IRS Modifies Section 382 Safe Harbors on Built-in Gains and Losses:

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IRS Modifies Section 382 Safe Harbors on Built-in Gains and Losses:

Posted by Kim Chen on May 23rd, 2018

In Notice 2003-65, the IRS outlines two alternative approaches (the Section 1374 approach and the Section 338 approach) on the identification of built-in items for Section 382(h) purposes. These methods may increase the annual Section 382 limit to allow more deductions during the five-year period following the ownership change. In a recent Notice, the IRS modifies the Section 1374 approach and the Section 338 approach previously set out in Notice 2003-65 . Specifically, hypothetical cost recovery deductions that would have been allowable had a Section 338 election been made, or had the asset been purchased at fair market value, are determined without regard to the additional first-year depreciation deduction in IRC Sec. 168(k). The Notice is effective for any ownership changes that occur after 5/8/18. Notice 2018-30, 2018-21 IRB .