(a) Limitation on collection where federal income tax is borne by an Agency. If an Institution without Continuing Equity (or any of its Consolidated Subsidiaries) is liable for federal income tax that is attributable to the inclusion in income of FFA or gain from a Taxable Transfer, the federal income tax will not be collected if it would be borne by an Agency. The final determination of whether the federal income tax would be borne by an Agency is within the sole discretion of the Commissioner. In determining whether federal income tax would be borne by an Agency, the Commissioner will disregard indemnity, tax-sharing, or similar obligations of an Agency, an Institution, or its Consolidated Subsidiaries. Collection of the several federal income tax liability under §1.1502-6 from members of an Institution's consolidated group other than the Institution or its Consolidated Subsidiaries is not affected by this section. Federal income tax will continue to be subject to collection except as specifically limited in this section. This section does not apply to taxes other than federal income taxes.

(b) Amount of federal income tax attributable to FFA or gain on a Taxable Transfer. For purposes of paragraph (a) of this section, the amount of federal income tax in a taxable year attributable to the inclusion of FFA or gain from a Taxable Transfer in the income of an Institution (or a Consolidated Subsidiary) is the excess of the actual federal income tax liability of the Institution (or the consolidated group in which the Institution is a member) over the federal income tax liability of the Institution (or the consolidated group in which the Institution is a member) determined without regard to FFA or gain or loss on the Taxable Transfer.

(c) Reporting of uncollected federal income tax. A taxpayer must specify on a statement included with its Form 1120 (U.S. Corporate Income Tax Return) the amount of federal income tax for the taxable year that is potentially not subject to collection under this section. If an Institution is a subsidiary member of a consolidated group, the amount specified as not subject to collection is zero.

(d) Assessments of federal income tax to offset refunds. Federal income tax that is not collected under this section will be assessed and, thus, used to offset any claim for refund made by or on behalf of the Institution, the Consolidated Subsidiary, or any other corporation with several liability for the federal income tax.

(e) Collection of federal income taxes from an Acquiring or a New Entity—(1) Acquiring. No federal income tax liability (including the several liability for federal income taxes under §1.1502-6) of a transferor in a Taxable Transfer will be collected from an Acquiring.

(2) New Entity. Federal income tax liability (including the several liability for federal income taxes under §1.1502-6) of a transferor in a Taxable Transfer will be collected from a New Entity only if stock that was outstanding in the Old Entity remains outstanding as stock in the New Entity or is reacquired or exchanged for consideration.

(f) Effect on section 7507. This section supersedes the application of section 7507, and the regulations thereunder, for the assessment and collection of federal income tax attributable to FFA.

[T.D. 9825, 82 FR 48629, Oct. 19, 2017]