CCA 200919041: Withdrawn proposal assigned pre-transaction look-back interest to predecessor

Plain-English summary

Chief Counsel interpreted 1990 proposed regulations as generally requiring a successor taxpayer to use the simplified marginal impact method for pre-transaction years. Under that proposal, the successor could not receive look-back interest from a pre-transaction overpayment unless the transaction was a taxable sale. The interest instead went to the predecessor, which used either the simplified method subject to the tax-liability ceiling or its existing actual method. The message emphasized, however, that those 1990 proposed regulations were withdrawn and that regulations adopted about a decade later did not follow their approach.

Ruling snapshot

• Question: Under the withdrawn 1990 proposal, which taxpayer received look-back interest from pre-transaction overpayments?
• Outcome: Advice given: generally the predecessor, not the successor, but the proposal was withdrawn and not adopted in later regulations.
• Key authorities: IRC § 460; withdrawn 1990 proposed look-back regulations.

Full text (IRS public release)

ID: CCA_2009032713411442 Number: 200919041
Release Date: 5/8/2009
Office: ----------------
UILC: 460.02-01

From: ----------------------
Sent: Friday, March 27, 2009 1:41:20 PM
To: ------------------------
Cc:
Subject: RE: Look Back Pre-transaction Method Follow up

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I read the 1990 proposed regulations as saying the successor (new taxpayer) must use the SMIM for pre- transaction years. This is the general rule. However, the regulations also prohibit the successor from receiving interest due to a lookback overpayment for pre-transaction years, unless there has been a taxable sale. Lookback interest goes to the predecessor (old taxpayer), who must use either the SMIM with regard to the tax liability ceiling or the actual method, whichever method the predecessor had been using. In short, the successor is not entitled, as a general rule, to lookback interest arising from pre- transaction year overpayments.

Of course, these proposed regulations from 1990 were withdrawn, and their approach was not followed in the regulations that were proposed and finalized some 10 years later.

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