KPMG PPT - Tax Executives Institute, Inc.

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Worthless Stock Loss Requirements for an Ordinary Loss (§ 165(g)(3)) ► A domestic corporation may claim an ordinary loss with respect to the stock of Loss Co under §165(g)(3) if: – Worthlessness is established for Loss Co’s stock (i.e., the same test as under §165(g)(1)); – Loss Co is “affiliated” with shareholder (i.e., shareholder must directly own Loss Co stock that has at least 80% of the total voting power and at least 80% of the total value of Loss Co); AND – More than 90% of Loss Co’s aggregate “gross receipts” are from sources other than royalties, rents, dividends, interest, annuities, and gains from the disposition of stocks or securities (i.e., passive income) ► Note that the amount of the worthless stock loss for a consolidated subsidiary is subject to the unified loss rule under Treas. Reg. § 1.1502- 36 ©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 14
PLR 201149015 HC2 HC1 S1 S2 S3 HC2 P3 HC1 HC2 P HC1 HC2 S1 S2 S3 S1 S2 S1 Subs Simplified Facts: ► P, the common parent of a group, owned HC1, HC1 owned HC2, and HC2 owned S1 and other domestic subsidiaries, and they joined in a consolidated return. ► These corporations evolved through prior consolidated groups (as depicted above). ► During its existence, HC2 entered into four types of intercompany transactions in the various consolidated groups: – S1 and S2 made § 301(c)(1) distributions to HC2, in cash, property and workforce. – HC2 provided management services to S1, S2 and S3 for a fee. – S1 sold certain furniture and fixtures to HC2. ► When S1's last significant asset became worthless, and S1 could not service its remaining clients, both HC2 and S1 were insolvent, and they dissolved under state law. ©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15
Page 1 and 2: Tax Executives Institute Corporate
Page 3 and 4: Built-in Loss on Subsidiary Stock
Page 5 and 6: Section 267(f) - Background P P Unr
Page 7 and 8: Intercompany Sale of Stock at a Los
Page 9 and 10: Section 267(f) - Final Regulations
Page 11 and 12: Section 267(f) - Final Regulations
Page 13: Worthless Stock Loss Requirements f
Page 17 and 18: PLR 201149015 HC2 HC1 S1 S2 S3 HC2
Page 19 and 20: GLAM 2012-006 Situation 1 P $10 deb
Page 21 and 22: GLAM 2012-006 Situation 3 P $10 deb
Page 23 and 24: GLAM 2012-003 M Year 1 Year 2 Year
Page 25 and 26: Unified Loss Rules © 2011 KPMG LLP
Page 27 and 28: Unified Loss Rules $100 P S FMV $10
Page 29 and 30: Unified Loss Rules ► Basis redete
Page 31 and 32: Unified Loss Rules Basis Redetermin
Page 33 and 34: Unified Loss Rules Basis Reduction
Page 35 and 36: Unified Loss Rules Basis Reduction
Page 37 and 38: Unified Loss Rules Attribute Reduct
Page 43 and 44: CERT Rules If an “applicable corp
Page 45 and 46: Applicable Corporations ► An acqu
Page 47 and 48: Corporate Equity Reduction Interest
Page 49 and 50: Proposed CERT Rules On September 13
Page 51 and 52: Proposed CERT Rules Consolidated CE

KPMG PPT - Tax Executives Institute, Inc.

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