The US IRS on March 6 published proposed regulations (REG-100400-14) modifying rules that determine how to report a company’s items of income and deduction that occur on the day the company joins or leaves a consolidated group.
The proposal would alter regulations under § 1.1502-76(b), changing the “next day rule” so it applies only to “extraordinary items” that result from transactions that occur on the day of a corporation’s change in status but after the event causing the change.
The proposed next day rule is expressly inapplicable to any extraordinary item that arises simultaneously with the event that causes the company’s change in status, the regs state.
The proposed regulations provide that services rendered in connection with the company’s change in status are extraordinary items. They also clarify that the anti-avoidance rule in § 1.1502-76(b)(3) may apply to situations in which a person modifies an existing contract or other agreement in anticipation of a company’s change in status.
The Service said the current rules requiring a determination of “properly allocable” costs led to uncertainty and inconsistent treatment.
New rules are also provided for S corporations that join or leave a group and for intercompany section 381 transactions.
Comments and requests for a public hearing on the proposal must be received by June 4.
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