Daily Tax Update: IRS Issues Final And Temporary Regulations Addressing Attribute Reduction From Cancellation Of Debt.

WASHINGTON PHOENIX LOS ANGELES LONDON BRUSSELS

Today, the Service issued final and temporary regulations under

sections 108 and 1017 that amend and clarify temporary regulations issued on

July 18, 2003. Like the old temporary regulations, the new regulations

require that, in the case of a transaction described in section 381(a) that

ends a year in which the distributor or transferor corporation excludes

cancellation of debt ("COD") income under section 108(a), tax

attributes to which the acquiring corporation succeeds (including the basis of

property acquired by the acquiring corporation in the transaction) must reflect

the reductions required by sections 108 and 1017.

The new regulations clarify that they apply to taxpayers that

realize excluded COD income during or after the taxable year in which the

taxpayer engages in the section 381(a) transaction. In addition, the

new regulations provide that the basis of stock or securities of the acquiring

corporation are not subject to section 108(b)(2) attribute

reduction.

The new regulations are effective for discharges of indebtedness

occurring on or after May 10, 2004.

For additional information, please contact Mark J. Silverman

([e-mail]), Steven B. Teplinsky ([e-mail]),

Phil West ([e-mail]), or Lisa Zarlenga ([e-mail]).

SENATE TO HOLD

CLOTURE VOTE ON FSC/ETI REPEAL BILL TOMORROW: The Senate will attempt to invoke

cloture to end debate on the FSC/ETI repeal bill tomorrow. Senators must

first reach an agreement on how to handle a controversial amendment by Sen.

Maria Cantwell (D-WA) that would extend unemployment benefits in order to

secure the 60 votes required to invoke cloture. Late last week, Senate

Majority Leader Bill Frist (R-TN) said that "it may be possible for us to

reach an agreement to vote in relation to [the Cantwell] amendment" prior

to tomorrow's scheduled cloture vote. However, Senate Minority Whip Harry

Reid (D-NV) said that it would be difficult to invoke cloture if a vote were

not held on Cantwell's amendment. Reid said, "It goes without saying

that I am very confident that cloture will not be invoked unless there is an

opportunity to vote on the unemployment matter."

Sen. Carl Levin (D-MI) wants a vote on his amendment that

increases penalties on tax shelters above the penalty levels already in

the Senate FSC/ETI repeal bill. Levin's amendment would increase the

penalty from 50 to 150 percent of a promoter's income and increase the

statutory penalties for other tax shelter participants.

TAX BILL INTRODUCED

MAY 7:

S. 2395 sponsored by Sen. Rick Santorum (R-PA) would expand the expensing of

environmental remediation costs.

STEPTOE & JOHNSON LLP TAX PRACTICE

Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, court of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax exempt organizations and charitable giving. For more information on Steptoe's Tax practice, please

click here

Please click on the following link to learn about the members of the tax practice group.

http://www.steptoe.com/index.cfm?fuseaction=DspSiteAttys&submit=Submit&site_id=69&cat=1

*For additional information on Steptoe & Johnson LLP's Business Solutions Department, visit:

http://www.steptoe.com/index.cfm?fuseaction=DspSite&site_id=60&cat=1

*Archived editions of the Daily Tax Update and Steptoe & Johnson LLP's recent tax alerts, speeches, and articles can be accessed via:

http://www.steptoe.com/index.cfm?fuseaction=DspResourceAndPublicationLst&site_id=158&cat=1

Treasury Department news releases and fact sheets can be accessed via: http://www.ustreas.gov/press/

Jan Kinney, Legislative Coordinator

Steptoe & Johnson LLP

1330 Connecticut Avenue, NW

Washington, DC 20036

[e-mail]

202/429-8017

www.steptoe.com/tax

Copyright [c] Steptoe & Johnson LLP. All Rights Reserved.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Ms Jan Kinney

Steptoe & Johnson

1330 Connecticut Avenue

Washington, DC

20036

UNITED STATES

Tel: [phone]

Fax: [phone]

E-mail: [e-mail]

URL: www.steptoe.com

(c) Mondaq Ltd, 2004 - Tel. [phone] - http://www.mondaq.com