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IRS Eyes Effects Of Nationalization On Tax Losses

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The IRS says it and the Treasury Department will write regulations covering the effect of government takeovers of companies on tax losses.

The new regulations will address some acquisitions set up in such a way that “the United States (or any agency or instrumentality thereof) … becomes a direct or indirect owner of a more-than-50-percent interest in a loss corporation,” officials write in IRS Notice 2008-84.

The new regulations will deal with how to apply Section 382(m) of the Internal Revenue Code to the accounting for those acquisitions, officials write.

Section 382(m) concerns acquisitions of corporations that have tax losses on their books.

The section affects what happens to tax losses when the acquired corporation ends up with a short taxable year because of the acquisition.

The section lets the Treasury secretary take actions to prevent taxpayers from using related persons, pass-through entities or other intermediaries to get around limits on “carry forwards” of tax losses.

“The IRS and Treasury will issue regulations under section 382(m) providing that notwithstanding any other provision of the [Internal Revenue] Code or the regulations thereunder, for purposes of section 382 and the regulations thereunder, with respect to a loss corporation, the term “testing date” (as defined in ?1.382-2(a)(4)) shall not include any date as of the close of which the United States directly or indirectly owns a more-than-50-percent interest in the loss corporation,” officials write in the Notice 2008-84.

“Thus, the loss corporation will be required to determine whether there is a testing date and, if so, whether there has been an ownership change for purposes of section 382, on any date as of the close of which the United States does not directly or indirectly own a more-than-50-percent interest in the loss corporation,” officials write.


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