Revised DCL rules represent a good start, but modifications needed, TEI tells government.

• Position: Recent Activities

"The current dual consolidated loss rules are incredibly complex and difficult to understand and administer," TEI recently told the Internal Revenue Service and U.S. Department of Treasury. "We agree with the IRS and Treasury Department that a revision of the current rules is warranted." While the revised rules on the use of economic losses across international borders are properly aimed at preventing dual resident corporations from using the same loss against both foreign and U.S. income taxes, TEI said further changes are needed.

TEI filed its comments with the government in late August. The Institute began by commending the IRS and Treasury for their efforts to make the rules more administrable. Noting that the proposed regulations substitute a reasonable cause standard--to be administered by the IRS Directors of Field Operations--for the current requirement to seek 9100 relief, TEI said the new rules would make it easier for taxpayers to obtain relief from the failure to timely file the required notices. The organization recommended, however, that the rule be clarified to permit a DFO's denial of relief to be appealed up the IRS chain of command. "To minimize the administrative burdens of both the taxpayer and the IRS in the future," TEI stated, "we also recommend that the reasonable cause exception be expanded to expressly include pre-effective date defective elections and certifications."

The Institute also endorsed the proposed regulations' reducing the certification period from 15 to 7 years when an election is made that no portion of the DCL has been, or will be, used to offset the income of any other person under the income tax laws of a foreign country. The regulations also clarify that a triggering event cannot occur after the expiration of the certification period. TEI welcomed the clarification, but recommended that a 5-year certification period be adopted. It explained that the shorter time period should be sufficient to deter any perceived double-dipping of losses and deductions and noted that it would be consistent with the recent amendment to the section 367(a) regulations, reducing the length of the required gain recognition agreement from 10 years to 5.

The regulations also eliminate the closing agreement requirement and substitute a new domestic use agreement. The Institute called the new approach "a good start to simplifying this area."

Treatment of Separate Units

In its comments concerning the treatment of separate...