When a consolidated group acquires a target corporation (Target), it is often necessary to allocate Target’s taxable income for the year between the pre- and post-acquisition periods. Relatively little guidance exists to help taxpayers determine how to apply the so-called ‘end-of-day’ and ‘next-day’ rules with respect to certain Target deductions. The rules have been a frequent source of debate and controversy.
To address these issues, the IRS recently released AM 2012-010, a generic legal advice memorandum (GLAM) addressing application of the end-of-the-day rule and the next-day rule of Reg. sec. 1.1502-76(b) in determining when Target should report certain deduction items with respect to liabilities incurred by it on the day it joins or leaves a consolidated group.