Keywords

double loss disallowance, corporate tax, corporate liquidation rules

Abstract

The American Jobs Creation Act of 2004 added Section 362(e)(2), which addresses concerns similar to those addressed by Section 336(d). Section 362(e)(2) was added to the law to close a perceived loophole whereby taxpayers could deduct a single economic loss twice by transferring loss property to a corporation in a Section 351 transaction or as a contribution to capital with the shareholder subsequently selling the stock and the corporation selling the loss asset. This provision was designed to prevent the recognition of a single economic loss twice. However, this new provision overlaps and interacts with the corporate liquidation loss disallowance rules. In some situations, the provisions applied together, produce redundant results because the economic loss is disallowed by both of the provisions. When the Section 362(e)(2)(C) election is made, the economic loss is not recognized by either the transferor shareholder or the transferee corporation. Neither result seen to be consistent with the intent of the new enactment.

Original Publication Citation

“Interaction of New Section 362(e)(2) With Loss Disallowance Rules.” Journal of Corporate Taxation (with Boyd C. Randall and John M. Werlhof), September/October 2005: 24 – 32.

Document Type

Peer-Reviewed Article

Publication Date

2005

Publisher

Journal of Corporate Taxation

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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