Notice 98-38: separate return limitation years.

• Position: IRS Notice 98-38

April 15, 1999

On April 15, 1999, Tax Executives Institute filed the following comments with the Internal Revenue Service, regarding IRS Notice 98-38, a proposal to replace the current separate return limitation year (SRLY) rules of the consolidated return regulations with an approach modeled after section 382 of the Internal Revenue Code. TEI's comments were prepared under the aegis of its Federal Tax Committee, whose chair is Philip G. Cohen of Unilever United States Inc. Contributing substantially to the development of TEI's submission were Douglas J. McCormack of Eastman Kodak Company and George G. Bauernfeind of Humana Inc.

On August 3, 1998, the Treasury Department and the Internal Revenue Service released Notice 98-38, inviting comments on a proposal to replace the current separate return limitation year (SRLY) rules of the consolidated return regulations with an approach modeled after section 382. The Notice was published in the INTERNAL REVENUE BULLETIN (1998-34 I.R.B. 7). Tax Executives Institute is pleased to provide the following comments on the issues surrounding the approach proposed in the Notice.

Background

Tax Executives Institute is the preeminent association of business tax executives in North America. Our more than 5,000 members represent 2,800 of the leading corporations in the United States and Canada. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works -- one that is administrable and with which taxpayers can comply.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by Notice 98-38. Indeed, most TEI members work for affiliated groups filing consolidated returns and the issues raised in the Notice are a practical, day-to-day concern.

Overview of the Regulations and Notice 98-38

In 1991, the Treasury Department and the Internal Revenue Service issued proposed regulations concerning the application of the SRLY rules to net operating loss and capital loss carryovers and carrybacks and built-in loss deductions. Most of the changes reflected in those proposed rules were reissued as temporary and proposed regulations in June 1996.(1) In January 1998, the IRS published temporary and proposed regulations extending the principles of the 1996 temporary regulations to the general business tax credit, minimum tax credit, and related attributes.(2) In addition, the latter set of rules...