Aggregation of stock.

Final regulations (TD 8949) address aggregation of stock ownership for members of a consolidated group. Regs. Sec. 1.1502-34 generally provides that, for consolidated return purposes, the stock ownership of all members of a consolidated group in another corporation is aggregated in determining the application of certain Code provisions. That regulation has now been amended to conform to a technical correction enacted in Section 311(c) of the Community Renewal Tax Relief Act of 2000 (2000 Act); a regulation under Sec. 732 has also been added to reflect that technical correction.

The regulations implement the statutory clarification that the special aggregate stock ownership rules apply for purposes of Sec. 732(f), which covers basis adjustments to assets of a controlled corporation received in a partnership distribution.

Sec. 732(f) was enacted by Section 538 of the Ticket to Work and Work Incentives Improvement Act of 1999 (1999 Act). The statute generally provides that, if (1) a corporate partner of a partnership receives a distribution from that partnership of stock in another corporation, (2) the corporate partner has control of the distributed corporation immediately after the distribution or at any time thereafter and (3) the partnership's adjusted basis in the stock immediately before the distribution exceeded the corporate partner's adjusted basis in the stock immediately after the distribution, the excess will reduce the basis of the property held by the distributed corporation at such time.

Under the technical correction made to Section 538 of the 1999 Act by Section 311 (c) of the 2000 Act, the Regs. Sec. 1.1502-34 rule, aggregating stock ownership for Sec. 332 purposes (relating to a complete liquidation of a subsidiary that is a controlled corporation), also applies for Sec. 732(f) purposes. Because Section 311(c) took effect as if it had been included in the 1999 Act, the effective date provisions of Section 538(b) of the 1999 Act apply to the final regulations.

The amendments made by Section 538(a) apply to distributions made after July 14, 1999. For a corporation that was a partner in a partnership as of that date, the amendments made by Section 538(a) apply to distributions made (or treated as made) to that partner from that partnership after June 30, 2001. For distributions made after Dec. 17, 1999 and before July 1, 2001, the preceding rule will not apply unless that partner elects to have the rule apply to the distribution on his tax return for the year in which the distribution occurs.