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 of the subsidiary is worthless
within the meaning of § 1.1502–
19(c)(1)(iii). Section 1.1502–19(c)(1)(iii)
identifies three separate events that
cause a share of subsidiary stock to be
treated as worthless and therefore
disposed of for purposes of taking into
account an excess loss account in the
share. Section 1.1502–19(c)(1)(iii)(A)
applies when the subsidiary disposes of
substantially all of its assets, and the
deferral of any worthless securities
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deduction until that time implements
single-entity principles. While an event
identified in either § 1.1502–
19(c)(1)(iii)(B) or (C) (generally dealing
with debt cancellations) will likely
occur in connection with an event
identified in § 1.1502–19(c)(1)(iii)(A),
either may occur independently. In light
of the single-entity purpose of the
regulations, the IRS and Treasury
Department are requesting comments
regarding whether these regulations
should refer only to the time stock is
treated as worthless within the meaning
of § 1.1502–19(c)(1)(iii)(A).
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.
Pursuant to 5 U.S.C. 553(d)(3) it has
been determined that that a delayed
effective date is unnecessary because
this rule finalizes currently effective
temporary rules regarding the treatment
of excess loss accounts without
substantive change. It is hereby certified
that these final regulations will 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. Moreover, the number of
taxpayers affected and the average
burden are minimal. Accordingly, 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, the notices of proposed
rulemaking preceding these regulations
were submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.
Drafting Information
The principal author of § 1.1502–19 is
Theresa M. Kolish of the Office of the
Associate Chief Counsel (Corporate),
IRS. The principal author of § 1.1502–
80(c) is Theresa Abell of the Office of
the Associate Chief Counsel (Corporate),
IRS. However, other personnel from the
IRS and the Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
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Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:
I
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by removing the
entries for §§ 1.1502–19T and 1.1502–
80T to read in part as follows:
I
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–19 and § 1.1502–80 are also
issued under 26 U.S.C. 1502. * * *
I Par. 2. Section 1.1502–19 is amended
by revising paragraphs (d), (g) Example
2, and (h)(2)(iv) to read as follows:
§ 1.1502–19.
Excess loss accounts.
*
*
*
*
*
(d) Special allocation of basis in
connection with an adjustment or
determination—(1) Excess loss account
in original shares. If a member has an
excess loss account in shares of a class
of S’s stock at the time of a basis
adjustment or determination under the
Internal Revenue Code with respect to
shares of the same class of S’s stock
owned by the member, the adjustment
or determination is allocated first to
equalize and eliminate that member’s
excess loss account. See § 1.1502–32(c)
for similar allocations of investment
adjustments to prevent or eliminate
excess loss accounts.
(2) Excess loss account in new S
shares. If a member would otherwise
determine shares of a class of S’s stock
(new shares) to have an excess loss
account and such member owns one or
more other shares of the same class of
S’s stock, the basis of such other shares
is allocated to eliminate and equalize
any excess loss account that would
otherwise be in the new shares.
*
*
*
*
*
(g) * * *
Example 2. Basis determinations under the
Internal Revenue Code in intercompany
reorganizations—transfer of shares without
an excess loss account. (i) Facts. P owns all
of the sole class of stock of each of S and T.
P has 150 shares of S stock that it acquired
on Date 1. Each S share has a $1 basis and
a fair market value of $1. P has 100 shares
of T stock that it acquired on Date 2. Each
T share has a $1.20 excess loss account and
a fair market value of $1. P transfers S’s stock
to T without receiving additional T stock.
The transfer is an exchange described in both
section 351 and section 354.
(ii) Analysis. Under sections 351 and 354,
P does not recognize gain in connection with
the transfer. Under § 1.358–2(a)(2)(iii), P is
deemed to receive 150 shares of T stock of
the same class. Without regard to the
application of paragraph (d) of this section,
under section 358 and § 1.358–2(a)(2)(i), P
would have a $1 basis in each such share.
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Federal Register / Vol. 72, No. 137 / Wednesday, July 18, 2007 / Rules and Regulations
However, because the basis of the additional
shares of T stock will be determined when
P has an excess loss account in its original
shares of T stock, under paragraph (d)(1) of
this section, the basis that P would otherwise
have in such additional shares will eliminate
the excess loss account in P’s original shares
of T stock such that each original share of T
stock will have a basis of $0 and each share
of T stock deemed received will have a basis
of $0.20. Then, under § 1.358–2(a)(2)(iii), the
T stock is deemed to be recapitalized in a
reorganization under section 368(a)(1)(E) in
which P receives 100 shares of T stock (those
shares P actually owns immediately after the
transfer) in exchange for those 100 shares of
T stock that P held immediately prior to the
transfer and those 150 shares of T stock P is
deemed to receive in the transfer. Under
§ 1.358–2(a)(2)(i), immediately after the
transfer, P holds 100 shares of T stock, 60 of
which take a basis of $0.50 each and 40 of
which take a basis of $0 each. In addition,
T takes a $1 basis in each share of S stock
under section 362. (If P had actually received
an additional 150 shares of T stock of the
same class, paragraph (d)(1) of this section
would apply to shift basis from such
additional T shares to P’s original T shares
because the basis of the additional T stock
would be determined when P had an excess
loss account in its original T shares. P would
have a basis of $0 in each of the original T
shares and a basis of $0.20 in each of the
additional T shares.)
(iii) Transfer of shares with an excess loss
account. The facts are the same as in
paragraph (i) of this Example 2, except that
P transfers T’s stock to S without receiving
additional S stock. The transfer is an
exchange described in both section 351 and
section 354. Under paragraph (c) of this
section, P’s transfer is treated as a disposition
of T’s stock. Under sections 351 and 354 and
paragraph (b)(2) of this section, P does not
recognize gain from the disposition. Under
§ 1.358–2(a)(2)(iii), P is deemed to have
received 100 shares of S stock of the same
class. Without regard to the application of
paragraph (d) of this section, P would have
a $1.20 excess loss account in each such
share. However, because P will have an
excess loss account in such shares and P
owns other shares of S stock of the same
class, under paragraph (d)(2) of this section,
the excess loss account that P would
otherwise have in such shares will decrease
P’s basis in its original shares of S’s stock
such that each such original share will have
a basis of $0.20 and each share deemed
received will have a basis of $0. Then, under
§ 1.358–2(a)(2)(iii), the S stock is deemed to
be recapitalized in a reorganization under
section 368(a)(1)(E) in which P receives 150
shares of S stock (those shares P actually
owns immediately after the transfer) in
exchange for those 150 shares of S stock that
P held immediately prior to the transfer and
those 100 shares of S stock that P is deemed
to receive in connection with the transfer.
Under § 1.358–2(a)(2)(i), immediately after
the transfer, P holds 150 shares of S stock,
90 of which take a basis of $0.33 each and
60 of which take a basis of $0 each. In
addition, S takes an excess loss account of
$1.20 in each share of T stock under section
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362. (If P had actually received 100
additional shares of S stock of the same class,
paragraph (d)(2) of this section would apply
to shift basis from P’s original S stock
because P would have otherwise had an
excess loss account in such additional shares
and P owned other shares of S stock of the
same class. The excess loss account that P
would have otherwise had in such additional
shares would have decreased P’s basis in its
original shares of S’s stock. P would have had
a basis of $0.20 in each of the original shares
and a basis of $0 in each of the additional
shares.)
(iv) Intercompany merger—shares with
excess loss account retained. The facts are
the same as in paragraph (i) of this Example
2, except that S merges into T in a
reorganization described in section
368(a)(1)(A) (and in section 368(a)(1)(D)), and
P receives 150 additional shares of T stock
of the same class in the reorganization. Under
section 354, P does not recognize gain.
Without regard to the application of
paragraph (d) of this section, under section
358 and § 1.358–2(a)(2)(i), P would have a $1
basis in each such share. However, because
the basis of the additional shares of T stock
will be determined when P has an excess loss
account in its original shares of T stock,
under paragraph (d)(1) of this section, the
basis that P would otherwise have in such
additional shares eliminates the excess loss
account in P’s original shares of T stock such
that each original share of T stock has a basis
of $0 and each additional share of T stock has
a basis of $0.20.
(v) Intercompany merger—shares with
excess loss account surrendered. The facts
are the same as in paragraph (i) of this
Example 2, except that T merges into S in a
reorganization described in section
368(a)(1)(A) (and in section 368(a)(1)(D)), and
P receives 100 additional shares of S stock of
the same class in the reorganization. Under
section 354 and paragraph (b)(2) of this
section, P does not recognize gain from the
disposition. Without regard to the
application of paragraph (d) of this section,
under section 358 and § 1.358–2(a)(2)(i), P
would have a $1.20 excess loss account in
each additional share of S stock received.
However, because P would have an excess
loss account in such shares and P owns other
shares of S stock of the same class, under
paragraph (d)(2) of this section, the excess
loss account that P would otherwise have in
such shares decreases P’s basis in its original
shares of S’s stock such that each original
share of S stock has a basis of $0.20 and each
additional share of S stock has a basis of $0.
*
*
*
*
*
(h) * * *
(2) * * *
(iv) Intercompany reorganizations.
Paragraphs (d) and (g) Example 2 of this
section apply to transactions occurring
on or after July 18, 2007. For
transactions occurring on or after
January 23, 2006, and before July 18,
2007, see § 1.1502–19T as contained in
26 CFR part 1 in effect April 1, 2007.
For transactions occurring before
January 23, 2006, see § 1.1502–19 as
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39315
contained in 26 CFR part 1 in effect
April 1, 2005.
*
*
*
*
*
§ 1.1502–19T
[Removed]
Par. 3. Section 1.1502–19T is
removed.
I Par. 4. Section 1.1502–80 is amended
by revising paragraph (c) to read as
follows:
I
§ 1.1502–80 Applicability of other
provisions of law.
*
*
*
*
*
(c) Deferral of section 165—(1)
General rule. Subsidiary stock is not
treated as worthless under section 165
until immediately before the earlier of
the time—
(i) The stock is worthless within the
meaning of § 1.1502–19(c)(1)(iii); or
(ii) The subsidiary for any reason
ceases to be a member of the group.
(2) Cross reference. See §§ 1.337(d)–2
and 1.1502–35 for additional rules
relating to loss on subsidiary stock.
(3) Effective/applicability date. This
paragraph (c) applies to taxable years for
which the original consolidated Federal
income tax return is due (without
extensions) after July 18, 2007.
However, taxpayers may apply this
paragraph (c) to taxable years beginning
on or after January 1, 1995.
*
*
*
*
*
§ 1.1502–80T
[Removed]
I Par. 5. Section 1.1502–80T is
removed.
Kevin M. Brown,
Deputy Commissioner for Services and
Enforcement.
Approved: July 10, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. E7–13839 Filed 7–17–07; 8:45 am]
BILLING CODE 4830–01–P
CENTRAL INTELLIGENCE AGENCY
32 CFR Part 1900
FOIA Processing Fees
Central Intelligence Agency.
Final rule.
AGENCY:
ACTION:
SUMMARY: On January 8, 2007, the
Central Intelligence Agency submitted a
proposed rule for public comment on
Freedom of Information Act processing
fees to the Federal Register. The CIA
has reviewed and carefully considered
all of the comments that were submitted
in response to our proposal. As a result
of that review, the CIA hereby issues its
final rule on FOIA processing fees.
E:\FR\FM\18JYR1.SGM
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]]>Agencies
[Federal Register Volume 72, Number 137 (Wednesday, July 18, 2007)]
[Rules and Regulations]
[Pages 39313-39315]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-13839]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9341]
RIN 1545-BE87
Treatment of Excess Loss Accounts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations under section 1502.
Section 1.1502-19(d) governs basis determinations and adjustments of
subsidiary stock in certain transactions involving members of a
consolidated group. Section 1.1502-80(c) governs the determination of
when subsidiary stock is treated as worthless under section 165. These
final regulations affect affiliated groups of corporations filing
consolidated returns.
DATES: Effective Date: These final regulations are effective on July
18, 2007.
Applicability Dates: Section 1.1502-19(d) applies to transactions
occurring on or after July 18, 2007. Section 1.1502-80(c) applies to
taxable years for which the original consolidated Federal income tax
return is due (without extensions) after July 18, 2007.
FOR FURTHER INFORMATION CONTACT: For questions regarding Sec. 1.1502-
19(d), contact Theresa M. Kolish, (202) 622-7530 (not a toll-free
number). For questions regarding Sec. 1.1502-80(c), contact Theresa
Abell, (202) 622-7700 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On January 26, 2006, the IRS and Treasury Department published a
notice of proposed rulemaking (REG-138879-05, 71 FR 4319) by cross-
reference to a temporary regulation under Sec. 1.1502-19 (TD 9244, 71
FR 4264). Prior to the publication of the proposed and temporary
regulations, the direction of a transaction determined whether an
excess loss account would be reduced or eliminated. For example, if P
had owned all the stock of S with an excess loss account of $100 and
all of the stock of T with a basis of $150, and T had merged into S in
a reorganization described in section 368(a)(1)(D) in which P received
additional shares of S stock, under Sec. 1.1502-19(d), P's excess loss
account in its original shares of S stock was first eliminated.
Therefore, P's original S shares would have had an aggregate basis of
$0 and P's new S shares would have had an aggregate basis of $50.
However, if S instead had merged into T in a reorganization described
in section 368(a)(1)(D) in which P received additional shares of T
stock, Sec. 1.1502-19(d) would not have applied because P did not
already have T shares with an excess loss account. Therefore, P's
original T shares would have had a basis of $150 and P's new T shares
would have had an excess loss account of $100.
The IRS and Treasury Department found the electivity of the rule
based on the direction of the transaction to be undesirable.
Accordingly, the IRS and Treasury Department added Sec. 1.1502-19T(d),
which provides that, if a member would otherwise determine shares of a
class of S's stock (a new share) to have an excess loss account and
such member owns one or more other shares of the same class of S's
stock, the basis of such other shares is
[[Page 39314]]
allocated to eliminate and equalize any excess loss account that would
otherwise be in the new shares.
No public hearing regarding the proposed regulation was requested
or held. However, a few informal comments regarding the proposed and
temporary regulations were received. In particular, the commentators
noted that Sec. 1.1502-19T(d) would appear to apply in the earlier
example if P had excess loss accounts in its shares of both S and T.
For example, assume that P owned S and T (which were of equal value), P
had a $50 excess loss account in its S stock and a $100 excess loss
account in its T stock, and T merged into S in a reorganization
described in section 368(a)(1)(D) in which additional shares were
issued. Under Sec. 1.1502-19T(d), the excess loss accounts in the two
blocks of S stock would be equalized so that P would have a $75 excess
loss account in each block. The commentators asked whether this outcome
was intended. The IRS and Treasury Department believe that the excess
loss accounts in this example should be equalized and affirm that Sec.
1.1502-19 does apply under the facts of presented. This application
eliminates the disparity between excess loss accounts in order to
better reflect P's investment in its subsidiary stock. The proposed
regulation under Sec. 1.1502-19 is adopted by this Treasury decision
and the temporary regulation is removed.
Additionally, on January 23, 2007, the IRS and Treasury Department
published a notice of proposed rulemaking (REG-157711-02, 72 FR 2964)
under Sec. 1.1502-80(c) regarding when the stock of a member is
treated as worthless under section 165. The proposed regulation is
adopted without substantive modification by this Treasury Decision, and
is applicable to tax years for which the original consolidated Federal
income tax return is due (without extensions) after July 18, 2007.
Section 1.1502-80T is removed.
Consistent with the prior final regulations, these 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 of the subsidiary is worthless within
the meaning of Sec. 1.1502-19(c)(1)(iii). Section 1.1502-19(c)(1)(iii)
identifies three separate events that cause a share of subsidiary stock
to be treated as worthless and therefore disposed of for purposes of
taking into account an excess loss account in the share. Section
1.1502-19(c)(1)(iii)(A) applies when the subsidiary disposes of
substantially all of its assets, and the deferral of any worthless
securities deduction until that time implements single-entity
principles. While an event identified in either Sec. 1.1502-
19(c)(1)(iii)(B) or (C) (generally dealing with debt cancellations)
will likely occur in connection with an event identified in Sec.
1.1502-19(c)(1)(iii)(A), either may occur independently. In light of
the single-entity purpose of the regulations, the IRS and Treasury
Department are requesting comments regarding whether these regulations
should refer only to the time stock is treated as worthless within the
meaning of Sec. 1.1502-19(c)(1)(iii)(A).
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. Pursuant to 5
U.S.C. 553(d)(3) it has been determined that that a delayed effective
date is unnecessary because this rule finalizes currently effective
temporary rules regarding the treatment of excess loss accounts without
substantive change. It is hereby certified that these final regulations
will 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. Moreover, the number of taxpayers affected and the average
burden are minimal. Accordingly, 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, the
notices of proposed rulemaking preceding these regulations were
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Drafting Information
The principal author of Sec. 1.1502-19 is Theresa M. Kolish of the
Office of the Associate Chief Counsel (Corporate), IRS. The principal
author of Sec. 1.1502-80(c) is Theresa Abell of the Office of the
Associate Chief Counsel (Corporate), IRS. However, other personnel from
the IRS and the Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by removing
the entries for Sec. Sec. 1.1502-19T and 1.1502-80T to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502-19 and Sec. 1.1502-80 are also issued under 26
U.S.C. 1502. * * *
0
Par. 2. Section 1.1502-19 is amended by revising paragraphs (d), (g)
Example 2, and (h)(2)(iv) to read as follows:
Sec. 1.1502-19. Excess loss accounts.
* * * * *
(d) Special allocation of basis in connection with an adjustment or
determination--(1) Excess loss account in original shares. If a member
has an excess loss account in shares of a class of S's stock at the
time of a basis adjustment or determination under the Internal Revenue
Code with respect to shares of the same class of S's stock owned by the
member, the adjustment or determination is allocated first to equalize
and eliminate that member's excess loss account. See Sec. 1.1502-32(c)
for similar allocations of investment adjustments to prevent or
eliminate excess loss accounts.
(2) Excess loss account in new S shares. If a member would
otherwise determine shares of a class of S's stock (new shares) to have
an excess loss account and such member owns one or more other shares of
the same class of S's stock, the basis of such other shares is
allocated to eliminate and equalize any excess loss account that would
otherwise be in the new shares.
* * * * *
(g) * * *
Example 2. Basis determinations under the Internal Revenue Code
in intercompany reorganizations--transfer of shares without an
excess loss account. (i) Facts. P owns all of the sole class of
stock of each of S and T. P has 150 shares of S stock that it
acquired on Date 1. Each S share has a $1 basis and a fair market
value of $1. P has 100 shares of T stock that it acquired on Date 2.
Each T share has a $1.20 excess loss account and a fair market value
of $1. P transfers S's stock to T without receiving additional T
stock. The transfer is an exchange described in both section 351 and
section 354.
(ii) Analysis. Under sections 351 and 354, P does not recognize
gain in connection with the transfer. Under Sec. 1.358-
2(a)(2)(iii), P is deemed to receive 150 shares of T stock of the
same class. Without regard to the application of paragraph (d) of
this section, under section 358 and Sec. 1.358-2(a)(2)(i), P would
have a $1 basis in each such share.
[[Page 39315]]
However, because the basis of the additional shares of T stock will
be determined when P has an excess loss account in its original
shares of T stock, under paragraph (d)(1) of this section, the basis
that P would otherwise have in such additional shares will eliminate
the excess loss account in P's original shares of T stock such that
each original share of T stock will have a basis of $0 and each
share of T stock deemed received will have a basis of $0.20. Then,
under Sec. 1.358-2(a)(2)(iii), the T stock is deemed to be
recapitalized in a reorganization under section 368(a)(1)(E) in
which P receives 100 shares of T stock (those shares P actually owns
immediately after the transfer) in exchange for those 100 shares of
T stock that P held immediately prior to the transfer and those 150
shares of T stock P is deemed to receive in the transfer. Under
Sec. 1.358-2(a)(2)(i), immediately after the transfer, P holds 100
shares of T stock, 60 of which take a basis of $0.50 each and 40 of
which take a basis of $0 each. In addition, T takes a $1 basis in
each share of S stock under section 362. (If P had actually received
an additional 150 shares of T stock of the same class, paragraph
(d)(1) of this section would apply to shift basis from such
additional T shares to P's original T shares because the basis of
the additional T stock would be determined when P had an excess loss
account in its original T shares. P would have a basis of $0 in each
of the original T shares and a basis of $0.20 in each of the
additional T shares.)
(iii) Transfer of shares with an excess loss account. The facts
are the same as in paragraph (i) of this Example 2, except that P
transfers T's stock to S without receiving additional S stock. The
transfer is an exchange described in both section 351 and section
354. Under paragraph (c) of this section, P's transfer is treated as
a disposition of T's stock. Under sections 351 and 354 and paragraph
(b)(2) of this section, P does not recognize gain from the
disposition. Under Sec. 1.358-2(a)(2)(iii), P is deemed to have
received 100 shares of S stock of the same class. Without regard to
the application of paragraph (d) of this section, P would have a
$1.20 excess loss account in each such share. However, because P
will have an excess loss account in such shares and P owns other
shares of S stock of the same class, under paragraph (d)(2) of this
section, the excess loss account that P would otherwise have in such
shares will decrease P's basis in its original shares of S's stock
such that each such original share will have a basis of $0.20 and
each share deemed received will have a basis of $0. Then, under
Sec. 1.358-2(a)(2)(iii), the S stock is deemed to be recapitalized
in a reorganization under section 368(a)(1)(E) in which P receives
150 shares of S stock (those shares P actually owns immediately
after the transfer) in exchange for those 150 shares of S stock that
P held immediately prior to the transfer and those 100 shares of S
stock that P is deemed to receive in connection with the transfer.
Under Sec. 1.358-2(a)(2)(i), immediately after the transfer, P
holds 150 shares of S stock, 90 of which take a basis of $0.33 each
and 60 of which take a basis of $0 each. In addition, S takes an
excess loss account of $1.20 in each share of T stock under section
362. (If P had actually received 100 additional shares of S stock of
the same class, paragraph (d)(2) of this section would apply to
shift basis from P's original S stock because P would have otherwise
had an excess loss account in such additional shares and P owned
other shares of S stock of the same class. The excess loss account
that P would have otherwise had in such additional shares would have
decreased P's basis in its original shares of S's stock. P would
have had a basis of $0.20 in each of the original shares and a basis
of $0 in each of the additional shares.)
(iv) Intercompany merger--shares with excess loss account
retained. The facts are the same as in paragraph (i) of this Example
2, except that S merges into T in a reorganization described in
section 368(a)(1)(A) (and in section 368(a)(1)(D)), and P receives
150 additional shares of T stock of the same class in the
reorganization. Under section 354, P does not recognize gain.
Without regard to the application of paragraph (d) of this section,
under section 358 and Sec. 1.358-2(a)(2)(i), P would have a $1
basis in each such share. However, because the basis of the
additional shares of T stock will be determined when P has an excess
loss account in its original shares of T stock, under paragraph
(d)(1) of this section, the basis that P would otherwise have in
such additional shares eliminates the excess loss account in P's
original shares of T stock such that each original share of T stock
has a basis of $0 and each additional share of T stock has a basis
of $0.20.
(v) Intercompany merger--shares with excess loss account
surrendered. The facts are the same as in paragraph (i) of this
Example 2, except that T merges into S in a reorganization described
in section 368(a)(1)(A) (and in section 368(a)(1)(D)), and P
receives 100 additional shares of S stock of the same class in the
reorganization. Under section 354 and paragraph (b)(2) of this
section, P does not recognize gain from the disposition. Without
regard to the application of paragraph (d) of this section, under
section 358 and Sec. 1.358-2(a)(2)(i), P would have a $1.20 excess
loss account in each additional share of S stock received. However,
because P would have an excess loss account in such shares and P
owns other shares of S stock of the same class, under paragraph
(d)(2) of this section, the excess loss account that P would
otherwise have in such shares decreases P's basis in its original
shares of S's stock such that each original share of S stock has a
basis of $0.20 and each additional share of S stock has a basis of
$0.
* * * * *
(h) * * *
(2) * * *
(iv) Intercompany reorganizations. Paragraphs (d) and (g) Example 2
of this section apply to transactions occurring on or after July 18,
2007. For transactions occurring on or after January 23, 2006, and
before July 18, 2007, see Sec. 1.1502-19T as contained in 26 CFR part
1 in effect April 1, 2007. For transactions occurring before January
23, 2006, see Sec. 1.1502-19 as contained in 26 CFR part 1 in effect
April 1, 2005.
* * * * *
Sec. 1.1502-19T [Removed]
0
Par. 3. Section 1.1502-19T is removed.
0
Par. 4. Section 1.1502-80 is amended by revising paragraph (c) to read
as follows:
Sec. 1.1502-80 Applicability of other provisions of law.
* * * * *
(c) Deferral of section 165--(1) General rule. Subsidiary stock is
not treated as worthless under section 165 until immediately before the
earlier of the time--
(i) The stock is worthless within the meaning of Sec. 1.1502-
19(c)(1)(iii); or
(ii) The subsidiary for any reason ceases to be a member of the
group.
(2) Cross reference. See Sec. Sec. 1.337(d)-2 and 1.1502-35 for
additional rules relating to loss on subsidiary stock.
(3) Effective/applicability date. This paragraph (c) applies to
taxable years for which the original consolidated Federal income tax
return is due (without extensions) after July 18, 2007. However,
taxpayers may apply this paragraph (c) to taxable years beginning on or
after January 1, 1995.
* * * * *
Sec. 1.1502-80T [Removed]
0
Par. 5. Section 1.1502-80T is removed.
Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.
Approved: July 10, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E7-13839 Filed 7-17-07; 8:45 am]
BILLING CODE 4830-01-P
