IRS Proposes Guidance on NOL Treatment in Corporate Equity Reductions

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The Internal Revenue Service proposes regulations (REG-140668-07) regarding the treatment of net operating losses in corporate equity reduction transactions, including multistep plans for acquisition of stock and CERTs involving members of a consolidated return group. The rules specify that both taxable and tax-free transactions can require CERT testing under Sections 172(b)(1)(E) and 172(h). “[A] section 355 transaction, a corporate organization under section 351, or a stock acquisition that qualifies for reorganization treatment under section 368(a)(1)A and (a)(2)E) must be tested under the CERT rules,” IRS says. In addition, the agency says, an integrated plan of stock acquisition including multiple steps will be tested as a single potential “major stock acquisition” for purposes of determining the consequences of the transaction under the CERT rules.