I have a substantial tax loss in my business, and understand "IRS rule
269" speaks to its use.  I've searched IRS Code, Section 269 etc.. but
can't find it.  I'd like to know (1) how to find it and (2) how to use
it.

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Request for Question Clarification by mwalcoff-ga on 31 Jul 2002 13:38 PDT

Are you by any chance looking for a rule that deals with the
disallowance of credits, deductions or allowances under certain
circumstances?

Dear oilguy,

The conduct of the IRS is governed by the tax code, Section 26 of the
United States Code. It is further governed by an extensive set of
regulations which interpret the code.

"IRS Rule 269" appears to be a reference to Section 269 of the
Internal Revenue Code, or 26 USC 269. You can find that document
online:
http://www4.law.cornell.edu/uscode/26/269.html

The regulations which assist in the interpretation of that section of
the Internal Revenue Code can also be found online as part of the
"Code of Federal Regulations":
http://www.access.gpo.gov/nara/cfr/waisidx_02/26cfr1v3_02.html 

IRC Section 269 relates to the tax consequences resulting from the
acquisition of a company by a different company or individual. If the
primary purpose of obtaining the company (or a controlling interest in
the company) was to obtain a tax deduction, credit or allowance with
the person or company would not otherwise enjoy, the deduction,
credit, or allowance may be disallowed.

Note that the language is permissive - there is a big difference
between a deduction that "may" be disallowed and a deduction that
"must" be disallowed. If possible, it would be important for a person
or company which might be confronted with that language to try to get
an advance ruling, as to whether part or all of the deduction, credit
or allowance would be disallowed.

If your company has engaged in conduct which implicates this section
of the tax code, you should be able to avoid its application by
establishing that the primary purpose of your acquisition was not to
obtain a tax deduction, credit, or allowance relating to the losses
you incurred as a result of the acquisition. If you do not think you
can prove that you had a different purpose in mind, or to cover your
bases in case the IRS does not accept your explanation, you would need
to prepare arguments under subsection (c) which might convince the IRS
to nonetheless allow part or all of the deduction, credit, or
allowance at issue.

The IRS provides some examples on the application of this rule,
through the regulation posted at
http://frwebgate.access.gpo.gov/cgi-bin/get-cfr.cgi?TITLE=26&PART=1&SECTION=269-3&YEAR=2002&TYPE=TEXT

If after reviewing the statute you do not believe it is relevant to
your situation, please clarify your question, providing additional
information about where you heard about "IRS rule 269" and why you
were told it might apply to your situation.


Additional Links:

* You can look up the United States Code by chapter and section on the
Cornell Law School website, at
http://www4.law.cornell.edu/uscode/ 


* The Code of Federal Regulations is online on the Government Printing
Office website, at
http://www.access.gpo.gov/nara/cfr/ 


* The IRS offers assistance with tax law questions through its
website, at
http://www.irs.gov/help/display/0,,i1%3D44%26genericId%3D13162,00.html


Good luck,

- expertlaw

Any reference to the tax code is to Chapter 26 of the U.S. Code. Thus
"Section 269" refers to 26 USC 269 -
http://www4.law.cornell.edu/uscode/26/269.html

You can look up the code by chapter and section at
http://www4.law.cornell.edu/uscode/ .

I keep bumping up against expertlaw-ga (and most agreeably, I may
add). I would like to supplement his citation to the United States
Code with the Internal Revenue Regulations found in the Code of
Federal Regulations:
http://www.access.gpo.gov/nara/cfr/waisidx_02/26cfrv1_02.html

Section 269 is covered in Sections 1.269-1 through 1.269-7 (see
http://www.access.gpo.gov/nara/cfr/waisidx_02/26cfr1v3_02.html )

As mwalcoff-ga implies in the request for clarification, Section 269
addresses disallowance of credits, deductions or allowances; it does
however contain a number of illustrations and provisions enabling one
to tax plan a method whereby the tax losses may be utilized.
Good luck, weisstho-ga