• A Secret No More: Final Treasury Regulations Amend the Controlled Group Deferred Loss “Supersecret Rule”
  • April 19, 2012 | Authors: Robert S. Chase; Reginald J. Clark; Michael R. Miles; William R. Pauls; William "Wes" E. Sheumaker
  • Law Firms: Sutherland Asbill & Brennan LLP - Washington Office ; Sutherland Asbill & Brennan LLP - Atlanta Office ; Sutherland Asbill & Brennan LLP - Washington Office ; Sutherland Asbill & Brennan LLP - Atlanta Office
  • Nearly a year after issuing proposed regulations that aimed to modify the so-called “supersecret rule” of Treas. Reg. § 1.267(f)-1(c)(1)(iv) (the Proposed Regulations), Treasury and the Internal Revenue Service (the IRS) issued final regulations amending that rule on April 13, 2012 (the Final Regulations). In brief, the supersecret rule generally defers losses from intercompany sales of stock within a controlled group even after the target company is dissolved in a taxable liquidation. The Proposed Regulations would have modified the supersecret rule by (i) adopting a new aggregation rule similar to, but ultimately more expansive than, the rule found in Treas. Reg. § 1.1502-34, (ii) extending the rule’s applicability to scenarios in which split ownership of the target company exists before the intercompany sale, and (iii) providing relief to the extent of offsetting gain. The Final Regulations retain the rules of the Proposed Regulations, but make one revision to clarify the interaction of section 267(f) with the principles of Treas. Reg. § 1.1502-13. The Final Regulations also make one modification to ensure that taxpayers cannot circumvent the purposes of the Proposed Regulations through issuances of target corporation stock to controlled group members.