The Consolidated Return Investment Basis Adjustment Rules.

Extract

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The Consolidated Return Investment Basis Adjustment Rules.

Originally published October, 2003. To read this article in full, please go to the bottom of this page.

TABLE OF CONTENTS

INTRODUCTION

The consolidated return investment adjustment system is a comprehensive set of rules for adjusting the basis of the stock of a subsidiary held by a member of a consolidated group. The investment adjustment system also provides rules for determining earnings and profits ("E&P") and excess loss accounts with respect to members of consolidated groups. The investment adjustment system is comprised of various regulations, including Reg. s. 1.1502-32 (investment adjustments); Reg. s. 1.1502-33 (E&P); Reg. s. 1.1502-19 (excess loss accounts); and Reg. s. 1.1502-11 (circular basis adjustments).

Although the investment adjustment system dates back to 1966, the current rules were promulgated in August 1994 1 and are effective generally for consolidated return years beginning on or after January 1, 1995. The current regulations represent a complete overhaul of the 1966 regulations. The purpose of this outline is to describe the rules that make up the investment adjustment system.2

I. STOCK BASIS ADJUSTMENTS

A. Comparison of Current and Historical Rules. The stock basis adjustment rules represent a dramatic change from the old rules. Under the old rules, P's basis in S's stock was adjusted to reflect S's current increase or deficit in E&P. In contrast, the current rules are similar to those governing the bas...

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