The IRS has decided to step back from its proposed regulations on the treatment of built-in gains and losses under Section 382(h), officially withdrawing the rules this week. The withdrawal, effective July 2 when published in the Federal Register, affects proposed rules first issued in 2019 and later modified in 2020. 

According to Journal of Accountancy, Section 382 generally limits a loss corporation’s use of its net operating losses after an ownership change. Under Section 382(h), recognized built-in gains within a five-year period following the ownership change can increase the corporation’s Section 382 limitation, while built-in losses remain subject to restriction. 

The original proposal aimed to simplify how taxpayers determine built-in gains and losses, while also reflecting changes from the Tax Cuts and Jobs Act. However, the IRS received a number of comments pushing back on the proposed framework, with many arguing it would not in fact ease calculations or improve certainty as intended. 

In a statement, the IRS explained that it withdrew the proposed regulations after considering the feedback, acknowledging that clearer and more comprehensive guidance is still needed in this area. The agency plans to revisit the topic and issue a revised notice of proposed rule making after taking another look at the relevant issues. 

For now, taxpayers can still rely on the 2019 proposed regulations if an ownership change occurs before any future temporary or final regulations take effect, as outlined under Notice 2003-65.