Prop. reg. on controlled group deferred losses.

• Author: Nevius, Alistair M.

The IRS issued proposed regulations on the time for taking into account deferred losses on the sale or exchange of property between members of a controlled group (REG-118761-09).

Generally, for any loss on the sale or exchange of property between certain related persons, no deduction is allowed, except for losses on the sale or exchange of property between members of a controlled group (Sec. 267(f)(2)). However, such a loss deduction must be deferred until the property is transferred outside of the controlled group and there would be recognition of loss under consolidated return principles.

Under Regs. Sec. 1.267(f)-l(c)(l)(iv), if an intercompany loss between members of a consolidated group would have been redetermined to be a noncapital, nondeductible amount as a result of the attribute redetermination rule applicable to consolidated groups, but is not redetermined because the sale or exchange occurred between members of a controlled group (to which the attribute redetermination rule does not apply), the loss will be deferred until the seller and buyer are no longer in a controlled group relationship.

The proposed regulations provide that the determination of whether a loss would be a noncapital, nondeductible...