AIG Applauds Proposed Regs on Gain Recognition Agreements

American International Group, Inc. ("AIG") is writing to submit comments on the preamble and proposed regulations on Failure to File Gain Recognition Agreements (the "Proposed Regs"), which were released on January 30, 2013. The Proposed Regs contain helpful guidance for taxpayers who fail to file gain recognition agreements ("GRAs") for transfers of property to foreign corporations in non-recognition exchanges.

AIG is a leading international insurance organization serving customers in more than 130 countries. Through Its subsidiaries, AIG operates in three business segments: worldwide property, casualty and general insurance operations writing all commercial and consumer lines, serving commercial, institutional, and individual customers both domestically and abroad; a life and retirement business that offers a comprehensive range of products and services to individuals and groups in the United States, including term life, universal life, accident and health, fixed and variable deferred annuities, fixed payout annuities, mutual funds, and financial planning; and a commercial airline leasing business through International Lease Finance Corporation.

We applaud the Internal Revenue Service ("IRS") and Department of Treasury's ("Treasury") sensible view that full gain recognition under 367(a)(1) should apply only if the failure to timely file an initial GRA or failure to comply with the GRA regulations with respect to an existing GRA is willful, replacing the requirement for taxpayers to establish reasonable cause for the failure to file.

In addition to these positive developments, we have some suggestions that that we would like the IRS and Treasury to consider.

Between the date that the tax return is filed and the date that that return year is opened up for audit, CIC taxpayers continuously discover and gather items that would adjust amounts on their return as filed. Requiring a CIC taxpayer to promptly file an amended a return when a GRA filing failure is discovered would require them to also include all the adjustments gathered since the return was filed and to re-run the return calculations based on these revised amounts -- this would be required even though the return may not be audited for a number of years. This re-run of return computations is required because the signatory of the tax return confirms under penalties of perjury that the return is complete. Re-running the return calculations is a significant undertaking especially if, for instance, the consolidation process is complicated by sub-groups that require separate attribute calculations. This process would have to be repeated again when the tax year is opened up for audit, creating an unnecessary duplication of complicated calculations. These duplicative calculations would also have to be reviewed by the IRS auditor, causing a further drain of resources.

We suggest that an existing mechanism may be used to save time and labor associated with intensive re-runs and audit of return calculations caused by the prompt return filing requirement of the Proposed Regs. Rev Proc. 94-69 permits CIC taxpayers the opportunity to voluntarily amend their returns for adjustments accumulated since the return was filed. This Rev. Proc. provides that CIC taxpayers may effect a "qualified amended return" within 15 days of the commencement of an audit to voluntarily disclose adjustments related to the audit years and to avoid the imposition of the substantial understatement and accuracy related penalties. To address the potentially significant use of resources associated with promptly filing returns to correct missed GRAs, we urge the IRS and Treasury to consider modifying the Proposed Regs to allow the Failure to File Statement and request for relief from 6038B penalties to be filed with a qualified amended return under Rev. Proc. 94-69.

If the Failure to File Statement and request for relief from 6038 B penalties can be filed with a qualified amended return, there may be situations where the initial GRA has not yet been filed with the IRS, but an annual GRA certification is required for a subsequent taxable year. In such instances, the taxpayer should be allowed to include a statement with the first year the GRA certification is being filed with an original return stating that the taxpayer intends to file a Failure to File Statement with a qualified amended return under Rev. Proc. 94-69 and to file GRA certifications for intervening years if they have been missed.

Thank you for your consideration. We would be happy to discuss these proposals with you further, if that would be helpful.