[Federal Register Volume 63, Number 50 (Monday, March 16, 1998)]
[Rules and Regulations]
[Pages 12641-12643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6561]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8766]
RIN 1545-AV98
Consolidated Returns--Limitations on the Use of Certain Credits;
Overall Foreign Loss Accounts
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
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SUMMARY: This document contains temporary amendments to the
consolidated return regulations. The temporary amendments modify the
date temporary regulations apply as published in the Federal Register
on January 12, 1998, relating to the use of tax credits of a
consolidated group and its members. The amendments provide guidance to
consolidated groups that have a taxable year beginning on or after
January 1, 1997, for which the income tax return is due on or before
March 13, 1998. The text of the temporary regulations also serves as
the text of the proposed regulations set forth in the notice of
proposed rulemaking on this subject in the Proposed Rules section of
this issue of the Federal Register.
DATES: Effective dates: These amendments are effective March 13, 1998.
Applicability dates: For dates of application, see the Effective
Dates portion of the preamble under SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: Roy A. Hirschhorn, (202) 622-7770.
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
On January 12, 1998, the IRS and Treasury published in the Federal
Register final, temporary and proposed regulations (``the January 12,
1998, regulations'') relating to limitations on the use of certain tax
credits and related attributes by corporations filing consolidated
income tax returns. In general, the January 12, 1998, regulations
relate to the separate return limitation year provisions (and certain
consolidated return changes in ownership) for general business credits,
alternative minimum tax credits, foreign tax credits and overall
foreign loss accounts. The January 12, 1998, regulations were generally
applicable to consolidated return years beginning on or after January
1, 1997. IRS and Treasury have determined that the appropriate
effective date of those regulations should be for consolidated return
years for which the due date (without extensions) of the income tax
return is after March 13, 1998. In lieu of applying this effective
date, a consolidated group may choose to apply the effective date
provisions as published in the January 12, 1998, regulations. Taxpayers
making this choice must apply all of those effective date provisions
for all relevant years. Thus, such taxpayers may not choose to apply
one provision of the January 12, 1998, regulations and not another.
Effective Dates
The temporary amendments are applicable to consolidated return
years for which the due date of the income tax return (without
extensions) is after March 13, 1998. As explained in the Background
portion of this preamble, taxpayers may instead choose to apply the
effective date provisions of the January 12, 1998, regulations (i.e.,
generally taxable years beginning on or after January 1, 1997).
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It is hereby certified that
these regulations do not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact
[[Page 12642]]
that these regulations principally affect corporations filing
consolidated federal income tax returns that have carryover or
carryback of credits from separate return limitation years. Available
data indicates that many consolidated return filers are large companies
(not small businesses). In addition, the data indicates that an
insubstantial number of consolidated return filers that are smaller
companies have credit carryovers or carrybacks, and thus even fewer of
these filers have credit carryovers or carrybacks that are subject to
the separate return limitation year rules. Therefore, a Regulatory
Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. It has also been determined that under
section 553(d) of the Administrative Procedure Act (5 U.S.C. chapter 5)
these regulations should be effective immediately because they involve
the applicability of regulations that modify the limitations on the use
of certain tax attributes for taxable years beginning on or after
January 1, 1997. Pursuant to section 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking accompanying these regulations
is being sent to the Small Business Administration for comment on their
impact on small businesses.
Drafting Information
The principal author of these regulations is Roy A. Hirschhorn of
the Office of Assistant Chief Counsel (Corporate). Other personnel from
the IRS and Treasury participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1502-3 is amended by revising paragraphs (c)(3),
(d)(2) and (e)(3) to read as follows:
Sec. 1.1502-3 Consolidated investment credit.
* * * * *
(c) * * *
(3) Special effective date. This paragraph (c) applies to
consolidated return years for which the due date of the income tax
return (without extensions) is on or before March 13, 1998. See
Sec. 1.1502-3T(c) for the rule that limits the group's use of a section
38 credit carryover or carryback from a SRLY for a consolidated return
year for which the due date of the income tax return (without
extensions) is after March 13, 1998. For taxable years not subject to
Sec. 1.1502-3T(c), prior law applies. See Sec. 1.1502-3(c) in effect
prior to January 12, 1998 (Sec. 1.1502-3(c) as contained in the 26 CFR
part 1 edition revised April 1, 1997) for prior law. See also
Sec. 1.1502-3T(c)(4) for an optional effective date rule (generally
making the rules of this paragraph (c) inapplicable to a consolidated
return year beginning after December 31, 1996, if the due date of the
income tax return (without extensions) for such year is on or before
March 13, 1998).
(d) Examples. * * *
(2) Example (2) and Example (3) of this paragraph (d) do not apply
to consolidated return years for which the due date of the income tax
return (without extensions) is after March 13, 1998. For consolidated
return years for which the due date of the income tax return (without
extensions) is after March 13, 1998, see Sec. 1.1502-3T(d).
(e) * * *
(3) Special effective date. This paragraph (e) applies only to a
consolidated return change of ownership that occurred during a
consolidated return year for which the due date of the income tax
return (without extensions) is on or before March 13, 1998. See
Sec. 1.1502-3T(c)(4) for an optional effective date rule (generally
making the rules of this paragraph (e) inapplicable if the consolidated
return change of ownership occurred on or after January 1, 1997, and
during a consolidated return year for which the due date of the income
tax return (without extensions) is on or before March 13, 1998).
* * * * *
Par. 3. Section 1.1502-3T is amended by revising paragraphs (c)(3)
and (d)(2) and adding a new paragraph (c)(4) to read as follows:
Sec. 1.1502-3T Consolidated investment credit (temporary).
* * * * *
(c) * * *
(3) Effective date. This paragraph (c) applies to consolidated
return years for which the due date of the income tax return (without
extensions) is after March 13, 1998. However, a group does not take
into account a consolidated taxable year for which the due date of the
income tax return (without extensions) is on or before March 13, 1998,
in determining a member's (or subgroup's) contributions to the
consolidated section 38(c) limitation under this paragraph (c). See
also Sec. 1.1502-3(c).
(4) Optional effective date of January 1, 1997. In lieu of
paragraphs (c)(3) and (d)(2) of this section and Secs. 1.1502-3(c)(3),
(d)(2) and (e)(3) (relating to the general business credit), 1.1502-
4(f)(3) and (g)(3), 1.1502-4T(f) and (g)(3) (relating to the foreign
tax credit), 1.1502-9(a) (the next to last sentence), 1.1502-
9T(b)(1)(v) (relating to overall foreign losses), and 1.1502-
55T(h)(4)(iii)(C) (relating to the alternative minimum tax credit), a
consolidated group may apply such paragraphs as they appear in 1998-10
I.R.B. 23 (see Sec. 601.601(d)(2) of this chapter). A consolidated
group making this choice must apply all such paragraphs for all
relevant years.
(d) * * *
(2) This paragraph (d) applies to consolidated return years for
which the due date of the income tax return (without extensions) is
after March 13, 1998. See also Sec. 1.1502-3(d) for years for which the
due date of the income tax return (without extensions) is on or before
March 13, 1998.
* * * * *
Par. 4. Section 1.1502-4 is amended by revising paragraphs (f)(3)
and (g)(3) to read as follows:
Sec. 1.1502-4 Consolidated foreign tax credit.
* * * * *
(f) * * *
(3) Special effective date ending SRLY limitation. See Sec. 1.1502-
4T(f) for the rule that ends the SRLY limitation with respect to
foreign tax credits for consolidated return years for which the due
date of the income tax return (without extensions) is after March 13,
1998. See also Sec. 1.1502-3T(c)(4) for an optional effective date rule
(generally making the rules of this paragraph (f) inapplicable to a
consolidated return year beginning after December 31, 1996, if the due
date of the income tax return (without extensions) for such year is on
or before March 13, 1998).
(g) * * *
(3) Special effective date for CRCO limitation. See Sec. 1.1502-
4T(g)(3) for the rule that ends the CRCO limitation with respect to a
consolidated return change of ownership that occurs on or after the
first day of a taxable year for which the due date of the income tax
return (without extensions) is after March 13, 1998. See also
Sec. 1.1502-3T(c)(4) for an optional effective date rule (generally
making the rules of this paragraph (g) inapplicable if the consolidated
return change of ownership occurred on or
[[Page 12643]]
after January 1, 1997, and during a consolidated return year for which
the due date of the income tax return (without extensions) is on or
before March 13, 1998).
* * * * *
Par. 5. Section 1.1502-4T is amended by revising paragraphs (f) and
(g)(3) to read as follows:
Sec. 1.1502-4T Consolidated foreign tax credit (temporary).
* * * * *
(f) Limitation on unused foreign tax carryover or carryback from
separate return limitation years. Section 1.1502-4(f) does not apply
for consolidated return years for which the due date of the income tax
return (without extensions) is after March 13, 1998. For consolidated
return years for which the due date of the income tax return (without
extensions) is after March 13, 1998, a group shall include an unused
foreign tax of a member arising in a SRLY without regard to the
contribution of the member to consolidated tax liability for the
consolidated return year. See also Sec. 1.1502-3T(c)(4) for an optional
effective date rule (generally making the rules of this paragraph (f)
applicable to a consolidated return year beginning after December 31,
1996, if the due date of the income tax return (without extensions) for
such year is on or before March 13, 1998).
* * * * *
(g)(3) Special effective date for CRCO limitation. Section 1.1502-
4(g) applies only to a consolidated return change of ownership that
occurred during a consolidated return year for which the due date of
the income tax return (without extensions) is on or before March 13,
1998. See also Sec. 1.1502-3T(c)(4) for an optional effective date rule
(generally making the rules of this paragraph (g)(3) applicable if the
consolidated return change of ownership occurred on or after January 1,
1997, and during a consolidated return year for which the due date of
the income tax return (without extensions) is on or before March 13,
1998).
Par. 6. In Sec. 1.1502-9, paragraph (a) is amended by removing the
last sentence and adding two sentences in its place to read as follows:
Sec. 1.1502-9 Application of overall foreign loss recapture rules to
corporations filing consolidated returns.
(a) * * * See Sec. 1.1502-9T(b)(1)(v) for the rule that ends the
separate return limitation year limitation for consolidated return
years for which the due date of the income tax return (without
extensions) is after March 13, 1998. See also Sec. 1.1502-3T(c)(4) for
an optional effective date rule (generally making the rules of
paragraphs (b)(1)(iii) and (iv) of this section inapplicable for a
consolidated return year beginning after December 31, 1996, if the due
date of the income tax return (without extensions) for such year is on
or before March 13, 1998).
* * * * *
Par. 7. Section 1.1502-9T is amended by revising paragraph
(b)(1)(v) to read as follows:
Sec. 1.1502-9T Application of overall foreign loss recapture rules to
corporations filing consolidated returns (temporary).
* * * * *
(b)(1)(v) Special effective date for SRLY limitation. Sections
1.1502-9(b)(1)(iii) and (iv) apply only to consolidated return years
for which the due date of the income tax return (without extensions) is
on or before March 13, 1998. For consolidated return years for which
the due date of the income tax return (without extensions) is after
March 13, 1998, the rules of Sec. 1.1502-9(b)(1)(ii) shall apply to
overall foreign losses from separate return years that are separate
return limitation years. For purposes of applying Sec. 1.1502-
9(b)(1)(ii) in such years, the group treats a member with a balance in
an overall foreign loss account from a separate return limitation year
on the first day of the first consolidated return year for which the
due date of the income tax return (without extensions) is after March
13, 1998, as a corporation joining the group on such first day. An
overall foreign loss that is part of a net operating loss or net
capital loss carryover from a separate return limitation year of a
member that is absorbed in a consolidated return year for which the due
date of the income tax return (without extensions) is after March 13,
1998, shall be added to the appropriate consolidated overall foreign
loss account in the year that it is absorbed. For consolidated return
years for which the due date of the income tax return (without
extensions) is after March 13, 1998, similar principles apply to
overall foreign losses when there has been a consolidated return change
of ownership (regardless of when the change of ownership occurred). See
also Sec. 1.1502-3T(c)(4) for an optional effective date rule
(generally making this paragraph (b)(1)(v) applicable to a consolidated
return year beginning after December 31, 1996, if the due date of the
income tax return (without extensions) for such year is on or before
March 13, 1998).
* * * * *
Par. 8. Section 1.1502-55T is amended by revising paragraph
(h)(4)(iii)(C) to read as follows:
Sec. 1.1502-55T Computation of alternative minimum tax of consolidated
groups (temporary).
* * * * *
(h)(4) * * *
(iii) * * *
(C) Effective date. This paragraph (h)(4)(iii) applies to
consolidated return years for which the due date of the income tax
return (without extensions) is after March 13, 1998. However, a group
does not take into account a consolidated taxable year for which the
due date of the income tax return (without extensions) is on or before
March 13, 1998, in determining a member's (or subgroup's) contributions
to the consolidated section 53(c) limitation under this paragraph
(h)(4)(iii). See Sec. 1.1502-3T(c)(4) for an optional effective date
rule (generally making this paragraph (h)(4)(iii) applicable to a
consolidated return year beginning after December 31, 1996, if the due
date of the income tax return (without extensions) for such year is on
or before March 13, 1998).
Approved: March 9, 1998.
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 98-6561 Filed 3-13-98; 8:45 am]
BILLING CODE 4830-01-U
