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PwC Suggests Change to Grandfathering Clause in Loss Limitation Regs

NOV. 8, 2019

PwC Suggests Change to Grandfathering Clause in Loss Limitation Regs

DATED NOV. 8, 2019
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November 8, 2019

Hon. David J. Kautter
Assistant Secretary (Tax Policy)
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Hon. Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20024

Re: Proposed Regulations under Section 382(h)

Dear Assistant Secretary Kautter and Commissioner Rettig:

PricewaterhouseCoopers, LLP (“PwC” or “our”) submits these comments on behalf of our clients, EQT Fund Management S.a.r.l. (“EQT”) and Digital Colony Acquisitions, LLC (“Digital,” and collectively with EQT and their respective affiliates, the “Consortium Sponsors ”), regarding the possible issuance of temporary or final regulations under section 382(h) of the Internal Revenue Code (the “Code”).1 Our comments address the limited scope of the current grandfathering provision provided by the proposed regulations under section 382(h) as published in the Federal Register on September 10, 2019 (the “Proposed Regulations”).2 We appreciate the U.S. Department of Treasury's (“Treasury”) and the Internal Revenue Service's (“Service”) thoughtful consideration of the difficult issues raised in implementing this complex provision in accordance with Congress's intent and welcome this opportunity to comment on a narrow but important issue.

Our comments focus on the need for any temporary or final regulations to include a grandfathering provision for transactions that were subject to a written binding agreement prior to the publication of the Proposed Regulations on September 10, 2019. A broader grandfathering clause is necessary to protect those taxpayers that in good faith developed financial models and entered into written binding agreements with third parties while relying upon Notice 2003-65,3 which had been in effect since 2003. Prior to September 10, there was no reason to question or doubt the validity of that prior guidance.

A more equitable grandfathering provision than currently provided in the Proposed Regulations would therefore be the just outcome and would reflect past practices of Treasury and the Service as discussed below.

I. Background Facts — Acquisition of Zayo Group Holdings, Inc. (“Zayo”)

On May 8, 2019, two U.S. corporations, newly formed by the Consortium Sponsors, signed an Agreement and Plan of Merger with Zayo (the “Merger Agreement”). Zayo is currently a widely held U.S. public company. The Merger Agreement provided for the acquisition of 100% of the Zayo shares for $35 per share (the “Merger”). The implied enterprise value of Zayo in this take private transaction exceeds $14 billion.

EQT (and its affiliates) is a leading investment firm with more than $60 billion of capital raised, over $40 billion of assets under management, with portfolio companies across the globe, with over 110,000 employees. Digital and its affiliates, Colony Capital, Inc. and Digital Bridge Holdings, LLC, are leading commercial investors and industry experts (in Zayo's industry), respectively. Affiliates of each assembled a consortium of investors to acquire Zayo.

The economic terms of the deal were reached based on extensive financial modeling and due diligence conducted by the Consortium Sponsors, which took into account the long-standing positions reflected in Notice 2003-65, specifically the Section 338 Approach (defined below). Zayo and its affiliates had approximately $1.5 billion of net operating losses (“NOLs”) as of December 31, 2018, and the availability and timing thereof was a relevant and important component in the valuation exercise.

The completion of the Merger is subject to obtaining antitrust and investment approvals in the U.S., European Union, and several countries including Canada and Australia. In addition, consummation of the Merger is subject to approvals from the Federal Communication Commission and various state public utility commissions, including California. A handful of these approvals are still pending and may not occur during calendar 2019.

II. Section 382 — Generally

Congress initially enacted section 382 to prevent the trafficking of NOLs through corporate acquisitions. In summary, section 382 provides that after an ownership change4 the amount of a loss corporation's taxable income that may be offset by pre-change losses5 shall not exceed the Section 382 Limitation (defined below). The amount of pre-change losses that can be used in a post-change year is limited on an annual basis to the value of the loss corporation immediately before the ownership change multiplied by the long-term tax-exempt rate (the “Base Section 382 Limitation”).6

The Base Section 382 Limitation is then subject to possible adjustments. A loss corporation with a net unrealized built-in gain (“NUBIG”) in its assets immediately prior to an ownership change generally may increase its Section 382 Limitation to the extent of its NUBIG, by recognized built-in gains (“RBIG”) generated during the 5-year period beginning on the change date (the “5-year recognition period”).7 Conversely, a loss corporation with a net unrealized built-in loss (“NUBIL”) in its assets immediately prior to an ownership change generally must treat recognized built-in losses (“RBIL”) generated during the 5-year recognition period as if such losses, to the extent of NUBIL, were pre-change losses subject to the Section 382 Limitation.8 The RBIG/RBIL adjustments together with the Base Section 382 Limitation sum to the annual section 382. limitation (the “Section 382 Limitation”).

The concept of RBIG reflects the notion that losses that offset built-in gains should not be subject to the Section 382 Limitation simply because the gain is recognized after an ownership change; if the gain had been recognized before the ownership change, it would have been offset without limitation by the loss corporation's NOLs. Similarly, RBIL embodies the opposite or reciprocal concept that a built-in loss should not avoid the Section 382 Limitation merely because it is recognized after an ownership change; if the loss had been recognized before the ownership change, it would have been subject to the Section 382 Limitation.

On September 12, 2003, the Service issued Notice 2003-65 to address questions that had arisen in practice in calculating NUBIG, NUBIL, RBIG, and RBIL. Notice 2003-65 provides taxpayers two safe harbor approaches for determining whether items of income, deduction, gain, or loss that a loss corporation recognizes following an ownership change should be treated as RBIG or RBIL. The first approach is based on section 338 (the “Section 338 Approach”), and the second approach is based on section 1374 (the “Section 1374 Approach”). Both approaches rely on a deemed asset sale in order to properly measure a loss corporation's NUBIG and NUBIL. However, the two methods differ in how RBIG and RBIL are determined.

The Section 338 Approach treats as RBIG and RBIL the difference between the loss corporation's actual allowable cost recovery deduction with respect to an asset and the amount that would have been allowable with respect to the asset had a section 338 election been made for a purchase of the loss corporation's stock. In general, taxpayers with a NUBIG and appreciated intangibles (including goodwill) tend to benefit from the Section 338 Approach because it allows income from a “wasting asset” to count as RBIG. The Proposed Regulations would have a significant negative impact on companies with tax losses and high-value, low-basis depreciable or amortizable assets, such as substantially depreciated equipment and self-generated intangibles.

III. The Proposed Regulations

As noted above, on September 10, 2019, Treasury and the Service promulgated Proposed Regulations that, among other things, eliminated the Section 338 Approach.

The Proposed Regulations are proposed generally to be effective for ownership changes occurring after the final regulations are published in the Federal Register. However, the regulations state that the Proposed Regulations may be relied upon by taxpayers for ownership changes occurring prior to that date if certain conditions are satisfied.

IV. Fairness dictates that the “grandfathering” provision in the Proposed Regulations that materially modifies long-standing rules for calculating the availability of NOLs should be extended to include transactions where taxpayers relied on rules in effect when taxpayers agreed to such transactions.

The Proposed Regulations eliminated the Section 338 Approach that for the past 16 years taxpayers relied on and consistently applied in calculating their Section 382 Limitation. These regulations were issued without any advance notice to taxpayers and are separate and apart from extensive Tax Cuts and Jobs Act guidance that Treasury and the Service are in various stages of promulgating.

The Proposed Regulations do not seek to change the rules of Notice 2003-65 retroactively and do provide a partial “grandfathering” provision that applies to all ownership changes that occur before the date that the regulations are published in final form. However, the grandfathering as currently drafted does not provide relief for transactions that were entered into before September 10, 2019 and that are unlikely to close before final regulations are published. Taxpayers like Zayo and the Consortium Sponsors who fall into this group are unfairly harmed. They relied on the rules unaffected for 16 years when agreeing to material terms of the Merger, but for reasons beyond their control do not control when the transaction will close.

Accordingly, any temporary or final regulations under section 382(h) should include a grandfathering provision exempting from the Proposed Regulations transactions that were entered into and subject to written binding agreements at or before the time the Proposed Regulations were published. This more equitable approach would be wholly appropriate since fairness requires that taxpayers have an actual opportunity to conform their transactions to new and fundamentally different interpretations of the law. Moreover, this approach presents no risk of abuse since only written binding agreements entered into before the unexpected guidance was issued would be provided the relief.

Grandfathering provisions are used by the government to protect taxpayers from unfair treatment that would result from applying new rules to a transaction to which a taxpayer already was contractually committed at the time the new rule was announced. Grandfathering provisions are especially important when the new rules could not have been reasonably anticipated by the taxpayer based on the history of the prior law. Additionally, they provide a taxpayer with certainty that its transaction, which was entered into in good faith and reliance on well-established rules, will be treated fairly and not negatively impacted by a change that was unforeseeable at the time the binding transaction was consummated.

These types of grandfathering provisions reassure taxpayers that they can enter into transactions and make business decisions without the fear of regulatory changes before the transaction is finalized. As the legislative history of section 7805(b) explains, “the Committee believes that it is generally inappropriate for Treasury to issue retroactive regulations.”9 The Proposed Regulations act similarly to retroactive regulations in cases where the uncontrollable fact of a gap between signing and closing exists with respect to transactions like the Merger.

A. Regulatory provisions that include grandfathering provisions

Treasury and the Service often have provided the type of grandfathering requested here. In particular, many regulatory provisions in the tax context have included a grandfathering provision for transactions subject to a binding contract.

For example, on January 16, 2014, Treasury and the Service issued a notice of proposed rulemaking under Treas. Reg. § 1.1014-5.10 The proposed regulations provided rules for determining a taxable beneficiary's basis in a term interest in a charitable remainder trust (“CRT”) upon a sale or other disposition of all interests in the trust to the extent that basis consists of a share of adjusted uniform basis. These regulations were finalized on August 12, 2015, and made applicable to sales and other dispositions of interests in CRTs occurring on or after January 16, 2014, except for sales or dispositions occurring pursuant to a binding commitment entered into before January 16, 2014.11

In addition, on January 23, 2007, Treasury and the Service issued a notice of proposed rulemaking under Treas. Reg. § 1.1502-36. The proposed regulations were applicable to transfers of loss shares of subsidiary stock by members of a consolidated group but provided no grandfathering provision for written binding agreements that were in effect before the proposed regulations were issued. After receiving comments, Treasury and the Service concluded that the effective date provisions needed modification. On December 21, 2007, Notice 2008-912 announced that final regulations, when issued, would include a grandfathering provision for transfers pursuant to an agreement that is binding before the date final regulations are so published and at all times thereafter, explaining that “[p]ractitioners have observed that the proposed effective date presents a significant burden on taxpayers attempting to negotiate transactions prior to the publication of the final regulations. The IRS and Treasury recognize that it is inappropriate to impose this level of uncertainty on taxpayers negotiating these transactions.” On September 17, 2008, these regulations were finalized and applied to a transfer of loss shares of subsidiary stock on or after September 17, 2008, unless the transfer was made pursuant to a binding agreement that was in effect prior to September 17, 2008, and at all times thereafter.13

It is notable that grandfathering provisions have been provided by Treasury and the Service even for transactions that they considered to be designed for tax avoidance reasons. Notices and regulations issued to eliminate these abuses still provided relief to taxpayers that were subject to a written binding agreement as of the date of the notices. Notices 2006-8514 and 2007-4815 addressed certain transactions that Treasury and the Service viewed to be abusive and announced that the Service would be issued under section 367(b) addressing certain triangular reorganizations involving foreign corporations wherein a subsidiary exchanges property for parent stock used to acquire third party stock or assets. These notices applied to transactions that occurred on or after the date of the notices, but notably exempted transactions that were subject to a written binding agreement as of the date of the notices.16

Notice 2006-7017 also added a grandfathering provision that originally been included in temporary and proposed regulations under section 7874 of the Code. Section 7874 enacted to address corporate inversions, contains provisions aimed at reducing the incentives for entering into such inversions of U.S. multinational companies out of U.S. taxing jurisdiction. On June 5, 2006, Treasury and the Service issued temporary and proposed regulations under section 7874 that applied the regulations to acquisitions completed on or after June 6, 2006. On July 28, 2006, Notice 2006-70 was issued, providing that a grandfathering provision would be included in the final regulations for transactions subject to a written binding agreement entered into prior to the date of the temporary and proposed regulations.18

Treasury and the Service also have provided a grandfathering provision in situations where no prior notice was given to taxpayers that proposed regulations altering the application of certain tax provisions would be issued. Treasury Decision 887619 discussed the temporary regulations that were issued, without prior notice, concerning the requirement that confidential corporate tax shelters must be registered under section 6111(d), which was intended to improve tax compliance by discouraging questionable shelter activity. All confidential corporate tax shelters in which any interest was offered for sale after February 28, 2000, were subject to these temporary regulations, unless the sale was pursuant to a written binding contract entered into on or before February 28, 2000, the date the temporary regulations were promulgated.

Given this long history of the government grandfathering transactions subject to a written binding agreement, including cases where the transaction or behavior targeted was deemed to be significantly disfavored or even outright abusive, it would be wholly appropriate to provide the same level of relief for the continued use of the non-abusive Section 338 Approach to determine whether certain items following an ownership change should be treated as RBIG or RBIL.

B. Statutory provisions that include grandfathering provisions

As discussed below, Congress too has frequently recognized the inequities of applying new tax policy with adverse effects on taxpayers engaged in transactions in process that were not yet closed. While such grandfathering provisions are not universal, they are routinely granted to provide relief to taxpayers that otherwise would suffer detrimental reliance.

i. Tax Cuts and Jobs Act amendments to sections 162(m), 163(h), and 118

Section 162(m) limits the deduction that covered companies may take for annual compensation paid to any individual who served as CEO, CFO, and the three other most highly compensated officers at any time during the taxable year. The Tax Cuts and Jobs Act amended section 162(m) and expanded the scope of covered employees to include the CFO. Additionally, it eliminated the exception for qualified performance-based compensation and commission, so that all compensation paid to covered employees in excess of $1 million would be nondeductible. Previously, companies had relied on this exception and sought to design their compensation programs to meet the requirement of the performance-based exception. A grandfathering provision was provided in the Tax Cuts and Jobs Act under which the amended provision of section 162(m) would not apply to compensation payable pursuant to a written binding contract that was in effect on November 2, 2017, and not materially modified after that date.

Section 163(h) allows a taxpayer to take a deduction for the amount of interest paid on a mortgage secured by the taxpayer's principal or secondary residence. The Tax Cuts and Jobs Act limited the amount of this deduction to the underlying indebtedness up to $750,000 ($375,000 for married couples filing separately). A grandfathering provision was provided for mortgage debt incurred before December 15, 2017, allowing the taxpayer to apply the existing rules, which allowed a maximum amount of indebtedness equal to $1 million. Additionally, this grandfathering provision applies when a buyer has a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and ultimately closes before April 1, 2018. Thus, this provision allows a taxpayer to apply prior law to a transaction that ultimately does not close until after the statute becomes enacted.

Section 118 provides an exclusion for income that a corporation otherwise would recognize from contributions in aid of construction (“CIAC”). The Tax Cuts and Jobs Act modified section 118 of the Code, which provides an exclusion from gross income for contributions to the capital of a corporation. Specifically, the new law excluded from section 118 any CIAC or any other contribution as a customer or potential customer, as well as any contribution by any government entity or civic group. All contributions that were made after the effective date were subject to this provision, unless the contribution was made by a government entity pursuant to a master development plan that was approved by the government prior to the effective date of the provision. Since taxpayers in such a business transaction ultimately had no control over when it would be finalized, Congress provided certainty to taxpayers through a grandfathering provision that the law used in developing the transaction would be applied through the life of the transaction.

In addition to this example, other precedents exists where Congress recognized that a taxpayer's ability to complete a transaction was outside of the taxpayer's control and that such factor should yield a broader grandfathering here.

ii. American Jobs Creation Act of 2004

Transactions identified by Treasury and the Service as tax shelters have been provided relief through grandfathering provisions. In the American Jobs Creation Act of 2004, Congress sought to preclude lease in, lease out transactions (“LILOs”) and sale in, lease out transactions (“SILOs”). LILOs and SILOs are specific types of leverage lease transactions where large corporations lease or purchase large assets and then immediately lease them back to the original owners. Even though there was an intent to bar these transactions, Congress provided a grandfathering provision for leases that had been executed prior to the effective date and were approved by the Federal Transit Agency within a period of over a year after the legislation was enacted.

iii. Taxpayer Relief Act of 1997

In the Taxpayer Relief Act of 1997, Congress tightened several rules affecting corporate transactions and financial products. For example, with respect to a provision that defined “Morris Trust” tax-free reorganizations as taxable, Congress provided a transition rule that covered binding contracts or transactions described in filed ruling requests with the Service, filings with the Securities and Exchange Commission, or a public announcement.20

While not every piece of tax legislation provides grandfathering based upon binding contracts, there are numerous examples where such relief is provided in enacted bills, and the best cases for doing so are for fairness in commercially motivated transactions where, as in this situation, well-established, clear rules are changed without notice.21

V. There will be a significant negative impact on Zayo that will result if the grandfathering provision is not extended to written binding agreements made before the issuance of the Proposed Regulations.

As noted above, in valuing the Merger and setting the price for the stock of Zayo, the Consortium Sponsors relied, among other factors, upon the well-established, pre-existing rules on NOLs and, specifically, Notice 2003-65, which created the Section 338 Approach. Zayo has approximately $1.5 billion of NOLs as of December 31, 2018, and the ultimate availability and timing for the use thereof was a relevant and important component in the valuation exercise. The Consortium Sponsors believed Zayo's NOLs would be available in the years indicated by Notice 2003-65 and performed extensive diligence on the NOLs and relied on projected NOL usage in its pricing models. In so doing, the Consortium Sponsors substantially and detrimentally relied on the long-standing Section 338 Approach described in Notice 2003-65.

In connection with its obligations under the Merger Agreement, Zayo and the Consortium Sponsors have expended thousands of hours and spent many millions of dollars to satisfy their respective obligations, including the costs of a Zayo shareholder vote in late July, all regulatory filings, and advisors with respect to a debt financing. The majority of these expenditures were committed to prior to the promulgation of the Proposed Regulations and in reliance of the outcomes determined under the principles of Notice 2003-65.

If the Proposed Regulations are finalized in their current form, before the anticipated closing of the transaction, it will diminish the free cash flow of Zayo's business as certain NOLs could either expire unused or have their usage be delayed. As a result, Zayo may be forced to look at other levers such as reduced investments in infrastructure or other cost-saving measures to mitigate the unintended adverse consequences related to the lack of grandfathering.

There are additional policy concerns. The Proposed Regulations could cause companies to accelerate sales or trigger ownership changes in order to take advantage of the previous rules, or cause companies to terminate these types of transactions altogether. This response would not be practical in scenarios like this one when parties have no option but to continue with the transaction until it is finalized, placing these taxpayers at a disadvantage compared to other companies that are not subject to such stringent conditions. This regulatory position conflicts with the guiding tax policy principles of equity and fairness, which require that similarly situated taxpayers be treated in the same way for tax purposes.

We understand that there may be concern that the Tax Cuts and Jobs Act amendments to sections 163(j)(2) and 382(d)(3) and lack of grandfathering in the provisions suggests that no further grandfathering is needed here. To the contrary, the grandfathering recommendation requested herein is completely distinguishable from the statutory amendments in sections 163(j)(2) and 382(d)(3).

In the Tax Cuts and Jobs Act, Congress added section 382(d)(3), which provides that for taxable years beginning after December 31, 2017, “pre-change losses” include any carryover of disallowed interest described in section 163(j)(2). Prior to the addition of section 382(d)(3), it was not clear whether disallowed 163(j) carryovers created prior to the Tax Cuts and Jobs Act were an attribute subject to limitation under section 382. With the enactment of sections 163(j)(2) and 382(d)(3), Congress made clear that 163(j) carryovers are subject to section 382 and provided no special grandfathering provisions. This rule was a clarification of an arguably ambiguous issue. No such ambiguity exists with section 382(h) and Notice 2003-65. Accordingly, the absence of a grandfathering provision in the recent section 382(d)(3) legislation should have no relevance as to whether a grandfathering provision is appropriate in the context of the Proposed Regulations. Unlike the Proposed Regulations, which abolish a well-established safe harbor (i.e., the Section 338 Approach) on which taxpayers have relied for 16 years, section 382(d)(3) merely clarifies a controversial area regarding the application of section 382 to section 163(j) carryovers. In addition, the purpose for issuing proposed regulations and requesting comments before finalization is to ensure the proposed rules work and are fair, a purpose different from the legislative process. Thus, we believe that it is entirely appropriate for Treasury and the Service to consider on a provision-by-provision basis the necessity of a transition rule.

Accordingly, we urge that any temporary or final regulations implementing the Proposed Regulations include a grandfathering provision for transactions that were subject to a written binding agreement at the time of the publication of the Proposed Regulations.

VI. Suggested Effective Date Language

The problems presented by the Proposed Regulations as described above could be cured by expanding the scope of the grandfathering provision to include all change-of-ownership transactions that were bound by a written binding agreement that was subject to customary conditions, including government approvals, and immaterial amendments before September 10, 2019. To implement a transition rule, Treasury and the Service could model the effective date language similar to that used in Temp. Treas. Reg. § 1.367(b)-14T(e) or Treas. Reg. § 1.1502-36(h). For example, the effective date language could state:

This section applies to any ownership change occurring after the date final or temporary regulations are published in the Federal Register. This section, however, shall not apply to any ownership change resulting from a transaction completed after the date final or temporary regulations are published in the Federal Register, pursuant to a written agreement that was (subject to customary conditions and immaterial amendments) binding before September 10, 2019, and all times afterward.

Or, alternatively as:

This section applies to any ownership change occurring after the date final or temporary regulations are published in the Federal Register except with respect to any ownership change resulting from a transaction completed after the date final or temporary regulations are published in the Federal Register, pursuant to a written agreement that was (subject to customary conditions and immaterial amendments) binding before September 10, 2019, and all times afterward.

* * * * *

We very much appreciate your consideration of our comments and would be happy to answer any questions you may have.

Respectfully submitted,

Julie Allen
PricewaterhouseCoopers, LLP
600 13th Street, N.W., Suite 1000
Washington DC, 20005
Telephone: 703.965.9353
Email: julie.allen@pwc.com

FOOTNOTES

1Unless otherwise indicated, all “section” references are to the Code in effect through the date hereof and all references to “Treas. Reg. §,” “Temp. Treas. Reg. §,” and “Prop. Treas. Reg. §” and are to the final, temporary, and proposed regulations, respectively, promulgated thereunder.

2Regulations under section 382(h) related to built-in gain and loss, 84 Fed. Reg. 47455.

32003-2 C.B. 747.

4An ownership change occurs if one or more 5-percent shareholders increase their ownership in the corporation's stock, in the aggregate, by more than 50 percentage points during a testing period, which generally is the 3-year period preceding a testing date. Section 382(g)(1).

5Pre-change losses are defined as (i) any NOL carryforward of the loss corporation to the taxable year ending on the change date or in which the change date occurs; (ii) any NOL of the loss corporation for the taxable year in which the ownership change occurs to the extent such loss is allocable to the period in such year on or before the change date; (iii) any recognized built-in-loss for any taxable year any portion of which is in the 5-year period beginning on the change date; (iv) certain pre-change capital losses and (v) certain pre-change tax credits. Treas. Reg. § 1.382-2(a)(2).

7Section 382(h)(1)(A). Section 382(h)(3)(A)(i) defines NUBIG and NUBIL with respect to a loss corporation. NUBIG and NUBIL is generally determined by subtracting the aggregate adjusted basis of the loss corporation's assets from the fair market value of assets of such corporation immediately before an ownership change. If the amount of the NUBIG or NUBIL is not greater than the lesser of (i) 15 percent of the fair market value of the assets (excluding cash and cash like items) of such corporation immediately before the ownership change or (ii) $10 million, the NUBIG or NUBIL is treated as zero. Section 382(h)(3)(B).

9HR Rep. No. 506, 104th Cong., 2d Sess., at 44 (1996).

10Basis in interests in tax-exempt trusts, 79 Fed. Reg. 3142 (proposed Jan. 17, 2014) (to be codified at 26 C.F.R. pt. 1).

11T.D. 9729, 80 Fed. Reg. 48249 (August 12, 2015). See also Prop. Treas. Reg. § 1.368-1(e) (2011) (continuity of interest rules dealing with “collars” and similar arrangements proposed to apply to transactions occurring on or after the date the regulations are published as final regulations “unless completed pursuant to a binding agreement that was in effect immediately before the date such regulations are published and at all times afterwards”).

122008-1 C.B. 277.

13Treas. Reg. § 1.1502-36(h).

142006-2 C.B. 677.

152007-1 C.B. 1428.

16Temp. Treas. Reg. § 1.367(b)-14T(e) (May 27, 2008).

172006-2 C.B. 252.

18See also Treas. Reg. § 1.7874-1(i)(1) (section 7874 rules that disregard affiliate-owned stock apply “to domestic entity acquisitions completed on or after May 20, 2008. [These rules] shall not, however, apply to a domestic entity acquisition that was completed on or after May 20, 2008, provided such acquisition was entered into pursuant to a written agreement which was (subject to customary conditions) binding prior to May 20, 2008, and at all times thereafter (binding commitment)”).

1965 Fed. Reg. 11215-01 (March 2, 2000).

20Taxpayer Relief Act of 1997, P.L. 105-34 (August 8, 1997), section 1012.

21For other examples of how Congress has routinely recognized the necessity of grandfathering, see Uruguay Round Agreements Act, P.L. 103-465 (December 8, 1994), section 741 (grandfathering with respect to distributions of marketable securities pursuant to a liquidation of a corporate partner's interest in a partnership); Tax Increase Prevention Reconciliation Act of 2005, P.L. 109-222 (May 17, 2006), section 507 (transition rule with respect to distributions in the context of a tax-free reorganization where a binding contract was in effect, Service ruling request was filed, a Securities and Exchange Commission filing was complete, or a public announcement was made); The Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113 (December 18, 2015), section 311 (grandfathering with respect to real estate investment trust (REIT) spinoffs for any taxpayer that submitted a Service ruling request with regard to a spinoff transaction on or before December 7, 2015).

END FOOTNOTES

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