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To view or print the Microsoft Word content on this page, download the free Microsoft Word Viewer. July 29, 2003
JS-614
Treasury Issues Final Regulations to Ease Administrative Burdens
in Treatment of Dual Consolidated Losses
Today the Treasury Department and the Internal Revenue Service issued final regulations that will reduce administrative burdens for taxpayers under existing rules regarding dual consolidated losses. In particular, the new regulations eliminate the need for taxpayers to enter into a closing agreement with the IRS when a U.S. corporate group with a history of such losses is acquired by another U.S. corporate group.
Existing regulations provide special rules for losses incurred by U.S. corporations that are also subject to tax in a foreign jurisdiction and for losses incurred in foreign branches of U.S. corporations. Under these rules, such “dual consolidated losses” generally cannot be used to offset the income of U.S. affiliates unless the consolidated group files an agreement with its U.S. federal income tax return under which it agrees to recapture the losses, and pay an interest charge, if the losses are ever used in the foreign jurisdiction. The regulations specify a number of other events that may trigger recapture of the dual consolidated losses, including certain corporate mergers and acquisitions. Exceptions from the recapture requirement are available in certain cases where liability for the recapture continues after the acquisition, provided that the affected taxpayers satisfy specified procedural requirements. In particular, they have been required to enter into a closing agreement with the IRS with respect to the dual consolidated losses.
The Treasury Department and the IRS have determined that such closing agreements pose an unnecessary administrative burden in certain cases, where other existing rules sufficiently protect the government’s interest in collecting the tax and interest due from any future recapture of the dual consolidated losses. Accordingly, the new regulations eliminate this requirement for transactions occurring on or after January 1, 2002.
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