Comments on temporary regulations under section 1502 relating to intercompany transactions and distributions of property.

Comments on Temporary Regulations under Section 1502 Relating to Intercompany Transactions and Distributions of Property

On March 9, 1990, the Internal Revenue Service issued temporary and proposed regulations under section 1502 of the Internal Revenue Code, relating to deferred intercompany transactions and distributions of property among members of an affiliated group filing consolidated return. The temporary (designated "temporary and final") regulations (T.D. 8295) were published in the Federal Register on March 14, 1990 (55 Fed. Reg. 9420), and in the April 16, 1990, issue of the Internal Revenue Bulletin (1990-16 I.R.B. 6); the proposed regulations (CO-008-90) were also published in the Federal Register on March 14, 1990 (55 Fed. Reg. 9462), and in the April 16, 1990, issue of the Internal Revenue Bulletin (1990-16 I.R.B. 19).

For simplicity's sake, the regulations are generally referred to as "the temporary regulations" and specific provisions are cited as "Temp. Reg.[Section]." References to page numbers are to the temporary regulations (and preamble) as published in the Internal Revenue Bulletin.

1. Background

   Tax Executives Institute is the principal association of corporate tax executives in North America. Our nearly 4,500 members represent more than 2,000 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 tax laws, and to reducing the costs and burdens 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 both 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 laws relating to the operation of business enterprises. We believe that our diversity and the professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the temporary regulations relating to intercompany transactions and distributions of property for purposes of the consolidated return regulations.(1)

2. Restoration of Deferred Gain

   The temporary regulations provide rules concerning the restoration of deferred gain or loss relating to intercompany transactions and distributions of property among members of an affiliated group filing a consolidated return. The regulations endeavor to confirm the original intent of the deferral mechanism - that is, to promote neutrality so that the overall tax consequences to the group are not generally affected by transfers of property among members. 1990-16 I.R.B. at 7.

   Temp. Reg. [Section] 1.1502-14T(c)(1) provides that the gain deferred with respect to a distribution of a subsidiary's stock from one member to another shall be taken into account -

   (i) upon a disposition ... of the

   stock of the subsidiary in an

   amount equal to the amount

   that would have created or

   increased the excess loss account

   if the adjustment to the

   basis (or the excess loss account)

   of the stock of the subsidiary

   resulting from the

   distribution had not occurred,

   or

   (ii) following a disposition, to the

   extent...