Forward-looking tax planning for U.S. taxpayers and their foreign subsidiaries was never an easy task. Since the adoption of the G.I.L.T.I. regime, domestic tax plans must be adjusted when applied to a cross border scenario. In their article, Stanley C. Ruchelman and Neha Rastogi examine a straightforward merger of related corporations, each operating at a loss, followed by a significant gain from the sale of an operating asset. What is a statutory merger when two companies are based outside the U.S.? What information must be reported on a U.S. Shareholder’s U.S. income tax return? What forms are used to report the information? Do the G.I.L.T.I. rules make operating losses of a C.F.C. useless to a U.S. Shareholder when a C.F.C. sells operating assets at a sizable gain? These and other issues are explored by the authors.

Troubled companies that incur significant net operating losses (“N.O.L.’s”) can carry back those losses for up to two years in order to obtain refunds of tax. In addition, the losses can be carried forward for up to 20 years to reduce future taxable income. However, the losses cannot be monetized through transfers to others. Code §§382 and 269 and separate return limitation year (“S.R.L.Y.”) provisions under the consolidated tax return regulations are designed to prevent taxpayers from selling the benefit of the N.O.L. directly or indirectly. Philip R. Hirschfeld explains how the loss limitation rules are applied when (i) a change occurs in the ownership of the loss corporation, (ii) a reshuffle of profitable and unprofitable businesses occurs to benefit from a “mixing bowl” effect, or (iii) companies with existing losses enter an affiliated group filing a consolidated Federal income tax return.

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Did You Just Manifest the Opposite of What You Wanted - (IN)Ability to Use G.I.L.T.I. Losses to Offset Gain

Net Operating Losses: A Valuable Asset Worth Preserving

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