Daily Tax Update - February 24, 2005

IRS AND TREASURY FINALIZE REGULATIONS CLARIFYING TREATMENT OF DISREGARDED ENTITIES WITH RESPECT TO FEDERAL TAX LIABILITIES AND REFUNDS
Today, the IRS and Treasury Department issued final regulations clarifying that qualified REIT subsidiaries, qualified S corporation subsidiaries, and single-member eligible entities that are disregarded as separate from their owners will be treated as separate entities with respect to certain federal tax liabilities and refunds. The final regulations adopt the language of the proposed regulations with only minor clarifying changes.

  • Although a disregarded entity is generally not liable for federal tax liabilities of its owner, the disregarded entity may be liable for federal taxes for tax periods during which it was not disregarded or because it is the successor or transferee of a taxable entity. The regulations clarify that, notwithstanding that the entity is currently disregarded, with respect to taxes for which it is liable, an assessment may be made against the disregarded entity, the assets of the disregarded entity may be subject to lien and levy, and the disregarded entity may consent to extend the period of limitations on assessment.
  • The regulations also clarify that if a disregarded entity is entitled to a refund or credit of federal tax, it will be treated as a separate entity for purposes of claiming that refund or credit.
  • For additional information, contact Mark J. Silverman via email or Lisa M. Zarlenga via email.
  • The regulations can be accessed here

IRS AND TREASURY FINALIZE REGULATIONS REGARDING APPLICABILITY OF THE CONTINUITY OF INTEREST AND CONTINUITY OF BUSINESS ENTERPRISE REQUIREMENTS IN "E" AND "F" REORGANIZATIONS
Today, the IRS and Treasury Department issued final regulations that confirm that continuity of interest ("COI") and continuity of business enterprise ("COBE") are not required for E reorganizations and expressly provide that they are not required for F reorganizations. The proposed regulations contained additional rules relating to F reorganizations that were not finalized. This portion of the proposed regulations was finalized without modification in response to comments that the COI/COBE rule be finalized quickly.

  • The other rules contained in the proposed continue to be in proposed form. Those rules (i)  provide requirements for a transaction to be regarded as an F reorganization; (ii)  address step-transaction issues surrounding F reorganizations, providing that related events preceding or following the F reorganization do not cause it to fail to qualify as an F reorganization; (iii)  treat distributions of money or other property in an F reorganization as distributed by the transferring corporation immediately before the transaction separate from the F reorganization and governed by sections 301 and 302.
  • For additional information, contact Mark J. Silverman via email or Lisa M. Zarlenga via email.

STEPTOE & JOHNSON LLP - TAX PRACTICE
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them.  Read  more information on Steptoe's tax practice