TD 9205 – Effective Date
The preamble to the 2003 proposed regulations stated that the Treasury Department and the IRS intended to make those regulations effective for taxable years beginning on or after the date that final regulations are published in the Federal Register. The preamble to the 2003 proposed regulations also addressed the limited application of final regulations to taxable years prior to that effective date to prevent abuse. Because the Treasury Department and the IRS have decided to retain the general rules for the computation and allocation of the group credit contained in the 2003 proposed regulations, with the modifications described above, these regulations are being issued in temporary form and will be effective for taxable years ending on or after May 24, 2005.
For taxable years prior to those covered by these temporary regulations, a taxpayer generally may use any reasonable method of computing and allocating the group credit. For the reasons set out in the preamble to the 2003 proposed regulations, the Treasury Department and the IRS believe that these temporary regulations should be retroactive in limited circumstances to prevent abuse. Accordingly, paragraph (b) of these temporary regulations, relating to the computation of the group credit, and paragraph (c) of these temporary regulations, relating to the allocation of the group credit, apply to taxable years ending on or after December 29, 1999, if the members of a controlled group, as a whole, claimed more than 100 percent of the amount that would be allowable under paragraph (b). In the case of a controlled group whose members have different taxable years and whose members use inconsistent methods of allocation, the members of the controlled group are deemed to have, as a whole, claimed more than 100 percent of the amount that would be allowable under paragraph (b).
Since the issuance of the 2003 proposed regulations, questions have arisen regarding what constitutes a reasonable method of allocating the group credit. Any allocation method used by a member of a controlled group that is consistent with either the 2000 proposed regulations, the 2003 proposed regulations, these temporary regulations, or subsequent final regulations will be accepted by the IRS as reasonable if the same allocation method was used by all members of the controlled group. In addition, for taxable years ending before December 29, 1999, any such method will be accepted by the IRS as reasonable regardless of the allocation method or methods used by other members of the controlled group and regardless of whether the members of the controlled group, in the aggregate, claimed more than 100 percent of the group credit. Although the reasonableness of any other allocation method may depend on the particular facts and circumstance of that taxpayer, in general, the IRS, solely for purposes of what constitutes a reasonable method of allocating the group credit for taxable years ending before December 29, 1999, will treat as reasonable a gross QREs method even if the members of the controlled group use inconsistent allocation methods to claim, in the aggregate, more than 100 percent of the group credit. Such treatment of a gross QREs method as reasonable for such years is for administrative convenience only.
