An Interesting Tax Angle
AN INTERESTING TAX ANGLE . . . A foreign corporation contributed securities on which it had a loss to its US subsidiary.
This let it claim the loss in its home country. However, the US treated the transfer as a capital contribution. Thus, the US subsidiary took a carryover basis in the securities. It sold the securities later and claimed a loss on its US return.
The IRS discussed the transaction in an old “field service advice” that was released to the public in early March. It considered whether to try to invoke US transfer pricing rules in section 482 to deny the US tax loss, but decided against it. It suggested to the IRS agent who had raised the issue that he try to “settle this case on the best basis possible or concede the case if necessary,” unless he could prove the transaction was purely tax motivated. “[I]t may be that distortion will have to be tolerated in certain circumstances in order to achieve proper results in the vast majority of cases.”