Update - Built-In Gains and Losses Under Section 382(h)

The IRS and Treasury Department recently released final regulations under Section 382(h). These regulations became effective on June 11, 2010 and provide guidance about the treatment of prepaid income -- a thorny issue for loss corporations that have triggered Section 382.

Why? Under the temporary regulations, the IRS and Treasury took the position that prepaid income was not considered attributable to the period before a loss corporation triggered Section 382. Therefore, it was not considered recognized built-in gain or (RBIG). Conversely, a loss corporation with prepaid income that triggered Section 382 would take the opposite view, as such income would increase the Section 382 Limitation.

The temporary regulations are now final. Thus, the issue appears to be settled for loss corporations that have ownership changes on or after June 11, 2010. A copy of the final regulations is available here.

Apparently, a few errors were made when the final regulations were published in June. Specifically, the errors are with regard to the headings of paragraph (h)(4)(vii)(A) and paragraph (h)(4)(x)(J) under paragraph 2 of Section 1.382-2T.

Today, the IRS and Treasury issued a correction. A copy of the corrections to the final regulations is available here.