Final Regulations on Dual Consolidated Losses: A Practical Guide (Part II)— footnotes

Authors’ note: The authors wish to thank Maria Martinez and John Karasek for their assistance with this article.

²⁷ An affiliated DRC or affiliated domestic owner will be considered to cease to be a member of the consolidated group if it is no longer a member of the group within the meaning of Regs. Sec. 1.1502-1(b), or if the group discontinues existence (for example, when the group no longer files a consolidated return). An acquisition described in Regs. Sec. 1.1502-75(d)(3), in which the consolidated group that includes the affiliated DRC or affiliated domestic owner is treated as remaining in existence, is not treated as a triggering event.

²⁸ This triggering event must be compared with the exception to foreign use for certain asset basis carryovers. Specifically, the foreign-use triggering event in (1) above will likely occur before this triggering event as a result of a 30% reduction in the aggregate adjusted basis of assets versus a 50% reduction in the FMV of such assets. However, if there is less than a 50% reduction in the FMV of the assets and at least a 30% reduction in the aggregate adjusted basis of assets, but the DCL is not available for foreign use, neither triggering event will apply.

²⁹ This triggering event also must be compared with the exception to foreign use for a de minimis reduction in an interest in a separate unit. Specifically, the foreign-use triggering event in (1) above will likely occur before this triggering event as a result of a 10% reduction in the interest of a separate unit over a 12-month period or an aggregate 30% reduction in interest as of the last day of the tax year in which the DCL was incurred. However, if the DCL is not available for foreign use and there is less than a 50% reduction in interest, there is not a triggering event under either (1) or (5).

³⁰ Rev. Rul. 99-5, 1991-1 CB 434. This revenue ruling deals with the tax treatment when a new owner acquires an interest in a single-member LLC so that the LLC is classified as a partnership.

³¹ Sec. 708 provides rules for determining continuation of partnership.

³² See Sec. 6601 for the computation of interest on a tax liability that is not paid timely.

³³ Regs. Sec. 1.1503(d)-6(h)(2)(i). The separate accounting should be signed under penalties of perjury by the person who signs the elector’s tax return, should be labeled “Reduction of Recapture Amount” at the top of the page, and should indicate that it is submitted under the provisions of Regs. Sec. 1.1503(d)-6(h)(2)(i). The accounting must be attached to, and filed by the due date (including extensions) of, the elector’s income tax return for the tax year in which the triggering event occurs.

³⁴ Regs. Sec. 1.1503(d)-6(h)(2)(ii). An elector must prepare a computation demonstrating the reduction in the net interest owed as a result of treating the DCL as a loss subject to the restrictions of the domestic-use limitation. The computation must be signed under penalties of perjury by the person who signs the elector’s tax return, must be labeled “Reduction of Interest Charge” at the top of the page, and must indicate that it is submitted under the provisions of Regs. Sec. 1.1503(d)-6(h)(2)(ii). The computation must be attached to, and filed by the due date (including extensions) of, the elector’s income tax return for the tax year in which the triggering event occurs.

³⁵ The computation must be signed under penalties of perjury and attached to, and filed by the due date (including extensions) of, the income tax return for the tax year in which the triggering event occurs (or, when the triggering event is a foreign use of the DCL, the tax year that includes the last day of the foreign tax year during which such foreign use occurs). Regs. Sec. 1.1503(d)-6(h)(4)(ii).

³⁶ Regs. Sec. 1.1503-2(g)(2)(iv)(B)(2)(i) of the 1992 DCL regulations.

³⁷ Regs. Sec. 1.1503(d)-8(b)(3)(ii).

³⁸ Regs. Sec. 1.1503(d)-5(g)(1).

³⁹ Regs. Sec. 1.1503(d)-5(g)(3).

⁴⁰ Id.

⁴¹ Id.

⁴² Id. It is not entirely clear how the basis rules, which associate gain on the sale of the separate unit with the separate unit, and the rules that allow for a reduction in the recapture amount all work together.