Chief Counsel Advice: Application of SRLY provisions after reattribution election

Chief Counsel Advice: Application of SRLY provisions

The IRS today posted a redacted version of a field advice memorandum* concerning the application of the SRLY provisions after a reattribution election under Reg. section 1.1502-36(d)(6). 20150301F (release date January 16, 2015, and dated September 10, 2014)

Related content

*Field advice memo documents are prepared by IRS field attorneys in the Office of Chief Counsel, are reviewed by an Associate Office, and are subsequently issued to IRS field or service center employees. The memo cannot be used or cited as precedent.

In the field advice memo [PDF 133 KB], all of the facts presented are redacted. The IRS memo provides these conclusions:

  • When liabilities are nonrecourse to the owner, upon discharge of those liabilities in bankruptcy, the owner is treated as selling assets of the disregarded entities in exchange for release of the liabilities of the disregarded entities.
  • Under Reg. sections 1.1502-36(d)(6)(iv)(A) and 1.1502-32(b)(2)(iii), the taxpayer’s basis in the stock of the subsidiary is reduced as a result of an election under Reg. section 1.1502-36(d)(6) to reattribute the subsidiary’s net operating losses (NOLs) because such reattribution is a noncapital, nondeductible expense.
  • While the entities that owned Company A were insolvent, the insolvency exception under Reg. section 1.1502-36(d)(6)(iv)(B) does not apply because these entities were disregarded entities and not “subsidiaries.”
  • Company B is a “successor” because Company B is treated as receiving the NOLs in a section 381 transaction. This treatment is in accordance with the “as the context may require” provision of Reg. section 1.1502-21(f)(1) because the treatment is consistent with the purpose of Reg. section 1.1502-36(d) (6)—provided that Company B includes only its post-separation taxable income in the SRLY register.
  • Since Company A is not in bankruptcy, its tax attributes are not property of the bankruptcy estate, and the automatic stay does not prevent Company B from making an election under Reg. section 1.1502-36(d)(6).

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.