AM 2011-002: Dual Consolidated Loss Deducted Due to SRLY cumulative register - The SRLY Rules Wag the DCL Tail, But Should They?

• Published in: Tax Management International Journal 2012-03, Vol.41 (3), p.127
• Main Authors: Nelson, Elizabeth, Collins, Marty
• Format: Article
• Language: English
• Subjects: Business operations; Consolidated tax returns; Disregarded entities; Income taxes; Losses; Net income; Net losses; Net operating losses; Taxable income; Technical advice memoranda
• ISSN: 0090-4600; 1544-0761

In a generic legal advice memorandum, AM 2011-002, issued on Aug 1, 2011, the Internal Revenue Service (IRS) Office of Chief Counsel addressed whether a dual consolidated loss (DCL) incurred by a hybrid entity separate unit may be taken into account in determining US consolidated taxable income (CTI) in the taxable year in which the DCL was incurred absent a domestic use election. As discussed in this article, the AM effectively resolves a lingering uncertainty that had arisen from the language of the 2007 regulations, which some had interpreted to permit a deduction for a current year DCL of a particular separate unit (or dual resident corporation) if the separate unit's separate return limitation year (SRLY) cumulative register equalled or exceeded the loss of the separate unit for that taxable year. By issuing the AM, the Service continues to highlight the question of whether it is appropriate to cross-reference the increasingly complicated SRLY register rules to police cross-border "double-dips."