IRS Issues Proposed Regulations Governing Corporations Filing Consolidated Returns

Provided by CCH

The IRS has issued proposed modifications to the consolidated return regulations under Code Sec. 1502 that relate to stock basis after a group structure change. The regulations affect corporations filing consolidated returns.

Reg. §1.1502-31 applies if one corporation succeeds another corporation under the principles of Reg. §1.1502-75(d)(2) or (3) as the common parent of a consolidated group in a group structure change. If a corporation acquires stock of the former common parent in a group structure change, the basis of the members in the former common parent's stock immediately after the group structure change is generally redetermined to reflect the former common parent's net asset basis. In general, the group structure change regulations were designed to prevent disparate basis consequences resulting from different forms of transactions that effect a restructuring of a consolidated group that continues to exist following the restructuring.

The IRS and Treasury Department are concerned that the application of the net asset basis rule may produce inappropriate results on the disposition of stock acquired in a transaction in which, under generally applicable rules, the basis of the acquired stock would otherwise be determined by reference to the acquiror's cost for the stock. Accordingly, the IRS proposes to modify the application of the provisions of Reg. §1.1502-31 to permit the basis of stock acquired in a recognition transaction to reflect the cost of the acquired stock. Specifically, the proposed rules except from the application of the net asset basis rule stock acquired in a transaction in which gain or loss was recognized in whole.

Interested parties have until October 6, 2003, to submit comments and requests for a public hearing on the proposal to the IRS, P.O. Box 7604, Ben Franklin Station, Room 5226, Attn: CC:PA:RU (REG-130262-03), Washington, D.C. 20044. Alternatively, comments may be transmitted electronically to the IRS's Internet site at www.irs.gov/regs.

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