Final regulations on post-reorganization accounting method changes modify rules

Washington National Tax Services

The IRS recently finalized regulations under section 381 that significantly modify the rules that determine the method of accounting that must be used by the acquiring entity in certain corporate reorganizations or tax-free liquidations described in section 381. In certain cases, taxpayers may be required to request a change in accounting method.

Section 381 provides rules regarding the carryover of various tax attributes after either a section 332 asset distribution following a liquidation of a subsidiary or a nonrecognition transaction subject to section 361 that is in connection with certain types of tax-free reorganizations.

The final regulations affect taxpayers that are party to a transaction described in section 381 that occurs on or after August 31, 2011.

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