Daily Tax Update - February 18, 2005

IRS Issues Proposed Regulations on Intercompany Items and Tax Attributes of Liquidating Consolidated Group Members
Today, the IRS issued proposed regulations that would modify how the intercompany items of a liquidating member of a consolidated group are succeeded to, and taken into account, where more than one distributee member acquires the assets of the liquidating corporation in a complete liquidation to which section 332 applies. The proposed regulations also provide guidance on how the distributee members succeed to the liquidating corporation’s items that "could be used to offset the income or tax liability of the group or any member" (i.e., the items described in section 381(c)).

  • Under current law, distributee members are required to account for the liquidating corporation’s intercompany items in a manner "that is consistently applied and reasonably carries out the purposes of [the intercompany transaction rules under Treas. Reg. § 1.1502-13] and applicable provisions of law." See Treas. Reg. § 1.1502-13(j)(2)(ii). The proposed regulations would amend Treas. Reg. § 1.1502-13(j)(2)(ii) to provide that each distributee member succeeds to, and takes into account, the intercompany items of the liquidating corporation (whether resulting from the liquidation or otherwise) to the extent that such items would have been reflected in investment basis adjustments to the stock of the liquidating corporation owned by such distributee member "if, immediately prior to the liquidation, any stock of the [liquidating corporation] owned by nonmembers had been redeemed in exchange for the money or property distributed to that nonmember in [the liquidating distribution], and then such items had been taken into account under" the acceleration rule of Treas. Reg. § 1.1502-13(d). See Treas. Reg. § 1.1502-13(j)(2)(ii).
  • The proposed regulations would provide a similar rule for the allocation of the liquidating corporation’s items that "could be used to offset the income or tax liability of the group or any member" (i.e., the items described in section 381(c)). See Prop. Treas. Reg. § 1.1502-80(g)(1). In addition, the proposed regulations would revise examples 6 and 7 in Treas. Reg. § 1.1502-13(j)(9) to illustrate the application of the foregoing rules.
  • The deadline for comments on these proposed regulations is May 23, 2005.
  • For additional information contact Mark J. Silverman via email.
  • The regulations can be accessed here.  

Tax Reform Panel Seeks Public Comments
Today, the President's Advisory Panel on Federal Tax Reform announced that it is seeking public comments on the following issues:

  1. "Headaches, unnecessary complexity, and burdens that taxpayers - both individuals and businesses - face because of the existing system.
  2. Aspects of the tax system that are unfair.
  3. Specific examples of how the tax code distorts important business or personal decisions. 
  4. Goals that the Panel should try to achieve as it evaluates the existing tax system and recommends options for reform."
  • Comments should be submitted here by March 18, 2005.

Tax Bills Introduced February 17

  • H.R. 875 sponsored by Rep. Jerry Weller (R-IL) would allow businesses to expense qualified security devices.
  • H.R. 877 sponsored by Rep. Jerry Weller (R-IL) would expand the expensing of environmental remediation costs.
  • H.R. 883 sponsored by Rep. Artur Davis (D-AL) would allow a first time homebuyer credit for the purchase of principal residences located in rural areas.
  • H.R. 894 sponsored by Rep. Xavier Becerra (D-CA) would assist low income taxpayers in preparing and filing their tax returns and to protect taxpayers from unscrupulous refund anticipation loan providers.
  • H.R. 914 sponsored by Rep. Phil English (R-PA) would provide parity in reporting requirements for national party committees and unregulated political organizations.
  • H.R. 919 sponsored by Rep. Mark Foley (R-FL) would treat certain publicly-traded debt issued or guaranteed by Federal, State, or local governments as qualified nonrecourse financing.
  • H.R. 920 sponsored by Rep. Mark Foley (R-FL) would modify the treatment of qualified restaurant property as 15-year property for purposes of the depreciation deduction.
  • H.R. 924 sponsored by Rep. Vito Fosella (R-NY) would allow a deduction from gross income for uncompensated education costs incurred by veterans' survivors and dependents who are in receipt of educational assistance under chapter 35 of title 38, United States Code. 
  • H.R. 930 sponsored by Rep. J.D. Hayworth (R-AZ) would provide that seven year class life for motorsports entertainment complex property be made permanent.
  • H.R. 934 sponsored by Rep. Maurice Hinchey (D-NY) would allow a $1,000 refundable credit for individuals who are bona fide volunteer members of volunteer firefighting and emergency medical service organizations.
  • H.R. 941 sponsored by Rep. Sue Kelly (R-NY) would modify the limitation on the deduction for college tuition and related expenses and to make the deduction permanent.
  • H.R. 947 sponsored by Rep. Ron Lewis (R-KY) would provide for a nonrefundable tax credit against income tax for individuals who purchase a residential safe storage device for the safe storage of firearms.
  • H.R. 958 sponsored by Rep. Thomas Petri (R-WI) would provide a credit and a deduction for small political contributions.
  • H.R. 976 sponsored by Rep. Terry Lee (R-NE) would provide that distributions from an individual retirement plan, a section 401(k) plan, or a section 403(b) contract shall not be includible in gross income to the extent used to pay long-term care insurance premiums.
  • H.R. 986 sponsored by Rep. Heather Wilson (R-NM) would provide a tax credit for teachers and principals who work in certain low income schools.
  • S. 417 sponsored by Sen. Byron Dorgan (D-ND) would provide for a refundable wage differential credit for activated military reservists.
  • S. 419 sponsored by Sen. Jon Kyl (R-AZ) would modify the treatment of qualified restaurant property as 15-year property for purposes of the depreciation deduction.
  • S. 420 sponsored by Sen. Jon Kyl (R-AZ) would make the repeal of the estate tax permanent.
  • S. 422 sponsored by Sen. Trent Lott (R-MS) would restore equity and complete the transfer of motor fuel excise taxes attributable to motorboat and small engine fuels into the Aquatic Resources Trust Fund.
  • S. 441 sponsored by Sen. Rick Santorum (R-PA) would make permanent the classification of a motorsports entertainment complex.

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