[Federal Register Volume 63, Number 249 (Tuesday, December 29, 1998)]
[Rules and Regulations]
[Pages 71589-71591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33702]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8800]
RIN 1545-AW51
Consolidated Returns--Limitation on Recapture of Overall Foreign
Loss Accounts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
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SUMMARY: This document contains temporary amendments to the
consolidated return regulations. The temporary amendments modify the
date temporary regulations apply as published in the Federal Register
on January 12, 1998, and modified by amendments published in the
Federal Register on March 16, 1998, relating to a consolidated group's
recapture of an overall foreign loss account arising in a separate
return limitation year. The regulations affect consolidated groups that
claim foreign tax credits. The text of the temporary regulations also
serves as the text of the proposed regulations set forth in the notice
of proposed rulemaking on this subject in the Proposed Rules section of
this issue of the Federal Register.
DATES: Effective dates: These amendments are effective December 29,
1998.
Applicability dates: For dates of applicability of these
regulations, see Sec. 1.1502-9T(b)(1)(v).
FOR FURTHER INFORMATION CONTACT: Trina Dang of the Office of Associate
Chief Counsel (International), (202) 622-3850 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
As announced in Notice 98-40 (1998-35 I.R.B. 7), these temporary
regulations permit taxpayers to elect to delay the effective date of
Sec. 1.1502-9T, published in the Federal Register on January 12, 1998
(TD 8751, 63 FR 1740), and modified by amendments published in the
Federal Register on March 16, 1998 (TD 8766, 63 FR 12641).
On January 12, 1998, Treasury and the IRS published in the Federal
Register (TD 8751, 63 FR 1740) final, temporary and proposed
regulations (the January 1998 regulations) relating to limitations on
the use of certain tax credits and related attributes by corporations
filing consolidated income tax returns. In general, the January 1998
regulations relate to the separate return limitation year (SRLY)
provisions for general business credits, alternative minimum tax
credits, foreign tax credits and overall foreign loss accounts. The
January 1998 regulations were generally applicable to consolidated
return years beginning on or after January 1, 1997.
On March 16, 1998, Treasury and the IRS published in the Federal
Register (TD 8766, 63 FR 12641) final, temporary, and proposed
regulations (the March 1998 regulations) modifying the effective date
of the January 1998 regulations. The March 1998 regulations provide
that the provisions of the January 1998 regulations will apply for
consolidated return years for which the due date (without extensions)
of the income tax return is after March 13, 1998. In lieu of applying
this effective date, however, the March 1998 regulations permit a
consolidated group to choose to apply the effective date provisions
under the January 1998 regulations. The March 1998 regulations provide
that taxpayers making this choice must apply all those effective date
provisions for all relevant years. Thus, under the March 1998
regulations, taxpayers are not permitted to apply one provision of the
January 1998 regulations (e.g., the general business credit effective
date) without applying all the other provisions (e.g., the foreign tax
credit effective date).
On May 7, 1998, a public hearing was held regarding the proposed
January and March regulations. At the hearing and in written
submissions, commentators expressed concern regarding the effective
dates contained in the January 1998 and March 1998 regulations with
respect to the overall foreign loss account provisions of Sec. 1.1502-
9T. The commentators' principal concern was that these effective dates
resulted in adverse tax consequences not anticipated by taxpayers with
respect to business transactions that occurred prior to the issuance of
the January 1998 regulations. Treasury and the IRS now believe that
certain of these consequences are inappropriate.
Accordingly, on August 14, 1998, Treasury and the Service issued
Notice 98-40 (1998-35 I.R.B. 7), announcing their intent to issue
regulations providing relief from the application of Sec. 1.1502-9T
(the overall foreign loss account provisions) for consolidated return
years beginning before January 1, 1998.
Explanation of Provisions
As announced in Notice 98-40, taxpayers are permitted to elect not
to apply Sec. 1.1502-9T(b)(1)(v) to
[[Page 71590]]
consolidated return years beginning before January 1, 1998. Section
1.1502-3T(c)(4) is amended to clarify that a taxpayer that chooses
under the March 1998 regulations to apply the effective date provisions
under the January 1998 regulations may also make the election referred
to in Notice 98-40.
To make the election, a taxpayer must write ``Election Pursuant to
Notice 98-40'' across the top of page 1 of an original or amended tax
return for each consolidated return year subject to the election. For
the first consolidated return year to which the overall foreign loss
provisions of Sec. 1.1502-9T apply (i.e., the first year beginning on
or after January 1, 1998), such taxpayer must write ``Notice 98-40
Election in Effect in Prior Years'' across the top of page 1 of the
consolidated tax return for that year. For purposes of applying
Sec. 1.1502-9T with respect to such year, any member with a balance in
an overall foreign loss account from a separate return limitation year
on the first day of such year shall be treated as joining the group on
such first day.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It is hereby certified that
these regulations do not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that these regulations principally affect corporations filing
consolidated federal income tax returns that have overall foreign
losses from separate return limitation years. Available data indicates
that many consolidated return filers are large companies (not small
businesses). In addition, the data indicates that an insubstantial
number of consolidated return filers that are smaller companies have
overall foreign losses. Presumably, even fewer of these filers have
overall foreign loss accounts that are subject to the separate return
limitation year rules. Therefore, a Regulatory Flexibility Analysis
under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not
required. It has also been determined that under section 553(d) of the
Administrative Procedure Act (5 U.S.C. chapter 5) these regulations
should be effective immediately because they involve the applicability
of regulations that modify the limitations on the use of certain tax
attributes for taxable years for which a return is due after March 13,
1998. Pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking accompanying these regulations is being
sent to the Small Business Administration for comment on its impact on
small businesses.
Drafting Information
The principal author of these regulations is Trina Dang of the
Office of Associate Chief Counsel (International). However, other
personnel from the IRS and Treasury participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1502-3T is amended by removing the last sentence
of paragraph (c)(4) and adding two sentences in its place to read as
follows:
Sec. 1.1502-3T Consolidated investment credit (temporary).
* * * * *
(c) * * *
(4) * * * A consolidated group making this choice generally must
apply all such paragraphs for all relevant years. However, a
consolidated group making the election provided in Sec. 1.1502-
9T(b)(1)(vi) (electing not to apply Sec. 1.1502-9T(b)(1)(v) to years
beginning before January 1, 1998) may nevertheless choose to apply all
such paragraphs other than Sec. 1.1502-9T(b)(1)(v) for all relevant
years.
* * * * *
Par. 3. In Sec. 1.1502-9, paragraph (a) is amended by revising the
last two sentences to read as follows:
Sec. 1.1502-9 Application of overall foreign loss recapture rules to
corporations filing consolidated returns.
(a) * * * See Sec. 1.1502-9T(b)(1)(v) for the rule that ends the
separate return limitation year limitation for consolidated return
years for which the due date of the income tax return (without
extensions) is after March 13, 1998, and Sec. 1.1502-9T(b)(1)(vi) for
an election to continue the separate return limitation year limitation
for consolidated return years beginning before January 1, 1998. See
also Sec. 1.1502-3T(c)(4) for an optional effective date rule
(generally making the rules of paragraphs (b)(1)(iii) and (iv) of this
section inapplicable for a consolidated return year beginning after
December 31, 1996, if the due date of the income tax return (without
extensions) for such year is on or before March 13, 1998).
* * * * *
Par. 4. Section 1.1502-9T is amended by revising paragraph
(b)(1)(v) and adding paragraph (b)(1)(vi) to read as follows:
Sec. 1.1502-9T Application of overall foreign loss recapture rules to
corporations filing consolidated returns (temporary).
* * * * *
(b)(1)(v) Special effective date for SRLY limitation. Except as
provided in paragraph (b)(1)(vi) of this section, Sec. 1.1502-
9(b)(1)(iii) and (iv) apply only to consolidated return years for which
the due date of the income tax return (without extensions) is on or
before March 13, 1998. For consolidated return years for which the due
date of the income tax return (without extensions) is after March 13,
1998, the rules of Sec. 1.1502-9(b)(1)(ii) shall apply to overall
foreign losses from separate return years that are separate return
limitation years. For purposes of applying Sec. 1.1502-9(b)(1)(ii) in
such years, the group treats a member with a balance in an overall
foreign loss account from a separate return limitation year on the
first day of the first consolidated return year for which the due date
of the income tax return (without extensions) is after March 13, 1998,
as a corporation joining the group on such first day. An overall
foreign loss that is part of a net operating loss or net capital loss
carryover from a separate return limitation year of a member that is
absorbed in a consolidated return year for which the due date of the
income tax return (without extensions) is after March 13, 1998, shall
be added to the appropriate consolidated overall foreign loss account
in the year that it is absorbed. For consolidated return years for
which the due date of the income tax return (without extensions) is
after March 13, 1998, similar principles apply to overall foreign
losses when there has been a consolidated return change of ownership
(regardless of when the change of ownership occurred). See also
Sec. 1.1502-3T(c)(4) for an optional effective date rule (generally
making this paragraph (b)(1)(v) applicable to a consolidated return
year beginning after December 31, 1996, if the due date of the income
tax return (without extensions) for such year is on or before March 13,
1998).
[[Page 71591]]
(vi) Election to defer application of special effective date. A
consolidated group may elect not to apply paragraph (b)(1)(v) of this
section to consolidated return years beginning before January 1, 1998.
To make this election, a consolidated group must write ``Election
Pursuant to Notice 98-40'' across the top of page 1 of an original or
amended tax return for each consolidated return year subject to the
election. For the first consolidated return year to which the overall
foreign loss provisions of paragraph (b)(1)(v) of this section apply
(i.e., the first year beginning on or after January 1, 1998), such
consolidated group must write ``Notice 98-40 Election in Effect in
Prior Years'' across the top of page 1 of the consolidated tax return
for that year. For purposes of applying Sec. 1.1502-9(b)(1)(ii) with
respect to such year, any member with a balance in an overall foreign
loss account from a separate return limitation year on the first day of
such year shall be treated as joining the group on such first day.
* * * * *
Approved: December 7, 1998.
Robert L. Wenzel,
Deputy Commissioner of Internal Revenue.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 98-33702 Filed 12-28-98; 8:45 am]
BILLING CODE 4830-01-P
