|Treasury Decision 9261
||May 22, 2006
Intercompany Transactions; Manufacturer Incentive Payments
Internal Revenue Service (IRS), Treasury.
This document contains final regulations under section 1502 of the Internal
Revenue Code. Example 13 of the intercompany transaction
regulations illustrates the treatment of manufacturer incentive payments.
Because a premise underlying the example is under reconsideration, these
final regulations remove and reserve this example. The regulations will affect
corporations filing consolidated returns.
Effective Date: These regulations are effective
on May 8, 2006.
FOR FURTHER INFORMATION CONTACT:
Frances Kelly, (202) 622-7770 (not a toll-free number).
Section 1.1502-13 of the consolidated return regulations provides rules
for taking into account items of income, gain, deduction, and loss of members
from intercompany transactions. In particular, §1.1502-13(c)(7)(ii), Example
13, illustrates how the matching rule of the intercompany transaction
regulations treats a transaction involving manufacturer incentive payments.
On August 13, 2004, the IRS and Treasury Department published a notice of
proposed rulemaking (REG-131264-04, 2004-2 C.B. 506) in the Federal
Register (69 FR 50112) proposing regulations to address additional
transactions involving manufacturer incentive payments and to clarify the
proper treatment of such incentive payments under the intercompany transaction
On April 25, 2005, the IRS and Treasury Department published Rev. Rul.
2005-28, 2005-19 I.R.B. 997, which suspends, in part, Rev. Rul. 76-96, 1976-1
C.B. 23. Rev. Rul. 2005-28 states that the IRS will not apply, and taxpayers
may not rely upon, the conclusion reached in Rev. Rul. 76-96 that certain
rebates made by a manufacturer to retail customers are ordinary and necessary
business expenses deductible under section 162, pending the IRS’s reconsideration
of the issue and publication of subsequent guidance.
Explanation of Provisions
The manufacturer incentive payment transaction described in §1.1502-13(c)(7)(ii), Example
13 relies, in part, upon the premise that the manufacturer incentive
payment is an ordinary and necessary business expense deductible under section
162. To the extent that this premise is correct, this example illustrates
the proper application of the intercompany transaction regulations. However,
because Rev. Rul. 2005-28 suspends Rev. Rul. 76-96, in pertinent part, these
final regulations remove §1.1502-13(c)(7)(ii), Example 13,
pending further guidance on the section 162 issue considered in Rev. Rul.
It has been determined that this Treasury decision is not a significant
regulatory action as defined in Executive Order 12866. Therefore, a regulatory
assessment is not required. It is hereby certified that these regulations
will not have a significant economic impact on a substantial number of small
entities. These final regulations do not alter substantive provisions of
the intercompany transaction regulations. They merely remove an example which
may be misleading and cause confusion for taxpayers. Accordingly, good cause
is found for dispensing with prior notice and comment pursuant to 5 U.S.C
553(b), and for dispensing with a delayed effective date pursuant to 5 U.S.C
553(d). Because no notice of proposed rulemaking is required, the provisions
of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. Pursuant
to section 7805(f) of the Internal Revenue Code, this regulation was submitted
to the Chief Counsel for Advocacy of the Small Business Administration for
comments on its impact on small business.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502-13 also issued under 26 U.S.C. 1502. * * *
Par. 2. In §1.1502-13, paragraph (c)(7)(ii), Example
13 is removed and reserved.
Mark E Matthews,
Services and Enforcement.
Approved April 28, 2006.
Secretary of the Treasury.
(Filed by the Office of the Federal Register on May 5, 2006, 8:45 a.m.,
and published in the issue of the Federal Register for May 8, 2006, 71 F.R.
The principal author of these regulations is Frances Kelly of the Office
of the Associate Chief Counsel (Corporate). However, other personnel from
the IRS and Treasury Department participated in their development.
* * * * *
Internal Revenue Bulletin 2006-21
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