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The IRS released a private letter ruling on December 23,
2010 providing guidance on a parent company's ability to use its NOLs after a
bankruptcy proceeding. In PLR 201051019
(Sept. 14, 2010), Parent and a disregarded entity owned by Subsidiary Y were
the only participants in a bankruptcy proceeding, and only Parent's debt was
exchanged for stock.
If the Parent group did not elect to apply IRC Section
382(l)(6), the Service applied IRC Section 382(l)(5) to find no IRC Section 382
limitation on pre-change losses or built-in losses of Parent's group (and each
of its members) from Parent's ownership change in the bankruptcy proceeding;
alternatively, if the group elected to apply IRC Section 382(l)(6), the
resulting IRC Section 382 limitation would take into account the increase in
Parent's value from the surrender or cancellation of its debt under Treas. Reg.
If the Parent group elected to apply IRC Section 382(l)(6),
in applying Notice 2003-65 to compute the separate NUBIG/NUBIL of each member,
except as otherwise modified by Notice 2003-65, the group could apply the
principles for computing and allocating the aggregate deemed sale price under
Treas. Reg. §§ 1.338-4 and 1.338-6 for each member to determine its amount
realized on the hypothetical sale of its assets, and the amount realized is
allocated to the stock and obligations of group members notwithstanding that
gain or loss might not be taken into account under Treas. Reg. §1.1502-91.
In other words, starting at the top of the corporate chains,
a hypothetical sale of Parent's assets results in an amount allocated to the
stock of its direct subsidiaries, and this amount is, in turn applied under IRC
Section 338 principles to determine each direct subsidiary's hypothetical sale
of its assets for purposes of its separately computed NUBIG/NUBIL (with this
process repeated down the corporate chains), and it does not matter for this
process that Treas. Reg. §1.1502-91(g)(1) more generally disregards any
unrealized built-in gain or loss on stock and intercompany obligations of other
members included in the group.
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