Daily Tax Update - July 17, 2007

IRS ISSUES FINAL RULES ON TREATMENT OF EXCESS LOSS ACCOUNTS UNDER SECTION 1502:  Today, the IRS issued final regulations providing guidance on subsidiary stock under Section 1502.

  • The guidance (T.D. 9341), addresses basis determinations and adjustments of subsidiary stock in certain transactions involving members of a consolidated group.  The final regulations adopt proposed regulations under Treas. Reg. § 1.1502-19 and remove companion temporary regulations that were published in January 2006.
  • The final regulations also incorporate without substantive change earlier proposed rules for determining when subsidiary stock is treated as worthless under section 165.  The regulations identify 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.
  • The final regulations are effective July 18, 2007.
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com or Lisa M. Zarlenga - lzarlenga@steptoe.com. 
  • The regulations can be accessed here.

SENATE FOREIGN RELATIONS COMMITTEE HOLDS HEARING ON INCOME TAX TREATIES:  Today, the Senate Foreign Relations Committee held a hearing on pending income tax agreements with Belgium, Denmark, Finland, and Germany.  Treasury International Tax Counsel John Harrington urged the Committee to act promptly on the agreements.  Harrington also updated the Committee on the Administration’s treaty program priorities.  Harrington said, “We continue to maintain a very active calendar of tax treaty negotiations.  We recently signed treaties with Bulgaria and Iceland.  We have substantially completed work with Canada and Norway, and we currently are in ongoing negotiations with Chile and Hungary.  We also expect to announce soon the onset of other negotiations.  A key continuing priority is updating the few remaining US tax treaties that provide for low withholding tax rates but do not include the limitation on benefits provisions needed to protect against the possibility of treaty shopping.  We also have undertaken exploratory discussions with several countries in Asia and South America that we hope will lead to productive negotiations later in 2007 or 2008.” 

  • Harrington’s testimony can be accessed here.

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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