IRS Looking to Finish Circular Basis Guidance, Final Regulations

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The Treasury Department hopes to issue guidance for circular basis rules and final regulations for determining unrealized built-in gains or losses “fairly soon,” two Treasury officials said.
Treasury has received many questions on circular basis rules and is “working earnestly” toward addressing them in upcoming guidance, said Krishna Vallabhaneni, a Treasury attorney-adviser for tax legislation, during a panel discussion at the Practising Law Institute conference in New York on consolidated tax return regulations.
Circular basis is related to the use of a subsidiary's loss to offset gains on the disposition of that subsidiary's stock that would reduce stock basis, thus increasing the gain and greater loss absorption. Under Section 1.1502-11(b) of the Code of Federal Regulations, the extent to which a subsidiary's losses and deductions can be used in the tax year of the subsidiary's disposition is limited.