New Section 382 proposed regulations modify and delay 2019 proposed regulations

Overview

The IRS released on January 10 proposed regulations under Section 382(h) (the 2020 Proposed Regulations), which partially withdraw selected text of the 2019 proposed Section 382(h) regulations (the 2019 Proposed Regulations) primarily relating to the date the final Section 382(h) regulations would become applicable to taxpayers.

The 2019 Proposed Regulations provided a new framework for taxpayers to calculate their net unrealized built-in gains and losses and recognized built-in gains (RBIG) and losses (RBIL) under Section 382(h) that, in turn, affect their ability to use tax attributes. Under the 2019 Proposed Regulations, the final regulations under Section 382(h) would have been effective on their date of publication.

The key takeaways from the 2020 Proposed Regulations are the following:

• Final regulations under Section 382(h) generally would apply to any ownership change that occurs after the date that is 30 days after the date of publication of the Treasury Department decision adopting the proposed Section 382(h) regulations as final regulations (the Delayed Applicability Date), subject to certain exceptions discussed further below.
• Taxpayers generally may continue to rely on Notice 2003-65 either (i) up to the Delayed Applicability Date or (ii) indefinitely in situations 1 through 5 described below, even though the Notice will be obsolete on the Delayed Applicability Date.

The takeaway

The 2020 Proposed Regulations revise the applicability date of the initial Section 382(h) guidance released in the 2019 Proposed Regulations. In addition, the new rules allow taxpayers that undergo an ownership change the ability to continue to rely on Notice 2003-65 up to the Delayed Applicability Date for purposes of determining their RBIG and RBIL under Section 382(h), or indefinitely in situations 1 through 5 above.

Taxpayers should review and assess the impact of the 2020 Proposed Regulations and the Delayed Applicability Date in light of their current and/or future contemplated transactions that are expected to result in an ownership change under Section 382. To the extent taxpayers want to ensure continued reliance on Notice 2003-65 after the Delayed Applicability Date, consideration should be given to by the parties to plan into one of the five exceptions discussed above.

See also:

• Tax Insight: Proposed Regulations under Section 382 reduce tax attributes’ value in M&A transactions
• Tax Insight: Treasury issues comprehensive proposed regulations under Section 382(h)