Buying or selling a subsidiary? Watch out for the Unified Loss Rule

Description

Abstract: Corporate groups that file consolidated tax returns are subject to a complex set of regulations — perhaps none more intricate than the Unified Loss Rule (ULR). The ULR is triggered when a member of a consolidated group sells or otherwise transfers a subsidiary’s stock at a loss. Failing to take the ULR into account when negotiating the sale or acquisition of a subsidiary can lead to unpleasant tax surprises for buyers and sellers alike. This article explains the three-tier approach the URL uses to prevent recognition of noneconomic or duplicate losses, while a sidebar offers an example of how duplicate losses arise.