Daily Tax Update - September 6, 2013: Proposed Regulations Issued on Limitations on the Importation of Net Built-In Losses

PROPOSED REGULATIONS ISSUED ON LIMITATIONS ON THE IMPORTATION OF NET BUILT-IN LOSSES:  Treasury and the IRS have issued proposed regulations under sections 334(b)(1)(B) and 362(e)(1) concerning limitations on the importation of net built-in losses.  Section 334(b)(1)(B) applies to corporate acquisitions of loss property in liquidations described in section 332 (complete liquidation of subsidiary).  Section 362(e)(1) applies to corporate acquisitions of loss property in transactions described in section 362(a) (transactions to which section 351 applies and acquisitions of property as paid-in surplus or contributions to capital) and in transactions described in section 362(b) (reorganizations).  These provisions prevent an acquiring corporation from taking certain “importation property” in the covered transactions at a basis in excess of value.  Instead, when the anti-loss importation rules apply, the acquiring corporation’s basis in each item of importation property is limited to the importation property’s value.  Importation property is property for which gain or loss on the property would not be subject to Federal income tax in the hands of the transferor immediately before the transfer but would be subject to Federal income tax in the hands of the transferee immediately after the transfer.

The proposed regulations provide a framework for identifying importation property and determining whether the transfer of the property is a transaction subject to the anti-loss importation provisions.  The proposed regulations use a “hypothetical sale analysis” where an item is treated as importation property according to the actual tax treatment, taking into account all of the relevant facts and circumstances, of any gain or loss that would be recognized in hypothetical sales of the property immediately before and after the transaction.  Thus, factors such as tax-exempt status, existence of hypothetical UBIT income, existence of hypothetical income treated as effectively connected with a U.S. trade or business, and treaty provisions applicable to the hypothetical sales would all be taken into account.  Special rules apply when a partnership, S corporation, grantor trust or other pass-through entity is the seller/transferor.  Basis is aggregated across all importation property from all transferors acquired by a single transferee in the transaction.  While liabilities are generally not taken into account in determining the “value” of an item of property, certain liabilities are taken into account in valuing transferred partnership interests. 

The regulations can be accessed via: REG-161948-05.pdf

Reporting of Health Insurance Coverage: Proposed Regulations Released by IRS and TreasuryThe IRS and Treasury have released proposed regulations addressing information reporting of health insurance coverage by large employers and by issuers, employers, governments, and other persons that provide health insurance to individuals.  This reporting is required by the Affordable Care Act.  The Affordable Care Act may impose a penalty on large employers that do not provide health care coverage that complies with certain requirements, and have one or more full-time employees who receive a tax credit for coverage purchased on an exchange.  The release included two sets of proposed regulations: one addressing information reporting by large employers on health insurance coverage, and the other on information reporting of minimum essential coverage.

  • Proposed regulations under section 6056 (REG-136630-12.pdf) address information reporting by large employers on health insurance coverage.  The proposed regulations apply in general to employers with at least fifty full-time employees on an average day during a calendar year.  They provide for a general method of reporting to the IRS and furnishing statements to employees.  They also request comments regarding a variety of optional simplified methods of reporting. 

  • Proposed regulations under section 6055 (REG-132455-11.pdf) address information reporting of minimum essential coverage by health insurance issuers, employers, governments, and other persons that provide minimum essential coverage to individuals.  Section 6055 requires health insurance providers to report to the IRS information about covered individuals and health plans.  It also requires information reporting to the covered individuals.  The proposed regulations describe who is required to report, and the information required to be reported. 

These proposed regulations will be effective as of the date of publication of final regulations, and will apply for calendar years beginning after December 31, 2014.