Irc 362
Therefore, for purposes of simplicity, importation of basis was allowed. However, in those infant days of the tax system, inbound transactions were not so common. tax system without some toll charge or marking to market. tax laws should not have been allowed into the U.S. Although the tax shelters were a relatively novel application of a potential that existed in the law, the foreign-to-domestic exchanges were right down the middle of the fairway of a potential abuse that the tax law allowed with its eyes open.īasis acquired in a transaction beyond the reach of the U.S. We still have the built-in gain, but Congress became unhappy with the built-in loss for two reasons: (1)įoreign-to-domestic exchanges and (2) tax shelters that involved the incorporation of built-in losses. That had the effect of duplicating built-in gain and built-in loss in the tax world. When the predecessor of Section 351 entered the income tax statute in the 1920s, it applied a sort of cloning approach to basis: the shareholder’s asset basis was transferred to the corporation and was carried over to the stock received in exchange. However, this loss duplication rule has nothing to do with consolidated returns, although it can apply to transfers to or within consolidated groups: it aims to prevent the potential for duplication of loss under what used to be the standard basis rules applicable to Section 351 exchanges that do not involve a nontaxable-to-taxable importation of built-in loss-i.e., an inbound carryover basis exchange. The list of “loss duplication” regulations is growing longer, with that term having been applied to several generations of consolidated return regulations. Nine years after enactment of Section 362(e)(2) and seven years after proposal of regulations, the Treasury issued final regulations, effective for transactions occurring after September 3, 2013.