Guidance Under Section 1502; Suspension of Losses on

Official source: Federal Register (GovInfo) (https://www.govinfo.gov/content/pkg/FR-2006-08-21/pdf/E6-13399.pdf), retrieved 2026-10-03. U.S. Government work (17 U.S.C. § 105).

Federal Register / Vol. 71, No. 161 / Monday, August 21, 2006 / Rules and Regulations 48473

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9254]

RIN 1545–BB25

Guidance Under Section 1502; Suspension of Losses on Certain Stock Dispositions; Correcting Amendment

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendment.

SUMMARY: This document contains corrections to final regulations that were published in the Federal Register on Tuesday, March 14, 2006 (71 FR 13008) regarding guidance on suspension of losses on certain stock dispositions.

DATES: These corrections are effective March 14, 2006.

FOR FURTHER INFORMATION CONTACT: Theresa Abell, (202) 622–7700 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations (TD 9254) that are the subject of this correction are under section 1502 of the Internal Revenue Code.

Need for Correction

As published, final regulations (TD 9254) contains errors that may prove to be misleading and are in need of clarification.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Correction of Publication

I Accordingly, 26 CFR parts 1 and 602 are corrected by making the following correcting amendments:

PART 1—INCOME TAXES

I Paragraph 1. The authority citation for part 1 is amended and continues to read in part as follows:

Authority: 26 U.S.C. 7805 * -

§ 1.1502–35 [Corrected]

I Par. 2. Section 1.1502–35 is amended as follows: I 1. By revising the text of paragraph (d)(4)(i)(B)( 2 ). I 2. By revising the text of paragraphs (d)(8) and (d)(9). I 3. By revising the text of paragraph (e), Example 3., paragraph (v).

West Point, MS, McCharen Field, VOR/DME

RNAV RWY 36, Amdt 3A, CANCELLED Billings, MT, Billings Logan Intl, VOR/DME

RNAV RWY 28R, Amdt 2, CANCELLED Chapel Hill, NC, Horace Williams, VOR/DME

RNAV RWY 9, Orig, CANCELLED Morganton, NC, Morganton-Lenoir, NDB

RWY 3, Amdt 5, CANCELLED Hobbs, NM, Lea County Regional, ILS OR

LOC RWY 3, Amdt 7 Hobbs, NM, Lea County Regional, Takeoff

Minimums and Textual DP, Orig Roswell, NM, Roswell International Air

Center, RNAV (GPS) RWY 3, Orig Roswell, NM, Roswell International Air

Center, RNAV (GPS) RWY 17, Orig Roswell, NM, Roswell International Air

Center, RNAV (GPS) RWY 21, Orig Roswell, NM, Roswell International Air

Center, RNAV (GPS) RWY 35, Orig Roswell, NM, Roswell International Air

Center, GPS–C, Orig, CANCELLED Roswell, NM, Roswell International Air

Center, GPS RWY 21, Orig, CANCELLED Roswell, NM, Roswell International Air

Center, GPS RWY 35, Orig-B, CANCELLED Roswell, NM, Roswell International Air

Center, VOR/DME RNAV RWY 35, Amdt 3, CANCELLED Winnemucca, NV, Winnemucca Muni, RNAV

(GPS) RWY 14, Orig Winnemucca, NV, Winnemucca Muni, RNAV

(GPS) RWY 32, Orig Winnemucca, NV, Winnemucca Muni, GPS

RWY 14, Orig-A, CANCELLED Winnemucca, NV, Winnemucca Muni, GPS

RWY 32, Orig, CANCELLED Binghamton, NY, Greater Binghamton/Edwin

A. Link Field, NDB RWY 34, Amdt 18, CANCELLED New York, NY, John F. Kennedy Intl, Takeoff

Minimums and Textual DP, Amdt 7 Kent, OH, Kent State Univ, RNAV (GPS)

RWY 1, Amdt 1 Kent, OH, Kent State Univ, RNAV (GPS)

RWY 19, Amdt 1 Norman, OK, University of Oklahoma

Westheimer, VOR/DME RNAV RWY 3, Orig–G, CANCELLED Oklahoma City, OK, Clarence E. Page Muni,

RNAV (GPS) RWY 17R, Amdt 1 Oklahoma City, OK, Clarence E. Page Muni,

RNAV (GPS) RWY 35L, Amdt 1 Oklahoma City, OK, Clarence E. Page Muni,

VOR/DME RNAV RWY 17R, Amdt 1A, CANCELLED Oklahoma City, OK, Clarence E. Page Muni,

VOR/DME RNAV RWY 35L, Amdt 1A, CANCELLED Oklahoma City, OK, Clarence E. Page Muni,

Takeoff Minimums and Textual DP, Orig Pendleton, OR, Pendleton/Eastern Oregon

Regional at Pendleton, NDB or GPS–A, Amdt 7, CANCELLED Philadelphia, PA, Philadelphia Intl, VOR/

DME–A, Amdt 3 North Kingstown, RI, Quonset State, VOR/

DME RNAV RWY 34, Amdt 2, CANCELLED Columbia, SC, Columbia Metropolitan, NDB

RWY 11, Amdt 23, CANCELLED Jacksboro, TN, Campbell County, VOR/DME

RNAV OR GPS–A, Amdt 4, CANCELLED Jacksboro, TN, Campbell County, NDB RWY

23, Amdt 5, CANCELLED Knoxville, TN, McGhee-Tyson, RNAV (GPS)

RWY 5L, Amdt 1

Knoxville, TN, McGhee-Tyson, RNAV (GPS)

RWY 23R, Amdt 1 Somerville, TN, Fayette Co., RNAV (GPS)

RWY 19, Amdt 1 Somerville, TN, Fayette Co., Takeoff

Minimums and Textual DP, Amdt 1 Springfield, TN, Springfield Robertson

County, NDB RWY 4, Amdt 1, CANCELLED Amarillo, TX, Tradewind, VOR/DME RNAV

RWY 35, Orig–B, CANCELLED Dumas, TX, Moore County, VOR/DME RNAV

RWY 19, Amdt 3D, CANCELLED Houston, TX, David Wayne Hooks Memorial,

VOR/DME RNAV RWY 35L, Amdt 4, CANCELLED Houston, TX, David Wayne Hooks Memorial,

VOR/DME RNAV RWY 17R, Amdt 4, CANCELLED Houston, TX, George Bush Intercontinental

Arpt/Houston, VOR/DME RWY 33R, Amdt 14B, CANCELLED Ingleside, TX, T P Mc Campbell, RNAV (GPS)

RWY 13, Orig Ingleside, TX, T P Mc Campbell, RNAV (GPS)

RWY 31, Orig Ingleside, TX, T P Mc Campbell, Takeoff

Minimums and Textual DP, Orig Marshall, TX, Harrison County, VOR/DME

RNAV RWY 33, Amdt 1D, CANCELLED Mineola/Quitman, TX, Wood County, VOR/

DME RNAV RWY 18, Amdt 2, CANCELLED San Angelo, TX, San Angelo Regional/Mathis

Field, RNAV (GPS) RWY 18, Orig Wichita Falls, TX, Sheppard AFB/Wichita

Falls Muni, RNAV (GPS) RWY 33L, Amdt 1 Wichita Falls, TX, Sheppard AFB/Wichita

Falls Muni, RNAV (GPS) RWY 15R, Amdt 1 Charlottesville, VA, Charlottesville Albemarle, RNAV (GPS) Y RWY 21, Amdt 1 Charlottesville, VA, Charlottesville Albemarle, RNAV (GPS) Z RWY 21, Orig Roanoke, VA, Roanoke Regional/Woodrum

Field, LDA RWY 6, Amdt 9 Moses Lake, WA, Grant County, VOR/DME

RNAV RWY 22, Amdt 1A, CANCELLED Eagle River, WI, Eagle River Union, RNAV

(GPS) RWY 4, Orig Eagle River, WI, Eagle River Union, GPS

RWY 4, Orig, CANCELLED Eagle River, WI, Eagle River Union, Takeoff

Minimums and Textual DP, Orig Marshfield, WI, Marshfield Muni, RNAV

(GPS) RWY 16, Orig Marshfield, WI, Marshfield Muni, RNAV

(GPS) RWY 34, Orig Marshfield, WI, Marshfield Muni, GPS RWY

16, Orig, CANCELLED Marshfield, WI, Marshfield Muni, Takeoff

Minimums and Textual DP, Orig

[FR Doc. E6–13590 Filed 8–18–06; 8:45 am]

BILLING CODE 4910–13–P

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48474 Federal Register / Vol. 71, No. 161 / Monday, August 21, 2006 / Rules and Regulations

because the recapitalization of the S3 was structured with a view to, and has the effect of, avoiding the recognition of gain on a disposition of stock by invoking the application of paragraph (b) of this section, paragraph (g)(4)(i) of this section applies. Accordingly, paragraph (b) of this section does not apply upon P’s disposition of the S2 stock and P recognizes $100 gain on the disposition of the S2 stock.

- - - (j) Effective date. This section applies with respect to stock transfers, deconsolidations of subsidiaries, determinations of worthlessness, and stock dispositions on or after March 10,

Guy R. Traynor, Branch Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration).

[FR Doc. E6–13399 Filed 8–18–06; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9260]

RIN 1545–BF46

Application of Separate Limitations to Dividends From Noncontrolled Section 902 Corporations; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correction to temporary regulations.

SUMMARY: This document contains corrections to temporary regulations that were published in the Federal Register on Tuesday, April 25, 2006 (71 FR 24516) regarding the application of separate foreign tax credit limitations to dividends received from noncontrolled section 902 corporations under section 904(d)(4).

DATES: These corrections are effective April 25, 2006.

FOR FURTHER INFORMATION CONTACT: Ginny Chung, (202) 622–3850 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Background

The temporary regulations (TD 9260) that are the subject of this correction are under section 904 of the Internal Revenue Code.

I 4. By revising the text of paragraph (e), Example 4., the first sentence of paragraph (iv), and paragraph (v). I 5. By revising the text of paragraph (e), Example 6., paragraph (i). I 6. By revising the text of paragraph (g)(5) Examples 1. and 2, first sentence of paragraph (i). I 7. By revising the text of paragraph (g)(5) Example 3, first three sentences of paragraph (i), and paragraph (ii). I 8. By revising the text of the first sentence of paragraph (j).

§ 1.1502–35 Transfers of subsidiary stock and deconsolidations of subsidiaries.

- - - (d) (4) * - (i) * - (B) * - ( 2 ) Any liabilities of the subsidiary that have been taken into account for tax purposes.
- - - (8) Higher-tier. A subsidiary is highertier with respect to a member if or to the extent investment adjustments under § 1.1502–32 with respect to the stock of the latter member would affect investment adjustments with respect to the stock of the former member.

(9) Lower-tier. A subsidiary is lowertier with respect to a member if or to the extent investment basis adjustments under § 1.1502–32 with respect to the stock of the former member would affect investment adjustments with respect to the stock of the latter member.

(e) * - Example 3. - - (v) Effect of subsequent stock sale. P recognizes $0 gain/loss on the Year 6 sale of its remaining S common stock. No amount of suspended loss remains to be allowed under paragraph (c)(5) of this section.

Example 4. - - (iv) Effect of subsequent asset sale on suspended loss. Because P cannot establish that all or a portion of the loss recognized on the sale of Asset B was not reflected in the calculation of the duplicated loss of S2 on the date of the Year 4 stock sale and such loss is allocable to the period beginning on the date of the Year 4 disposition of the S2 stock and ending on the day before the first date on which S2 is not a member of the P group and is taken into account in determining consolidated taxable income (or loss) of the P group for a taxable year that includes a date on or after the date of the Year 4 disposition and before the first date on which S2 is not a member of the P group, such asset loss reduces the suspended loss pursuant to paragraph (c)(4) of this section. * - (v) Effect of subsequent stock sale. In year 6, when S1 sells its remaining S2 stock for $100, it recognizes $0 gain/loss. Pursuant to paragraph (c)(5) of this section, the remaining $5 of the suspended loss is allowed on the P group’s return for Year 6 when S1 sells its remaining S2 stock.

Example 6. - - - (i) In Year 1. P forms S with a contribution of $80 in exchange for 80 shares of common stock of S which at that time represents all of the outstanding stock of S. S becomes a member of the P group. In Year 2, P contributes Asset A with a basis of $50 and a value of $20 in exchange for 20 shares of common stock of S in a transfer to which section 351 applies. In Year 4, in a transaction that is not part of a plan that includes the Year 1 and Year 2 contributions, P contributes the 20 shares of S common stock it acquired in Year 2 to PS, a partnership, in exchange for a 20 percent capital and profits interest in a transaction described in section 721. Immediately after the contribution to PS, S is a member of the P group. In Year 5, P sells its interest in PS for $20.

- - - (g) * - (5) * - Example 1. Transfers of property in the avoidance of basis redetermination rule (i) Facts. In Year 1, P forms S with a contribution of $100 in exchange for 100 shares of common stock of S which at that time represents all of the outstanding stock of S. S becomes a member of the P group. In Year 2, P contributes 20 shares of common stock of S to PS, a partnership, in exchange for a 20 percent capital and profits interest in a transaction described in section 721. In Year 3, P contributes Asset A with a basis of $50 and a value of $20 to PS in exchange for an additional capital and profits interest in PS in a transaction described in section 721. Also in Year 3, PS contributes Asset A to S and P contributes an additional $80 to S in transfers to which section 351 applies. In Year 4, S sells Asset A for $20, recognizing a loss of $30. The P group uses that loss to offset income of P. In Year 5, P sells its entire interest in PS for $40.

Example 2. Transfers effecting a reimportation of loss —(i) Facts . In Year 1, P forms S with a contribution of Asset A with a value of $100 and a basis of $120, Asset B with a value of $50 and a basis of $70, and Asset C with a value of $90 and a basis of $100 in exchange for all of the common stock of S and S becomes a member of the P group.

- - - Example 3. Transfers to avoid recognition of gain —(i) Facts . P owns all of the stock of S1 and S2. The S2 stock has a basis of $400 and a value of $500. S1 owns 50% of the S3 common stock with a basis of $150. * - (ii) Analysis. Pursuant to paragraph (b)(4) of this section, because S2 owns stock of S3 (another subsidiary of the same group) and, immediately after the sale of the S2 stock, S3 is a member of the group, then for purposes of applying paragraph (b) of this section, S2 is deemed to have transferred its S3 stock. Because S3 is a member of the group immediately after the transfer of the S2 stock and the S3 stock deemed transferred has a basis in excess of value, the group in the S3 stock is redetermined pursuant to paragraph (b)(1) of this section immediately prior to the sale of the S2 stock.

Accordingly, P would recognize only $1 of gain on the sale of its S2 stock. However,

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