KPMG PPT - Tax Executives Institute, Inc.

GLAM 2012-003
M
Year 1 Year 2 Year 3
$0 $0 $0
S1
$100 $100 ($200)
CTI/(CNOL) $100 $100 ($200)
Simplified Facts:
► M is a holding company and the common parent of a consolidated group that includes S1.
► The M group incurred a CNOL attributable to S1, and had CTI in the two prior years.
► S1 ceased operations, disposed of its operating assets, and used the proceeds to satisfy certain of
its liabilities, but S1 retained certain assets, including (i) legal claims against directors and officers,
and (ii) an interest in the M group's carryback refund claims.
► The FMV of the retained assets is less than S1's remaining liabilities, and S1 was worthless under §
165(g), without taking into account Treas. Reg. §1.1502-80(c).
Conclusion:
► “A tax refund or other legal claim constitutes an asset in the hands of the subsidiary. Therefore, to
the extent that the value of that claim exceeds state law minimum capital requirements, the stock
cannot meet the requirements for worthlessness under [Treas. Reg. § -19(c)(1)(iii)(A)].”
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