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Qualified Stock Dispositions Get Final Regs.

The IRS issued final regulations on the rules that apply when an election under Sec. 336(e) is made to treat the sale, exchange, or distribution of at least 80% of the voting power and value of a corporation’s stock (target) as a sale of all its underlying assets, i.e., a qualified stock disposition (T.D. 9619). In response to comments, the IRS made some significant changes to the regulations that were proposed in 2008 (REG-143544-04).

Sec. 336(e) was enacted by the Tax Reform Act of 1986, P.L. 99-514, as part of the repeal of the General Utilities doctrine, which, with some exceptions, had allowed a corporation to distribute appreciated property to its shareholders without recognizing gain. The Sec. 336(e) election is intended to operate similarly to an election under Sec. 338(h)(10), except it does not require an acquirer of target stock to be a corporation or even necessarily a purchaser.

Also, unlike Sec. 338(h)(10), which generally requires that a single purchasing corporation acquire the stock of a target, Sec. 336(e) permits the aggregation of all stock of a target that is sold, exchanged, or distributed by a seller to different acquirers for purposes of determining whether there has been a qualified stock disposition of a target.

The final regulations, in perhaps the biggest departure from the proposed rules, permit the Sec. 336(e) election to be made for S corporation targets, just as a Sec. 338(h)(10) election can be made for S corporation targets.

The rules went into effect May 15.

Schedule M-3 Filing Requirement Reduced for Entities Below $50 Million in Assets

Starting next year, certain corporations and partnerships will no longer have to file portions of Schedule M-3, Net Income (Loss) Reconciliation, the IRS announced on its website ( For tax years ending on or after Dec. 31, 2014, such corporations and partnerships will be permitted to file Schedule M-1, Reconciliation of Income (Loss) and Analysis of Unappropriated Retained Earnings per Books, in place of Parts II and III of Schedule M-3, which reconcile net income or loss per the income statement and report expense and deduction items. However, these entities will still have to file Schedule M-3, Part I, Financial Information and Net Income (Loss) Reconciliation.

The Schedule M-3 reporting requirement has been in place since 2004. It requires corporate and partnership entities that report assets of $10 million or more on their Schedule L balance sheet to reconcile taxable income or loss with financial statement income or loss.

The change applies to corporations and partnerships with at least $10 million but less than $50 million in total assets at tax year end and that file certain returns in the Forms 1120, U.S. Corporation Income Tax Return, and 1065, U.S. Return of Partnership Income, series.

Partnerships with less than $10 million in assets that elect to file Schedule M-1 in place of Schedule M-3, Parts II and III, will not be required to file Schedule C of Form 1065 or Form 8916-A, Supplemental Attachment to Schedule M-3. These partnerships include those with total receipts of $35 million or more or that have a reportable entity partner that is also required to file Schedule M-3.

The IRS said the reason for the change is to reduce these entities’ filing burden and simplify reporting. It also said that its Large Business and International  Division is looking at other changes to Schedule M-3 and to the requirements for book-tax reconciliation for corporations with $10 million to $50 million in total assets that are life insurance or property and casualty insurance companies or that file as a mixed group (i.e., file a consolidated return that includes an insurance company and a noninsurance company or both a life insurance company and a property and casualty insurance company).

Where to find January’s flipbook issue

Starting this month, all Association magazines — the Journal of Accountancy, The Tax Adviser, and FM magazine (coming in February) — are completely digital. Read more about the change and get tips on how to access the new flipbook digital issues.


Get your clients ready for tax season

Upon its enactment in March, the American Rescue Plan Act (ARPA) introduced many new tax changes, some of which retroactively affected 2020 returns. Making the right moves now can help you mitigate any surprises heading into 2022.