Academic journal article Journal of Accountancy

Final Regulations on Dual Consolidated Loss

Academic journal article Journal of Accountancy

Final Regulations on Dual Consolidated Loss

Article excerpt

The IRS issued final regulations on the dual consolidated loss provisions September of last year. The regulations replaced proposed and temporary regulations issued in September 1989.

Before section 1503(d) was enacted, multinational corporations attempted to take double deduc-. tions by establishing corporate entities that were residents of both the United States and a foreign jurisdiction. These entities typically generated losses through interest expense deductions. When the losses were consolidated, they offset income from affiliates in both jurisdictions.

In response to this "double dipping," section 1503(d) disallows the use of dual resident corporations' losses to offset any affiliated U.S. corporation's income. The regulations also broaden the definition of dual resident corporation to include certain partnerships and branches of domestic corporations that are "separate units."

The final regulations amend the temporary regulations' exceptions to the general rule disallowing the use of dual consolidated losses by adopting a "use" approach. Taxpayers are permitted to use a dual resident corporation's or a separate unit's dual consolidated loss if they certify the loss has not been (and will not be) used to offset another entity's income under the laws of a foreign country. …

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