rp-03-24.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and claims for refund, credit or
abatement; determination of correct tax liability.
(Also Part 1, §§ 6011, 6111, 6112; 1.6011-4, 301.6111-2, 301.6112-1. )

Rev. Proc. 2003-24

SECTION 1. PURPOSE

This revenue procedure provides that certain losses are not taken into
account in determining whether a transaction is a reportable transaction for
purposes of the disclosure rules under § 1.6011-4(b)(5) of the Income Tax
Regulations.

SECTION 2. BACKGROUND

.01 Section 1.6011-4 requires a taxpayer who participates in a reportable
transaction to disclose the transaction in accordance with the procedures
provided in § 1.6011-4. Under § 1.6011-4(b), there are six categories of
reportable transactions. One category of reportable transaction is a loss
transaction. A loss transaction is defined in § 1.6011-4(b)(5).

.02 Section 1.6011-4(b)(8)(i) provides that a transaction will not be considered
a reportable transaction, or will be excluded from any individual category of
reportable transaction, if the Commissioner makes a determination by published
guidance that the transaction is not subject to the reporting requirements of
§ 1.6011-4.

SECTION 3. SCOPE

This revenue procedure applies to taxpayers that may be required to
disclose reportable transactions under § 1.6011-4 and/or material advisors that
may be required to maintain lists under § 301.6112-1.

SECTION 4. APPLICATION

.01 In general. Losses from the sale or exchange of an asset with a qualifying
basis under section 4.02 or losses described in section 4.03 of this revenue
procedure are not taken into account in determining whether a transaction is a
reportable transaction.

.02 Sale or exchange of an asset with a qualifying basis.

(1) General rule. A loss under § 165 of the Internal Revenue Code from the
sale or exchange of an asset is not taken into account in determining whether a
transaction is a loss transaction under § 1.6011-4(b)(5) if--
(a) the basis of the asset (for purposes of determining the loss) is a
qualifying basis;
(b) the asset is not an interest in a passthrough entity (within the meaning
of § 1260(c)(2));
(c) the loss from the sale or exchange of the asset is not treated as ordinary
under § 988;
(d) the asset has not been separated from any portion of the income it
generates; and
(e) the asset is not, and has never been, part of a straddle within the
meaning of § 1092(c), excluding a mixed straddle under § 1.1092(b)-4T.

(2) Qualifying basis. For purposes of section 4 of this revenue procedure, a
taxpayer’s basis in an asset (less adjustments for any allowable depreciation,
amortization, or casualty loss) is a qualifying basis if--
(a) the basis of the asset is equal to, and is determined solely by reference
to, the amount (including any option premium) paid in cash by the taxpayer for
the asset and for any improvements to the asset;
(b) the basis of the asset is determined under § 358 by reason of a
transaction under § 355 or § 368, and the taxpayer’s basis in the property
exchanged in the transaction was described in this section 4.02(2);
(c) the basis of the asset is determined under § 1014;
(d) the basis of the asset is determined under § 1015, and the donor’s basis
in the asset was described in this section 4.02(2); or
(e) the basis of the asset is determined under § 1031(d), the taxpayer’s
basis in the property that was exchanged for the asset in the § 1031 transaction
was described in this section 4.02(2), and any debt instrument issued or
assumed by the taxpayer in connection with the § 1031 transaction is treated as
a payment in cash under section 4.02(3) of this revenue procedure.

(3) Debt instruments. Except as provided below, an amount paid in cash will
not be disregarded for purposes of section 4.02(2) of this revenue procedure
merely because the taxpayer issued a debt instrument to obtain the cash.
However, if the taxpayer has issued a debt instrument to the person (or a related
party as described in § 267(b) or
§ 707(b)) who sold or transferred the asset to the taxpayer, assumed a debt
instrument (or took an asset subject to a debt instrument) issued by the person
(or a related party as described in § 267(b) or § 707(b)) who sold or transferred
the asset to the taxpayer, or issued a debt instrument in exchange for
improvements to an asset, the taxpayer will be treated as having paid cash for
the asset or the improvement only if the debt instrument is secured by the asset
and all amounts due under the debt instrument have been paid in cash no later
than the time of the sale or exchange of the asset (except in the case of stock or

securities traded on an established securities market, the settlement date) for
which the loss is claimed.

.03 Other losses. The following losses under § 165 are not taken into account
in determining whether a transaction is a loss transaction under § 1.6011-4(b)(5):

(1) A loss from fire, storm, shipwreck, or other casualty, or from theft, under
§ 165(c)(3);

(2) A loss from a compulsory or involuntary conversion as described in
§§ 1231(a)(3)(A)(ii) and 1231(a)(4)(B);

(3) A loss arising from any mark-to-market treatment of an item under
§§ 475, 1256, 1296(a), 1.446-4(e), 1.988-5(a)(6), or 1.1275-6(d)(2), provided that
the taxpayer computes its loss by using a qualifying basis (as defined in section
4.02(2) of this revenue procedure) or a basis resulting from previously marking
the item to market, or computes its loss by making appropriate adjustments for
previously determined mark-to-market gain or loss as provided, for example, in
§ 475(a) or § 1256(a)(2);

(4) A loss arising from a hedging transaction described in § 1221(b), if the
taxpayer properly identifies the transaction as a hedging transaction, or from a
mixed straddle account under § 1.1092(b)-4T;

(5) A loss attributable to basis increases under § 860C(d)(1) during the
period of the taxpayer’s ownership;

(6) A loss attributable to the abandonment of depreciable tangible property
that was used by the taxpayer in a trade or business and that has a qualifying
basis under section 4.02(2) of this revenue procedure;

(7) A loss arising from the bulk sale of inventory if the basis of the inventory
is determined under § 263A; or

(8) A loss that is equal to, and is determined solely by reference to, a
payment of cash by the taxpayer (for example, a cash payment by a guarantor
that results in a loss or a cash payment that is treated as a loss from the sale of a
capital asset under § 1234A or § 1234B).

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective for transactions entered into on or
after February 28, 2003. However, if a taxpayer applies § 1.6011-4 retroactively,
as provided in § 1.6011-4(h), to transactions entered into on or after January 1,
2003, then this revenue procedure will be effective January 1, 2003, for those
transactions.

SECTION 6. DRAFTING INFORMATION

The principal author of this revenue procedure is Tara P. Volungis of the
Office of Associate Chief Counsel (Passthroughs and Special Industries). For
further information regarding this revenue procedure, contact Ms. Volungis at
(202) 622-3080 (not a toll free call).