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Today the Treasury Department and the Internal Revenue Service released temporary and proposed regulations replacing the loss disallowance rules, a portion of which was invalidated by the Federal Circuit in Rite Aid Corp. v. United States, 255 F.3d 1357 (Fed. Cir. 2001). In Rite Aid, the Federal Circuit held that the duplicated loss rule of Regulation Section 1.1502-20, which disallows certain losses on sales of stock of a member of a consolidated group, was an invalid exercise of regulatory authority.
The regulations addressed by the Court in Rite Aid were developed over a period of years and reflected extensive consideration of a number of complex issues and factual situations. The regulations published today are merely a stop-gap measure to provide interim guidance while we develop a new set of rules, stated Mark Weinberger, Assistant Secretary of the Treasury for Tax Policy.
Treasury and the IRS are devoting substantial resources to the development of a comprehensive regime to replace the rules at issue in Rite Aid. In light of the complexity of the issues, Treasury and the IRS are soliciting comments.
The text of the regulations is available from the IRS.