Reg. § 1.245A-6 Coordination of extraordinary disposition and disqualified basis rules.
(a) Scope This section and through coordinate the application of the extraordinary disposition rules of and and the disqualified basis rule of . provides coordination rules for simple cases, and provides coordination rules for complex cases. provides definitions and other rules, including rules of general applicability for purposes of this section and through . provides examples illustrating the application of this section and through . provides applicability dates.
(b) Conditions to apply coordination rules for simple cases For a taxable year of a section shareholder for which the conditions described in and of this section are satisfied, the section shareholder may apply the coordination rules of (rules for simple cases) to an extraordinary disposition account of the section shareholder with respect to an SFC and disqualified basis of an item of specified property that corresponds to the extraordinary disposition account (as determined pursuant to ). If the conditions are not satisfied, then the coordination rules of (rules for complex cases) apply beginning with the first day of the first taxable year of the section shareholder for which the conditions are not satisfied and all taxable years thereafter. If the conditions are satisfied for a taxable year of the section shareholder but the section shareholder chooses not to apply the coordination rules of for that taxable year, then the coordination rules of apply to that taxable year (though, for a subsequent taxable year, the section shareholder may apply the coordination rules of , provided that the conditions described in and of this section are satisfied for such subsequent taxable year and have been satisfied for all earlier taxable years). For purposes of applying and of this section, a reference to a section shareholder, an SFC, or a CFC does not include a successor of the section shareholder, the SFC, or the CFC, respectively.
(1) Requirements related to the SFC The condition of this is satisfied for a taxable year of the section shareholder if the following requirements are satisfied:
(i) On January 1, 2018, the section shareholder owns (within the meaning of section ) all of the stock (by vote and value) of the SFC.
(ii) On each day of the taxable year of the section shareholder, the section shareholder owns (within the meaning of section ) all of the stock (by vote and value) of the SFC.
(iii) On no day during the taxable year of the section shareholder was the SFC a distributing or controlled corporation in a transaction described in a section , or did the SFC acquire the assets of a corporation as to which there is an extraordinary disposition account pursuant to a transaction described in section (that is, taking into account the requirements of this and of this section, the section shareholder's extraordinary disposition account with respect to the SFC has not been not been adjusted pursuant to the rules of ).
(2) Requirements related to an item of specified property that corresponds to an extraordinary disposition account and a CFC holding the item The condition of this is satisfied for a taxable year of a section shareholder if the following requirements are satisfied:
(i) For each item of specified property with disqualified basis that corresponds to the extraordinary disposition account, the item of specified property is held by a CFC immediately after the extraordinary disposition of the item of specified property.
(ii) For each CFC described in of this section—
(A) All of the stock (by vote and value) of the CFC is owned (within the meaning of section ) by the section shareholder and any domestic affiliates of the section shareholder immediately after the extraordinary disposition described in of this section;
(B) For each taxable year of the CFC that ends with or within the taxable year of the section shareholder, there is no extraordinary disposition account with respect to the CFC, and the sum of the balance of the hybrid deduction accounts (as described in ) with respect to shares of stock of the CFC is zero (determined as of the end of the taxable year of the CFC and taking into account any adjustments to the accounts for the taxable year); and
(C) On each day of each taxable year of the CFC that ends with or within the taxable year of the section shareholder, and on each day of each taxable year of the CFC that begins with or within the taxable year of the section shareholder—
(1) The CFC holds the item of specified property described in of this section;
(2) The section shareholder and any domestic affiliates own (within the meaning of section ) all of the stock (by vote and value) of the CFC;
(3) The CFC does not hold any item of specified property with disqualified basis other than an item of specified property that corresponds to the extraordinary disposition account;
(4) The CFC does not own an interest in a partnership, trust, or estate (directly or indirectly through one or more other partnerships, trusts, or estates) that holds an item of specified property with disqualified basis; and
(5) The CFC is not engaged in the conduct of a trade or business in the United States and therefore does not have ECTI, and the CFC does not have any deficit in earnings and profits subject to .
[T.D. 9934, 85 FR 76963, Dec. 1, 2020]