Daily Tax Update - June 19, 2012: Final Regs Modify Election Under Consolidated Return Rules

FINAL REGULATIONS MODIFY CONSOLIDATED GROUP ELECTION FOR INTERCOMPANY ITEMS AFTER A LIQUIDATION:  Today, the Treasury Department and the IRS issued final regulations concerning the election under which a consolidated group can avoid immediately taking into account an intercompany item after the liquidation of a target corporation.  The final regulations adopt without significant change the proposed regulations issued in 2009. 

  • The new regulations apply if (1) Section 332 would otherwise apply to the liquidation of the target company (Old T) into the distributee member (B); (2) B transfers substantially all of T’s assets to a new member of B’s consolidated group (New T); and (3) a direct transfer of substantially all of Old T’s assets to New T would qualify as a Section 368(a) reorganization.  If these three conditions are satisfied, the transaction will be treated as if Old T transferred substantially all of its assets to New T in exchange for New T stock and the assumption of T’s liabilities in a Section 368(a) reorganization.
  • The new regulations apply to liquidations of a target corporation that occur on or after October 25, 2007, and are effective June 20, 2012. 
  • The corresponding temporary regulations, Treas. Reg. 1.1502-13T, have been removed.
  • For additional information, contact Mark J. Silverman - msilverman@steptoe.com
  • The regulations 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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