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IRS issues Chief Counsel Advice on recapture of dual consolidated losses — Orbitax Tax News & Alerts

The US Internal Revenue Service (IRS) has released a Chief Counsel Advice regarding termination of an election under Section 1504(d) of the US Internal Revenue Code (IRC) dealing with dual consolidated losses. The Chief Counsel Advice is entitled Section 1503(d) Issues Upon Termination of Section 1504(d) Election. It was issued by the IRS Large and Midsize Business Division (LSMB) and is designated ILM 200810023, dated 19 November 2007, and was released 7 March 2008.

The dual consolidated loss (DCL) rules of IRC Section 1504 are intended to prevent dual resident corporations from using losses to offset both US and foreign taxable income.

The Chief Counsel Advice was issued in response to a request for assistance from an LSMB Team Manager. It reviews a fact pattern wherein a Section 1504(d) election was made to treat a foreign subsidiary as a US domestic corporation and use the DCLs of the foreign subsidiary to offset US income of the other members of the US corporate group to which the foreign subsidiary belonged.

The Section 1504(d) election was later terminated by reason of a change of law in the foreign jurisdiction where the subsidiary was organized. The issue discussed in the Chief Counsel Advice is whether the change in status of the foreign subsidiary was a triggering event requiring recapture of the DCLs previously claimed.

The Chief Counsel Advice discusses the seven types of triggering events defined in the applicable US Treasury Regulations and concludes that the taxpayer had not successfully rebutted the possibility that several of the triggering events were applicable.