Daily Tax Update - April 24, 2006

Today, the IRS and Treasury issued amended final regulations on statutory mergers and consolidations. The amended regulations allow parties to transactions initiated prior to the effective date of previously issued final regulations to elect to apply the prior temporary regulations.

  • On January 23, 2006, the IRS and Treasury issued final regulations defining the term "statutory merger or consolidation" as that term is used in the definition of an "A" reorganization under section 368(a)(1)(A) of the Code. These final regulations were the result of several iterations of proposed and temporary regulations and modifications made in response to comments. The final regulations were effective for transactions occurring on or after January 23, 2006.
  • Prior to the final regulations, the IRS had issued temporary regulations. The amended final regulations issued today give parties to certain transactions occurring on or after January 23, 2006 the chance to elect to apply the prior temporary regulations instead of the new final regulations. The transitional rule applies to transactions pursuant to a written agreement binding on and after January 22, 2006 or pursuant to a tender offer announced prior to January 23, 2006. All parties to the transaction must make the election for it to be effective.
  • The regulations can be accessed here.   
  • For additional information, contact Mark J. Silverman or Lisa M. Zarlenga.

Today, the IRS issued proposed and temporary regulations relating to consolidated groups whose members include both life insurance companies and companies that are not life insurance companies (so-called life-nonlife consolidated groups). As a general rule, a newly-formed life insurance company must be affiliated with a life-nonlife consolidated group for a period of five taxable years before it can join in the group's consolidated return. See I.R.C. section 1504(c). Treas. Reg. section 1.1502-47 contains an exception to the five-year affiliation requirement. The exception provides that, where an existing member of the group (the old corporation) transfers property to a new member of the group (the new corporation), the period during which the old corporation is affiliated with the group can be tacked onto the period for the new corporation if five conditions are met. One of the conditions requires that, where both the old corporation and the new corporation are life insurance companies, the transfer from the old corporation to the new corporation not be reasonably expected to result in the separation of profitable activities from loss activities (the separation condition). See Treas. Reg. section 1.1502-47(d)(12). The new temporary and proposed regulations eliminate the separation condition of the tacking rule. The temporary regulations apply to taxable years for which the due date (without extensions) for filing returns is after April 25, 2006.

CONGRESS RETURNS TO FACE VARIETY OF TAX ISSUES: Today, the Senate returns from its two-week spring recess. The House returns tomorrow. Several tax issues await action by Congress including completion of the $70 billion tax reconciliation conference and an expected vote in May on legislation to repeal the estate tax. The tax conferees must decide which tax provisions will be included under reconciliation protection and which provisions will move outside of the package and also what revenue offsets should be included. Republicans favor moving a two-year extension of the reduced tax rates on capital gains and dividends inside the reconciliation package. There has been no agreement on the scope of AMT relief or on how to move the business extenders.

  • The House Ways and Means Select Revenue Measures Subcommittee has scheduled hearings in May on corporate tax reform and international tax reform and American competitiveness.

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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