Overview
Steptoe's Eric Solomon is cited in a January 3 Law360 article titled "Federal Tax Regs To Watch In 2021."
The IRS released proposed regulations under Section 382 (26 USC 382) in November 2019 that would, if finalized, restrict the extent to which businesses may push back on the provision's net operating loss limitations, thereby decreasing the incentive to acquire businesses saddled with losses. The agency's proposed regulations would nullify a taxpayer-favorable formula in Notice 2003-65, 2003 guidance that describes how businesses may use recognized built-in gains from so-called wasting assets in order to raise Section 382's limitation on net operating losses (NOLs).
Some tax professionals fear the net effect of eliminating that formula, known as the 338 approach, would be to discourage businesses from acquiring struggling corporations, or hamper the efforts of struggling companies to raise capital.
Solomon, who previously served as assistant secretary for tax policy at the US Department of the Treasury tells Law360 the 338 approach is much more taxpayer-friendly. That's because it provides a pathway for certain gains to raise the NOL limitation. Specifically, the notice allows for wasting assets, which depreciate over time but simultaneously "throw off" value, to increase the limitation, Solomon says. The formula works by comparing the cost recovery as if the assets were purchased on the date of the ownership change to the actual cost recovery for the assets, Solomon adds.
The full article can be read at Law360 (subscription required).