US Treasury Issues Guidelines On Double-Counting Of Losses

By Mike Godfrey, Tax-News.com, New York

22 October 2002

The US Treasury has issued proposed regulations under section 1502 of the Internal Revenue Code 'to prevent groups of corporations from inappropriately duplicating for tax purposes a single economic loss'. Under the regulations, which apply to corporations filing a consolidated tax return, corporations are entitled to one and only one tax loss with respect to a single economic loss, says the Treasury.

The regulations focus on the valuation of stock in subsidiary corporations: losses on the disposal of subsidiary stock are deductible for tax purposes, but there is considerable scope for double-counting economic losses in such disposals, for instance through the revenue accounts as well as through the capital loss deduction rules.

On March 7, 2002, the IRS issued Notice 2002-18 announcing that regulations would be promulgated to defer or limit the use of losses in transactions structured by corporations to artificially accelerate losses or to claim more than one tax loss with respect to a single economic loss. The Notice stated that the regulations would apply to dispositions occurring on or after March 7, 2002.

According to Pamela Olson, Assistant Treasury Secretary for Tax Policy, “we have issued these new regulations in proposed form in order to allow time to solicit and receive taxpayers comments before final regulations are issued. We recognize this is an extremely complex topic and we look forward to receiving input from affected taxpayers in order to ensure that the rules work as they are intended."

Consultation filings should be received by 21st January 2003, and there will be a public hearing on 15th January, 2003. The consultation document is available at http://www.treas.gov/press/releases/docs/ldr.pdf.

Recommended