TD 9296 – Effective Date
The preamble to the 2005 regulations states that because the Treasury Department and the IRS decided to retain the general rules for the computation and allocation of the group credit contained in the 2003 proposed regulations, with certain modifications, the 2005 regulations were effective for taxable years ending on or after May 24, 2005. For taxable years prior to those covered by the 2005 regulations, a taxpayer generally may use any reasonable method of computing and allocating the group credit. As explained in the preamble to the 2005 regulations, paragraph (b) of the 2005 regulations, relating to the computation of the group credit, and paragraph (c) of the 2005 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).
One commentator argued that the 2005 regulations should not be effective until final regulations are published in the Federal Register. The Treasury Department and the IRS continue to believe that the general May 24, 2005, effective date is appropriate, because these final regulations are substantially similar to the 2003 proposed regulations.
Another commentator objected to the use of the December 29, 1999, effective date for the portions of the 2005 regulations that are retroactive, because that is the date that the previous proposed regulations (2000 proposed regulations) were sent to the Federal Register, and not the date (January 4, 2000) on which they were published. The Treasury Department and the IRS continue to believe that the December 29, 1999, effective date is the appropriate date, because this is the date the 2000 proposed regulations were filed with the Federal Register and, thus, were made available to the public. Additionally, section 7805(b)(3) allows any regulation to take effect or apply retroactively to prevent abuse.
Another commentator criticized the retroactive application of the rule requiring that a member’s stand-alone entity credit be computed using whichever method results in the greater stand-alone entity credit for that member, without regard to the method used to compute the group credit. The commentator stated that the incentive effect sought can only be achieved prospectively, and that to allow use of the rule retroactively may cause abusive inconsistencies where some members of the group rely on the 2003 proposed regulations, while other members amend to follow the new rule. While the Treasury Department and the IRS do not want to encourage potentially abusive inconsistencies in years that taxpayers believe are settled, the Treasury Department and the IRS believe that one bright line is appropriate and do not want to treat similarly situated taxpayers differently.
Another commentator suggested that the final regulations make clear that the special rule for consolidated groups is to be applied prospectively only. The 2005 regulations required paragraph (b) of those regulations, relating to the computation of the group credit, and paragraph (c) of those regulations, relating to the allocation of the group credit, to be applied retroactively in certain instances of abuse. The 2005 regulations did not require paragraph (d), relating to the special rule for consolidated groups, to be applied retroactively. Thus, the Treasury Department and IRS did not intend that taxpayers be required to apply retroactively the special rule for consolidated groups. Accordingly, the final regulations clarify that the special rule for consolidated groups applies only to taxable years ending on or after the date these final regulations are published in the Federal Register. The 2005 regulations apply for taxable years ending on or after May 24, 2005, and before the date these final regulations are published in the Federal Register. However, a controlled group may choose to apply the rule in paragraph (d) retroactively if all the members of the group do so, so that the controlled group, as a whole, does not claim more than 100 percent of the group credit.
