E7-7782. Dual Consolidated Loss Regulations; Correction

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Correcting amendments.

SUMMARY:

This document contains corrections to final regulations (TD 9315) that were published in the Federal Register on Monday, March 19, 2007 (72 FR 12902) regarding dual consolidated losses. Section 1503(d) generally provides that a dual consolidated loss of a dual resident corporation cannot reduce the taxable income of any other member of the affiliated group unless, to the extent provided in regulations, the loss does not offset the income of any foreign corporation.

DATES:

These correcting amendments are effective April 25, 2007.

FOR FURTHER INFORMATION CONTACT:

Jeffrey P. Cowan, [phone] (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subject of this document are under section 1503(d) of the Internal Revenue Code.

Need for Correction

As published, final regulations (TD 9315) contain errors that may prove to be misleading and are in need of clarification.

List of Subjects in 26 CFR Part 1

• Income taxes
• Reporting and recordkeeping requirements

Correction of Publication

Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments:

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 1.1503(d)-0 is amended by revising the entries (1) and (2) of Section 1.1503(d)-8(b). The revisions read as follows:

§ 1.1503(d)-0

Table of contents.

* * * * *

§ 1.1503(d)-8

Effective dates.

* * * * *

(b) * * *

(1) Reduction of term of agreements filed under §§ 1.1503-2A(c)(3), 1.1503-2A(d)(3), 1.1503-2(g)(2)(i), or 1.1503-2T(g)(2)(i).

(2) Reduction of term of agreements filed under §§ 1.1503-2(g)(2)(iv)(B)(2)(i) (1992), 1.1503-2(g)(2)(iv)(B)(3)(i), or Rev. Proc. 2000-42.

* * * * *

Par. 3. Section 1.1503(d)-5 is amended by revising the last sentence of paragraph (a), the second sentence of paragraph (c)(4)(i)(A), and the only sentence of paragraph (d) to read as follows:

§ 1.1503(d)-5

Attribution of items and basis adjustments.

(a) * * * The rules in this section apply for purposes of §§ 1.1503(d)-1 through 1.1503(d)-7.

* * * * *

(c) * * *

(4) * * *

(i) * * *

(A) * * * For purposes of determining items of income, gain, deduction, and loss of the domestic owner that are attributable to the domestic owner's foreign branch separate unit described in the preceding sentence, only items of income, gain, deduction, and loss that are attributable to the domestic owner's interest in the hybrid entity, or transparent entity, as provided in paragraph (c)(3) of this section, shall be taken into account. * * *

* * * * *

(d) * * * The fact that a particular item taken into account in computing the income or dual consolidated loss of a dual resident corporation or a separate unit, or the income or loss of an interest in a transparent entity, is not taken into account in computing income (or loss) subject to a foreign country's income tax shall not cause such item to be excluded from being taken into account under paragraph (b), (c), or (e) of this section.

* * * * *

Par. 4. Section 1.1503(d)-7(c) is amended by revising the last sentence of paragraph (iv) of Example 5 and the last sentence of paragraph (C) of Example 40 (ii).

The revisions read as follows:

§ 1.1503(d)-7

Examples.

* * * * *

(c) * * *

Example 5. * * *

(iv) * * * In addition, pursuant to § 1.1503(d)-6(f)(1) and (3), the deemed transfers pursuant to Rev. Rul. 99-5 as a result of the sale are not treated as triggering events described in § 1.1503(d)-6(e)(1)(iv) or (v).

* * * * *

Example 40. * * *

(ii) * * *

(C) * * * Pursuant to § 1.1503(d)-6(j)(1)(iii), the domestic use agreement filed by the P consolidated group with respect to the year 1 dual consolidated loss of the Country X separate unit is terminated and has no further effect.

* * * * *

Par. 5. Section 1.1503(d)-8 is amended by revising the heading texts of paragraphs (b)(1) and (2), the only sentence of paragraph (b)(1), the first sentence of paragraph (b)(2) and the last sentence of paragraph (b)(4).

The revisions read as follows:

§ 1.1503(d)-8

Effective dates.

* * * * *

(b) * * *

(1) Reduction of term of agreements filed under §§ 1.1503-2A(c)(3), 1.1503-2A(d)(3), 1.1503-2(g)(2)(i), or 1.1503-2T(g)(i). If an agreement is filed in accordance with §§ 1.1503-2A(c)(3), 1.1503-2A(d)(3), 1.1503-2(g)(2)(i), or 1.1503-2T(g)(2)(i) with respect to a dual consolidated loss incurred in a taxable year beginning prior to the application date and an event requiring recapture with respect to the dual consolidated loss subject to the agreement has not occurred as of the application date, then such agreement will be considered by the Internal Revenue Service to apply only for any taxable year up to and including the fifth taxable year following the year in which the dual consolidated loss that is the subject of the agreement was incurred and thereafter will have no effect.

(2) Reduction of term of agreements filed under §§ 1.1503-2(g)(2)(iv)(B)(2)(i) (1992), 1.1503-2(g)(2)(iv)(B)(3)(i), or Rev. Proc. 2000-42. Taxpayers subject to the terms of a closing agreement entered into with the Internal Revenue Service pursuant to §§ 1.1503-2(g)(2)(iv)(B)(2)(i) (1992), 1.1503-2(g)(2)(iv)(B)(3)(i), or Rev. Proc. 2000-42 (2000-2 CB 394), see § 601.601(d)(2)(ii)(b) of this chapter, will be deemed to have satisfied the closing agreement's fifteen-year certification period requirement if the five-year certification period specified in § 1.1503(d)-1(b)(20) has elapsed, provided such closing agreement is still in effect as of the application date, and provided the dual consolidated losses have not been recaptured. * * *

* * * * *

(4) * * * Notwithstanding the general application of this paragraph (b)(4) to events described in § 1.1503-2(g)(2)(iv)(B)(1)(i) through (iii) that occur after April 18, 2007, a taxpayer may choose to apply this paragraph (b)(4) to events described in § 1.1503-2(g)(2)(iv)(B)(1)(i) through (iii) that occur after March 19, 2007 and on or before April 18, 2007.

* * * * *

LaNita Van Dyke,

Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel, (Procedure and Administration).