Par. 2. Section 1.1502-13 is amended by: 1. Adding a sentence at the end of paragraph (j)(2)(ii). 2. Adding paragraph (j)(2)(iii). 3. Redesignating paragraph (j)(9) introductory text as paragraph (j)(9)(i). 4. Revising Example 6 and Example 7 of newly designated paragraph (j)(9)(i). 5. Adding paragraph (j)(9)(ii). The revisions and additions read as follows:
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(j) * * *
(2) * * *
(ii) Intercompany items. * * * For example, if the assets of a predecessor are acquired by more than one successor in a transaction to which section 381(a)(1) applies, each successor succeeds to, and takes into account (under the rules of this section), each of the predecessor's intercompany items (whether resulting from distributions in liquidation or otherwise) to the extent that such items would have been reflected in investment basis adjustments to the stock of the predecessor owned by that successor under the principles of § 1.1502-32(c) if, immediately prior to the liquidation, any stock of the predecessor owned by nonmembers had been redeemed in exchange for the money or property distributed to that nonmember in the transaction to which section 381(a)(1) applies, and then such items had been taken into account under § 1.1502-13(d).
(iii) Effective date. The third sentence of paragraph (j)(2)(ii) of this section applies to transactions occurring after the date these regulations are published as final regulations in the Federal Register .
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(9) Examples. (i) The operating rules of this paragraph (j) are illustrated generally throughout this section, and by the following examples:
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Example 6. Liquidation—80% distributee.
(i) Facts. B1, B2, and S are members of the same consolidated group. S has only common stock outstanding. B1 owns 80% of S's stock, and B2 owns the remaining 20%. On January 1 of Year 2, S sells two assets to another member of the group. S recognizes $100 of gain with respect to the first asset and $100 of loss with respect to the second asset. On July 1 of Year 3, S distributes all of its remaining assets to B1 and B2 in a complete liquidation. At the time of the liquidation, S's assets have an aggregate basis of $0 and an aggregate value of $100, and neither the gain nor the loss from the prior two asset sales has been taken into account under this section. Under § 1.1502-34, section 332 applies to both B1 and B2. Under section 337, S has no gain or loss from its liquidating distribution to B1. Under sections 336 and 337(c), S has a $20 gain from its liquidating distribution to B2. On January 1 of Year 4, B2 ceases to be a member of the group.
(ii) Succession to intercompany items. Under the matching rule, S's $20 gain from its liquidating distribution to B2 is not taken into account under this section as a result of the liquidation (and, therefore, is not yet reflected under §§ 1.1502-32 and 1.1502-33). Under the successor person rule of paragraph (j)(2)(i) of this section, B1 and B2 are both successors to S. Under paragraph (j)(2)(ii) of this section, B1 and B2 each succeeds to S's intercompany items to the extent that such items would have been reflected in investment basis adjustments to its stock of S under the principles of § 1.1502-32(c) if, immediately prior to the liquidation, such items had been taken into account under § 1.1502-13(d). Therefore, B1 succeeds to 80% of the $20 of intercompany gain from the assets distributed to B2 in the liquidation, and 80% of the $100 of intercompany gain and 80% of the $100 of intercompany loss from the assets that S sold prior to the liquidation. In addition, B2 succeeds to 20% of the $20 of intercompany gain from the assets distributed to B2 in the liquidation and 20% of the $100 of intercompany gain and 20% of the $100 of intercompany loss from the assets that S sold prior to the liquidation.
(iii) Taking into account intercompany items. S's gain from its liquidating distribution to B2 and S's gain and loss from the sale of the two assets prior to the liquidation will be taken into account by B1 and B2 under the matching and acceleration rules of this section based on subsequent events. Therefore, in connection with B2 ceasing to be a member of the group, B1 will take into account $16 of the intercompany gain from the assets distributed to B2 in the liquidation. In addition, B2 will take into account $4 of the intercompany gain from the assets distributed to B2 in the liquidation and $20 of the intercompany gain and $20 of the intercompany loss from the two assets that S sold prior to the liquidation.
Example 7. Liquidation—no 80% distributee.
(i) Facts. B1, B2, and S are members of the same consolidated group. S has only common stock outstanding. B1 and B2 each owns 40% of S's stock, and A, a nonmember, owns the remaining 20% of S's stock. On January 1 of Year 2, S sells two assets to another member of the group. S recognizes $100 of gain with respect to the first asset and $100 of loss with respect to the second asset. On July 1 of Year 3, S distributes all of its remaining assets to B1, B2, and A in complete liquidation. At the time of the liquidation, S's assets have an aggregate basis of $0 and an aggregate value of $100, and neither the gain nor the loss from the prior two asset sales has been taken into account under this section. Under § 1.1502-34, section 332 applies to both B1 and B2. Under sections 336 and 337(c), S has a $100 gain from its liquidating distributions to B1, B2, and A.
(ii) Succession to intercompany items. Under the matching rule, S's $80 gain from its liquidating distributions to B1 and B2 is not taken into account under this section as a result of the liquidation (and, therefore, is not yet reflected under §§ 1.1502-32 and 1.1502-33). Under the successor person rule of paragraph (j)(2)(i) of this section, B1 and B2 are successors to S. Under paragraph (j)(2)(ii) of this section, B1 and B2 each succeeds to S's intercompany items to the extent that such items would have been reflected in investment basis adjustments to its stock of S under the principles of § 1.1502-32(c) if, immediately prior to the liquidation, the stock of S owned by A had been redeemed in exchange for the money or property distributed to A in the liquidation, and then such items had been taken into account under § 1.1502-13(d). If A had been redeemed, then S's items would have produced investment basis adjustments in the stock of S owned by each of B1 and B2 equally. Therefore, each of B1 and B2 succeeds to 50% of the $80 of intercompany gain from the assets distributed to B1 and B2 in the liquidation and 50% of the $100 of intercompany gain and 50% of the $100 of intercompany loss from the assets that S sold prior to the liquidation. S's $20 gain with respect to the assets that are distributed to A in the liquidation is taken into account immediately.
(iii) Taking into account intercompany items. S's gain from its liquidating distributions to B1 and B2 and S's gain and loss from the sale of the two assets prior to the liquidation will be taken into account by B1 and B2 under the matching and acceleration rules of this section based on subsequent events.
(ii) Effective dates. Paragraph (j)(9)(i) Examples 6 and 7 apply to transactions occurring after the date these regulations are published as final regulations in the Federal Register .
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