Daily Tax Update - June 22, 2010

TREASURY AND IRS ISSUE REGULATIONS ON APPLICATION OF EXTENDED NOL CARRYBACK RULES WITHIN A CONSOLIDATED GROUP: Today, Treasury and the IRS issued final and temporary regulations under section 1502 regarding the implementation of section 172(b)(1)(H) within a consolidated group. The regulations apply to any consolidated Federal income tax return due (without extensions) after June 23, 2010 if such return was not filed on or before such date, although a consolidated group may apply the regulations to any other consolidated return.

  • Section 172(b)(1)(H), as amended in 2009, generally allows taxpayers to elect to extend the standard two-year carryback period for an additional period of up to three years (the “Extended Carryback Period”) for a net operating loss arising in a single taxable year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010 (an “applicable NOL”).
  • Revenue Procedure 2009-52 clarified that, for purposes of the Extended Carryback Period election, a taxpayer includes an affiliated group filing a consolidated return and that an applicable NOL includes a consolidated NOL (“CNOL”).
  • Treas. Reg. § 1.1502-21(b)(3)(i) permits a consolidated group to waive all carrybacks with respect to members acquired from another consolidated group. The temporary regulations permit a group to revoke a prior waiver in order to make an election under section 172(b)(1)(H). The temporary regulations also permit the group to waive the portion of the carryback period or Extended Carryback Period during which the acquired member was a member of another consolidated group. Thus, the temporary regulations effectively permit a consolidated group to make a waiver similar to Treas. Reg. § 1.1502-21(b)(3)(i) even though that election would otherwise be time barred.
  • The temporary regulations provide that if a member makes an Extended Carryback Period election with respect to a separate return year prior to joining the consolidated group, such election will not disqualify the acquiring group from making an Extended Carryback Period election with regard to an applicable NOL incurred in a consolidated return year that includes the member.
  • The temporary regulations also clarify that, for purposes of computing the group’s 50-percent limitation under section 172(b)(1)(H)(iv) on the applicable NOL for the fifth tax year preceding the year of the loss, the “taxpayer’s taxable income” means the consolidated taxable income of the group.
  • The regulations can be accessed here andhere.
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com or Lisa M. Zarlenga - lzarlenga@steptoe.com.

DEMOCRATS WORKING ON ANOTHER EXTENDERS BILL: Senate Democrats are working on another extenders bill with the hope of securing the 60 votes required for passage. The newest version is expected to scale down a proposed extension of higher Medicaid matching funds to states and also make additional revisions to the carried interest provision.

  • In other news, House Majority Leader Steny Hoyer said in a speech today that an extension of the expiring tax cuts from 2001 and 2003 should be considered in the context of President Obama's deficit-cutting commission. Hoyer said, "It is essential that we move from temporary extensions to permanent solutions, but we cannot consider those solutions without taking into account our long-term fiscal challenges. Permanent solutions for the estate tax, AMT, and the ‘doc fix’ should be developed in the context of the broader budget agreement that I’ll discuss shortly. And as the House and Senate debate what to do with the expiring Bush tax cuts in the coming weeks, we need to have a serious discussion about their implications for our fiscal outlook, including whether we can afford to permanently extend them before we have a real plan for long-term deficit reduction. At a minimum, the House will not extend the tax cuts benefiting taxpayers of incomes above $250,000, despite some suggestions in the Senate that they be extended along with all other Bush tax cuts." Hoyer added, "To share sacrifices fairly, and to be politically viable, the commission's proposal can only have one form: an agreement that cuts spending and raises revenue when the economy recovers."
  • Hoyer's remarks can be accessed here.

TAX BILL INTRODUCED JUNE 21ST:

S.3513: A bill to amend the Internal Revenue Code of 1986 to extend for one year the special depreciation allowances for certain property.
Sponsor: Sen Baucus, Max [MT] (introduced 6/21/2010) Cosponsors (1)

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
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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