Daily Tax Update - May 6, 2014: Treasury and the IRS Issue Proposed Regulations on Successor to Tax Attributes in Asset Reorganizations

TREASURY AND THE IRS ISSUE PROPOSED REGULATIONS ON SUCCESSOR TO TAX ATTRIBUTES IN ASSET REORGANIZATIONS:  Treasury and the IRS have issued a notice of proposed rulemaking containing proposed regulations under section 381(a).  Section 381(a)(2) provides that when an acquiring corporation acquires the assets of a transferor corporation in certain reorganizations under section 361, the acquiring corporation will succeed to and take into account certain tax attributes of the transferor corporation, including net operating losses and earnings and profits.  Under the current § 1.381(a)-1 regulations, the acquiring corporation in an asset reorganization is defined as either (1) the corporation that ultimately acquires, directly or indirectly, all of the assets transferred by the transferor corporation pursuant to a plan of reorganization or (2) if no corporation ultimately acquires all of the assets, the corporation that directly acquires the assets.  Under the proposed regulations, the acquiring corporation, in all cases, is simply the corporation that directly acquires the assets, even if that corporation ultimately retains none of the assets so transferred.

The Treasury and the IRS believe that the proposed regulations would eliminate the electivity available under the current rules, where a taxpayer can choose between potential acquiring corporations by deciding whether the direct acquirer will retain a single asset.  The proposed rule would also eliminate the administrative burden under the current regulations associated with determining whether a particular corporation in fact has acquired all of the assets transferred by the transferor corporation pursuant to a plan of reorganization.  The proposed rule also harmonizes the rules under section 381(a) with the rules governing transactions in which a corporation that has not engaged in a reorganization transfers assets to a controlled subsidiary in a nonrecognition transaction. 

The regulations can be accessed via: REG-131239-13.pdf

Revenue Procedure 2014-33 provides the exclusive procedures by which a taxpayer obtains the consent of the Commissioner under § 446(e) of the Internal Revenue Code to (1) change its method of accounting for royalties described in § 1.263A-1(e)(3)(ii)(U)(2) of the Income Tax Regulations, (2) change its method of accounting for sales-based vendor chargebacks described in § 1.471-3(e)(1), or (3) change its simplified production method or simplified resale method for costs allocated only to inventory property that has been sold, to comply with final regulations under §§ 263A and 471.  The final regulations (TD 9652) were published in the Federal Register on January 13, 2014.