[Federal Register Volume 64, Number 127 (Friday, July 2, 1999)]
[Rules and Regulations]
[Pages 36116-36175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-16162]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 8824]
RIN 1545-AU32
Regulations Under Section 1502 of the Internal Revenue Code of
1986; Limitations on Net Operating Loss Carryforwards and Certain
Built-in Losses and Credits Following an Ownership Change of a
Consolidated Group
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations regarding the
operation of sections 382 and 383 of the Internal Revenue Code of 1986
(relating to limitations on net operating loss carryforwards and
certain built-in losses and credits following an ownership change) with
respect to consolidated groups. The regulations include rules for
determining whether a loss group or a loss subgroup has an ownership
change, for computing a consolidated section 382 limitation or subgroup
section 382 limitation, and for applying sections 382 and 383 to
corporations that join or leave a group. The rules are necessary to
provide guidance to such groups on the use of certain of their tax
attributes.
DATES: Effective Dates: These regulations are effective June 25, 1999.
Applicability Dates: For dates of application and special effective
date rules, see Effective Dates under SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: Lee A. Kelley at (202) 622-7550 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information in these final regulations has been
reviewed and, pending receipt and evaluation of public comments,
approved by the Office of Management and Budget (OMB) under 44 U.S.C.
3507 and assigned control number 1545-1218.
The collections of information in this regulation are in
Secs. 1.1502-20(g)(4), 1.1502-95(e)(8), 1.1502-95(f), and 1.1502-96(e).
This information is required to assure that a section 382 limitation is
properly determined and applied in cases of corporations that become or
cease to be members of a consolidated group. The collection of
information in Sec. 1.1502-98(e)(8) is mandatory. The other collections
of information are required to obtain a benefit. The likely respondents
are business or other for-profit institutions.
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224.
Comments on the collection of information should be received by August
31, 1999.
Comments are specifically requested concerning:
Whether the collection[s] of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the collection
of information (see below);
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the collection[s] of information
may be minimized, including through the application of automated
collection techniques or other forms of information technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of service to provide information.
Estimated total annual reporting burden: 662 hours.
The estimated annual burden per respondent varies from 15 to 25
minutes, depending on individual circumstances, with an estimated
average of 20 minutes.
Estimated number of respondents: 12,054.
Estimated annual frequency of responses: On occasion.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
[[Page 36117]]
Background
On February 4, 1991, the IRS and Treasury issued three notices of
proposed rulemaking, C0-132-87 (56 FR 4194), CO-077-90 (56 FR 4183),
and CO-078-90 (56 FR 4228), setting forth rules regarding the
application of sections 382 and 383 by consolidated groups and by
controlled groups, and regarding the use of built-in deductions and net
operating losses and capital losses, including the carryover and
carryback of separate return limitation year (SRLY) losses of members
of consolidated groups. A public hearing regarding the three sets of
proposed regulations was held on April 8, 1991.
On June 27, 1996, the IRS and Treasury published temporary
regulations (TD 8678, 61 FR 33335) setting forth rules regarding the
application of section 382 to affiliated groups of corporations filing
consolidated returns. These regulations were substantially identical to
the proposed regulations. A notice of proposed rulemaking cross-
referencing the temporary regulations was published in the Federal
Register on the same day (CO-026-96, 61 FR 33391) and the proposed
regulations published in 1991 were withdrawn. The IRS and Treasury also
published temporary regulations regarding the SRLY limitation (TD 8677,
61 FR 33321), and controlled group losses (TD 8679, 61 FR 33313).
Notices of proposed rulemaking cross-referencing these temporary
regulations were published on the same day (CO-025-96, 61 FR 33395 and
CO-024-96, 61 FR 33393) and the proposed regulations published in 1991
were withdrawn.
This Treasury decision adopts the 1996 proposed regulations
regarding the application of section 382 to affiliated groups of
corporations filing consolidated returns. The principal changes to
those proposed regulations are described below.
As companions to this Treasury decision, the IRS and Treasury also
are issuing final regulations relating to the application of sections
382 and 383 by members of controlled groups, and relating to the SRLY
limitation. See TD 8823 and TD 8825 published elsewhere in this issue
of the Federal Register.
Explanation of Provisions
A. Overview
1. Sections 382 and 383
Under section 382, if an ownership change occurs with respect to a
loss corporation (as defined in section 382 and the regulations
thereunder), the amount of the loss corporation's taxable income for a
post-change year that may be offset by the net operating losses of the
loss corporation arising before the ownership change is limited by an
amount known as the section 382 limitation. The section 382 limitation
for a taxable year of a loss corporation after an ownership change
generally is equal to the fair market value of the corporation's stock
immediately before the ownership change multiplied by the long-term tax
exempt rate (a rate of return published periodically in the Internal
Revenue Bulletin). See generally sections 382(b), (e), and (f). This
limitation for a taxable year may be increased by certain items, such
as an unused limitation from a prior taxable year and certain built-in
gains recognized during the taxable year. See section 382(b)(2) and
(h).
In general, an ownership change involves an increase of more than
50 percentage points in stock ownership by 5-percent shareholders
during the testing period (usually the 3-year period ending on the date
on which a loss corporation must make a determination whether it has
had an ownership change). In determining whether an ownership change
has occurred, all transactions occurring during the testing period that
affect the stock ownership of any 5-percent shareholder whose
percentage of stock ownership has increased as of the close of the
testing date are taken into account. The determination of the
percentage ownership interest of any shareholder is made on the basis
of the ratio of the fair market value of the loss corporation stock
owned by the shareholder to the total fair market value of the loss
corporation's outstanding stock. Ordinarily, all stock of the loss
corporation, except certain preferred stock described in section
1504(a)(4), is taken into account. These rules are contained in
Secs. 1.382-2 and 1.382-2T and relate to ownership changes of
corporations without regard to whether the corporations file a separate
return or join in filing a consolidated return.
2. General Description of Final Regulations
This document contains two sets of rules. The first set of rules,
set forth in Secs. 1.1502-91 through 1.1502-93, provide the tax
treatment for net operating losses that arise in (and net unrealized
built-in losses with respect to) years that are not separate return
limitation years with respect to a consolidated group. (A separate
return limitation year, or SRLY, generally is a taxable year of a
subsidiary in which the subsidiary was not a member of the group). In
general, these rules adopt a single entity approach to determine
ownership changes and the section 382 limitations with respect to such
losses.
These final regulations also extend the single entity approach to
loss subgroups within consolidated groups. A loss subgroup generally
consists of two or more corporations that continue to be affiliated
with each other after leaving one group and joining another where at
least one of the corporations carries over losses from the first group
to the second group. Thus, the single entity approach under the final
regulations can apply, for example, to a consolidated group's
acquisition of another consolidated group or of a chain of subsidiaries
from another group.
The second set of rules, set forth in Secs. 1.1502-94 and 1.1502-
95, applies to corporations that join or leave a consolidated group
with respect to certain attributes (e.g., attributes other than those
arising in a consolidated return year). In general, section 382 is
applied separately with respect to those attributes because the
attributes cannot be used by other members. Section 1.1502-96 contains
miscellaneous rules.
In general, Sec. 1.1502-98 provides that the rules contained in
Secs. 1.1502-91 through 1.1502-96 also apply for purposes of section
383, with adjustments to reflect that section 383 applies to credits
and net capital losses.
B. Amendments to the Proposed Regulations
1. Definition of a Loss Subgroup, Sec. 1.1502-91(d)
Under the proposed regulations, a loss subgroup is composed of
members of one group (the former group) that become members of another
consolidated group. In the case of a net operating loss carryover, the
members of a group compose a loss subgroup if (i) They were affiliated
with each other in another group, (ii) they bear a relationship to each
other described in section 1504(a)(1) immediately after they become
members of the group (the subgroup parent requirement), and (iii) at
least one of the members carries over a net operating loss arising in a
year that is not a SRLY (and is not treated as a SRLY under proposed
Sec. 1.1502-21(c)) with respect to the former group. In the case of a
net unrealized built-in loss (NUBIL), the members of a group compose a
loss subgroup if they (i) Have been continuously affiliated with each
other for the 5 consecutive year period ending immediately before they
become members of the group (the five-year affiliation requirement),
(ii) meet the subgroup parent requirement, and (iii) have, in the
aggregate, a NUBIL. A
[[Page 36118]]
member ceases to be included in a loss subgroup when it files a
separate return, or when a member breaks the relationship described in
section 1504(a)(1) to the loss subgroup parent, regardless of whether
that member leaves the current group or remains in the consolidated
group.
Retention of the Subgroup Percent Requirement in General
Commentators suggested that the final regulations should eliminate
the subgroup parent requirement in order to provide a single subgroup
definition for the SRLY limitation and for the section 382 limitation.
Other commentators recommended eliminating the requirement following an
ownership change of the loss subgroup.
Like a loss group, a loss subgroup has an ownership change if the
loss subgroup parent has an ownership change (the parent change
method). The parent change method, adopted for its administrative
simplicity, looks only to ownership shifts of the parent corporation in
determining whether the consolidated group (or loss subgroup) has an
ownership change. Owner shifts of minority stock of subsidiary members
are not taken into account. Application of the parent change method to
loss subgroups eliminates the administrative burdens associated with a
rule that would mandate separate tracking of the minority stock of each
subgroup member for determining whether an ownership change of the loss
subgroup has occurred.
The IRS and the Treasury have determined that, in circumstances
where owner shifts of a loss subgroup must continue to be tracked, the
parent change method should continue to apply for determining whether a
subgroup has an ownership change. Accordingly, in general, these final
regulations retain the subgroup parent requirement. Also, these final
regulations retain the general rule that a member ceases to be a member
of the loss subgroup on the first day that it ceases to bear a
relationship described in section 1504(a)(1) to the loss subgroup
parent. The final regulations, however, provide an election to treat
the subgroup parent requirement as satisfied, and provide certain
exceptions for ceasing to be a member of a loss subgroup when a member
breaks the relationship described in section 1504(a)(1) to the loss
subgroup parent, but remains within the current consolidated group.
Election to Treat Subgroup Parent Requirement As Satisfied
The subgroup parent requirement may preclude subgroup treatment in
instances where single entity principles make such treatment
conceptually appropriate. For example, brother-sister corporations with
net operating loss carryovers that are not SRLY losses with respect to
the former group are not a loss subgroup even if the same acquirer
acquires both corporations at the same time. However, single entity
principles support treating the brother-sister corporations as a
subgroup because they were affiliated with each other in the former
group and remain affiliated in the current group.
To extend single entity treatment in such cases would require a
mechanism other than the parent change method to track owner shifts of
the loss subgroup. Some commentators suggested permitting the parent of
the current group to designate the subgroup parent. Under this
approach, such designation would be respected unless the designation is
made with a principal purpose of avoiding an ownership change.
The IRS and the Treasury believe that the ability to designate the
subgroup parent presents opportunities for avoiding or lessening the
impact of section 382. Also, a principal purpose standard is not an
effective mechanism for preventing inappropriate designations because
the only purpose of such designation is to apply the ownership change
rules of section 382.
The IRS and Treasury recognize, however, that it is appropriate to
extend subgroup treatment to the extent that single entity principles
support such treatment, and to the extent that subgroup treatment does
not compromise the determination whether a subgroup has an ownership
change. Also, the IRS and Treasury recognize that, in certain
circumstances, taxpayers may prefer more stringent ownership change
rules if they can obtain the benefit of subgroup treatment. Finally,
the IRS and Treasury recognize that the ability of brother-sister
corporations to constitute a section 382 subgroup may be necessary in
order for section 382 subgroups to conform with SRLY subgroups, thus
permitting application of the rule that eliminates a separate SRLY
limitation where the application of SRLY and section 382 overlap. See
Secs. 1.1502-15(g), 1.1502-21(g) and 1.1502-22(g).
Accordingly, these final regulations provide that two or more
corporations that become members of a consolidated group at the same
time and that were affiliated with each other immediately before
becoming members of the group are deemed to meet the subgroup parent
requirement immediately after they become members of the group if the
common parent of the acquiring group makes an election under
Sec. 1.1502-91(d)(4) with respect to those members. An election
includes all corporations that become members of the current group at
the same time and that were affiliated with each other immediately
before they become members of the current group. The election applies
solely for purposes of satisfying the subgroup parent requirement, and
does not apply in determining whether members meet the other
requirements for inclusion in a loss subgroup. Although the election
applies solely for purposes of Secs. 1.1502-91 through 1.1502-96 and
Sec. 1.1502-98, the election may affect whether a SRLY limitation
overlaps with application of section 382.
If the common parent makes an election under Sec. 1.1502-91(d)(4),
each of the members with respect to which the election is made (and
that is included in the loss subgroup) is treated as the loss subgroup
parent for purposes of determining if the loss subgroup has an
ownership change on, or after, becoming members of the current group.
If, however, a member with respect to which the election is made has an
ownership change upon (or after) ceasing to be a member of the current
group, that ownership change does not cause an ownership change of a
loss subgroup comprised of one or more of its members that remain
members of the current group.
Exceptions for Ceasing To Be a Member of a Loss Subgroup When a Member
Breaks the Section 1504(a)(1) Relationship With the Loss Subgroup
Parent, Sec. 1.1502-95(d)(1)
In general, under Sec. 1.1502-95(d)(1)(ii), these final regulations
provide that a member ceases to be a member of the loss subgroup on the
first day that it ceases to bear a relationship described in section
1504(a)(1) to the loss subgroup parent. Continued affiliation through a
loss subgroup parent is central to the operation of the parent change
method to loss subgroups.
Under certain circumstances, however, separate tracking of the loss
subgroup parent terminates, eliminating the need for members to
maintain a section 1504(a)(1) relationship through a loss subgroup
parent. Section 1.1502-96(a) provides, in part, that ownership shifts
of a loss subgroup cease to be separately tracked if there is an
ownership change of the loss subgroup
[[Page 36119]]
within six months before, on, or after becoming members of the group,
or if a period of five years elapses after becoming members of group
during which time the loss subgroup does not have an ownership change
(a fold-in event).
Also, an election under Sec. 1.1502-91(d)(4) obviates the need for
a section 1504(a)(1) relationship through a loss subgroup common parent
because each member is separately tracked as if it were the loss
subgroup parent.
In circumstances where the necessity of a section 1504(a)(1)
relationship through a loss subgroup parent is eliminated, the IRS and
the Treasury believe that a subgroup member should not cease to be a
member of the subgroup solely because it ceases to bear such a
relationship. Accordingly, these final regulations provide two
exceptions to the general rule of Sec. 1.1502-95(d)(1)(ii). The first
exception applies to the members of the loss subgroup if an election
under Sec. 1.1502-91(d)(4) applies to them. The second exception
applies to loss subgroup members following a fold-in event.
Members Excluded or Included From a Subgroup With a Principal Purpose
of Avoiding a Limitation, Sec. 1.1502-91(d)(5)
Proposed Sec. 1.1502-91(d)(5) provides that corporations do not
compose a loss subgroup if any one of them is formed, acquired, or
availed of with a principal purpose of avoiding the application of, or
increasing any limitation under, section 382. This rule does not apply
solely because, in connection with becoming members of the group, the
members of a group are rearranged to satisfy the subgroup parent
requirement. The final regulations retain these provisions, and, in
conformity with the anti-abuse rule for SRLY subgroups, provide that
any member excluded from a loss subgroup, if excluded with a principal
purpose of avoiding or increasing a section 382 limitation, is treated
as included in the loss subgroup. This rule does not apply solely
because a group does not rearrange members of a group to satisfy the
subgroup parent requirement.
2. Definition of Loss Subgroup With a NUBIL, Sec. 1.1502-91(d)(2)
Commentators criticized the five-year affiliation requirement for
adding complexity to the regulations. For instance, the five-year
affiliation requirement can cause application of section 382 and SRLY
on a single entity basis with respect to members of a loss subgroup
with a net operating loss carryover that arose within the former group
(because an NOL loss subgroup does not require five years of
affiliation), but on a separate entity basis for those same members
with respect to built-in losses.
The IRS and Treasury have determined, however, that the five-year
affiliation requirement is a necessary feature of the NUBIL subgroup
rules. Just as the NOL subgroup rules apply only to loss carryovers
that arise in (or have folded into) the former group, so should the
NUBIL subgroup rules apply only to built-in losses that accrue within
(or have folded into) the former group. Because an accurate method of
determining economic accrual (e.g., tracing) would present significant
problems for tax administration and for compliance by taxpayers, the
IRS and Treasury believe that the five-year affiliation requirement is
the best available proxy for determining when built-in attributes
arise.
Absent a five-year affiliation requirement, taxpayers could
effectively traffic in net unrealized built-in losses without being
subject to any limitation (other than one imposed under an applicable
``principal purpose'' anti-abuse rule). A selling group could acquire a
new member with a NUBIG and sell both that recently-acquired NUBIG
member and the member containing the desired NUBIL to the prospective
buyer. To the extent that the NUBIG offset the NUBIL and the
corporations were structured to satisfy the requirements for subgroup
treatment, recognized built-in losses would escape any limitation and
could be freely absorbed by the acquiring group.
Furthermore, the absence of a five-year affiliation requirement
could be used to circumvent a SRLY limitation applicable to a NUBIL if
built-in losses are recognized. For instance, if a member comes into a
group with a NUBIL and without an ownership change, recognition of that
NUBIL would be subject to a SRLY limitation during the following five
years and the loss could not be freely absorbed by the income of the
other members of the group. However, if all the members of the group
were included in a NUBIL subgroup upon being acquired by a second group
two years into that five-year period, that member's recognized built-in
losses immediately thereafter would be subject either to a SRLY or
section 382 limitation computed with respect to all the members of the
former group (thus increasing the rate at which such losses can be
utilized) or, in the event that the acquired corporations have an
aggregate NUBIG, to no limitation whatsoever.
Some commentators contended that the five-year affiliation
requirement (and the time period required for a fold-in event under
Sec. 1.1502-96(a)) should be reduced to three years, based on the
duration of the testing period for an ownership change under section
382.
However, a five-year (rather than a three-year) affiliation
requirement is necessary to ensure that taxpayers cannot shorten the
five-year recognition period for the SRLY limitation, as described
above. Also, the IRS and Treasury believe that the five-year
recognition period for the SRLY limitation should be maintained because
it mirrors the statutorily-mandated five-year recognition period of
section 382(h)(7). In general, Treasury and the IRS believe that it is
important to conform the application of section 382 and the SRLY rules
where possible, particularly in the light of the rule eliminating
application of SRLY where its application overlaps with that of section
382.
Moreover, the five-year affiliation requirement is consistent with
Congress' indication in section 384(a) of the point at which it is
appropriate for built-in attributes of a member to be treated as
attributes of the group. Under certain circumstances, section 384(a)
prevents the recognized built-in gain of one corporation from
offsetting preacquisition losses of another corporation, if such gain
is recognized within a five-year period following the acquisition date.
Similarly, section 384(b) provides that section 384(a) does not apply
to prevent the recognized built-in gain of one corporation from
offsetting the preacquisition losses of another corporation if the gain
corporation and the loss corporation were members of the same
controlled group (as defined in section 384(b)(2)) for the five-year
period ending on the acquisition date.
For these reasons, the final regulations do not reduce the duration
of the affiliation requirement from five years to three years.
Commentators requested clarification that an acquiring group takes
into account application of the fold-in rules of Sec. 1.1502-96(a) in
the former group in determining which members are included in a loss
subgroup. A new example under Sec. 1.1502-96(a)(3), and a cross-
reference in a new Sec. 1.1502-91(g)(3) to the fold-in rules, clarifies
this treatment. Thus, a corporation whose NUBIL folded in to a former
group is deemed to have a five-year affiliation with the common parent
of that group (and is deemed to have affiliation histories with other
group members). A special rule provides that the
[[Page 36120]]
corporation is not deemed to have been previously affiliated with
another corporation that joined the former group at the same time, but
was not taken into account in determining a NUBIL limitation, even if
in fact the two corporations were previously affiliated.
3. Members Included--Determination Whether a Consolidated Group Has a
NUBIL, Sec. 1.1502-91(g)(2)(ii)
Proposed Sec. 1.1502-91(g)(2)(i) provides, in part, that the
members included in the determination whether a consolidated group has
a NUBIG or NUBIL are all members of the group on the day the
determination is made, other than a new loss member with a NUBIL, and
members included in a NUBIL subgroup.
The IRS and Treasury have determined that the reasons for applying
a five-year affiliation requirement to subgroups are equally relevant
to groups. Accordingly, these final regulations provide that the
members included in the determination whether a consolidated group has
a NUBIL are the common parent and all other members that have been
affiliated with the common parent for the five consecutive year period
ending on the day that the determination is made.
In certain cases, a member (or loss subgroup) can join a
consolidated group with a NUBIG, but have a NUBIL on the date the
consolidated group determines whether it has a NUBIL. The IRS and
Treasury have determined that, in such cases, it is appropriate for the
built-in attribute of the member to be included in the group's
determination because it is clear that such NUBIL arose when it was a
group member. Accordingly, the final regulations include in the
determination whether a group has a NUBIL any member that has a NUBIL
on the date the determination is made, and that is neither a new loss
member with a NUBIL nor a member of a NUBIL loss subgroup. The final
regulations also include members in the group's determination whether
the group has a NUBIL if such member(s) joined the consolidated group
with a NUBIL, and, in the aggregate, have a NUBIG on the day that such
determination is made.
4. Members Included--Determination Whether a Consolidated Group (or
Loss Subgroup) With a Net Operating Loss Has a NUBIG, Sec. 1.1502-
91(g)(2)(i)
Proposed Sec. 1.1502-93(c) provides that if a loss group (or loss
subgroup) has a NUBIG, any recognized built-in gain of the loss group
(or loss subgroup) is taken into account under section 382(h) in
determining the consolidated section 382 limitation (or subgroup
section 382 limitation) (emphasis added).
Commentators suggested that this provision, considered together
with the five-year affiliation requirement, makes it unclear whether an
NOL loss subgroup with members that do not satisfy the five-year
affiliation requirement can use a NUBIG, if recognized, to increase the
loss subgroup's section 382 limitation.
The IRS and Treasury have determined that the concerns forming the
basis of the five-year affiliation requirement for determining whether
a loss subgroup has a NUBIL do not extend to the determination whether
a net operating loss carryover group (or loss subgroup) has a NUBIG.
For example, unlike a NUBIL that can be eliminated by a NUBIG without
an immediate tax cost, recognized built-in gains exact such a cost and,
therefore, do not present the same planning opportunities. Accordingly,
these final regulations provide that the members included in the
determination whether an NOL loss group (or loss subgroup) has a NUBIG
are all members of the group (or loss subgroup) on the day that the
determination is made.
Section 1.1502-91(g)(2)(v) provides, in part, that in determining
whether an NOL loss group has a NUBIG which, if recognized, increases
the consolidated section 382 limitation, the group includes all of its
members on the day the determination is made. However, for purposes of
determining whether a group has a net unrealized built-in loss, not all
members of the consolidated group may be included. Thus, a consolidated
group may have recognized built-in gains that increase the amount of
consolidated taxable income that may be offset by its pre-change net
operating loss carryovers that did not arise (and are not treated as
arising) in a SRLY, and also may have recognized built-in losses the
absorption of which is limited. Similar results may obtain for loss
subgroups. In such cases, Sec. 1.1502-93(c)(2) prohibits the use of
recognized built-in gains to increase the amount of consolidated
taxable income that can be offset by recognized built-in losses.
5. Recognized Built-in Gain or Loss on the Disposition of an
Intercompany Obligation of a Member, Sec. 1.1502-91(h)(2)
Proposed Sec. 1.1502-91(h)(2) provides that gain or loss recognized
by a member on the disposition of stock of another member or of an
intercompany obligation is treated as recognized built-in gain or loss
under section 382(h)(2)(unless disallowed under Sec. 1.1502-20 or
otherwise), even though gain or loss on such stock or obligation is not
included in the determination of the group's NUBIG or NUBIL immediately
before the ownership change. The IRS and Treasury have determined that
such treatment may lead to inappropriate results. For instance, if a
bad debt deduction is treated as a recognized built-in loss,
application of a section 382 limitation to that loss may prevent the
proper offset of cancellation of indebtedness income against the bad
debt deduction. Accordingly, Sec. 1.1502-91(h)(2) of the final
regulations treats gain or loss recognized on the disposition of an
intercompany obligation as recognized built-in gain or loss only to the
extent that the transaction gives rise to aggregate income or loss
within the consolidated group.
6. Ownership Change Determination--The Parent Change Method,
Sec. 1.1502-92
Proposed Sec. 1.1502-92 provides rules for determining an ownership
change of a loss group (or a loss subgroup). A loss group (or loss
subgroup) has an ownership change only if the common parent has an
ownership change under the parent change method. Out of concern that
taxpayers could exploit the parent change method's failure to account
for minority shifts of stock, the proposed regulations adopted a
supplemental change method that does take into account minority shifts
of stock under certain circumstances.
Under the proposed regulations, the supplemental method applies if
a person who is a 5-percent shareholder of the common parent (including
any person acting pursuant to a plan or arrangement with such 5-percent
shareholder) increases its percentage ownership both in the common
parent and in any subsidiary of the group within the same testing
period. In that event, the loss group (or loss subgroup) must also
determine whether it had an ownership change under the rules for the
parent change method by treating the common parent as though it had
issued to the person who acquires (or is deemed to acquire) the
subsidiary stock an amount of its own stock (by value) that equals the
value of the subsidiary stock represented by the percentage increase in
that person's ownership of the subsidiary (determined on a separate
entity basis).
Section 1.1502-92(c), Example 2 of the proposed regulations
illustrates application of the supplemental change method. In Example
2, A owns all the stock of L, a loss group parent, and L owns all of
the stock of L1. As part of a plan, A sells 49 percent of the L stock
[[Page 36121]]
to B on October 7, Year 2, and L1 issues new stock representing a 20
percent ownership interest in L1 to the public on November 6, Year 2.
The example concludes that ``because the issuance of L1 stock to the
public occurs in connection with B's acquisition of L stock pursuant to
a plan,'' the supplemental change method applies to the public offering
of L1 stock.
Commentators suggest that the ``plan or arrangement'' language
sweeps too broadly, and that only plans to avoid section 382 should be
subject to this rule. Commentators also contend that Example 2 is
beyond the scope of the operative rule because the facts do not
demonstrate a plan or arrangement with a 5-percent shareholder.
The IRS and Treasury believe that it is appropriate to apply the
supplemental change method to certain acquisitions of a loss group in
which the plan is not between the 5-percent shareholder of the loss
group parent and another person to increase their interests in the loss
group. For example, if an individual buys 50 percent or less of the
stock of a loss group parent, and as part of the same plan, causes a
public offering out of a subsidiary, the supplemental change method
should apply to that offering. (Conversely, the supplemental change
method should not apply unless the 5-percent shareholder's increase in
the stock of parent or subsidiary is related to the increase by another
person because those increases are pursuant to the same plan.)
Accordingly, these final regulations provide that a 5-percent
shareholder of the common parent (or loss subgroup parent) is treated
as increasing its ownership interest in the stock of a subsidiary to
the extent, if any, that the percentage ownership interest of another
person or persons in the stock of the subsidiary is increased pursuant
to a plan or arrangement under which the 5-percent shareholder
increases its percentage ownership interest in the common parent (or
loss subgroup parent).
To alleviate concerns that the supplemental change method is overly
broad, the final regulations limit the scope of the supplemental change
method through application of the rules of Sec. 1.382-2T(k). The final
regulations provide that the supplemental change method will apply if
the common parent (or loss subgroup parent) has actual knowledge of the
increase in the 5-percent shareholder's ownership interest in the stock
of the subsidiary (or has actual knowledge of the plan or arrangement)
before the date that the group's income tax return is filed for the
taxable year that includes the date of that increase or, if, at any
time during the testing period, the 5-percent shareholder of the common
parent is also a 5-percent shareholder of the subsidiary (determined
without regard to a deemed acquisition of subsidiary stock under the
plan or arrangement rule) whose percentage increase in the ownership of
the stock of the subsidiary would be taken into account in determining
if the subsidiary has an ownership change. For purposes of determining
the 5-percent shareholders of the subsidiary, the principles of
Sec. 1.382-2T(k), including the duty to inquire, apply to the common
parent (or loss subgroup parent).
Several additional changes to the supplemental change method were
made in response to comments. Section 1.1502-92(c)(4)(iii) clarifies
that stock treated as issued under the supplemental change method is
not treated as issued in testing periods that do not include the
testing date on which the parent stock is deemed to be issued. Section
1.1502-92(c)(4)(ii) provides that stock is not treated as issued if a
deemed issuance of parent stock would not cause the loss group (or loss
subgroup) to have an ownership change before the day on which the
subsidiary leaves the loss group (or loss subgroup).
To avoid retroactive changes in ownership, Sec. 1.1502-92(c)(4)(v)
provides that if the supplemental change method applies to an
acquisition of subsidiary stock before the first date that the 5-
percent shareholder increases its percentage ownership interest in the
stock of the common parent (or loss subgroup parent), then the deemed
issuance of stock is treated as occurring on the first such date.
However, the value of the subsidiary stock is the value of such stock
on the date it was acquired. In addition, Sec. 1.1502-92(c)(4)(vi)
provides that if two or more 5-percent shareholders are treated as
increasing their percentage ownership interests pursuant to a single
plan or arrangement described above, appropriate adjustments must be
made so that the amount of stock treated as issued is not taken into
account more than one time.
Commentators also requested that the supplemental change method
apply only if the acquisitions of parent stock and subsidiary stock are
with a principal purpose of avoiding or lessening the impact of section
382. The IRS and Treasury believe that if the same 5-percent
shareholder increases in the stock of both a subsidiary and the common
parent within the same testing period, the supplemental change method
should apply without further evidence of an avoidance purpose.
Similarly, a plan or arrangement under which a 5-percent shareholder
and another person both increase their interests in the loss group is
sufficient proof of an avoidance purpose that the supplemental change
method properly applies without further inquiry.
7. Consolidated Section 382 Limitation, Sec. 1.1502-93
Proposed Sec. 1.1502-93 provides rules for computing the
consolidated section 382 limitation following an ownership change of a
loss group. The value of the loss group is the value, immediately
before the ownership change, of the stock (including stock described in
section 1504(a)(4)) of each member of the loss group, other than stock
that is owned directly or indirectly by a member. Section 1.1502-
93(b)(2) provides that this value is adjusted under any rule in section
382 (such as section 382(l)(1), relating to certain capital
contributions) requiring an adjustment to value for purposes of
computing the section 382 limitation. The section 382 limitation, as so
determined, is further adjusted as required by section 382 and the
regulations thereunder (such as section 382(m)(2), relating to a short
taxable year). Similar rules apply in determining the section 382
limitation for a loss subgroup.
In response to comments, the final regulations make several
clarifications with respect to circumstances that require an adjustment
to the value of a loss group or loss subgroup.
Section 1.1502-93(b)(2)(i) provides that, for purposes of section
382(e)(2), redemptions and corporate contractions that do not effect a
transfer of value outside of the loss group (or loss subgroup) are
disregarded. For purposes of section 382(l)(1), capital contributions
between members of the loss group (or loss subgroup) (or a contribution
of stock to a member made solely to satisfy the loss subgroup parent
requirement of Secs. 1.1502-91(d)(1)(ii) or 1.1502-91(d)(2)(ii)), are
not taken into account. Also, the substantial nonbusiness asset test of
section 382(l)(4) is applied on a group (or subgroup) basis, and is not
applied separately to its members.
Section 1.1502-93(b)(2)(ii) provides rules that apply to prevent
duplication of value of the group (or loss subgroup) and to prevent
duplication of the section 382 limitation. This section provides that
appropriate adjustments must be made to the extent necessary to prevent
any duplication of the value of the stock of a member, even though
corporations that do not file
[[Page 36122]]
consolidated returns may not be required to make such an adjustment. In
making these adjustments, the group (or loss subgroup) may apply the
principles of Sec. 1.382-8 (relating to controlled groups of
corporations) in determining the value of a loss group (or loss
subgroup) even if that section would not apply if separate returns were
filed. Also, the principles of Sec. 1.382-5(d) (relating to successive
ownership changes and absorption of a section 382 limitation) may apply
to adjust the consolidated section 382 limitation (or subgroup section
382 limitation) of a loss group (or loss subgroup) to avoid a
duplication of value if there are simultaneous (rather than successive)
ownership changes.
One commentator suggested that contributions of assets by the
selling group to a departing member or loss subgroup generally should
not be subject to section 382(l)(1). The IRS and Treasury have
determined that, unlike transfers of stock or assets that do not effect
a transfer of value into a loss subgroup, capital contributions that
constitute a transfer of value into a loss group or to a departing
member should continue to be subject to section 382(l)(1).
A new Sec. 1.1502-93(c)(2) provides that appropriate adjustments
must be made so that any recognized built-in gain of a member that
increases more than one section 382 limitation (whether consolidated,
subgroup, or separate) does not effect a duplication in the amount of
consolidated taxable income that can be offset by pre-change net
operating losses. In addition, recognized built-in gains may not
increase the amount of consolidated taxable income that can be offset
by recognized built-in losses.
8. Ceasing To Be a Member of a Consolidated Group (or Loss Subgroup),
Sec. 1.1502-95
Elective Apportionment of NUBIG
In general, the common parent of a consolidated group may elect to
apportion all or part of each element (the value element and the
adjustment element) of a consolidated section 382 limitation to a
former member or loss subgroup. The proposed regulations do not provide
that the common parent may elect to apportion all or part of a loss
group's NUBIG.
Under section 382(h)(1)(A), if a consolidated group has a NUBIG
immediately before an ownership change, the section 382 limitation for
any recognition period taxable year is increased by the recognized
built-in gain for such taxable year. This increase cannot exceed the
NUBIG, reduced by recognized built-in gains for prior years ending in
the recognition period.
Commentators suggest that, like the value element and the
adjustment element of the consolidated section 382 limitation, the
common parent should be able to apportion any part or all of the
group's NUBIG to a departing member (or loss subgroup). The final
regulations adopt this recommendation.
In general, Sec. 1.1502-95(c)(2)(ii) provides that the amount of
the loss group's NUBIG that may be apportioned to one or more former
members that cease to be members during the same consolidated return
year cannot exceed the loss group's excess, immediately after the close
of that year, of net unrealized built-in gain over recognized built-in
gain, determined under section 382(h)(1)(A)(ii) (relating to a
limitation on recognized built-in gain). In general, NUBIG apportioned
to a former member reduces the amount of NUBIG that the group can avail
itself of in subsequent taxable years.
For purposes of determining the extent to which the former member's
section 382 limitation can be increased by recognized built-in gains,
the amount of NUBIG apportioned is treated as if it were an amount
determined under section 382(h) with respect to the former member. The
former member's five-year recognition period begins on the group's (or
loss subgroup's) change date.
Default Apportionment of Zero Section 382 Limitation and NUBIG When a
Member Ceases To Be a Member of a Group (or Loss Subgroup),
Sec. 1.1502-95(c)(2)(ii)
Section 1.1502-95(c)(1) provides that the common parent may elect
to apportion all or any part of a consolidated section 382 limitation
to a former member (or a loss subgroup) when the member or loss
subgroup leaves the group. If the common parent does not make an
apportionment of the applicable section 382 limitation(s) or of a NUBIG
that the member recognizes during the recognition period, the former
member or loss subgroup has a consolidated section 382 limitation of
zero with respect to pre-change attributes (the zero default rule).
Commentators suggested that the zero default rule may be a trap for
the unwary. For instance, under the proposed regulations, a subgroup
member that ceases to bear a section 1504(a)(1) to the subgroup parent
is subject to the zero default rule, even if that member remains within
the current consolidated group.
The IRS and Treasury recognize that any default rule will benefit
some taxpayers while operating to the detriment of others. For example,
a default apportionment of a section 382 limitation or NUBIG based on
the departing member's contribution to the group's net operating loss
carryover could cause some apportioned limitation to go unused if that
member becomes subject to a new section 382 limitation upon departing
the group. By contrast, a rule providing that the default limitation is
capped by the amount of any subsequent section 382 limitation, would be
difficult to administer. Because the consequences of applying any
default rule depend on the particular facts of a transaction, including
the relative income generation of the departing and remaining members,
the IRS and Treasury believe that the simplicity of the zero default
rule makes the rule preferable to other alternatives.
Also, the IRS and the Treasury believe that the new exceptions to
ceasing to be a member of a loss subgroup substantially reduce the
likelihood that the zero default rule will yield unexpected results.
For example, an acquisition of a loss subgroup typically will cause an
ownership change of the loss subgroup. Following that ownership change,
a member that remains within the current group now can break the
section 1504(a)(1) relationship to the loss subgroup parent without
ceasing to be a member of the loss subgroup. Accordingly, these final
regulations retain the zero default rule when a member ceases to be a
member of a group (or loss subgroup). The zero default rule also
applies to a NUBIG.
Mandatory Apportionment of a Group's NUBIL to a Departing Member,
Sec. 1.1502-95(e)
In general, a group has a NUBIL if the adjusted bases of the assets
of members included in such determination under Sec. 1.1502-91(g)
exceed their fair market value immediately before the change date.
Similar rules apply to loss subgroups. Subject to the limitations of
section 382(h)(2)(B), NUBILs recognized within the five year period
beginning on the change date are subject to the consolidated section
382 limitation. The proposed regulations do not provide rules for
apportioning a group's NUBIL to a former member (or loss subgroup). The
IRS and Treasury believe that a mandatory apportionment of the group's
NUBIL is necessary to ensure that the group's NUBIL, if recognized by
the former member (or loss subgroup) during the recognition period,
remains subject to the consolidated section 382 limitation. One
commentator suggests that a former member (or loss group)
[[Page 36123]]
should be apportioned a group's NUBIL only if and when a former member
that had a separately computed NUBIL that contributed to the group's
NUBIL departs the group, and the contributed built-in loss has not
fully been recognized. Adjustments would reflect intragroup transfers
of assets occurring between the change date and the date that the
former member departs.
The IRS and Treasury believe that the suggested approach
overemphasizes the location of assets with a NUBIG. For example, if a
former member has a NUBIG determined on a separate entity basis, a
recognized built-in loss of that member will not be limited, even if
the former member is the first corporation to dispose of a built-in
loss asset. The IRS and Treasury believe that subjecting the sale of
built-in loss assets to the consolidated section 382 limitation,
regardless of the location of built-in gain assets, more accurately
reflects the NUBIL as a group attribute. Similarly, consistent with
treatment of the NUBIL as a group attribute, the approach permits
built-in gain to be sheltered by built-in loss only after the excess of
built-in losses over built-in gains has been recognized. Accordingly,
these final regulations adopt a model that apportions NUBIL based on
the gross amount of built-in loss that the departing member contributed
to the determination of the group's NUBIL.
In general, Sec. 1.1502-95(f) provides that a departing member is
allocated a portion of the group's (or loss subgroup's) NUBIL if,
immediately after the close of the consolidated return year in which
the departing member ceases to be a member, the amount of the loss
group's (or loss subgroup's) excess of net unrealized built-in loss
over recognized built-in loss (the remaining NUBIL balance) is greater
than zero. In general, NUBIL apportioned to former members in prior
taxable years is treated as recognized built-in loss in those years.
The amount of NUBIL allocated to a departing member is equal to the
remaining NUBIL balance multiplied by a fraction. The numerator of the
fraction is the amount of the built-in loss, taken into account on the
change date, in the assets held by the departing member immediately
after the member ceases to be a member of the loss group (or loss
subgroup). The denominator of the fraction is the sum of the numerator,
plus the amount of the built-in loss, taken into account on the change
date, in the assets held by the group immediately after the close of
the taxable year in which the departing member ceases to be a member.
(Fluctuations in value of the assets between the change date and the
date that the member ceases to be a member of the group (or loss
subgroup), or the close of the taxable year in which the member ceases
to be a member of the loss group, are disregarded.) In general,
adjustments are made for gain or loss that has been recognized during
the recognition period, and for assets that are transferred basis
property. The amount of the NUBIL allocated to a former member
generally is treated as previously recognized built-in loss for
purposes of applying the limitation of section 382(h)(1)(B)(ii) to a
loss group's taxable years beginning after the year in which the former
member ceases to be a member.
For purposes of determining the amount of the former member's
recognized built-in losses in any taxable year beginning after the
former member ceases to be a member, the amount of the loss group's (or
loss subgroup's) net unrealized built-in loss that is apportioned to
the former member is treated as if it were an amount of net unrealized
built-in loss determined under section 382(h)(1)(B)(i) with respect to
such member, and that amount is not reduced under section
382(h)(1)(B)(ii) by the loss group's (or loss subgroup's) recognized
built-in losses.
Subgroup principles apply to the allocation of a NUBIL. For
example, if two or more members leave a loss group, and are members of
a consolidated group, any allocation of the loss group's NUBIL is made
on a subgroup basis. In general, the common parent may apportion all or
any part of a consolidated section 382 limitation (or subgroup section
382 limitation) under Sec. 1.1502-95(c) to a former member to which the
group's NUBIL is allocated (or to a loss subgroup that includes that
member).
9. Miscellaneous Rules, Sec. 1.1502-96
Fold-in rules do not apply to NUBIGs, Sec. 1.1502-96(a)
Proposed Sec. 1.1502-96(a)(2) provides in part that, following a
fold-in event described in Sec. 1.1502-96(a)(1), the member's
separately computed NUBIG or NUBIL is included in the determination
whether the group has a NUBIG or NUBIL.
The IRS and Treasury believe that the ``fold-in'' of a member's
NUBIG can lead to inappropriate results. For example, a consolidated
group that acquires a corporation with a small net operating loss
carryover and a large NUBIG can immediately offset the group's NUBIL
with the NUBIG, if the member is acquired with an ownership change.
Accordingly, the fold-in rules of Sec. 1.1502-96(a) do not apply to
include a member's separately computed NUBIG in determining whether a
group has a NUBIL. A member's NUBIG is only included in such
determination if the member is included under Sec. 1.1502-91(g)(2).
Net Operating Loss Carryovers Reattributed Under Sec. 1.1502-20(g)
Section 1.1502-20 of the regulations disallows a deduction for
certain losses on the disposition of stock of a subsidiary. In general,
under Sec. 1.1502-20(g), the common parent can reattribute to itself
net operating loss carryovers or capital loss carryovers attributable
to the subsidiary in an amount not to exceed the disallowed loss.
Section 1.1502-20(g) further provides that the common parent succeeds
to the reattributed losses as if the losses were succeeded to in a
transaction described in section 381(a). Also, any owner shift of the
subsidiary (including any deemed owner shift resulting from section
382(g)(4)(D) or 382(l)(3)) in connection with the disposition is not
taken into account under section 382 with respect to the reattributed
losses. (Sec. 1.1502-20(g)(1)). The preamble to TD 8364 (56 FR 47379,
September 19, 1991)(which added Sec. 1.1502-20), states that
clarification regarding the application of section 382 to reattributed
losses would be provided in connection with finalizing Secs. 1.1502-91
through 1.1502-99. The preamble states that, for example, it is
anticipated that proposed Sec. 1.1502-95 would be modified to permit
the common parent to elect to retain all or part of a section 382
limitation that applies to reattributed SRLY losses.
A new Sec. 1.1502-96(d) provides rules relating to reattributed
losses. This section generally provides that Secs. 1.1502-91 through
1.1502-96 and Sec. 1.1502-98 apply to reattributed losses consistent
with the provision of Sec. 1.1502-20(g) that treats the common parent
as succeeding to the losses in a transaction to which section 381(a)
applies. For example, if the reattributed loss is a pre-change
attribute subject to a section 382 limitation, it remains subject to
that limitation following the reattribution. Section 1.1502-96(d)(4)
provides rules that allow the common parent to elect to apportion to
itself all or part of any separate section 382 limitation or subgroup
section 382 limitation to which the reattributed loss is subject. The
apportionment is made under the principles of the rules of Sec. 1.1502-
95(c), relating to the apportionment of a consolidated section 382
limitation to a member that leaves
[[Page 36124]]
the group. In certain cases, the section 382 limitation applicable to
the reattributed loss is zero unless an apportionment of such
limitation is made to the common parent. The election to apportion a
section 382 limitation is made as part of the election to reapportion
the loss. See Sec. 1.1502-20(g)(4), as amended by this document.
As previously set forth in Sec. 1.1502-20(g), Sec. 1.1502-96(d)
adopts the general rule that any owner shift of the subsidiary
(including any deemed owner shift resulting from section 382(g)(4)(D)
or 382(l)(3))in connection with the disposition of the subsidiary's
stock) is not taken into account under section 382 with respect to the
reattributed losses. The final regulations, however, modify the general
rule to provide that any owner shift with respect to the successor
corporation that is treated as continuing in existence under
Sec. 1.382-2(a)(1)(ii) must be taken into account for such purpose if
such owner shift is effected by the reattribution and any owner shift
of the stock of the subsidiary not held directly or indirectly by the
common parent would have been taken into account if such shift had
occurred immediately before the reattribution. Such an owner shift may
occur if the subsidiary has minority shareholders that, under
Sec. 1.382-2(a)(1)(ii), are treated as decreasing their ownership in
the reattributed loss, while the shareholders of the common parent
increase their ownership interests in that loss.
The final regulations provide that, in general, the value of the
stock of the common parent is used to establish a section 382
limitation for the reattributed loss with respect to an ownership
change upon, or after, the reattribution. These rules coordinate the
determination of the value of that stock with the capital contribution
rules of section 382(l)(1), and also require appropriate adjustments so
that value is not improperly omitted or duplicated as a result of the
reattribution.
Effective Dates
Sections 1.1502-91 through 1.1502-96 and 1.1502-98
Except as set forth below, Secs. 1.1502-91 through 1.1502-96 and
1.1502-98 apply to testing dates that occur on or after June 25, 1999.
Sections 1.1502-94 through 1.1502-96 also apply on any date on or after
June 25, 1999 on which a corporation becomes a member of a group or on
which a corporation ceases to be a member of a loss group (or a loss
subgroup).
A transition rule for net unrealized built-in loss provides that a
consolidated group may apply Sec. 1.1502-91A(g) for the period ending
on the day before June 25, 1999 to determine the earliest date that its
testing period begins (treating the day before June 25, 1999 as the end
of a taxable year.)
The election under Sec. 1.1502-91(d)(4) to treat the subgroup
parent requirement as satisfied is effective for corporations that
become members of a consolidated group in taxable years for which the
due date of the income tax return (without extensions) is after June
25, 1999. Section 1.1502-95(d)(2)(ii) (relating to exceptions to
ceasing to be a member of loss subgroup) applies to corporations that
cease to bear a section 1504(a)(1) relationship to a loss subgroup
parent in taxable years for which the due date of the income tax return
(without extensions) is after June 25, 1999.
The third sentence of Sec. 1.1502-91(d)(5) (relating to members
excluded from a loss subgroup) applies to corporations that become
members of a consolidated group on or after June 25, 1999.
In the case of corporations that cease to be members of a loss
group (or loss subgroup) before June 25, 1999, in a taxable year for
which the due date of the income tax return (without extensions) is
after June 25, 1999, Secs. 1.1502-95 (a), (b), (c) and (f) apply to
those corporations if the common parent makes the election described in
the second sentence of (c)(1) of that section in the time and manner
prescribed in paragraph (f) of that section.
Section 1.1502-96(d) applies to reattributions of net operating
losses or net capital losses in taxable years for which the due date of
the income tax return (without extensions) is after June 25, 1999;
except that the election under Sec. 1.1502-96(d)(5) (relating to an
election to reattribute section 382 limitation) can be made with any
election under Sec. 1.1502-20(g)(4) to reattribute to the common parent
a net operating loss or net capital loss that is timely filed on or
after June 25, 1999.
Sections 1.1502-91A through 1.1502-96A and 1.1502-98A apply to any
testing date on or after January 1, 1997, and before June 25, 1999.
Sections 1.1502-94A through 1.1502-96A also apply on any date on or
after January 1, 1997, and before June 25, 1999, on which a corporation
becomes a member of a group or on which a corporation ceases to be a
member of a loss group (or a loss subgroup). For periods before January
1, 1997, the transition rules in Sec. 1.1502-99A(c) continue to apply.
The transition rules in Sec. 1.1502-99A for periods ending before
January 1, 1997 also are clarified to provide that a member that ceases
to be a member of a group does not have a zero section 382 limitation
with respect to pre-change net operating losses allocated to that
member.
Need for Immediate Guidance
Because the temporary regulations are not applicable for taxable
years ending after June 26, 1999, it is necessary to implement these
final regulations without delay to ensure continuity of treatment of
certain attributes and to ensure that there is no period within which
the treatment of such attributes is inconsistent with the temporary
regulations and these final regulations. See section 7805(e)(2).
Accordingly, it is impracticable and contrary to the public interest to
issue this Treasury decision subject to the effective date limitation
of section 553(d) of title 5 of the United States Code (if applicable).
Special Analysis
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. 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 that these regulations principally affect
corporations filing consolidated federal income tax returns that have
net operating losses or other attributes that are subject to section
382. 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 net operating losses or other attributes subject
to section 382. Moreover, many of these corporations will not have
ownership changes. Therefore, a Regulatory Flexibility Analysis under
the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, the notice of
proposed rulemaking preceding these regulations was sent to the Small
Business Administration for comment on its impact on small business.
Drafting Information. The principal author of the final regulations
is Lee A. Kelley of the Office of Assistant Chief Counsel (Corporate),
IRS. Other personnel from the IRS and Treasury participated in their
development.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
[[Page 36125]]
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by
removing the entries for sections 1.1502-91T, 1.1502-92T, 1.1502-93T,
1.1502-94T, 1.1502-95T, 1.1502-96T, 1.1502-98T, and 1.1502-99T, and
adding entries in numerical order to read in part as follows:
Authority: 26 U.S. C. 7805 * * *
Section 1.1502-91 also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-92 also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-93 also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-94 also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-95 also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-96 also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-98 also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502.
Section 1.1502-99 also issued under 26 U.S.C. 382(m) and 26
U.S.C. 1502. * * *
Section 1.1502-91A also issued under 26 U.S.C. 382(m) and 26 U.S.C.
1502.
Section 1.1502-92A also issued under 26 U.S.C. 382(m) and 26 U.S.C.
1502.
Section 1.1502-93A also issued under 26 U.S.C. 382(m) and 26 U.S.C.
1502.
Section 1.1502-94A also issued under 26 U.S.C. 382(m) and 26 U.S.C.
1502.
Section 1.1502-95A also issued under 26 U.S.C. 382(m) and 26 U.S.C.
1502.
Section 1.1502-96A also issued under 26 U.S.C. 382(m) and 26 U.S.C.
1502.
Section 1.1502-98A also issued under 26 U.S.C. 382(m) and 26 U.S.C.
1502.
Section 1.1502-99A also issued under 26 U.S.C. 382(m) and 26 U.S.C.
1502. * * *
Par. 2. In the list below, for each section indicated in the left
column, remove the wording indicated in the middle column, and add the
wording indicated in the right column.
------------------------------------------------------------------------
Affected section Remove Add
------------------------------------------------------------------------
1.1502-91T(a)(1), first sentence Secs. 1.1502-92T Secs. 1.1502-92A
and 1.1502-93T. and 1.1502-93A.
1.1502-91T(a)(1), third sentence Sec. 1.1502-92T.. Sec. 1.1502-92A.
1.1502-91T(a)(1), third sentence Sec. 1.1502-93T.. Sec. 1.1502-93A.
1.1502-91T(a)(3)................ Secs. 1.1502-94T Secs. 1.1502-94A
and 1.1502-95T. and 1.1502-95A.
1.1502-91T(b) introductory text. Secs. 1.1502-92T Secs. 1.1502-92A
through 1.1502- through 1.1502-
99T. 99A.
1.1502-91T(b)(1)................ Secs. 1.1502-92T Secs. 1.1502-92A
through 1.1502- through 1.1502-
99T. 99A.
1.1502-91T(c)(2), second Sec. 1.1502-96T(a Sec. 1.1502-96A(a
sentence. ). ).
1.1502-91T(c)(3), Example (b), Sec. 1.1502-94T.. Sec. 1.1502-94A.
second sentence.
1.1502-91T(d)(4), second Sec. 1.1502-94T.. Sec. 1.1502-94A
sentence.
1.1502-91T(d)(5), first sentence Sec. 1.1502-95T(d Sec. 1.1502-95A(d
). ).
1.1502-91T(d)(5), second Sec. 1.1502-96T(a Sec. 1.1502-96A(a
sentence. ). ).
1.1502-91T(e)(2), Example(b), Sec. 1.1502-93T.. Sec. 1.1502-93A.
third sentence.
1.1502-91T(f)(2), Example(b)(2), Sec. 1.1502-96T(a Sec. 1.1502-96A(a
first sentence. ). ).
1.1502-91T(f)(2), Example(b)(2), Sec. 1.1502-92T(a Sec. 1.1502-92A(a
third sentence. )(2). )(2).
1.1502-91T(f)(2), Example(b)(2), Sec. 1.1502-93T.. Sec. 1.1502-93A.
fourth sentence.
1.1502-91T(f)(2), Example(c), Sec. 1.1502-96T(c Sec. 1.1502-96A(c
second sentence. ). ).
1.1502-91T(g)(1), last sentence. Sec. 1.1502-94T(c Sec. 1.1502-94A(c
). ).
1.1502-91T(g)(1), last sentence. Sec. 1.1502-96T(a Sec. 1.1502-96A(a
). ).
1.1502-91T(g)(2)(i)(A).......... Sec. 1.1502-94T(a Sec. 1.1502-94A(a
)(1)(ii). )(1)(ii).
1.1502-91T(g)(2)(i)(B).......... Sec. 1.1502-91T(d Sec. 1.1502-91A(d
)(2). )(2).
1.1502-91T(j), first sentence... Secs. 1.1502-92T Secs. 1.1502-92A
through 1.1502- through 1.1502-
99T. 99A.
1.1502-92T(a), second sentence.. Sec. 1.1502-94T.. Sec. 1.1502-94A.
1.1502-92T(a), second sentence.. Sec. 1.1502-96T(b Sec. 1.1502-96A(b
). ).
1.1502-92T(b)(1)(i)(A).......... Sec. 1.1502-91T(c Sec. 1.1502-91A(c
). ).
1.1502-92T(b)(1)(i)(B).......... Sec. 1.1502-91T(c Sec. 1.1502-91A(c
). ).
1.1502-92T(b)(1)(ii), second Sec. 1.1502-95T(b Sec. 1.1502-95A(b
sentence. ). ).
1.1502-92T(b)(1)(ii)(A)......... Sec. 1.1502-91T(d Sec. 1.1502-91A(d
). ).
1.1502-92T(b)(1)(ii)(C)......... Sec. 1.1502-91T(d Sec. 1.1502-91A(d
). ).
1.1502-92T(b)(2) Example 1(a), Sec. 1.1502-91T(c Sec. 1.1502-91A(c
sixth sentence. )(1). )(1)
1.1502-92T(b)(2) Example 3(b), Sec. 1.1502-91T(d Sec. 1.1502-91A(d
first sentence. )(1). )(1).
1.1502-92T(b)(2) Example 4(b), Sec. 1.1502-91T(d Sec. 1.1502-91A(d
first sentence. )(1). )(1).
1.1502-92T(b)(3)(iii) Example Sec. 1.1502-94T.. Sec. 1.1502-94A.
2(d), fourth sentence.
1.1502-92T(b)(3)(iii) Example Sec. 1.1502-91T(d Sec. 1.1502-91A(d
3(a), seventh sentence. ). ).
1.1502-92T(b)(4), first sentence Sec. 1.1502-96T(a Sec. 1.1502-96A(a
). ).
1.1502-92T(b)(4), first sentence Sec. 1.1502-96T(a Sec. 1.1502-96A(a
)(2). )(2).
1.1502-92T(b)(4), first sentence Sec. 1.1502-96T(b Sec. 1.1502-96A(b
). ).
1.1502-92T(b)(4), second Sec. 1.1502-96T(a Sec. 1.1502-96A(a
sentence. ) applies, see ) applies, see
Sec. 1.1502-96T( Sec. 1.1502-96A(
c). c).
1.1502-92T(e)(1)(ii)............ Sec. 1.1502-96T(b Sec. 1.1502-96A(b
). ).
1.1502-92T(e)(2), fifth sentence Sec. 1.1502-96T(a Sec. 1.1502-96A(a
). ).
1.1502-92T(e)(2), fifth sentence Sec. 1.1502-91T(d Sec. 1.1502-91A(d
). ).
1.1502-93T(a)(2)................ Sec. 1.1502-95T(c Sec. 1.1502-95A(c
). ).
1.1502-93T(b)(2), last sentence. Sec. 1.382-8T.... Sec. 1.382-8.
1.1502-93T(b)(2), fourth Sec. 1.1502-91T(g Sec. 1.1502-91A(g
sentence. )(2). )(2).
1.1502-94T(a)(1)(i)............. Sec. 1.1502-91T(d Sec. 1.1502-91A(d
)(1). )(1).
1.1502-94T(a)(1)(ii)............ Sec. 1.1502-91T(d Sec. 1.1502-91A(d
)(2). )(2).
1.1502-94T(a)(3)................ Sec. 1.1502-91T(d Sec. 1.1502-91A(d
). ).
1.1502-94T(a)(3)................ Secs. 1.1502-92T Secs. 1.1502-92A
and 1.1502-93T. and 1.1502-93A.
1.1502-94T(a)(4), first sentence Sec. 1.1502-96T(a Sec. 1.1502-96A(a
). ).
1.1502-94T(a)(4), first sentence Sec. 1.1502-96T(a Sec. 1.1502-96A(a
)(2). )(2).
[[Page 36126]]
1.1502-94T(a)(4), first sentence Sec. 1.1502-92T(b Sec. 1.1502-92A(b
)(1)(i). )(1)(i).
1.1502-94T(a)(4), first sentence Sec. 1.1502-96T(b Secs. 1.1502-96A(
). b).
1.1502-94T(a)(4), second Sec. 1.1502-96T(a Sec. 1.1502-96A(a
sentence. ) applies, see ) applies, see
Sec. 1.1502-96T( Sec. 1.1502-96A(
c). c).
1.1502-94T(a)(5)................ Sec. 1.1502-96T(c Sec. 1.1502-96A(c
). ).
1.1502-94T(b)(4) Example 1(b), Sec. 1.1502-91T(d Sec. 1.1502-91A(d
first sentence. ). ).
1.1502-94T(b)(4) Example 2(b),.. Sec. 1.1502-91T(d Sec. 1.1502-91A(d
)(1). )(1).
1.1502-94T(b)(4) Example 2(d), Sec. 1.1502-96T(a Sec. 1.1502-96A(a
first sentence. ). ).
1.1502-94T(b)(4) Example 2(d), Sec. 1.1502-91T(c Sec. 1.1502-91A(c
third sentence. ). ).
1.1502-94T(b)(4) Example 3(b), Sec. 1.1502-91T(d Sec. 1.1502-91A(d
first sentence. )(1). )(1).
1.1502-94T(b)(4) Example 3(c), Secs. 1.1502-96T( Secs. 1.1502-96A(
second sentence. a) and 1.1502- a) and 1.1502-
91T(c)(2). 91A(c)(2).
1.1502-94T(c), first sentence... Secs. 1.1502-91T( Secs. 1.1502-91A(
g) and (h). g) and (h) and
1.1502-93A(c).
1.1502-94T(c), second sentence.. Sec. 1.1502-91T(g Sec. 1.1502-91A(g
)(3). )(3).
1.1502-94T(d), fifth sentence... Sec. 1.1502-96T(a Sec. 1.1502-96A(a
). ).
1.1502-94T(d), sixth sentence... Sec. 1.1502-92T(e Sec. 1.1502-92A(e
)(1). )(1).
1.1502-95T(a)(3), paragraph Secs. 1.1502-91T Secs. 1.1502-91A
heading. through 1.1502- through 1.1502-
93T. 93A.
1.1502-95T(a)(3)................ Secs. 1.1502-91T Secs. 1.1502-91A
through 1.1502- through 1.1502-
93T. 93A.
1.1502-95T(b)(1) introductory Secs. 1.1502-91T Secs. 1.1502-91A
text, first sentence. through 1.1502- through 1.1502-
93T. 93A.
1.1502-95T(b)(2) introductory Sec. 1.1502-92T.. Sec. 1.1502-92A.
text.
1.1502-95T(b)(4) Example(2)(a), Sec. 1.1502-92T.. Sec. 1.1502-92A.
second sentence.
1.1502-95T(c)(2) introductory Sec. 1.1502-93T.. Sec. 1.1502-93A.
text.
1.1502-95T(c)(7) Example(1)(a), Sec. 1.1502-92T.. Sec. 1.1502-92A.
third sentence.
1.1502-95T(d)(2) Example(1)(a), Sec. 1.1502-92T.. Sec. 1.1502-92A.
fifth sentence.
1.1502-95T(d)(2) Example(3)(a), Sec. 1.1502-92T(b Sec. 1.1502-92A(b
fourth sentence. )(1)(ii). )(1)(ii).
1.1502-95T(e)(1) introductory Sec. 1.1502-95T.. Sec. 1.1502-95A.
text.
1.1502-96T(a)(2) introductory Sec. 1.1502-91T(c Sec. 1.1502-91A(c
text, first sentence. )(1)(i). )(1)(i).
1.1502-96T(a)(2)(ii)............ Sec. 1.1502-91T(c Sec. 1.1502-91A(c
). ).
1.1502-96T(a)(3), second Sec. 1.1502-91T(f Sec. 1.1502-91A(f
sentence. )(2). )(2).
1.1502-96T(a)(5), first sentence Secs. 1.1502-91T Secs. 1.1502-91A
through 1.1502- through 1.1502-
95T. 95A.
1.1502-96T(a)(5), first sentence Sec. 1.1502-98T.. Sec. 1.1502-98A.
1.1502-96T(b)(1) introductory Sec. 1.1502-92T.. Sec. 1.1502-92A.
text, first sentence.
1.1502-96T(b)(1) introductory Sec. 1.1502-91T(c Sec. 1.1502-91A(c
text, first sentence. )(1). )(1).
1.1502-96T(b)(1) introductory Sec. 1.1502-91T(d Sec. 1.1502-91A(d
text, first sentence. ). ).
1.1502-96T(b)(1) introductory Sec. 1.1502-95T(b Sec. 1.1502-95A(b
text, second sentence. ). ).
1.1502-96T(b)(3), paragraph Secs. 1.1502-91T, Secs. 1.1502-91A,
heading. 1.1502-92T, and 1.1502-92A, and
1.1502-94T. 1.1502-94A.
1.1502-96T(b)(3), first sentence Sec. 1.1502-92T.. Sec. 1.1502-92A.
1.1502-96T(b)(3), first sentence Sec. 1.1502-92T.. Sec. 1.1502-92A.
1.1502-96T(b)(3), second Sec. 1.1502-94T.. Sec. 1.1502-94A.
sentence.
1.1502-96(c), last sentence..... Sec. 1.382-5T(d). Sec. 1.382-5(d).
1.1502-98T, first sentence...... Secs. 1.1502-91T Secs. 1.1502-91A
through 1.1502- through 1.1502-
96T. 96A.
1.1502-98T, second sentence..... Secs. 1.1502-91T Secs. 1.1502-91A
through 1.1502- through 1.1502-
96T. 96A
1.1502-98T, third sentence...... Sec. 1.1502-92T.. Sec. 1.1502-92A.
1.1502-98T, third sentence...... Sec. 1.1502-93T.. Sec. 1.1502-93A
1.1502-99T(a), first sentence... Sections 1.1502- Sections 1.1502-
91T through 91A through
1.1502-96T and 1.1502-96A and
1.1502-98T. 1.1502-98A.
1.1502-99T(a), second sentence.. Sections 1.1502- Sections 1.1502-
94T through 94A through
1.1502-96T. 1.1502-96A.
1.1502-99T(b), first sentence... Secs. 1.1502-91T Secs. 1.1502-91A
through 1.1502- through 1.1502-
96T and 1.1502- 96A and 1.1502-
98T. 98A.
1.1502-99T(b), second sentence.. Sec. 1.1502-92T(b Sec. 1.1502-92A(b
)(1)(i). )(1)(i).
1.1502-99T(b), third sentence... Sec. 1.1502-92T(b Sec. 1.1502-92A(b
)(1). )(1).
1.1502-99T(c)(1)(ii)............ Secs. 1.1502-91T Secs. 1.1502-91A
through 1.1502- through 1.1502-
96T and 1.1502- 96A and 1.1502-
98T. 98A
1.1502-99T(c)(1)(iii), first Secs. 1.1502-91T Secs. 1.1502-91A
sentence. through 1.1502- through 1.1502-
96T and 1.1502- 96A and 1.1502-
98T. 98A.
1.1502-99T(c)(1)(iii), second Sec. 1.1502-92T.. Sec. 1.1502-92A.
sentence.
1.1502-99T(c)(2)(i), first Secs. 1.1502-91T Secs. 1.1502-91A
sentence. through 1.1502- 1.1502-96A and
96T and through 1.1502-98A.
1.1502-98T.
1.1502-99T(c)(2)(i), first Sec. 1.1502-95T(c Sec. 1.1502-95A(c
sentence. ). ).
1.1502-99T(c)(2)(i), fifth Sec. 1.1502-91T(d Sec. 1.1502-91A(d
sentence. )(2)(i). )(2)(i).
1.1502-99T(c)(2)(ii)............ Sec. 1.382-8T.... Sec. 1.382-8.
1.1502-99T(c)(2)(ii)............ Sec. 1.382-8T(h). Sec. 1.382-8(h).
1.1502-99T(d)(1)................ Sec. 1.1502-92T.. Sec. 1.1502-92A.
[[Page 36127]]
1.1502-99T(d)(3)................ Secs. 1.1502-91T Secs. 1.1502-91A
through 1.1502- through 1.1502-
96T and 1.1502- 96A and 1.1502-
98T. 98A.
------------------------------------------------------------------------
Par. 3. Section 1.1502-20 is amended as follows:
1. Adding a sentence to the end of paragraph (g)(1).
2. Redesignating paragraph (g)(5) as paragraph (g)(4).
3. Paragraph (g)(4)(i)(A) is amended by removing ``, and'' and
adding ``;'' in its place.
4. Paragraph (g)(4)(i)(B) is amended by removing the period at the
end of the paragraph and adding ``; and'' in its place.
5. Adding a new paragraph (g)(4)(i)(C) immediately after paragraph
(g)(4)(i)(B) and before paragraph (g)(4)(i) concluding text.
6. Redesignating paragraph (g)(4)(ii) as paragraph (g)(4)(iii).
7. Adding a new paragraph (g)(4)(ii).
The revisions and additions read as follows:
Sec. 1.1502-20 Disposition or deconsolidation of subsidiary stock.
* * * * *
(g) * * *
(1) * * * See Sec. 1.1502-96(d) for rules relating to section 382
and the reattribution of losses under this paragraph (g).
* * * * *
(4)
(i) * * *
(C) If the common parent is reattributing to itself all or any part
of a section 382 limitation pursuant to Sec. 1.1502-96(d)(5), the
information required by paragraph (g)(4)(ii) of this section.
* * * * *
(ii) Reattribution of section 382 limitation. The information
required by this paragraph (g)(4)(ii) is a separate list for each
subsidiary (or a separate list for two or more subsidiaries that are
members of a loss subgroup whose pre-change subgroup losses are being
reattributed) with respect to which an apportionment of a separate
section 382 limitation or subgroup section 382 limitation is being
made, setting forth--
(A) The name and E.I.N. of the subsidiary (or subsidiaries that
were members of a loss subgroup);
(B) A statement entitled ``THIS IS AN ELECTION UNDER Sec. 1.1502-
96(d)(5) TO APPORTION ALL OR PART OF [insert A SEPARATE or A SUBGROUP
or BOTH A SEPARATE AND A SUBGROUP] SECTION 382 LIMITATION TO [insert
name and E.I.N. of the common parent]'';
(C) The date of the ownership change giving rise to the separate
section 382 limitation or subgroup section 382 limitation that is being
apportioned;
(D) The amount of the separate (or subgroup) section 382 limitation
for the taxable year in which the reattribution occurs (determined
without reference to any apportionment under this section or
Sec. 1.1502-95(c));
(E) The amount of each net operating loss carryover or capital loss
carryover, and the year in which it arose, of the subsidiary (or
subsidiaries) that is subject to the separate section 382 limitation or
subgroup section 382 limitation that is being apportioned to the common
parent, and the amount of the value element and adjustment element of
that limitation that is apportioned to the common parent.
* * * * *
Par. 3a. Immediately following Sec. 1.1502-79A, an undesignated
centerheading is added to read as follows:
Regulations Applying Section 382 With Respect to Testing Dates (and
Corporations Joining or Leaving Consolidated Groups) Before June
25, 1999
Par. 4. Section Sec. 1.1502-90T is amended as follows:
1. Redesignating Sec. 1.1502-90T as Sec. 1.1502-90A [newly
redesignated Sec. 1.1502-90A will appear after the centerheading added
in Par. 3a.]
2. Revising the section heading and the introductory text of newly
designated Sec. 1.1502-90A.
3. Redesignating the entries for Sec. 1.1502-91T through
Sec. 1.1502-99T as Sec. 1.1502-91A through Sec. 1.1502-99A and revising
the section headings.
4. Revising the entries for paragraph (a) of newly designated
Sec. 1.1502-99A.
The revisions read as follows:
Sec. 1.1502-90A Table of contents.
The following list contains the major headings in Secs. 1.1502-91A
through 1.1502-99A:
Sec. 1.1502-91A Application of Section 382 With Respect to a
Consolidated Group Generally Applicable for Testing Dates Before
June 25, 1999.
* * * * *
Sec. 1.1502-92A Ownership change of a loss group or a loss
subgroup generally applicable for testing dates before June 25,
1999.
* * * * *
Sec. 1.1502-93A Consolidated section 382 limitation (or subgroup
section 382 limitation) generally applicable for testing dates
before June 25, 1999.
* * * * *
Sec. 1.1502-94A Coordination with section 382 and the regulations
thereunder when a corporation becomes a member of a consolidated
group generally applicable for corporations becoming members of a
group before June 25, 1999.
* * * * *
Sec. 1.1502-95A Rules on ceasing to be a member of a consolidated
group (or loss subgroup) generally applicable for corporations
ceasing to be members before June 25, 1999.
* * * * *
Sec. 1.1502-96A Miscellaneous rules generally applicable for
testing dates before June 25, 1999.
* * * * *
Sec. 1.1502-97A Special rules under section 382 for members under
the jursidiction of a court in a title 11 or similar case.
[Reserved].
Sec. 1.1502-98A Coordination with section 383 generally applicable
for testing dates (or members joining or leaving a group) before
June 25, 1999.
* * * * *
Sec. 1.1502-99A Effective dates.
(a) Effective date.
(1) In general.
(2) Anti-duplication rules for recognized built-in gain.
* * * * *
Par. 5. Section 1.1502-91T is amended as follows:
1. Redesignating Sec. 1.1502-91T as Sec. 1.1502-91A.
2. Revising the section heading of newly designated Sec. 1.1502-
91A.
3. Amending paragraph (h)(2) by removing the words ``or an
intercompany obligation'' and replacing them with ``(or an intercompany
obligation disposed of before June 25, 1999''.
The revision reads as follows:
Sec. 1.1502-91A Application of section 382 with respect to a
consolidated group generally applicable for testing dates before June
25, 1999.
* * * * *
Par. 6. Section 1.1502-92T is revised as Sec. 1.1502-92A, and the
section heading is revised to read as follows:
[[Page 36128]]
Sec. 1.1502-92A Ownership change of a loss group or a loss subgroup
generally applicable for testing dates before June 25, 1999.
* * * * *
Par 6a. Section 1.1502-93T is amended as follows:
1. Redesignating Sec. 1.1502-93T as Sec. 1.1502-93A.
2. Revising the section heading of newly redesignated Sec. 1.1502-
93A.
3. Adding a sentence at the end of paragraph (c).
The additions and revisions read as follows:
Sec. 1.1502-93A Consolidated section 382 limitation (or subgroup
section 382 limitation) generally applicable for testing dates before
June 25, 1999.
* * * * *
(c) * * * See Sec. 1.1502-99A(a)(2) for a special rule relating to
the application of Sec. 1.502-93(c)(2) to consolidated return years for
which the due date of the return is after June 25, 1999.
* * * * *
Par. 7. Section 1.1502-94T is amended as follows:
1. Redesignating Sec. 1.1502-94T as Sec. 1.1502-94A.
2. Revising the section heading of newly redesignated Sec. 1.1502-
94A.
3. Revising the last sentence of paragraph (b)(4), Example 3(b).
The revision reads as follows:
Sec. 1.1502-94A Coordination with section 382 and the regulations
thereunder when a corporation becomes a member of a consolidated group)
generally applicable for corporations becoming members of a group
before June 25, 1999.
* * * * *
(b) * * *
(4) * * *
Example 3. * * *
(b) * * * See also Sec. 1.1502-21T in effect prior to June 25,
1999, contained in 26 CFR Part 1, revised April 1, 1999, or
Sec. 1.1502-21, as applicable.
* * * * *
Par. 8. Redesignate Sec. 1.1502-95T as Sec. 1.1502-95A and revise
the section heading to read as follows:
Sec. 1.1502-95A Rules on ceasing to be a member of a consolidated
group generally applicable for corporations ceasing to be members
before June 25, 1999.
* * * * *
Par. 9. Redesignate Sec. 1.1502-96T as Sec. 1.1502-96A and revise
the section heading to read as follows:
Sec. 1.1502-96A. Miscellaneous rules generally applicable for testing
dates before June 25, 1999.
* * * * *
Par. 10. Redesignate Sec. 1.1502-97T as Sec. 1.1502-97A and revise
the section heading to read as follows:
Sec. 1.1502-97A Special rules under section 382 for members under the
jurisdiction of a court in a title 11 or similar case.
[Reserved].
* * * * *
Par. 11. Redesignate Sec. 1.1502-98T as Sec. 1.1502-98A and revise
the section heading to read as follows:
Sec. 1.1502-98A Coordination with section 383 generally applicable for
testing dates (or members joining or leaving a group) before June 25,
1999.
* * * * *
Par. 12. Section 1.1502-99T is amended as follows:
1. Redesignating Sec. 1.1502-99T as Sec. 1.1502-99A.
2. Revising the section heading.
3. Revising paragraph (a).
4. Amending paragraph (c)(2)(i) by removing the language
``(relating to the apportionment'' in the first sentence and adding
``and (b)(2)(ii)(relating to the apportionment''.
The revisions read as follows:
Sec. 1.1502-99A Effective dates.
(a) Effective date--(1) In general. Except as provided in
Sec. 1.1502-99(b), Secs. 1.1502-91A through 1.1502-96A and 1.1502-98A
apply to any testing date on or after January 1, 1997, and before June
25, 1999.
Sections 1.1502-94A through 1.1502-96A also apply on any date on or
after January 1, 1997, and before June 25, 1999, on which a corporation
becomes a member of a group or on which a corporation ceases to be a
member of a loss group (or a loss subgroup).
(2) Anti-duplication rules for recognized built-in gain. Section
1.1502-93(c)(2)(relating to recognized built-in gain of a loss group or
loss subgroup) applies to taxable years for which the due date for
income tax returns (without extensions) is after June 25, 1999,
* * * * *
Par. 13. Sections 1.1502-90 through 1.1502-99 are added to read as
follows:
Sec. 1.1502-90 Table of contents.
The following list contains the major headings in Secs. 1.1502-91
through 1.1502-99:
Sec. 1.1502-91 Application of section 382 with respect to a
consolidated group.
(a) Determination and effect of an ownership change.
(1) In general.
(2) Special rule for post-change year that includes the change
date.
(3) Cross-reference.
(b) Definitions and nomenclature.
(c) Loss group.
(1) Defined.
(2) Coordination with rule that ends separate tracking.
(3) Example.
(d) Loss subgroup.
(1) Net operating loss carryovers.
(2) Net unrealized built-in loss.
(3) Loss subgroup parent.
(4) Election to treat loss subgroup parent requirement as
satisfied.
(5) Principal purpose of avoiding a limitation.
(6) Special rules.
(7) Examples.
(e) Pre-change consolidated attribute.
(1) Defined.
(2) Example.
(f) Pre-change subgroup attribute.
(1) Defined.
(2) Example.
(g) Net unrealized built-in gain and loss.
(1) In general.
(2) Members included.
(i) Consolidated group with a net operating loss.
(ii) Determination whether a consolidated group has a net
unrealized built-in loss.
(iii) Loss subgroup with net operating loss carryovers.
(iv) Determination whether subgroup has a net unrealized built-
in loss.
(v) Separate determination of section 382 limitation for
recognized built-in losses and net operating losses.
(3) Coordination with rule that ends separate tracking.
(4) Acquisitions of built-in gain or loss assets.
(5) Indirect ownership.
(6) Common parent not common parent for five years.
(h) Recognized built-in gain or loss.
(1) In general. [Reserved]
(2) Disposition of stock or an intercompany obligation of a
member.
(3) Intercompany transactions.
(4) Exchanged basis property.
(i) [Reserved]
(j) Predecessor and successor corporations.
Sec. 1.1502-92 Ownership change of a loss group or a loss
subgroup.
(a) Scope.
(b) Determination of an ownership change.
(1) Parent change method.
(i) Loss group.
(ii) Loss subgroup.
(iii) Special rule if election regarding section 1504(a)(1)
relationship is made.
(2) Examples.
(3) Special adjustments.
(i) Common parent succeeded by a new common parent.
(ii) Newly created loss subgroup parent.
(iii) Examples.
(4) End of separate tracking of certain losses.
(c) Supplemental rules for determining ownership change.
(1) Scope.
(2) Cause for applying supplemental rule.
(3) Operating rules.
(4) Supplemental ownership change rules.
(i) Additional testing dates for the common parent (or loss
subgroup parent).
(ii) Treatment of subsidiary stock as stock of the common parent
(or loss subgroup parent).
(iii) Different testing periods.
[[Page 36129]]
(iv) Disaffiliation of a subsidiary.
(v) Subsidiary stock acquired first.
(vi) Anti-duplication rule.
(5) Examples.
(d) Testing period following ownership change under this
section.
(e) Information statements.
(1) Common parent of a loss group.
(2) Abbreviated statement with respect to loss subgroups.
Sec. 1.1502-93 Consolidated section 382 limitation (or subgroup
section 382 limitation).
(a) Determination of the consolidated section 382 limitation (or
subgroup section 382 limitation).
(1) In general.
(2) Coordination with apportionment rule.
(b) Value of the loss group (or loss subgroup).
(1) Stock value immediately before ownership change.
(2) Adjustment to value.
(i) In general.
(ii) Anti-duplication.
(3) Examples.
(c) Recognized built-in gain of a loss group or loss subgroup.
(1) In general.
(2) Adjustments.
(d) Continuity of business.
(1) In general.
(2) Example.
(e) Limitations of losses under other rules.
Sec. 1.1502-94 Coordination with section 382 and the regulations
thereunder when a corporation becomes a member of a consolidated
group.
(a) Scope.
(1) In general.
(2) Successor corporation as new loss member.
(3) Coordination in the case of a loss subgroup.
(4) End of separate tracking of certain losses.
(5) Cross-reference.
(b) Application of section 382 to a new loss member.
(1) In general.
(2) Adjustment to value.
(3) Pre-change separate attribute defined.
(4) Examples.
(c) Built-in gains and losses.
(d) Information statements.
Sec. 1.1502-95 Rules on ceasing to be a member of a consolidated
group (or loss subgroup).
(a) In general.
(1) Consolidated group.
(2) Election by common parent.
(3) Coordination with Secs. 1.1502-91 through 1.1502-93.
(b) Separate application of section 382 when a member leaves a
consolidated group.
(1) In general.
(2) Effect of a prior ownership change of the group.
(3) Application in the case of a loss subgroup.
(4) Examples.
(c) Apportionment of a consolidated section 382 limitation.
(1) In general.
(2) Amount which may be apportioned.
(i) Consolidated section 382 limitation.
(ii) Net unrealized built-in gain.
(3) Effect of apportionment on the consolidated group.
(i) Consolidated section 382 limitation.
(ii) Net unrealized built-in gain.
(4) Effect on corporations to which an apportionment is made.
(i) Consolidated section 382 limitation.
(ii) Net unrealized built-in gain.
(5) Deemed apportionment when loss group terminates.
(6) Appropriate adjustments when former member leaves during the
year.
(7) Examples.
(d) Rules pertaining to ceasing to be a member of a loss
subgroup.
(1) In general.
(2) Exceptions.
(3) Examples.
(e) Allocation of net unrealized built-in loss.
(1) In general.
(2) Amount of allocation.
(i) In general.
(ii) Transferred basis property and deferred gain or loss.
(iii) Assets for which gain or loss has been recognized.
(iv) Exchanged basis property.
(v) Two or more members depart during the same year.
(vi) Anti-abuse rule.
(3) Effect of the allocation on the consolidated group.
(4) Effect on corporations to which the allocation is made.
(5) Subgroup principles.
(6) Apportionment of consolidated section 382 limitation (or
subgroup section 382 limitation).
(i) In general.
(ii) Special rule for former members that become members of the
same consolidated group.
(7) Examples.
(8) Reporting requirement.
(f) Filing the election to apportion the section 382 limitation
and net unrealized built-in gain.
(1) Form of the election to apportion.
(2) Signing of the election.
(3) Filing of the election.
(4) Revocation of election.
Sec. 1.1502-96 Miscellaneous rules.
(a) End of separate tracking of losses.
(1) Application.
(2) Effect of end of separate tracking.
(i) Net operating loss carryovers.
(ii) Net unrealized built-in losses.
(iii) Common parent not common parent for five years.
(3) Continuing effect of end of separate tracking.
(i) In general.
(ii) Example.
(4) Special rule for testing period.
(5) Limits on effects of end of separate tracking.
(b) Ownership change of subsidiary.
(1) Ownership change of a subsidiary because of options or plan
or arrangement.
(2) Effect of the ownership change.
(i) In general.
(ii) Pre-change losses.
(3) Coordination with Secs. 1.1502-91, 1.1502-92, and 1.1502-94.
(4) Example.
(c) Continuing effect of an ownership change.
(d) Losses reattributed under Sec. 1.1502-20(g).
(1) In general.
(2) Deemed section 381(a) transaction.
(3) Rules relating to owner shifts.
(i) In general.
(ii) Examples.
(4) Rules relating to the section 382 limitation.
(i) Reattributed loss is a pre-change separate attribute of a
new loss member.
(ii) Reattributed loss is a pre-change subgroup attribute.
(iii) Potential application of section 382(l)(1).
(iv) Duplication or omission of value.
(v) Special rule for continuity of business requirement.
(5) Election to reattribute section 382 limitation.
(i) Effect of election.
(ii) Examples.
(e) Time and manner of making election under Sec. 1.1502-
91(d)(4).
(1) In general.
(2) Election statement.
Sec. 1.1502-97 Special rules under section 382 for members under
the jurisdiction of a court in a title 11 or similar case.
[Reserved].
Sec. 1.1502-98 Coordination with section 383.
Sec. 1.1502-99 Effective dates.
(a) Effective date.
(b) Special rules.
(1) Election to treat subgroup parent requirement as satisfied.
(2) Principal purpose of avoiding a limitation.
(3) Ceasing to be a member of a loss subgroup.
(i) Ownership change of a loss subgroup.
(ii) Expiration of 5-year period.
(4) Reattribution of net operating loss carryovers under
Sec. 1.1502-20(g).
(5) Election to apportion net unrealized built-in gain.
(c) Testing period may include a period beginning before June
25, 1999.
(1) In general.
(2) Transition rule for net unrealized built-in losses.
Sec. 1.1502-91 Application of section 382 with respect to a
consolidated group.
(a) Determination and effect of an ownership change--(1) In
general. This section and Secs. 1.1502-92 and 1.1502-93 set forth the
rules for determining an ownership change under section 382 for members
of consolidated groups and the section 382 limitations with respect to
attributes described in paragraphs (e) and (f) of this section. These
rules generally provide that an ownership change and the section 382
limitation are determined with respect to these attributes for the
group (or loss subgroup) on a single entity basis and
[[Page 36130]]
not for its members separately. Following an ownership change of a loss
group (or a loss subgroup) under Sec. 1.1502-92, the amount of
consolidated taxable income for any post-change year which may be
offset by pre-change consolidated attributes (or pre-change subgroup
attributes) shall not exceed the consolidated section 382 limitation
(or subgroup section 382 limitation) for such year as determined under
Sec. 1.1502-93.
(2) Special rule for post-change year that includes the change
date. If the post-change year includes the change date, section
382(b)(3)(A) is applied so that the consolidated section 382 limitation
(or subgroup section 382 limitation) does not apply to the portion of
consolidated taxable income that is allocable to the period in the year
on or before the change date. See generally Sec. 1.382-6 (relating to
the allocation of income and loss). The allocation of consolidated
taxable income for the post-change year that includes the change date
must be made before taking into account any consolidated net operating
loss deduction (as defined in Sec. 1.1502-21(a)).
(3) Cross-reference. See Secs. 1.1502-94 and 1.1502-95 for rules
that apply section 382 to a corporation that becomes or ceases to be a
member of a group or loss subgroup.
(b) Definitions and nomenclature. For purposes of this section and
Secs. 1.1502-92 through 1.1502-99, unless otherwise stated:
(1) The definitions and nomenclature contained in section 382 and
the regulations thereunder (including the nomenclature and assumptions
relating to the examples in Sec. 1.382-2T(b)) and this section and
Secs. 1.1502-92 through 1.1502-99 apply.
(2) In all examples, all groups file consolidated returns, all
corporations file their income tax returns on a calendar year basis,
the only 5-percent shareholder of a corporation is a public group, the
facts set forth the only owner shifts during the testing period, no
election is made under paragraph (d)(4) of this section, and each asset
of a corporation has a value equal to its adjusted basis.
(3) As the context requires, references to Secs. 1.1502-91 through
1.1502-96 include references to corresponding provisions of
Secs. 1.1502-91A through 1.1502-96A. For example, a reference to an
ownership change under Sec. 1.1502-92 in Sec. 1.1502-95(b) can include
a reference to an ownership change under Sec. 1.1502-92A.
(c) Loss group--(1) Defined. A loss group is a consolidated group
that--
(i) Is entitled to use a net operating loss carryover to the
taxable year that did not arise (and is not treated under Sec. 1.1502-
21(c) as arising) in a SRLY;
(ii) Has a consolidated net operating loss for the taxable year in
which a testing date of the common parent occurs (determined by
treating the common parent as a loss corporation); or
(iii) Has a net unrealized built-in loss (determined under
paragraph (g) of this section by treating the date on which the
determination is made as though it were a change date).
(2) Coordination with rule that ends separate tracking. A
consolidated group may be a loss group because a member's losses that
arose in (or are treated as arising in) a SRLY are treated as described
in paragraph (c)(1)(i) of this section. See Sec. 1.1502-96(a).
(3) Example. The following example illustrates the principles of
this paragraph (c):
Example. Loss group. (i) L and L1 file separate returns and each
has a net operating loss carryover arising in Year 1 that is carried
over to Year 2. A owns 40 shares and L owns 60 shares of the 100
outstanding shares of L1 stock. At the close of Year 1, L buys the
40 shares of L1 stock from A. For Year 2, L and L1 file a
consolidated return. The following is a graphic illustration of
these facts:
BILLING CODE 4830-01-U
[[Page 36131]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.000
BILLING CODE 4830-01-C
[[Page 36132]]
(ii) L and L1 become a loss group at the beginning of Year 2
because the group is entitled to use the Year 1 net operating loss
carryover of L, the common parent, which did not arise (and is not
treated under Sec. 1.1502-21(c) as arising) in a SRLY. See
Sec. 1.1502-94 for rules relating to the application of section 382
with respect to L1's net operating loss carryover from Year 1 which
did arise in a SRLY.
(d) Loss subgroup--(1) Net operating loss carryovers. Two or more
corporations that become members of a consolidated group (the current
group) compose a loss subgroup if--
(i) They were affiliated with each other in another group (the
former group), whether or not the group was a consolidated group;
(ii) They bear the relationship described in section 1504(a)(1) to
each other through a loss subgroup parent immediately after they become
members of the current group (or are deemed to bear that relationship
as a result of an election described in paragraph (d)(4) of this
section); and
(iii) At least one of the members carries over a net operating loss
that did not arise (and is not treated under Sec. 1.1502-21(c) as
arising) in a SRLY with respect to the former group.
(2) Net unrealized built-in loss. Two or more corporations that
become members of a consolidated group compose a loss subgroup if
they--
(i) Have been continuously affiliated with each other for the 5
consecutive year period ending immediately before they become members
of the group;
(ii) Bear the relationship described in section 1504(a)(1) to each
other through a loss subgroup parent immediately after they become
members of the current group (or are deemed to bear that relationship
as a result of an election described in paragraph (d)(4) of this
section); and
(iii) Have a net unrealized built-in loss (determined under
paragraph (g) of this section on the day they become members of the
group by treating that day as though it were a change date).
(3) Loss subgroup parent. A loss subgroup parent is the corporation
that bears the same relationship to the other members of the loss
subgroup as a common parent bears to the members of a group.
(4) Election to treat loss subgroup parent requirement as
satisfied--(i) In general. Solely for purposes of paragraphs (d)(1)(i)
and (2)(ii) of this section, two or more corporations that become
members of a consolidated group at the same time and that were
affiliated with each other immediately before becoming members of the
group are deemed to bear a section 1504(a)(1) relationship to each
other immediately after they become members of the group if the common
parent of that group makes an election under this paragraph (d)(4) with
respect to those members. See Sec. 1.1502-96(e) for the time and manner
of making the election.
(ii) Members included. An election under this paragraph (d)(4)
includes all corporations that become members of the current group at
the same time and that were affiliated with each other immediately
before they become members of the current group.
(iii) Each member included treated as loss subgroup parent. If the
members to which this election applies are a loss subgroup described in
paragraph (d)(1) or (2) of this section, then each member is treated as
a loss subgroup parent. See Sec. 1.1502-92(b)(1)(iii) for special rules
relating to an ownership change of a loss subgroup if the election
under this paragraph (d)(4) is made.
(5) Principal purpose of avoiding a limitation. The corporations
described in paragraphs (d)(1) or (2) of this section do not compose a
loss subgroup if any one of them is formed, acquired, or availed of
with a principal purpose of avoiding the application of, or increasing
any limitation under, section 382. Instead, Sec. 1.1502-94 applies with
respect to the attributes of each such corporation. Any member excluded
from a loss subgroup, if excluded with a principal purpose of so
avoiding or increasing any section 382 limitation, is treated as
included in the loss subgroup. This paragraph (d)(5) does not apply
solely because, in connection with becoming members of the group, the
members of a group (or loss subgroup) are rearranged (or, in the case
of the preceding sentence, are not rearranged) to bear a relationship
to the other members described in section 1504(a)(1).
(6) Special rules. See Sec. 1.1502-95(d) for rules concerning when
a corporation ceases to be a member of a loss subgroup, and for certain
exceptions that may apply if a member does not continue to satisfy the
loss subgroup parent requirement within the current group. See also
Sec. 1.1502-96(a) for a special rule regarding the end of separate
tracking of SRLY losses of a member that has an ownership change or
that has been a member of a group for at least 5 consecutive years.
(7) Examples. The following examples illustrate the principles of
this paragraph (d):
Example 1. Loss subgroup. (i) P owns all the L stock and L owns
all the L1 stock. The P group has a consolidated net operating loss
arising in Year 1 that is carried to Year 2. On May 2, Year 2, P
sells all the stock of L to A, and L and L1 thereafter file
consolidated returns. A portion of the Year 1 consolidated net
operating loss is apportioned under Sec. 1.1502-21(b) to each of L
and L1, which they carry over to Year 2. The following is a graphic
illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36133]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.001
BILLING CODE 4830-01-C
[[Page 36134]]
(ii) (a) L and L1 compose a loss subgroup within the meaning of
paragraph (d)(1) of this section because--
(A) They were affiliated with each other in the P group (the
former group);
(B) They bear a relationship described in section 1504(a)(1) to
each other through a loss subgroup parent (L) immediately after they
became members of the L group; and
(C) At least one of the members (here, both L and L1) carries
over a net operating loss to the L group (the current group) that
did not arise in a SRLY with respect to the P group.
(b) Under paragraph (d)(3) of this section, L is the loss
subgroup parent of the L loss subgroup.
Example 2. Loss subgroup--section 1504(a)(1) relationship. (i) P
owns all the stock of L and L1. L owns all the stock of L2. L1 and
L2 own 40 percent and 60 percent of the stock of L3, respectively.
The P group has a consolidated net operating loss arising in Year 1
that is carried over to Year 2. On May 22, Year 2, P sells all the
stock of L and L1 to P1, the common parent of another consolidated
group. The Year 1 consolidated net operating loss is apportioned
under Sec. 1.1502-21(b), and each of L, L1, L2, and L3 carries over
a portion of such loss to the first consolidated return year of the
P1 group ending after the acquisition. The following is a graphic
illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36135]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.002
BILLING CODE 4830-01-C
[[Page 36136]]
(ii) L and L2 compose a loss subgroup within the meaning of
paragraph (d)(1) of this section. Neither L1 nor L3 is included in a
loss subgroup because neither bears a relationship described in section
1504(a)(1) through a loss subgroup parent to any other member of the
former group immediately after becoming members of the P1 group.
Example 3. Loss subgroup--section 1504(a)(1) relationship. The
facts are the same as in Example 2, except that the stock of L1 is
transferred to L in connection with the sale of the L stock to P1.
L, L1, L2, and L3 compose a loss subgroup within the meaning of
paragraph (d)(1) of this section because--
(i) They were affiliated with each other in the P group (the
former group);
(ii) They bear a relationship described in section 1504(a)(1) to
each other through a loss subgroup parent (L) immediately after they
become members of the P1 group; and
(iii) At least one of the members (here, each of L, L1, L2, and
L3) carries over a net operating loss to the P1 group (the current
group).
Example 4. Loss subgroup--elective section 1504(a)(1)
relationship. The facts are the same as in Example 2, except that P1
makes the election under paragraph (d)(4) of this section. The
election includes L, L1, L2, and L3 (even though L and L2 would
compose a loss subgroup without regard to the election) because they
become members of the current group (the P1 group) at the same time
and were affiliated with each other in the P group immediately
before they became members of the P1 group. As a result of the
election, L, L1, L2, and L3 are treated as satisfying the
requirement that they bear the relationship described in section
1504(a)(1) to each other through a loss subgroup parent immediately
after they become members of the P1 group. L, L1, L2, and L3 compose
a loss subgroup within the meaning of paragraph (d)(1) of this
section.
(e) Pre-change consolidated attribute--(1) Defined. A pre-change
consolidated attribute of a loss group is--
(i) Any loss described in paragraph (c)(1)(i) or (ii) of this
section (relating to the definition of loss group) that is allocable to
the period ending on or before the change date; and
(ii) Any recognized built-in loss of the loss group.
(2) Example. The following example illustrates the principle of
this paragraph (e):
Example. Pre-change consolidated attribute. (i) The L group has
a consolidated net operating loss arising in Year 1 that is carried
over to Year 2. The L loss group has an ownership change at the
beginning of Year 2.
(ii) The net operating loss carryover of the L loss group from
Year 1 is a pre-change consolidated attribute because the L group
was entitled to use the loss in Year 2 and therefore the loss was
described in paragraph (c)(1)(i) of this section. Under paragraph
(a)(2)(i) of this section, the amount of consolidated taxable income
of the L group for Year 2 that may be offset by this loss carryover
may not exceed the consolidated section 382 limitation of the L
group for that year. See Sec. 1.1502-93 for rules relating to the
computation of the consolidated section 382 limitation.
(f) Pre-change subgroup attribute--(1) Defined. A pre-change
subgroup attribute of a loss subgroup is--
(i) Any net operating loss carryover described in paragraph
(d)(1)(iii) of this section (relating to the definition of loss
subgroup); and
(ii) Any recognized built-in loss of the loss subgroup.
(2) Example. The following example illustrates the principle of
this paragraph (f):
Pre-change subgroup attribute. (i) P is the common parent of a
consolidated group. P owns all the stock of L, and L owns all the
stock of L1. L2 is not a member of an affiliated group, and has a
net operating loss arising in Year 1 that is carried over to Year 2.
On December 11, Year 2, L1 acquires all the stock of L2, causing an
ownership change of L2. During Year 2, the P group has a
consolidated net operating loss that is carried over to Year 3. On
November 2, Year 3, M acquires all the L stock from P. M, L, L1, and
L2 thereafter file consolidated returns. All of the P group Year 2
consolidated net operating loss is apportioned under Sec. 1.1502-
21(b) to L and L2, which they carry over to the M group.
(ii)(a) L, L1, and L2 compose a loss subgroup because--
(1) They were affiliated with each other in the P group (the
former group);
(2) They bear a relationship described in section 1504(a)(1) to
each other through a loss subgroup parent (L) immediately after they
became members of the L group; and
(3) At least one of the members (here, both L and L2) carries
over a net operating loss to the M group (the current group) that is
described in paragraph (d)(1)(iii) of this section.
(b) For this purpose, L2's loss from Year 1 that was a SRLY loss
with respect to the P group (the former group) is described in
paragraph (d)(1)(iii) of this section because L2 had an ownership
change on becoming a member of the P group (see Sec. 1.1502-96(a))
on December 11, Year 2. Starting on December 12, Year 2, the P group
no longer separately tracked owner shifts of the stock of L1 with
respect to the Year 1 loss. M's acquisition results in an ownership
change of L, and therefore the L loss subgroup under Sec. 1.1502-
92(a)(2). See Sec. 1.1502-93 for rules governing the computation of
the subgroup section 382 limitation.
(iii) In the M group, L2's Year 1 loss continues to be subject
to a section 382 limitation resulting from the ownership change that
occurred on December 11, Year 2. See Sec. 1.1502-96(c).
(g) Net unrealized built-in gain and loss--(1) In general. The
determination whether a consolidated group (or loss subgroup) has a net
unrealized built-in gain or loss under section 382(h)(3) is based on
the aggregate amount of the separately computed net unrealized built-in
gains or losses of each member that is included in the group (or loss
subgroup) under paragraph (g)(2) of this section, including items of
built-in income and deduction described in section 382(h)(6). Thus, for
example, amounts deferred under section 267, or under Sec. 1.1502-13
(other than amounts deferred with respect to the stock of a member (or
an intercompany obligation) included in the group (or loss subgroup)
under paragraph (g)(2) of this section) are built-in items. The
threshold requirement under section 382(h)(3)(B) applies on an
aggregate basis and not on a member-by-member basis. The separately
computed amount of a member included in a group or loss subgroup does
not include any unrealized built-in gain or loss on stock (including
stock described in section 1504(a)(4) and Sec. 1.382-2T(f)(18)(ii) and
(iii)) of another member included in the group or loss subgroup (or an
intercompany obligation). However, a member of a group or loss subgroup
includes in its separately computed amount the unrealized built-in gain
or loss on stock (but not on an intercompany obligation) of another
member not included in the group or loss subgroup. If a member is not
included in the determination whether a group (or subgroup) has a net
unrealized built-in loss under paragraph (g)(2)(ii) or (iv) of this
section, that member is not included in the loss group or loss
subgroup. See Sec. 1.1502-94(c) (relating to built-in gain or loss of a
new loss member) and Sec. 1.1502-96(a) (relating to the end of separate
tracking of certain losses).
(2) Members included--(i) Consolidated group with a net operating
loss. The members included in the determination whether a consolidated
group described in paragraph (c)(1)(i) or (ii) of this section
(relating to loss groups with net operating losses) has a net
unrealized built-in gain are all members of the consolidated group on
the day that the determination is made.
(ii) Determination whether a consolidated group has a net
unrealized built-in loss. The members included in the determination
whether a consolidated group is a loss group described in paragraph
(c)(1)(iii) of this section are--
(A) The common parent and all other members that have been
affiliated with the common parent for the 5 consecutive year period
ending on the day that the determination is made;
[[Page 36137]]
(B) Any other member that has a net unrealized built-in loss
determined under paragraph (g)(1) of this section on the date that the
determination is made, and that is neither a new loss member described
in Sec. 1.1502-94(a)(1)(ii) nor a member of a loss subgroup described
in paragraph (d)(2) of this section;
(C) Any new loss member described in Sec. 1.1502-94(a)(1)(ii) that
has a net unrealized built-in gain determined under paragraph (g)(1) of
this section on the day that the determination is made; and
(D) The members of a loss subgroup described in paragraph (d)(2) of
this section if the members of the subgroup have, in the aggregate, a
net unrealized built-in gain on the day that the determination is made.
(iii) Loss subgroup with net operating loss carryovers. The members
included in the determination whether a loss subgroup described in
paragraph (d)(1) of this section (relating to loss subgroups with net
operating loss carryovers) has a net unrealized built-in gain are all
members of the loss subgroup on the day that the determination is made.
(iv) Determination whether subgroup has a net unrealized built-in
loss. The members included in the determination whether a subgroup has
a net unrealized built-in loss are those members described in
paragraphs (d)(2)(i) and (ii) of this section.
(v) Separate determination of section 382 limitation for recognized
built-in losses and net operating losses. In determining whether a loss
group described in paragraph (c)(1)(i) or (ii) of this section
(relating to loss groups that have net operating loss carryovers) has a
net unrealized built-in gain which, if recognized, increases the
consolidated section 382 limitation, the group includes, under
paragraph (g)(2)(i) of this section, all of its members on the day the
determination is made. Under paragraph (g)(2)(ii) of this section,
however, for purposes of determining whether a group has a net
unrealized built-in loss described in paragraph (c)(1)(iii) of this
section, not all members of the consolidated group may be included.
Thus, a consolidated group may have recognized built-in gains that
increase the amount of consolidated taxable income that may be offset
by its pre-change net operating loss carryovers that did not arise (and
are not treated as arising) in a SRLY, and also may have recognized
built-in losses the absorption of which is limited. Similar results may
obtain for loss subgroups under paragraphs (g)(2)(iii) and (iv) of this
section. See Sec. 1.1502-93(c)(2) for rules prohibiting the use of
recognized built-in gains to increase the amount of consolidated
taxable income that can be offset by recognized built-in losses.
(3) Coordination with rule that ends separate tracking. See
Sec. 1.1502-96(a) for special rules relating to members (or loss
subgroups) that have an ownership change within six months before, on,
or after becoming a member of the group.
(4) Acquisitions of built-in gain or loss assets. A member of a
consolidated group (or loss subgroup) may not, in determining its
separately computed net unrealized built-in gain or loss, include any
gain or loss with respect to assets acquired with a principal purpose
to affect the amount of its net unrealized built-in gain or loss. A
group (or loss subgroup) may not, in determining its net unrealized
built-in gain or loss, include any gain or loss of a member acquired
with a principal purpose to affect the amount of its net unrealized
built-in gain or loss.
(5) Indirect ownership. A member's separately computed net
unrealized built-in gain or loss is adjusted to the extent necessary to
prevent any duplication of unrealized gain or loss attributable to the
member's indirect ownership interest in another member through a
nonmember if the member has a 5-percent or greater ownership interest
in the nonmember.
(6) Common parent not common parent for five years. If the common
parent has become the common parent of an existing group within the
previous 5 year period in a transaction described in Sec. 1.1502-
75(d)(2)(ii) or (3), appropriate adjustments must be made in applying
paragraph (g)(2)(ii)(A) of this section so that corporations that have
not been members of the group for five years are not included. In such
a case, references to the common parent in paragraph (g)(2)(ii)(A) of
this section are to the former common parent. Thus, members of the
group remaining in existence (including the new common parent) that
have not been affiliated with the former common parent (or that have
not been members of that group) for the five consecutive year period
ending on the day that the determination is made are not included under
paragraph (g)(2)(ii)(A) of this section. See, however, Sec. 1.1502-
96(a)(2) for special rules relating to members (or loss subgroups) that
have an ownership change within six months before, on, or after the
time that the member becomes a member of the group.
(h) Recognized built-in gain or loss--(1) In general. [Reserved].
(2) Disposition of stock or an intercompany obligation of a member.
Gain or loss recognized by a member on the disposition of stock
(including stock described in section 1504(a)(4) and Sec. 1.382-
2T(f)(18)(ii) and (iii)) of another member is treated as a recognized
gain or loss for purposes of section 382(h)(2) (unless disallowed under
Sec. 1.1502-20 or otherwise), even though gain or loss on such stock
was not included in the determination of a net unrealized built-in gain
or loss under paragraph (g)(1) of this section. Gain or loss recognized
by a member with respect to an intercompany obligation is treated as
recognized gain or loss only to the extent (if any) the transaction
gives rise to aggregate income or loss within the consolidated group.
(3) Intercompany transactions. Gain or loss that is deferred under
provisions such as section 267 and Sec. 1.1502-13 is treated as
recognized built-in gain or loss only to the extent taken into account
by the group during the recognition period. See also Sec. 1.1502-
13(c)(7) Example 10.
(4) Exchanged basis property. If the adjusted basis of any asset is
determined, directly or indirectly, in whole or in part, by reference
to the adjusted basis of another asset held by the member at the
beginning of the recognition period, the asset is treated, with
appropriate adjustments, as held by the member at the beginning of the
recognition period.
(i) [Reserved]
(j) Predecessor and successor corporations. A reference in this
section and Secs. 1.1502-92 through 1.1502-99 to a corporation, member,
common parent, loss subgroup parent, or subsidiary includes, as the
context may require, a reference to a predecessor or successor
corporation as defined in Sec. 1.1502-1(f)(4). For example, the
determination whether a successor satisfies the continuous affiliation
requirement of paragraph (d)(2)(i) or (g)(2)(ii) of this section is
made by reference to its predecessor.
Sec. 1.1502-92 Ownership change of a loss group or a loss subgroup.
(a) Scope. This section provides rules for determining if there is
an ownership change for purposes of section 382 with respect to a loss
group or a loss subgroup. See Sec. 1.1502-94 for special rules for
determining if there is an ownership change with respect to a new loss
member and Sec. 1.1502-96(b) for special rules for determining if there
is an ownership change of a subsidiary.
(b) Determination of an ownership change--(1) Parent change
method--(i) Loss group. A loss group has an ownership change if the
loss group's common parent has an ownership change under section 382
and the regulations thereunder. Solely for
[[Page 36138]]
purposes of determining whether the common parent has an ownership
change--
(A) The losses described in Sec. 1.1502-91(c) are treated as net
operating losses (or a net unrealized built-in loss) of the common
parent; and
(B) The common parent determines the earliest day that its testing
period can begin by reference to only the attributes that make the
group a loss group under Sec. 1.1502-91(c).
(ii) Loss subgroup. A loss subgroup has an ownership change if the
loss subgroup parent has an ownership change under section 382 and the
regulations thereunder. The principles of Sec. 1.1502-95(b) (relating
to ceasing to be a member of a consolidated group) apply in determining
whether the loss subgroup parent has an ownership change. Solely for
purposes of determining whether the loss subgroup parent has an
ownership change--
(A) The losses described in Sec. 1.1502-91(d) are treated as net
operating losses (or a net unrealized built-in loss) of the loss
subgroup parent;
(B) The day that the members of the loss subgroup become members of
the group (or a loss subgroup) is treated as a testing date within the
meaning of Sec. 1.382-2(a)(4); and
(C) The loss subgroup parent determines the earliest day that its
testing period can begin under Sec. 1.382-2T(d)(3) by reference to only
the attributes that make the members a loss subgroup under Sec. 1.1502-
91(d).
(iii) Special rule if election regarding section 1504(a)(1)
relationship is made--(A) Ownership change of deemed loss subgroup
parent is an ownership change of loss subgroup. If the common parent
makes an election under Sec. 1.1502-91(d)(4), each of the members in
the loss subgroup is treated as the loss subgroup parent for purposes
of determining whether the loss subgroup has an ownership change under
section 382 and the regulations thereunder on or after the day the
members become members of the group.
(B) Exception. Paragraph (b)(1)(iii)(A) of this section does not
apply to cause an ownership change of a loss subgroup if a deemed loss
subgroup parent has an ownership change upon (or after) ceasing to be a
member of the current group.
(2) Examples. The following examples illustrate the principles of
this paragraph (b):
Example 1. Loss group--ownership change of the common parent.
(i) A owns all the L stock. L owns 80 percent and B owns 20 percent
of the L1 stock. For Year 1, the L group has a consolidated net
operating loss that resulted from the operations of L1 and that is
carried over to Year 2. The value of the L stock is $1000. The total
value of the L1 stock is $600 and the value of the L1 stock held by
B is $120. The L group is a loss group under Sec. 1.1502-91(c)(1)
because it is entitled to use its net operating loss carryover from
Year 1. On August 15, Year 2, A sells 51 percent of the L stock to
C. The following is a graphic illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36139]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.003
BILLING CODE 4830-01-C
[[Page 36140]]
(ii) Under paragraph (b)(1)(i) of this section, section 382 and
the regulations thereunder are applied to L to determine whether it
(and therefore the L loss group) has an ownership change with
respect to its net operating loss carryover from Year 1 attributable
to L1 on August 15, Year 2. The sale of the L stock to C causes an
ownership change of L under Sec. 1.382-2T and of the L loss group
under paragraph (b)(1)(i) of this section. The amount of
consolidated taxable income of the L loss group for any post-change
taxable year that may be offset by its pre-change consolidated
attributes (that is, the net operating loss carryover from Year 1
attributable to L1) may not exceed the consolidated section 382
limitation for the L loss group for the taxable year.
Example 2. Loss group--owner shifts of subsidiaries disregarded.
(i) The facts are the same as in Example 1, except that on August
15, Year 2, A sells only 49 percent of the L stock to C and, on
December 12, Year 3, in an unrelated transaction, B sells the 20
percent of the L1 stock to D. A's sale of the L stock to C does not
cause an ownership change of L under Sec. 1.382-2T nor of the L loss
group under paragraph (b)(1)(i) of this section. The following is a
graphic illustration of these facts:
BILLING CODE 4830-01-U
[GRAPHIC] [TIFF OMITTED] TR02JY99.004
BILLING CODE 4830-01-C
(ii) B's subsequent sale of L1 stock is not taken into account for
purposes of determining whether the L loss group has an ownership
change under paragraph (b)(1)(i) of this section, and, accordingly,
there is no ownership change of the L loss group. See paragraph (c) of
this section, however, for a supplemental ownership change method that
would apply to cause an ownership change if the purchases by C and D
were pursuant to a plan or arrangement and certain other conditions are
satisfied.
Example 3. Loss subgroup--ownership change of loss subgroup parent
controls. (i) P owns all the L stock. L owns 80 percent and A owns 20
percent of the L1 stock. The P group has a consolidated net operating
loss arising in Year 1 that is carried over to Year 2. On September 9,
Year 2, P sells 51 percent of the L stock to B, and L1 is apportioned a
portion of the Year 1 consolidated net operating loss under
Sec. 1.1502-21(b), which it carries over to its next taxable year. L
and L1 file a consolidated return for their first taxable year ending
after the sale to B. The following is a graphic illustration of these
facts:
BILLING CODE 4830-01-U
[[Page 36141]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.005
BILLING CODE 4830-01-C
[[Page 36142]]
(ii) Under Sec. 1.1502-91(d)(1), L and L1 compose a loss
subgroup on September 9, Year 2, the day that they become members of
the L group. Under paragraph (b)(1)(ii) of this section, section 382
and the regulations thereunder are applied to L to determine whether
it (and therefore the L loss subgroup) has an ownership change with
respect to the portion of the Year 1 consolidated net operating loss
that is apportioned to L1 on September 9, Year 2. L has an ownership
change resulting from P's sale of 51 percent of the L stock to A.
Therefore, the L loss subgroup has an ownership change with respect
to that loss.
Example 4. Loss group and loss subgroup--contemporaneous
ownership changes. (i) A owns all the stock of corporation M, M owns
35 percent and B owns 65 percent of the L stock, and L owns all the
L1 stock. The L group has a consolidated net operating loss arising
in Year 1 that is carried over to Year 2. On May 19, Year 2, B sells
45 percent of the L stock to M for cash. M, L, and L1 thereafter
file consolidated returns. L and L1 are each apportioned a portion
of the Year 1 consolidated net operating loss, which they carry over
to the M group's Year 2 and Year 3 consolidated return years. The M
group has a consolidated net operating loss arising in Year 2 that
is carried over to Year 3. On June 9, Year 3, A sells 70 percent of
the M stock to C. The following is a graphic illustration of these
facts:
BILLING CODE 4830-01-U
[[Page 36143]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.006
BILLING CODE 4830-01-C
[[Page 36144]]
(ii) Under Sec. 1.1502-91(d)(1), L and L1 compose a loss
subgroup on May 19, Year 2, the day they become members of the M
group. Under paragraph (b)(1)(ii) of this section, section 382 and
the regulations thereunder are applied to L to determine whether L
(and therefore the L loss subgroup) has an ownership change with
respect to the loss carryovers from Year 1 on May 19, Year 2, a
testing date because of B's sale of L stock to M. The sale of L
stock to M results in only a 45 percentage point increase in A's
ownership of L stock. Thus, there is no ownership change of L (or
the L loss subgroup) with respect to those loss carryovers under
paragraph (b)(1)(ii) of this section on that day.
(iii) June 9, Year 3, is also a testing date with respect to the
L loss subgroup because of A's sale of M stock to C. The sale
results in a 56 percentage point increase in C's ownership of L
stock, and L has an ownership change. Therefore, the L loss subgroup
has an ownership change on that day with respect to the loss
carryovers from Year 1.
(iv) Paragraph (b)(1)(i) of this section requires that section
382 and the regulations thereunder be applied to M to determine
whether M (and therefore the M loss group) has an ownership change
with respect to the net operating loss carryover from Year 2 on June
9, Year 3, a testing date because of A's sale of M stock to C. The
sale results in a 70 percentage point increase in C's ownership of M
stock, and M has an ownership change. Therefore, the M loss group
has an ownership change on that day with respect to that loss
carryover.
Example 5--Deemed subgroup parent. (i) P owns all the stock of L
and L1 and 80 percent of the stock of T. A owns the remaining 20
percent of the stock of T. L1 owns all the stock of L2. P1, which
owns 60 percent of the stock of P, acquires, at the beginning of
Year 2, the T, L, and L1 stock owned by P, and T, L, L1, and L2
become members of the P1 group. The P group has a consolidated net
operating loss arising in Year 1 that is carried over to Year 2. L,
L1, and L2 are each apportioned a portion of the Year 1 consolidated
net operating loss under Sec. 1.1502-21(b), which they carry over to
the P1 group's Year 2 and Year 3 consolidated return years. P1 makes
the election described in Sec. 1.1502-91(d)(4) to treat T, L, L1 and
L2 as meeting the section 1504(a)(1) requirement of Sec. 1.1502-
91(d)(1)(ii). As a result of the election, T, L, L1 and L2 compose a
loss subgroup and T, L, L1, and L2 are each treated as the loss
subgroup parent for purposes of this paragraph (b). Because of P1's
indirect ownership of T, L, L1, and L2 prior to P1's acquisition of
the T, L, and L1 stock, P1's acquisition does not cause an ownership
change of the loss subgroup.
(ii) On February 2, Year 3, L1 sells all of the stock of L2 to
B. Although L2 is treated as a loss subgroup parent, the
determination whether the loss subgroup comprised of T, L, and L1
has an ownership change under this paragraph (b) is made without
regard to the sale of L2 because L2's ownership change occurred upon
ceasing to be a member of the P1 group. See Sec. 1.1502-95(b) to
determine the application of section 382 to L2 when L2 ceases to be
a member of the P1 group and the T, L, L1 and L2 loss subgroup.
(iii) On March 26, Year 3, A sells her 20 percent minority stock
interest in T to C . C's purchase, together with the 32 percentage
point owner shift effected by P1's acquisition of the T stock at the
beginning of Year 2, causes an ownership change of T, and therefore
of the loss subgroup comprised of T, L, and L1.
(3) Special adjustments--(i) Common parent succeeded by a new
common parent. For purposes of determining if a loss group has an
ownership change, if the common parent of a loss group is succeeded or
acquired by a new common parent and the loss group remains in
existence, the new common parent is treated as a continuation of the
former common parent with appropriate adjustments to take into account
shifts in ownership of the former common parent during the testing
period (including shifts that occur incident to the common parent's
becoming the former common parent). A new common parent may be a
continuation of the former common parent even if, under Sec. 1.1502-
91(g)(2)(ii), the new common parent is not included in determining
whether the group has a net unrealized built-in loss.
(ii) Newly created loss subgroup parent. For purposes of
determining if a loss subgroup has an ownership change, if the member
that is the loss subgroup parent has not been the loss subgroup parent
for at least 3 years as of a testing date, appropriate adjustments must
be made to take into account owner shifts of members of the loss
subgroup so that the structure of the loss subgroup does not have the
effect of avoiding an ownership change under section 382. (See
paragraph (b)(3)(iii), Example 3 of this section.)
(iii) Examples. The following examples illustrate the principles of
this paragraph (b)(3):
Example 1. New common parent acquires old common parent. (i) A,
who owns all the L stock, sells 30 percent of the L stock to B on
August 26, Year 1. L owns all the L1 stock. The L group has a
consolidated net operating loss arising in Year 1 that is carried
over to Year 3. On July 16, Year 2, A and B transfer their L stock
to a newly created holding company, HC, in exchange for 70 percent
and 30 percent, respectively, of the HC stock. HC, L, and L1
thereafter file consolidated returns. Under the principles of
Sec. 1.1502-75(d), the L loss group is treated as remaining in
existence, with HC taking the place of L as the new common parent of
the loss group. The following is a graphic illustration of these
facts:
BILLING CODE 4830-01-U
[[Page 36145]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.007
BILLING CODE 4830-01-C
[[Page 36146]]
(ii) On November 11, Year 3, A sells 25 percent of the HC stock
to B. For purposes of determining if the L loss group has an
ownership change under paragraph (b)(1)(i) of this section on
November 11, Year 3, HC is treated as a continuation of L under
paragraph (b)(4)(i) of this section because it acquired L and became
the common parent without terminating the L loss group. Accordingly,
HC's testing period commences on January 1, Year 1, the first day of
the taxable year of the L loss group in which the consolidated net
operating loss that is carried over to Year 3 arose (see Sec. 1.382-
2T(d)(3)(i)). Immediately after the close of November 11, Year 3,
B's percentage ownership interest in the common parent of the loss
group (HC) has increased by 55 percentage points over its lowest
percentage ownership during the testing period (zero percent).
Accordingly, HC and the L loss group have an ownership change on
that day.
Example 2. New common parent in case in which common parent
ceases to exist. (i) A, B, and C each own one-third of the L stock.
L owns all the L1 stock. The L group has a consolidated net
operating loss arising in Year 2 that is carried over to Year 3. On
November 22, Year 3, L is merged into P, a corporation owned by D,
and L1 thereafter files consolidated returns with P. A, B, and C, as
a result of owning stock of L, own 90 percent of P's stock after the
merger. D owns the remaining 10 percent of P's stock. The merger of
L into P qualifies as a reverse acquisition of the L group under
Sec. 1.1502-75(d)(3)(i), and the L loss group is treated as
remaining in existence, with P taking the place of L as the new
common parent of the L group. The following is a graphic
illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36147]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.008
BILLING CODE 4830-01-C
[[Page 36148]]
(ii) For purposes of determining if the L loss group has an
ownership change on November 22, Year 3, the day of the merger, P is
treated as a continuation of L so that the testing period for P
begins on January 1, Year 2, the first day of the taxable year of
the L loss group in which the consolidated net operating loss that
is carried over to Year 3 arose. Immediately after the close of
November 22, Year 3, D is the only 5-percent shareholder that has
increased his ownership interest in P during the testing period
(from zero to 10 percentage points).
(iii) The facts are the same as in paragraph (i) of this Example
2, except that A has held 23\1/3\ shares (23\1/3\ percent) of L's
stock for five years, and A purchased an additional 10 shares of L
stock from E two years before the merger. Immediately after the
close of the day of the merger (a testing date), A's ownership
interest in P, the common parent of the L loss group, has increased
by 6\2/3\ percentage points over A's lowest percentage ownership
during the testing period (23\1/3\ percent to 30 percent).
(iv) The facts are the same as in (i) of this Example 2, except
that P has a net operating loss arising in Year 1 that is carried to
the first consolidated return year ending after the day of the
merger. Solely for purposes of determining whether the L loss group
has an ownership change under paragraph (b)(1)(i) of this section,
the testing period for P commences on January 1, Year 2. P does not
determine the earliest day for its testing period by reference to
its net operating loss carryover from Year 1, which Secs. 1.1502-
1(f)(3) and 1.1502-75(d)(3)(i) treat as arising in a SRLY. See
Sec. 1.1502-94 to determine the application of section 382 with
respect to P's net operating loss carryover.
Example 3. Newly acquired loss subgroup parent. (i) P owns all
the L stock and L owns all the L1 stock. The P group has a
consolidated net operating loss arising in Year 1 that is carried
over to Year 3. On January 19, Year 2, L issues a 20 percent stock
interest to B. On February 5, Year 3, P contributes its L stock to a
newly formed subsidiary, HC, in exchange for all the HC stock, and
distributes the HC stock to its sole shareholder A. HC, L, and L1
thereafter file consolidated returns. A portion of the P group's
Year 1 consolidated net operating loss is apportioned to L and L1
under Sec. 1.1502-21(b) and is carried over to the HC group's year
ending after February 5, Year 3. HC, L, and L1 compose a loss
subgroup within the meaning of Sec. 1.1502-91(d) with respect to the
net operating loss carryovers from Year 1. The following is a
graphic illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36149]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.009
BILLING CODE 4830-01-C
[[Page 36150]]
(ii) February 5, Year 3, is a testing date for HC as the loss
subgroup parent with respect to the net operating loss carryovers of
L and L1 from Year 1. See paragraph (b)(1)(ii)(B) of this section.
For purposes of determining whether HC has an ownership change on
the testing date, appropriate adjustments must be made with respect
to the changes in the percentage ownership of the stock of HC
because HC was not the loss subgroup parent for at least 3 years
prior to the day on which it became a member of the HC loss subgroup
(a testing date). The appropriate adjustments include adjustments so
that HC succeeds to the owner shifts of other members of the former
group. Thus, HC succeeds to the owner shift of L that resulted from
the sale of the 20 percent interest to B in determining whether the
HC loss subgroup has an ownership change on February 5, Year 3, and
on any subsequent testing date that includes January 19, Year 2.
(4) End of separate tracking of certain losses. If Sec. 1.1502-
96(a) (relating to the end of separate tracking of attributes) applies
to a loss subgroup, then, while one or more members that were included
in the loss subgroup remain members of the consolidated group, there is
an ownership change with respect to their attributes described in
Sec. 1.1502-96(a)(2) only if the consolidated group is a loss group and
has an ownership change under paragraph (b)(1)(i) of this section (or
such a member has an ownership change under Sec. 1.1502-96(b) (relating
to ownership changes of subsidiaries)). If, however, the loss subgroup
has had an ownership change before Sec. 1.1502-96(a) applies, see
Sec. 1.1502-96(c) for the continuing application of the subgroup's
section 382 limitation with respect to its pre-change subgroup
attributes.
(c) Supplemental rules for determining ownership change--
(1) Scope. This paragraph (c) contains a supplemental rule for
determining whether there is an ownership change of a loss group (or
loss subgroup). It applies in addition to, and not instead of, the
rules of paragraph (b) of this section. Thus, for example, if the
common parent of the loss group has an ownership change under paragraph
(b) of this section, the loss group has an ownership change even if, by
applying this paragraph (c), the common parent would not have an
ownership change. This paragraph (c) does not apply in determining an
ownership change of a loss subgroup for which an election under
Sec. 1.1502-91(d)(4) is made.
(2) Cause for applying supplemental rule. This paragraph (c)
applies to a loss group (or loss subgroup) if--
(i) Any 5-percent shareholder of the common parent (or loss
subgroup parent) increases its percentage ownership interest in the
stock of both--
(A) A subsidiary of the loss group (or loss subgroup) other than by
a direct or indirect acquisition of stock of the common parent (or loss
subgroup parent); and
(B) The common parent (or loss subgroup parent);
(ii) Those increases occur within a 3 year period ending on any day
of a consolidated return year or, if shorter, the period beginning on
the first day following the most recent ownership change of the loss
group (or loss subgroup); and
(iii) Either--
(A) The common parent (or loss subgroup parent) has actual
knowledge of the increase in the 5-percent shareholder's ownership
interest in the stock of the subsidiary (or has actual knowledge of the
plan or arrangement described in paragraph (c)(3)(i) of this section)
before the date that the group's income tax return is filed for the
taxable year that includes the date of that increase; or
(B) At any time during the period described in paragraph (c)(2)(ii)
of this section, the 5-percent shareholder of the common parent is also
a 5-percent shareholder of the subsidiary (determined without regard to
paragraph (c)(3)(i) of this section) whose percentage increase in the
ownership of the stock of the subsidiary would be taken into account in
determining if the subsidiary has an ownership change (determined as if
the subsidiary was a loss corporation and applying the principles of
Sec. 1.382-2T(k), including the principles relating to duty to
inquire).
(3) Operating rules. Solely for purposes of this paragraph (c)--
(i) A 5-percent shareholder of the common parent (or loss subgroup
parent) is treated as increasing its ownership interest in the stock of
a subsidiary to the extent, if any, that another person or persons
increases its percentage ownership interest in the stock of a
subsidiary pursuant to a plan or arrangement under which the 5-percent
shareholder increases its percentage ownership interest in the common
parent (or loss subgroup parent);
(ii) The rules in section 382(l)(3) and Secs. 1.382-2T(h) and
1.382-4(d) (relating to constructive ownership) apply with respect to
the stock of the subsidiary by treating such stock as stock of a loss
corporation; and
(iii) In the case of a loss subgroup, a subsidiary includes any
member of the loss subgroup other than the loss subgroup parent. (A
loss subgroup parent is, however, a subsidiary of the loss group of
which it is a member.)
(4) Supplemental ownership change rules. The determination whether
the common parent (or loss subgroup parent) has an ownership change is
made by applying paragraph (b)(1) of this section as modified by the
following additional rules:
(i) Additional testing dates for the common parent (or loss
subgroup parent). A testing date for the common parent (or loss
subgroup parent) also includes--
(A) Each day on which there is an increase in the percentage
ownership of stock of a subsidiary as described in paragraph (c)(2) of
this section; and
(B) The first day of the first consolidated return year for which
the group is a loss group (or the members compose a loss subgroup).
(ii) Treatment of subsidiary stock as stock of the common parent
(or loss subgroup parent). The common parent (or loss subgroup parent)
is treated as though it had issued to the person acquiring (or deemed
to acquire) the subsidiary stock an amount of its own stock (by value)
that equals the value of the subsidiary stock represented by the
percentage increase in that person's ownership of the subsidiary
(determined on a separate entity basis). Similar principles apply if
the increase in percentage ownership interest is effected by a
redemption or similar transaction.
(iii) Different testing periods. Stock treated as issued under
paragraph (c)(4)(ii) of this section on a testing date is not treated
as so issued for purposes of applying the ownership change rules of
this paragraph (c) and paragraph (b)(1) of this section in a testing
period that does not include that testing date.
(iv) Disaffiliation of a subsidiary. If a deemed issuance of stock
under paragraph (c)(4)(ii) of this section would not cause the loss
group (or loss subgroup) to have an ownership change before the day (if
any) on which the subsidiary ceases to be a member of the loss group
(or subgroup), then paragraph (c)(4) of this section shall not apply.
(v) Subsidiary stock acquired first. If an increase of subsidiary
stock described in paragraph (c)(2)(i)(A) of this section occurs before
the date that the 5-percent shareholder increases its percentage
ownership interest in the stock of the common parent (or loss subgroup
parent), then the deemed issuance of stock is treated as occurring on
that later date, but in an amount equal to the value of the subsidiary
stock on the date it was acquired.
(vi) Anti-duplication rule. If two or more 5-percent shareholders
are treated as increasing their percentage ownership interests pursuant
to the
[[Page 36151]]
same plan or arrangement described in paragraph (c)(3)(i) of this
section, appropriate adjustments must be made so that the amount of
stock treated as issued is not taken into account more than once.
(5) Examples. The following examples illustrate the principles of
this paragraph (c):
Example 1. Stock of the common parent under supplemental rules.
(i) A owns all the L stock. L is not a member of an affiliated group
and has a net operating loss carryover arising in Year 1 that is
carried over to Year 6. On September 20, Year 6, L transfers all of
its assets and liabilities to a newly created subsidiary, S, in
exchange for S stock. L and S thereafter file consolidated returns.
On November 23, Year 6, B contributes cash to L in exchange for a 45
percent ownership interest in L and contributes cash to S for a 20
percent ownership interest in S.
(ii) During the 3 year period ending on November 23, Year 6, B
is a 5% shareholder of L and of S that increases its ownership
interest in L and S during that period. Under paragraph (c)(4)(ii)
of this section, the determination whether L (the common parent of a
loss group) has an ownership change on November 23, Year 6 (or,
subject to paragraph (c)(4)(iv) of this section, on any testing date
in the testing period which includes November 23, Year 6), is made
by applying paragraph (b)(1)(i) of this section and by treating the
value of B's 20 percent ownership interest in S as if it were L
stock issued to B. Because B is a 5% shareholder of both L and S
during the 3 year period ending on November 23, Year 6, and B's
increase in its percentage ownership in the stock of S would be
taken into account in determining if S (if it were a loss
corporation) had an ownership change, it is not relevant whether L
has actual knowledge of B's acquisition of S stock.
Example 2. Plan or arrangement--public offering of subsidiary
stock. (i) A owns all the stock of L and L owns all the stock of L1.
The L group has a consolidated net operating loss arising in Year 1
that resulted from the operations of L1 and that is carried over to
Year 2. On October 7, Year 2, A sells 49 percent of the L stock to
B. As part of a plan that includes the sale of L stock, A causes a
public offering of L1 stock on November 6, Year 2. L has actual
knowledge of the plan. The following is a graphic illustration of
these facts:
BILLING CODE 4830-01-U
[[Page 36152]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.010
BILLING CODE 4830-01-C
[[Page 36153]]
(ii) A's sale of the L stock to B does not cause an ownership
change of the L loss group on October 7, Year 2, under the rules of
Sec. 1.382-2T and paragraph (b)(1)(i) of this section.
(iii) Because the issuance of L1 stock to the public occurs as
part of the same plan as B's acquisition of L stock, and L has
knowledge of the plan, paragraph (c)(4) of this section applies to
determine whether the L loss group has an ownership change on
November 6, Year 2 (or, subject to paragraph (c)(4)(iv) of this
section, on any testing date for which the testing period includes
November 6, Year 2).
(d) Testing period following ownership change under this section.
If a loss group (or a loss subgroup) has had an ownership change under
this section, the testing period for determining a subsequent ownership
change with respect to pre-change consolidated attributes (or pre-
change subgroup attributes) begins no earlier than the first day
following the loss group's (or loss subgroup's) most recent change
date.
(e) Information statements--(1) Common parent of a loss group. The
common parent of a loss group must file the information statement
required by Sec. 1.382-2T(a)(2)(ii) for a consolidated return year
because of any owner shift, equity structure shift, or other
transaction described in Sec. 1.382-2T(a)(2)(i)--
(i) With respect to the common parent and with respect to any
subsidiary stock subject to paragraph (c) of this section; and
(ii) With respect to an ownership change described in Sec. 1.1502-
96(b) (relating to ownership changes of subsidiaries).
(2) Abbreviated statement with respect to loss subgroups. The
common parent of a consolidated group that has a loss subgroup during a
consolidated return year must file the information statement required
by Sec. 1.382-2T(a)(2)(ii) because of any owner shift, equity structure
shift, or other transaction described in Sec. 1.382-2T(a)(2)(i) with
respect to the loss subgroup parent and with respect to any subsidiary
stock subject to paragraph (c) of this section. Instead of filing a
separate statement for each loss subgroup parent, the common parent
(which is treated as a loss corporation) may file the single statement
described in paragraph (e)(1) of this section. In addition to the
information concerning stock ownership of the common parent, the single
statement must identify each loss subgroup parent and state which loss
subgroups, if any, have had ownership changes during the consolidated
return year. The loss subgroup parent is, however, still required to
maintain the records necessary to determine if the loss subgroup has an
ownership change. This paragraph (e)(2) applies with respect to the
attributes of a loss subgroup until, under Sec. 1.1502-96(a), the
attributes are no longer treated as described in Sec. 1.1502-91(d)
(relating to the definition of loss subgroup). After that time, the
information statement described in paragraph (e)(1) of this section
must be filed with respect to those attributes.
Sec. 1.1502-93 Consolidated section 382 limitation (or subgroup
section 382 limitation).
(a) Determination of the consolidated section 382 limitation (or
subgroup section 382 limitation)--(1) In general. Following an
ownership change, the consolidated section 382 limitation (or subgroup
section 382 limitation) for any post-change year is an amount equal to
the value of the loss group (or loss subgroup), as defined in paragraph
(b) of this section, multiplied by the long-term tax-exempt rate that
applies with respect to the ownership change, and adjusted as required
by section 382 and the regulations thereunder. See, for example,
section 382(b)(2) (relating to the carryforward of unused section 382
limitation), section 382(b)(3)(B) (relating to the section 382
limitation for the post-change year that includes the change date),
section 382(h) (relating to recognized built-in gains and section 338
gains), and section 382(m)(2) (relating to short taxable years). For
special rules relating to the recognized built-in gains of a loss group
(or loss subgroup), see paragraph (c)(2) of this section.
(2) Coordination with apportionment rule. For special rules
relating to apportionment of a consolidated section 382 limitation (or
a subgroup section 382 limitation) or net unrealized built-in gain when
one or more corporations cease to be members of a loss group (or a loss
subgroup) and to aggregation of amounts so apportioned, see
Sec. 1.1502-95(c).
(b) Value of the loss group (or loss subgroup)--(1) Stock value
immediately before ownership change. Subject to any adjustment under
paragraph (b)(2) of this section, the value of the loss group (or loss
subgroup) is the value, immediately before the ownership change, of the
stock of each member, other than stock that is owned directly or
indirectly by another member. For this purpose--
(i) Ownership is determined under Sec. 1.382-2T;
(ii) A member is considered to indirectly own stock of another
member through a nonmember only if the member has a 5-percent or
greater ownership interest in the nonmember; and
(iii) Stock includes stock described in section 1504(a)(4) and
Sec. 1.382-2T(f)(18)(ii) and (iii).
(2) Adjustment to value--(i) In general. The value of the loss
group (or loss subgroup), as determined under paragraph (b)(1) of this
section, is adjusted under any rule in section 382 or the regulations
thereunder requiring an adjustment to such value for purposes of
computing the amount of the section 382 limitation. See, for example,
section 382(e)(2) (redemptions and corporate contractions), section
382(l)(1) (certain capital contributions) and section 382(l)(4)
(ownership of substantial nonbusiness assets). For purposes of section
382(e)(2), redemptions and corporate contractions that do not effect a
transfer of value outside of the loss group (or loss subgroup) are
disregarded. For purposes of section 382(l)(1), capital contributions
between members of the loss group (or loss subgroup) (or a contribution
of stock to a member made solely to satisfy the loss subgroup parent
requirement of paragraph (d)(1)(ii) or (2)(ii) of this section), are
not taken into account. Also, the substantial nonbusiness asset test of
section 382(l)(4) is applied on a group (or subgroup) basis, and is not
applied separately to its members.
(ii) Anti-duplication. Appropriate adjustments must be made to the
extent necessary to prevent any duplication of the value of the stock
of a member, even though corporations that do not file consolidated
returns may not be required to make such an adjustment. In making these
adjustments, the group (or loss subgroup) may apply the principles of
Sec. 1.382-8 (relating to controlled groups of corporations) in
determining the value of a loss group (or loss subgroup) even if that
section would not apply if separate returns were filed. Also, the
principles of Sec. 1.382-5(d) (relating to successive ownership changes
and absorption of a section 382 limitation) may apply to adjust the
consolidated section 382 limitation (or subgroup section 382
limitation) of a loss group (or loss subgroup) to avoid a duplication
of value if there are simultaneous (rather than successive) ownership
changes.
(3) Examples. The following examples illustrate the principles of
this paragraph (b):
Example 1. Basic case. (i) L, L1, and L2 compose a loss group. L
has outstanding common stock, the value of which is $100. L1 has
outstanding common stock and
[[Page 36154]]
preferred stock that is described in section 1504(a)(4). L owns 90
percent of the L1 common stock, and A owns the remaining 10 percent
of the L1 common stock plus all the preferred stock. The value of
the L1 common stock is $40, and the value of the L1 preferred stock
is $30. L2 has outstanding common stock, 50 percent of which is
owned by L and 50 percent by L1. The L group has an ownership
change. The following is a graphic illustration of these facts:
BILLING CODE 4830-01-U
[GRAPHIC] [TIFF OMITTED] TR02JY99.011
BILLING CODE 4830-01-C
(ii) Under paragraph (b)(1) of this section, the L group does
not include the value of the stock of any member that is owned
directly or indirectly by another member in computing its
consolidated section 382 limitation. Accordingly, the value of the
stock of the loss group is $134, the sum of the value of--
(a) The common stock of L ($100);
(b) The 10 percent of the L1 common stock ($4) owned by A; and
(c) The L1 preferred stock ($30) owned by A.
Example 2--Indirect ownership. (i) L and L1 compose a
consolidated group. L's stock has a value of $100. L owns 80 shares
(worth $80) and corporation M owns 20 shares (worth $20) of the L1
stock. L also owns 79 percent of the stock of corporation M. The L
group has an ownership change. The following is a graphic
illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36155]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.012
BILLING CODE 4830-01-C
(ii) Under paragraph (b)(1) of this section, because of L's more
than 5 percent ownership interest in M, a nonmember, L is considered
to indirectly own 15.8 shares of the L1 stock held by M (79% x 20
shares). The value of the L loss group is $104.20, the sum of the
values of--
(a) The L stock ($100); and
(b) The L1 stock not owned directly or indirectly by L (21% x
$20, or $4.20).
(c) Recognized built-in gain of a loss group or loss subgroup--(1)
In general. If a loss group (or loss subgroup) has a net unrealized
built-in gain, any recognized built-in gain of the loss group (or loss
subgroup) is taken into account under section 382(h) in determining the
consolidated section 382 limitation (or subgroup section 382
limitation).
(2) Adjustments. Appropriate adjustments must be made so that any
recognized built-in gain of a member that increases more than one
section 382 limitation (whether consolidated, subgroup, or separate)
does not effect a duplication in the amount of consolidated taxable
income that can be offset by pre-change net operating losses. For
example, a consolidated section 382 limitation that is increased by
recognized built-in gains is reduced to the extent that pre-change net
operating losses of a loss subgroup absorb additional consolidated
taxable income because the same recognized built-in gains caused an
increase in that loss subgroup's section 382 limitation. In addition,
recognized built-in gain may not increase the amount of consolidated
taxable income that can be offset by recognized built-in losses.
(d) Continuity of business--(1) In general. A loss group (or a loss
subgroup) is treated as a single entity for purposes of determining
whether it satisfies the continuity of business enterprise requirement
of section 382(c)(1).
(2) Example. The following example illustrates the principle of
this paragraph (d):
Example. Continuity of business enterprise. L owns all the stock
of two subsidiaries, L1 and L2. The L group has an ownership change.
It has pre-change consolidated attributes attributable to L2. Each
of the members has historically conducted a separate line of
business. Each line of business is approximately equal in value. One
year after the ownership change, L discontinues its separate
business and the business of L2. The separate business of L1 is
continued for the remainder of the 2 year period following the
ownership change. The continuity of business enterprise requirement
of section 382(c)(1) is met even though the separate businesses of L
and L2 are discontinued.
(e) Limitations of losses under other rules. If a section 382
limitation for a post-change year exceeds the consolidated taxable
income that may be offset by pre-change attributes for any reason,
including the application of the limitation of Sec. 1.1502-21(c), the
amount of the excess is carried forward under section 382(b)(2)
(relating to the carryforward of unused section 382 limitation).
Sec. 1.1502-94 Coordination with section 382 and the regulations
thereunder when a corporation becomes a member of a consolidated group.
(a) Scope--(1) In general. This section applies section 382 and the
regulations thereunder to a corporation that is a new loss member of a
consolidated group. A corporation is a new loss member if it--
(i) Carries over a net operating loss that arose (or is treated
under Sec. 1.1502-21(c) as arising) in a SRLY with respect to the
current group, and that is not described in Sec. 1.1502-91(d)(1); or
(ii) Has a net unrealized built-in loss (determined under paragraph
(c) of this section immediately before it becomes a member of the
current group by treating that day as a change date) that is not taken
into account under Sec. 1.1502-91(d)(2) in determining whether two or
more corporations compose a loss subgroup.
(2) Successor corporation as new loss member. A new loss member
also includes any successor to a corporation that has a net operating
loss carryover arising in a SRLY and that is treated as remaining in
existence under Sec. 1.382-2(a)(1)(ii) following a transaction
described in section 381(a).
(3) Coordination in the case of a loss subgroup. For rules
regarding the determination of whether there is an ownership change of
a loss subgroup with respect to a net operating loss or a net
unrealized built-in loss described in Sec. 1.1502-91(d) (relating to
the definition of loss subgroup) and the computation of a subgroup
section 382 limitation following such an ownership change, see
Secs. 1.1502-92 and 1.1502-93.
(4) End of separate tracking of certain losses. If Sec. 1.1502-
96(a) (relating to the end of separate tracking of attributes) applies
to a new loss member, then, while that member remains a member of
[[Page 36156]]
the consolidated group, there is an ownership change with respect to
its attributes described in Sec. 1.1502-96(a)(2) only if the
consolidated group is a loss group and has an ownership change under
Sec. 1.1502-92(b)(1)(i) (or that member has an ownership change under
Sec. 1.1502-96(b) (relating to ownership changes of subsidiaries)). If,
however, the new loss member has had an ownership change before
Sec. 1.1502-96(a) applies, see Sec. 1.1502-96(c) for the continuing
application of the section 382 limitation with respect to the member's
pre-change losses.
(5) Cross-reference. See section 382(a) and Sec. 1.1502-96(c) for
the continuing effect of an ownership change after a corporation
becomes or ceases to be a member.
(b) Application of section 382 to a new loss member--(1) In
general. Section 382 and the regulations thereunder apply to a new loss
member to determine, on a separate entity basis, whether and to what
extent a section 382 limitation applies to limit the amount of
consolidated taxable income that may be offset by the new loss member's
pre-change separate attributes. For example, if an ownership change
with respect to the new loss member occurs under section 382 and the
regulations thereunder, the amount of consolidated taxable income for
any post-change year that may be offset by the new loss member's pre-
change separate attributes shall not exceed the section 382 limitation
as determined separately under section 382(b) with respect to that
member for such year. If the post-change year includes the change date,
section 382(b)(3)(A) is applied so that the section 382 limitation of
the new loss member does not apply to the portion of the taxable income
for such year that is allocable to the period in such year on or before
the change date. See generally Sec. 1.382-6 (relating to the allocation
of income and loss).
(2) Adjustment to value. Appropriate adjustments must be made to
the extent necessary to prevent any duplication of the value of the
stock of a member, even though corporations that do not file
consolidated returns may not be required to make such an adjustment.
For example, the principles of Sec. 1.1502-93(b)(2)(ii) (relating to
adjustments to value) apply in determining the value of a new loss
member.
(3) Pre-change separate attribute defined. A pre-change separate
attribute of a new loss member is--
(i) Any net operating loss carryover of the new loss member
described in paragraph (a)(1) of this section; and
(ii) Any recognized built-in loss of the new loss member.
(4) Examples. The following examples illustrate the principles of
this paragraph (b):
Example 1. Basic case. (i) A and P each own 50 percent of the L
stock. On December 19, Year 6, P purchases 30 percent of the L stock
from A for cash. L has net operating losses arising in Year 1 and
Year 2 that it carries over to Year 6 and Year 7. The following is a
graphic illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36157]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.013
BILLING CODE 4830-01-C
(ii) L is a new loss member because it has net operating loss
carryovers that arose in a SRLY with respect to the P group and L is
not a member of a loss subgroup under Sec. 1.1502-91(d). Under
section 382 and the regulations thereunder, L is a loss corporation
on December 19, Year 6, that day is a testing date for L, and the
testing period for L commences on December 20, Year 3.
(iii) P's purchase of L stock does not cause an ownership change
of L on December 19, Year 6, with respect to the net operating loss
carryovers from Year 1 and Year 2 under section 382 and Sec. 1.382-
2T. The use of the loss carryovers, however, is subject to
limitation under Sec. 1.1502-21(c).
Example 2. Multiple new loss members. (i) The facts are the same
as in Example 1, and, on December 31, Year 6, L purchases all the
stock of L1 from B for cash. L1 has a net operating loss of $40
arising in Year 3 that it carries over to Year 7. The following is a
graphic illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36158]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.014
BILLING CODE 4830-01-C
[[Page 36159]]
(ii) L1 is a new loss member because it has a net operating loss
carryover from Year 3 that arose in a SRLY with respect to the P
group and L1 is not a member of a loss subgroup under Sec. 1.1502-
91(d)(1).
(iii) L's purchase of all the stock of L1 causes an ownership
change of L1 on December 31, Year 6, under section 382 and
Sec. 1.382-2T. Accordingly, a section 382 limitation based on the
value of the L1 stock immediately before the ownership change limits
the amount of consolidated taxable income of the P group for any
post-change year that may be offset by L1's loss from Year 3.
(iv) L1's ownership change upon becoming a member of the P group
is an ownership change described in Sec. 1.1502-96(a). Thus,
starting on January 1, Year 7, the P group no longer separately
tracks owner shifts of the stock of L1 with respect to L1's loss
from Year 3, and the P group is a loss group because L1's Year 3
loss is treated as a loss described in Sec. 1.1502-91(c).
Example 3. Ownership changes of new loss members. (i) The facts
are the same as in Example 2, and, on July 30, Year 7, C purchases
all the stock of P for cash.
(ii) L is a new loss member on July 30, Year 7, because its Year
1 and Year 2 losses arose in SRLYs with respect to the P group and
it is not a member of a loss subgroup under Sec. 1.1502-91(d)(1).
The testing period for L commences on August 1, Year 4. C's purchase
of all the P stock causes an ownership change of L on July 30, Year
7, under section 382 and Sec. 1.382-2T with respect to its Year 1
and Year 2 losses. Accordingly, a section 382 limitation based on
the value of the L stock immediately before the ownership change
limits the amount of consolidated taxable income of the P group for
any post-change year that may be offset by L's Year 1 and Year 2
losses. See Sec. 1.1502-21(c) for rules relating to an additional
limitation.
(iii) The P group is a loss group on July 30, Year 7, because it
is entitled to use L1's loss from Year 3, and such loss is no longer
treated as a loss of a new loss member starting the day after L1's
ownership change on December 31, Year 6. See Secs. 1.1502-96(a) and
1.1502-91(c)(2). C's purchase of all the P stock causes an ownership
change of P, and therefore the P loss group, on July 30, Year 7,
with respect to L1's Year 3 loss. Accordingly, a consolidated
section 382 limitation based on the value of the P stock immediately
before the ownership change limits the amount of consolidated
taxable income of the P group for any post-change year that may be
offset by L1's Year 3 loss.
(c) Built-in gains and losses. As the context may require, the
principles of Secs. 1.1502-91(g) and (h) and 1.1502-93(c) (relating to
built-in gains and losses) apply to a new loss member on a separate
entity basis. See Sec. 1.1502-91(g)(4). See Sec. 1.1502-13 (including
Example 10 of Sec. 1.1502-13(c)(7)) for rules relating to the treatment
of intercompany transactions.
(d) Information statements. The common parent of a consolidated
group that has a new loss member subject to paragraph (b)(1) of this
section during a consolidated return year must file the information
statement required by Sec. 1.382-2T(a)(2)(ii) because of any owner
shift, equity structure shift, or other transaction described in
Sec. 1.382-2T(a)(2)(i). Instead of filing a separate statement for each
new loss member, the common parent may file a single statement
described in Sec. 1.382-2T(a)(2)(ii) with respect to the stock
ownership of the common parent (which is treated as a loss
corporation). In addition to the information concerning stock ownership
of the common parent, the single statement must identify each new loss
member and state which new loss members, if any, have had ownership
changes during the consolidated return year. The new loss member is,
however, required to maintain the records necessary to determine if it
has an ownership change. This paragraph (d) applies with respect to the
attributes of a new loss member until an event occurs which ends
separate tracking under Sec. 1.1502-96(a). After that time, the
information statement described in Sec. 1.1502-92(e)(1) must be filed
with respect to these attributes.
Sec. 1.1502-95 Rules on ceasing to be a member of a consolidated group
(or loss subgroup).
(a) In general--(1) Consolidated group. This section provides rules
for applying section 382 on or after the day that a member ceases to be
a member of a consolidated group (or loss subgroup). The rules concern
how to determine whether an ownership change occurs with respect to
losses of the member, and how a consolidated section 382 limitation (or
subgroup section 382 limitation) and a loss group's (or loss
subgroup's) net unrealized built-in gain or loss is apportioned to the
member. As the context requires, a reference in this section to a loss
group, a member, or a corporation also includes a reference to a loss
subgroup, and a reference to a consolidated section 382 limitation also
includes a reference to a subgroup section 382 limitation.
(2) Election by common parent. Only the common parent (not the loss
subgroup parent) may make the election under paragraph (c) of this
section to apportion a consolidated section 382 limitation (or subgroup
section 382 limitation) or a loss group's (or loss subgroup's) net
unrealized built-in gain.
(3) Coordination with Secs. 1.1502-91 through 1.1502-93. For rules
regarding the determination of whether there is an ownership change of
a loss subgroup and the computation of a subgroup section 382
limitation following such an ownership change, see Secs. 1.1502-91
through 1.1502-93.
(b) Separate application of section 382 when a member leaves a
consolidated group--(1) In general. Except as provided in Secs. 1.1502-
91 through 1.1502-93 (relating to rules applicable to loss groups and
loss subgroups), section 382 and the regulations thereunder apply to a
corporation on a separate entity basis after it ceases to be a member
of a consolidated group (or loss subgroup). Solely for purposes of
determining whether a corporation has an ownership change--
(i) Any portion of a consolidated net operating loss that is
apportioned to the corporation under Sec. 1.1502-21(b) is treated as a
net operating loss of the corporation beginning on the first day of the
taxable year in which the loss arose;
(ii) The testing period may include the period during which (or
before which) the corporation was a member of the group (or loss
subgroup); and
(iii) Except to the extent provided in Sec. 1.1502-96(d) (relating
to reattributed losses), the day it ceases to be a member of a
consolidated group is treated as a testing date of the corporation
within the meaning of Sec. 1.382-2(a)(4).
(2) Effect of a prior ownership change of the group. If a loss
group has had an ownership change under Sec. 1.1502-92 before a
corporation ceases to be a member of a consolidated group (the former
member)--
(i) Any pre-change consolidated attribute that is subject to a
consolidated section 382 limitation continues to be treated as a pre-
change loss with respect to the former member after it is apportioned
to the former member and, if any net unrealized built-in loss is
allocated to the former member under paragraph (e) of this section, any
recognized built-in loss of the former member is a pre-change loss of
the member;
(ii) The section 382 limitation with respect to such pre-change
attribute is zero unless the common parent, under paragraph (c) of this
section, apportions to the former member all or part of the
consolidated section 382 limitation applicable to such attribute. The
limitation applicable to a pre-change attribute other than a recognized
built-in loss may be increased to the extent that the common parent has
apportioned all or part of the loss group's net unrealized built-in
gain to the former member, and the former member recognizes built-in
gain during the recognition period;
(iii) The testing period for determining a subsequent ownership
[[Page 36160]]
change with respect to such pre-change attribute (or such net
unrealized built-in loss, if any) begins no earlier than the first day
following the loss group's most recent change date; and
(iv) As generally provided under section 382, an ownership change
of the former member that occurs on or after the day it ceases to be a
member of a loss group may result in an additional, lesser limitation
amount with respect to such losses.
(3) Application in the case of a loss subgroup. If two or more
former members are included in the same loss subgroup immediately after
they cease to be members of a consolidated group, the principles of
paragraphs (b), (c) and (e) of this section apply to the loss subgroup.
Therefore, for example, an apportionment by the common parent under
paragraph (c) of this section is made to the loss subgroup rather than
separately to its members. If the common parent of the consolidated
group apportions all or part of a limitation (or net unrealized built-
in gain) separately to one or more former members that are included in
a loss subgroup because the common parent of the acquiring group makes
an election under Sec. 1.1502-91(d)(4) with respect to those members,
the aggregate of those separate amounts is treated as the amount
apportioned to the loss subgroup. Such separate apportionment may
occur, for example, because the election under Sec. 1.1502-91(d)(4) has
not been filed at the time that the election of apportionment is made
under paragraph (f) of this section.
(4) Examples. The following examples illustrate the principles of
this paragraph (b):
Example 1. Treatment of departing member as a separate
corporation throughout the testing period. (i) A owns all the L
stock. L owns all the stock of L1 and L2. The L group has a
consolidated net operating loss arising in Year 1 that is carried
over to Year 3. On January 12, Year 2, A sells 30 percent of the L
stock to B. On February 7, Year 3, L sells 40 percent of the L2
stock to C, and L2 ceases to be a member of the group. A portion of
the Year 1 consolidated net operating loss is apportioned to L2
under Sec. 1.1502-21(b) and is carried to L2's first separate return
year, which ends December 31, Year 3. The following is a graphic
illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36161]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.015
BILLING CODE 4830-01-C
[[Page 36162]]
(ii) Under paragraph (b)(1) of this section, L2 is a loss
corporation on February 7, Year 3. Under paragraph (b)(1)(iii) of
this section, February 7, Year 3, is a testing date. Under paragraph
(b)(1)(ii) of this section, the testing period for L2 with respect
to this testing date commences on January 1, Year 1, the first day
of the taxable year in which the portion of the consolidated net
operating loss apportioned to L2 arose. Therefore, in determining
whether L2 has an ownership change on February 7, Year 3, B's
purchase of 30 percent of the L stock and C's purchase of 40 percent
of the L2 stock are each owner shifts. L2 has an ownership change
under section 382(g) and Sec. 1.382-2T because B and C have
increased their ownership interests in L2 by 18 and 40 percentage
points, respectively, during the testing period.
Example 2. Effect of prior ownership change of loss group. (i) L
owns all the L1 stock and L1 owns all the L2 stock. The L loss group
had an ownership change under Sec. 1.1502-92 in Year 2 with respect
to a consolidated net operating loss arising in Year 1 and carried
over to Year 2 and Year 3. The consolidated section 382 limitation
computed solely on the basis of the value of the stock of L is $100.
On December 31, Year 2, L1 sells 25 percent of the stock of L2 to B.
L2 is apportioned a portion of the Year 1 consolidated net operating
loss which it carries over to its first separate return year ending
after December 31, Year 2. L2's separate section 382 limitation with
respect to this loss is zero unless L elects to apportion all or a
part of the consolidated section 382 limitation to L2. (See
paragraph (c) of this section for rules regarding the apportionment
of a consolidated section 382 limitation.) L apportions $50 of the
consolidated section 382 limitation to L2, and the remaining $50 of
the consolidated section 382 limitation stays with the loss group
composed of L and L1.
(ii) On December 31, Year 3, L1 sells its remaining 75 percent
stock interest in L2 to C, resulting in an ownership change of L2.
L2's section 382 limitation computed on the change date with respect
to the value of its stock is $30. Accordingly, L2's section 382
limitation for post-change years ending after December 31, Year 3,
with respect to its pre-change losses, including the consolidated
net operating losses apportioned to it from the L group, is $30,
adjusted for a short taxable year, carryforward of unused
limitation, or any other adjustment required under section 382.
(c) Apportionment of a consolidated section 382 limitation--(1) In
general. The common parent may elect to apportion all or any part of a
consolidated section 382 limitation to a former member (or loss
subgroup). The common parent also may elect to apportion all or any
part of the loss group's net unrealized built-in gain to a former
member (or loss subgroup).
(2) Amount which may be apportioned--(i) Consolidated section 382
limitation. The common parent may apportion all or part of each element
of the consolidated section 382 limitation determined under
Sec. 1.1502-93. For this purpose, the consolidated section 382
limitation consists of two elements--
(A) The value element, which is the element of the limitation
determined under section 382(b)(1) (relating to value multiplied by the
long-term tax-exempt rate) without regard to such adjustments as those
described in section 382(b)(2) (relating to the carryforward of unused
section 382 limitation), section 382(b)(3)(B)(relating to the section
382 limitation for the post-change year that includes the change date),
section 382(h)(relating to built-in gains and section 338 gains), and
section 382(m)(2)(relating to short taxable years); and
(B) The adjustment element, which is so much (if any) of the
limitation for the taxable year during which the former member ceases
to be a member of the consolidated group that is attributable to a
carryover of unused limitation under section 382(b)(2) or to recognized
built-in gains under 382(h).
(ii) Net unrealized built-in gain. The aggregate amount of the loss
group's net unrealized built-in gain that may be apportioned to one or
more former members that cease to be members during the same
consolidated return year cannot exceed the loss group's excess,
immediately after the close of that year, of net unrealized built-in
gain over recognized built-in gain, determined under section
382(h)(1)(A)(ii) (relating to a limitation on recognized built-in
gain). For this purpose, net unrealized built-in gain apportioned to
former members in prior consolidated return years is treated as
recognized built-in gain in those years.
(3) Effect of apportionment on the consolidated group--(i)
Consolidated section 382 limitation. The value element of the
consolidated section 382 limitation for any post-change year ending
after the day that a former member (or loss subgroup) ceases to be a
member(s) is reduced to the extent that it is apportioned under this
paragraph (c). The consolidated section 382 limitation for the post-
change year in which the former member (or loss subgroup) ceases to be
a member(s) is also reduced to the extent that the adjustment element
for that year is apportioned under this paragraph (c).
(ii) Net unrealized built-in gain. The amount of the loss group's
net unrealized built-in gain that is apportioned to the former member
(or loss subgroup) is treated as recognized built-in gain for a prior
taxable year ending in the recognition period for purposes of applying
the limitation of section 382(h)(1)(A)(ii) to the loss group's
recognition period taxable years beginning after the consolidated
return year in which the former member (or loss subgroup) ceases to be
a member.
(4) Effect on corporations to which an apportionment is made--(i)
Consolidated section 382 limitation. The amount of the value element
that is apportioned to a former member (or loss subgroup) is treated as
the amount determined under section 382(b)(1) for purposes of
determining the amount of that corporation's (or loss subgroup's)
section 382 limitation for any taxable year ending after the former
member (or loss subgroup) ceases to be a member(s). Appropriate
adjustments must be made to the limitation based on the value element
so apportioned for a short taxable year, carryforward of unused
limitation, or any other adjustment required under section 382. The
adjustment element apportioned to a former member (or loss subgroup) is
treated as an adjustment under section 382(b)(2) or section 382(h), as
appropriate, for the first taxable year after the member (or members)
ceases to be a member (or members).
(ii) Net unrealized built-in gain. For purposes of determining the
amount by which the former member's (or loss subgroup's) section 382
limitation for any taxable year beginning after the former member (or
loss subgroup) ceases to be a member(s) is increased by its recognized
built-in gain--
(A) The amount of net unrealized built-in gain apportioned to a
former member (or loss subgroup) is treated as if it were an amount of
net unrealized built-in gain determined under section
382(h)(1)(A)(i)(without regard to the threshold of section
382(h)(3)(B)) with respect to such member or loss subgroup, and that
amount is not reduced under section 382(h)(1)(A)(ii) by the loss
group's recognized built-in gain;
(B) The former member's (or loss subgroup's) 5 year recognition
period begins on the loss group's change date;
(C) In applying section 382(h)(1)(A)(ii), the former member (or
loss subgroup) takes into account only its prior taxable years that
begin after it ceases to be a member of the loss group; and
(D) The former member's (or loss subgroup's) recognized built-in
gain on the disposition of an asset is determined under section
382(h)(2)(A), treating references to the change date in that section as
references to the loss group's change date.
(5) Deemed apportionment when loss group terminates. If a loss
group terminates, to the extent the consolidated section 382 limitation
or net unrealized built-in gain is not
[[Page 36163]]
apportioned under paragraph (c)(1) of this section, the consolidated
section 382 limitation or net unrealized built-in gain is deemed to be
apportioned to the loss subgroup that includes the common parent, or,
if there is no loss subgroup that includes the common parent
immediately after the loss group terminates, to the common parent. A
loss group terminates on the first day of the first taxable year that
is a separate return year with respect to each member of the former
loss group.
(6) Appropriate adjustments when former member leaves during the
year. Appropriate adjustments are made to the consolidated section 382
limitation for the consolidated return year during which the former
member (or loss subgroup) ceases to be a member(s) to reflect the
inclusion of the former member in the loss group for a portion of that
year.
(7) Examples. The following examples illustrate the principles of
this paragraph (c):
Example 1. Consequence of apportionment. (i) L owns all the L1
stock and L1 owns all the L2 stock. The L group has a $200
consolidated net operating loss arising in Year 1 that is carried
over to Year 2. At the close of December 31, Year 1, the group has
an ownership change under Sec. 1.1502-92. The ownership change
results in a consolidated section 382 limitation of $10 based on the
value of the stock of the group. On August 29, Year 2, L1 sells 30
percent of the stock of L2 to A. L2 is apportioned $90 of the
group's $200 consolidated net operating loss under Sec. 1.1502-
21(b). L, the common parent, elects to apportion $6 of the
consolidated section 382 limitation to L2. The following is a
graphic illustration of these facts:
BILLING CODE 4830-01-U
[GRAPHIC] [TIFF OMITTED] TR02JY99.016
BILLING CODE 4830-01-C
(ii) For its separate return years ending after December 31,
Year 2, L2's section 382 limitation with respect to the $90 of the
group's net operating loss apportioned to it is $6, adjusted, as
appropriate, for any short taxable year, unused section 382
limitation, or other adjustment. For its consolidated return year
ending December 31, Year 2 the L group's consolidated section 382
limitation with respect to the remaining $110 of pre-change
consolidated attribute is $4 ($10 minus the $6 value element
apportioned to L2), adjusted, as appropriate, for any short taxable
year, unused section 382 limitation, or other adjustment.
(iii) For the L group's consolidated return year ending December
31, Year 2, the value element of its consolidated section 382
limitation is increased by $4 (rounded to the nearest dollar), to
account for the period during which L2 was a member of the L group
($6, the consolidated section 382 limitation apportioned to L2,
times 241/365, the ratio of the number of days during Year 2 that L2
is a member of the group to the number of days in the group's
consolidated return year). See paragraph (c)(6) of this section.
Therefore, the value element of the consolidated section 382
limitation for Year 2 of the L group is $8 (rounded to the nearest
dollar).
(iv) The section 382 limitation for L2's short taxable year
ending December 31, Year 2, is $2 (rounded to the nearest dollar),
which is the amount that bears the same relationship to $6, the
value element of the consolidated section 382 limitation apportioned
to L2, as the number of days during that short taxable year, 124
days, bears to 365. See Sec. 1.382-5(c).
Example 2. Consequence of no apportionment. The facts are the
same as in Example 1, except that L does not elect to apportion any
portion of the consolidated section 382 limitation to L2. For its
separate return years ending after August 29, Year 2, L2's section
382 limitation with respect to the $90 of the group's pre-change
consolidated attribute apportioned to L2 is zero under paragraph
(b)(2)(ii) of this section. Thus, the $90 consolidated net operating
loss apportioned to L2 cannot offset L2's taxable income in any of
its separate return years ending after August 29, Year 2. For its
consolidated return years ending after August 29, Year 2, the L
group's consolidated section 382 limitation with respect to the
remaining $110 of pre-change consolidated attribute is $10,
adjusted, as appropriate, for any short taxable year, unused section
382 limitation, or other adjustment.
Example 3. Apportionment of adjustment element. The facts are
the same as in Example 1, except that L2 ceases to be a member of
the L group on August 29, Year 3, and the L group has a $4
carryforward of an unused consolidated section 382 limitation (under
section 382(b)(2)) to the Year 3 consolidated return year. The
carryover of unused limitation increases the consolidated section
382 limitation for the Year 3 consolidated return year from $10 to
$14. L may elect to apportion all or any portion of the $10 value
element and all or any portion of the $4 adjustment element to L2.
(d) Rules pertaining to ceasing to be a member of a loss subgroup--
(1) In general. A corporation ceases to be a member of a loss subgroup
on the earlier of--
[[Page 36164]]
(i) The first day of the first taxable year for which it files a
separate return; or
(ii) The first day that it ceases to bear a relationship described
in section 1504(a)(1) to the loss subgroup parent (treating for this
purpose the loss subgroup parent as the common parent described in
section 1504(a)(1)(A)).
(2) Exceptions. Paragraph (d)(1)(ii) of this section does not apply
to a member of a loss subgroup while that member remains a member of
the current group--
(i) If an election under Sec. 1.1502-91(d)(4)(relating to treating
the subgroup parent requirement as satisfied) applies to the members of
the loss subgroup;
(ii) Starting on the day after the change date (but not earlier
than the date the loss subgroup becomes a member of the group), if
there is an ownership change of the loss subgroup within six months
before, on, or after becoming members of the group; or
(iii) Starting the day after the period of 5 consecutive years
following the day that the loss subgroup become members of the group
during which the loss subgroup has not had an ownership change.
(3) Examples. The principles of this paragraph (d) are illustrated
by the following examples:
Example 1. Basic case. (i) P owns all the L stock, L owns all
the L1 stock and L1 owns all the L2 stock. The P group has a
consolidated net operating loss arising in Year 1 that is carried
over to Year 2. On December 11, Year 2, P sells all the stock of L
to corporation M. Each of L, L1, and L2 is apportioned a portion of
the Year 1 consolidated net operating loss, and thereafter each
joins with M in filing consolidated returns. Under Sec. 1.1502-92,
the L loss subgroup has an ownership change on December 11, Year 2.
The L loss subgroup has a subgroup section 382 limitation of $100.
The following is a graphic illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36165]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.017
BILLING CODE 4830-01-C
[[Page 36166]]
(ii) On May 22, Year 3, L1 sells 40 percent of the L2 stock to
A. L2 carries over a portion of the P group's net operating loss
from Year 1 to its separate return year ending December 31, Year 3.
Under paragraph (d)(1) of this section, L2 ceases to be a member of
the L loss subgroup on May 22, Year 3, which is both (1) the first
day of the first taxable year for which it files a separate return
and (2) the day it ceases to bear a relationship described in
section 1504(a)(1) to the loss subgroup parent, L. The net operating
loss of L2 that is carried over from the P group is treated as a
pre-change loss of L2 for its separate return years ending after May
22, Year 3. Under paragraphs (a)(2) and (b)(2) of this section, the
separate section 382 limitation with respect to this loss is zero
unless M elects to apportion all or a part of the subgroup section
382 limitation of the L loss subgroup to L2.
Example 2. Formation of a new loss subgroup. The facts are the
same as in Example 1, except that A purchases 40 percent of the L1
stock from L rather than purchasing L2 stock from L1. L1 and L2 file
a consolidated return for their first taxable year ending after May
22, Year 3, and each of L1 and L2 carries over a part of the net
operating loss of the P group that arose in Year 1. Under paragraph
(d)(1) of this section, L1 and L2 cease to be members of the L loss
subgroup on May 22, Year 3. The net operating losses carried over
from the P group are treated as pre-change subgroup attributes of
the loss subgroup composed of L1 and L2. The subgroup section 382
limitation with respect to those losses is zero unless M elects to
apportion all or part of the subgroup section 382 limitation of the
L loss subgroup to the L1 loss subgroup. The following is a graphic
illustration of these facts:
BILLING CODE 4830-01-U
[[Page 36167]]
[GRAPHIC] [TIFF OMITTED] TR02JY99.018
BILLING CODE 4830-01-C
[[Page 36168]]
Example 3. Ownership change upon becoming members of the group.
(i) A owns all the stock of P, and P owns all the stock of L1 and
L2. The P group has a consolidated net operating loss arising in
Year 1 that is carried over to Year 3 and Year 4. Corporation M
acquires all the stock of P on November 11, Year 3, and P, L1, and
L2 thereafter file consolidated returns with M. M's acquisition
results in an ownership change of the P loss subgroup under
Sec. 1.1502-92(b)(1)(ii).
(ii) P distributes the L2 stock to M on October 7, Year 4, and
L2 ceases to bear the relationship described in section 1504(a)(1)
to P, the P loss subgroup parent. However, under paragraph (d)(2) of
this section, L2 does not cease to be a member of the P loss
subgroup because the P loss subgroup had an ownership change upon
becoming members of the M group and L2 remains in the M group.
Example 4. Ceasing to bear a section 1504 (a)(1) to the loss
subgroup parent. (i) A owns all the stock of P, and P owns all the
stock of L1 and L2. The P group has a consolidated net operating
loss arising in Year 1 that is carried over to Year 7. At the close
of Year 2, X acquires all of the stock of P, causing an ownership
change of the loss subgroup composed of P, L1 and L2 under
Sec. 1.1502-92(b)(1)(ii). In Year 4, M, which is owned by the same
person that owns X, acquires all of the stock of P, and the M
acquisition does not cause a second ownership change of the P loss
subgroup.
(ii) P distributes the L2 stock to M on February 3, Year 6 (less
than 5 years after the P loss subgroup became members of the M
group) and L2 ceases to bear the relationship described in section
1504(a)(1) to P, the loss subgroup parent. Thus, the section 382
limitation from the Year 2 ownership change that applies with
respect to the pre-change attributes attributable to L2 is zero
except to the extent M elects to apportion all or part of the P loss
subgroup section 382 limitation to L2.
Example 5. Relationship through a successor. The facts are the
same as in Example 3, except that M's acquisition of the P stock
does not result in an ownership change of the P loss subgroup, and,
instead of P's distributing the stock of L2, L2 merges into L1 on
October 7, Year 4. L1 (as successor to L2 in the merger within the
meaning of Sec. 1.1502-1(f)(4)) continues to bear a relationship
described in section 1504(a)(1) to P, the loss subgroup parent.
Thus, L2 does not cease to be a member of the P loss subgroup as a
result of the merger.
Example 6. Reattribution of net operating loss carryover under
Sec. 1.1502-20(g). The facts are the same as in Example 3, except
that, instead of distributing the L2 stock to M, P sells that stock
to B, and, under Sec. 1.1502-20(g), M reattributes $10 of L2's net
operating loss carryover to itself. Under Sec. 1.1502-20(g), M
succeeds to the reattributed loss as if the loss were succeeded to
in a transaction described in section 381(a). M, as successor to L2,
does not cease to be a member of the P loss subgroup.
(e) Allocation of net unrealized built-in loss--(1) In general.
This paragraph (e) provides rules for the allocation of a loss group's
(or loss subgroup's) net unrealized built-in loss if a member ceases to
be a member of a loss group (or loss subgroup). This paragraph (e)
applies if--
(i) A loss group (or loss subgroup) has a net unrealized built-in
loss on a change date; and
(ii) Immediately after the close of the consolidated return year in
which the departing member ceases to be a member, the amount of the
loss group's (or loss subgroup's) excess of net unrealized built-in
loss over recognized built-in loss, determined under section
382(h)(1)(B)(ii) (relating to a limitation on recognized built-in
loss), is greater than zero. (The amount of such excess is referred to
as the remaining NUBIL balance.) In applying section 382(h)(1)(B)(ii)
for this purpose, net unrealized built-in loss allocated to departing
members in prior consolidated return years is treated as recognized
built-in loss in those years.
(2) Amount of allocation--(i) In general. The amount of net
unrealized built-in loss allocated to a departing member is equal to
the remaining NUBIL balance, multiplied by a fraction. The numerator of
the fraction is the amount of the built-in loss, taken into account on
the change date under Sec. 1.1502-91(g), in the assets held by the
departing member immediately after the member ceases to be a member of
the loss group (or loss subgroup). The denominator of the fraction is
the sum of the numerator, plus the amount of the built-in loss, taken
into account under Sec. 1.1502-91(g) on the change date, in the assets
held by the loss group (or loss subgroup) immediately after the close
of the taxable year in which the departing member ceases to be a
member. (Fluctuations in value of the assets between the change date
and the date that the member ceases to be a member of the group (or
loss subgroup), or the close of the taxable year in which the member
ceases to be a member of the loss group, are disregarded.) Because the
amount of built-in loss on the change date with respect to a departing
member's assets is taken into account (rather than that member's
separately computed net unrealized built-in loss on the change date), a
departing member can be apportioned all or part of the loss group's net
unrealized built-in loss, even if the departing member had a separately
computed net unrealized built-in gain on the change date. Amounts taken
into account under section 382(h)(6)(C) (relating to certain deduction
items) are treated as if they were assets in determining the numerator
and denominator of the fraction.
(ii) Transferred basis property and deferred gain or loss. For
purposes of paragraph (b)(2)(i) of this section, assets held by the
departing member immediately after it ceases to be a member of the
group (or by other members immediately after the close of the taxable
year) include--
(A) Assets held at that time that are transferred basis property
that was held by any member of the group (or loss subgroup) on the
change date; and
(B) Assets held at that time by any member of the consolidated
group with respect to which gain or loss of the group member or loss
subgroup member at issue has been deferred in an intercompany
transaction and has not been taken into account.
(iii) Assets for which gain or loss has been recognized. For
purposes of paragraph (b)(2)(i) of this section, assets held by the
departing member immediately after it ceases to be a member of the
group (or by other members immediately after the close of the taxable
year) do not include assets with respect to which gain or loss has
previously been recognized and taken into account during the
recognition period (including gain or loss recognized in an
intercompany transaction and taken into account immediately before the
member leaves the group). Appropriate adjustments must be made if gain
or loss on an asset has been only partially recognized and taken into
account.
(iv) Exchanged basis property. The rules of Sec. 1.1502-91(h) apply
for purposes of this paragraph (e) (disregarding stock received from
the departing member or another member that is a member immediately
after the close of the taxable year).
(v) Two or more members depart during the same year. If two or more
members cease to be members during the same consolidated return year,
appropriate adjustments must be made to the denominator of the fraction
for each departing member by treating the other departing members as if
they had not ceased to be members during that year and as if the assets
held by those other departing members immediately after they cease to
be members of the group (or loss subgroup) are assets held by the group
immediately after the close of the taxable year.
(vi) Anti-abuse rule. If assets are transferred between members or
a member ceases to be a member with a principal purpose of causing or
affecting the allocation of amounts under this paragraph (e),
appropriate adjustments must be made to eliminate any benefit of such
acquisition, disposition, or allocation.
[[Page 36169]]
(3) Effect of allocation on the consolidated group. The amount of
the net unrealized built-in loss that is allocated to the former member
is treated as recognized built-in loss for a prior taxable year ending
in the recognition period for purposes applying the limitation of
section 382(h)(1)(B)(ii) to a loss group's (or loss subgroup's)
recognition period taxable years beginning after the consolidated
return year in which the former member ceases to be a member.
(4) Effect on corporations to which the allocation is made. For
purposes of determining the amount of the former member's recognized
built-in losses in any taxable year beginning after the former member
ceases to be a member--
(i) The amount of the loss group's (or loss subgroup's) net
unrealized built-in loss that is allocated to the former member is
treated as if it were an amount of net unrealized built-in loss
determined under section 382(h)(1)(B)(i)(without regard to the
threshold of section 382(h)(3)(B)) with respect to such member or loss
subgroup, and that amount is not reduced under section 382(h)(1)(B)(ii)
by the loss group's (or loss subgroup's) recognized built-in losses;
(ii) The former member's 5 year recognition period begins on the
loss group's (or loss subgroup's) change date;
(iii) In applying section 382(h)(1)(B)(ii), the former member takes
into account only its prior taxable years that begin after it ceases to
be a member of the loss group (or loss subgroup); and
(iv) The former member's recognized built-in loss on the
disposition of an asset is determined under section 382(h)(2)(B),
treating references to the change date in that section as references to
the loss group's (or loss subgroup's) change date.
(5) Subgroup principles. If two or more former members are members
of the same consolidated group (the second group) immediately after
they cease to be members of the current group, the principles of
paragraphs (e)(1), (2) and (4) of this section apply to those former
members on an aggregate basis. Thus, for example, the amount of net
unrealized built-in loss allocated to those members is based on the
assets held by those members immediately after they cease to be members
of the current group and the limitation of section 382(h)(1)(B)(ii) on
recognized built-in losses is applied by taking into account the
aggregate amount of net unrealized built-in loss allocated to the
former members and the aggregate recognized losses of those members in
taxable years beginning after they cease to be members of the current
group. If one or more of such members cease to be members of the second
group, the principles of this paragraph (e) are applied with respect to
those members to allocate to them all or part of any remaining
unrecognized amount of net unrealized built-in loss allocated to the
members that became members of the second group.
(6) Apportionment of consolidated section 382 limitation (or
subgroup section 382 limitation)--(i) In general. For rules relating to
the apportionment of a consolidated section 382 limitation (or subgroup
section 382 limitation) to a former member, see paragraph (c) of this
section.
(ii) Special rule for former members that become members of the
same consolidated group. If recognized built-in losses of one or more
former members would be subject to a consolidated section 382
limitation (or subgroup section 382 limitation) if recognized
immediately before the member (or members) cease to be members of the
group, an apportionment of that limitation may be made, under paragraph
(c) of this section, to a loss subgroup that includes such member (or
members), and the recognized built-in losses (if any) of that member
(or members) will be subject to that apportioned limitation. If two or
more of such former members are not included in a loss subgroup
immediately after they cease to be members of the group (for example,
because they do not have net operating loss carryovers or, in the
aggregate, a net unrealized built-in loss), but are members of the same
consolidated group, an apportionment of the consolidated section 382
limitation (or subgroup section 382 limitation) may be made to them as
if they were a loss subgroup.
(7) Examples. The following examples illustrate the principles of
this paragraph (e):
Example 1. Basic allocation case. (i) P owns all of the stock of
L1 and L2. On September 4, Year 1, A purchases all of the P stock,
causing an ownership change of the P group. On that date P has two
assets (other than the L1 and L2 stock), asset 1 with an adjusted
basis of $40 and a fair market value of $15 and asset 2 with an
adjusted basis of $50 and a fair market value of $100. L1 has two
assets, asset 3 , with a fair market value of $50 and an adjusted
basis of $100, and asset 4, with an adjusted basis of $125 and a
fair market value of $75. L2 has two assets, asset 5, with a fair
market value of $150 and an adjusted basis of $100, and asset 6,
with an adjusted basis of $90 and a fair market value of $40. Thus,
the P loss group has a net unrealized built-in loss of $75.
(ii) On March 19, Year 3, P sells all of the L2 stock to M. At
that time, asset 5, which has appreciated in value, has a fair
market value of $250 and an adjusted basis of $100. Asset 6, which
has declined in value, has an adjusted basis of $90 and a fair
market value of $10.
(iii) On April 8, Year 3, P sells asset 1, and has a recognized
built-in loss of $25 that is subject to the P group's section 382
limitation. On November 11, Year 4, L2 sells asset 6 for its then
fair market value, $10, recognizing a loss of $80. On June 3, Year
5, L1 sells asset 4, recognizing a loss of $50.
(iv) Immediately after the close of Year 3, the P loss group's
remaining NUBIL balance is $50 ($75 net unrealized built-in loss
reduced by the $25 recognized built-in loss of P). The portion of
the remaining NUBIL balance that is allocated to L2 is $17 (rounded
to the nearest dollar). Seventeen dollars is the product obtained by
multiplying $50 (the remaining NUBIL balance) by $50/$150. The
numerator of the fraction ($50) is the amount of built-in loss in
asset 6, taken into account on the change date under Sec. 1.1502-
91(g). The denominator ($150) is the sum of the numerator ($50) and
the amount of built-in loss in assets 3 and 4, taken into account on
the change date under Sec. 1.1502-91(g) ($100). The built-in loss in
asset 1 is not included in the denominator of the fraction because
it is not held by the P group immediately after the close of Year 3.
(v) Seventeen dollars of L2's $80 loss on the sale of asset 6 is
a recognized built-in loss and subject to a section 382 limitation
of zero, unless P apportions some or all of the P group's
consolidated section 382 limitation to L2 (adjusted for a short
taxable year, carryover of unused limitation, or any other
adjustment required under section 382).
(vi) Thirty-three dollars of L1's $50 loss on the sale of asset
4 is subject to the P group's consolidated section 382 limitation,
reduced by the amount of such limitation apportioned to L2, and
adjusted for any short taxable year, a carryforward of unused
limitation, or other adjustment. (In applying section
382(h)(1)(B)(ii) with respect to Year 5, the P group's net
unrealized built-in loss is reduced by P's $25 recognized built-in
loss in Year 3 and the $17 of net unrealized built-in loss allocated
to L2, thus limiting the P group's recognized built-in loss in Year
5 to $33.)
Example 2. Two members depart in the same year. The facts are
the same as in Example 1, except that P sells all of the stock of L1
to C on November 1, Year 3. The amount of net unrealized built-in
loss apportioned to L2 (rounded to the nearest dollar) is $17 ($50
remaining NUBIL balance x $50/$150). The amount of net unrealized
built-in loss apportioned to L1 (rounded to the nearest dollar) is
$33 ($50 remaining NUBIL balance x $100/$150).
(8) Reporting requirement. If a net unrealized built-in loss is
allocated under this paragraph (e), the common parent must file a
statement with its income tax return for the taxable year in which the
former member(s) (or a new loss subgroup that includes that member)
ceases to be a member. The statement must provide the name and employer
identification number (E.I.N.)
[[Page 36170]]
of the departing member, the amount of remaining NUBIL balance for the
taxable year in which the member departs, and the amount of the net
unrealized built-in loss allocated to the departing member. The common
parent must also deliver a copy of the statement to the former member
on or before the day the group files its income tax return for the
consolidated return year that the former member ceases to be a member.
A copy of the statement must be attached to the first income tax return
of the former member (or the first return in which the former member
joins) that is filed after the close of the consolidated return year of
the group of which the former member (or a new loss subgroup that
includes that member) cease to be a member. This paragraph (e)(8) does
not apply if the required information (other than the amount of
remaining NUBIL balance) is included in a statement of election under
paragraph (f) of this section (relating to apportioning a section 382
limitation).
(f) Filing the election to apportion the section 382 limitation and
net unrealized built-in gain--(1) Form of the election to apportion. An
election under paragraph (c) of this section must be made by the common
parent. The election must be made in the form of the following
statement: ``THIS IS AN ELECTION UNDER Sec. 1.1502-95 OF THE INCOME TAX
REGULATIONS TO APPORTION ALL OR PART OF THE [insert THE CONSOLIDATED
SECTION 382 LIMITATION, THE SUBGROUP SECTION 382 LIMITATION, THE LOSS
GROUP'S NET UNREALIZED BUILT-IN GAIN, THE LOSS SUBGROUP'S NET
UNREALIZED BUILT-IN GAIN, as appropriate] TO [insert name and E.I.N. of
the corporation (or the corporations that compose a new loss subgroup)
to which allocation is made]''. The declaration must also include the
following information, as appropriate--
(i) The date of the ownership change that resulted in the
consolidated section 382 limitation (or subgroup section 382
limitation) or the loss group's (or loss subgroup's) net unrealized
built-in gain;
(ii) The amount of the departing member's (or loss subgroup's) pre-
change net operating loss carryovers and the taxable years in which
they arose that will be subject to the limitation that is being
apportioned to that member (or loss subgroup);
(iii) The amount of any net unrealized built-in loss allocated to
the departing member (or loss subgroup) under paragraph (e) of this
section, which, if recognized, can be a pre-change attribute subject to
the limitation that is being apportioned;
(iv) If a consolidated section 382 limitation (or subgroup section
382 limitation) is being apportioned, the amount of the consolidated
section 382 limitation (or subgroup section 382 limitation) for the
taxable year during which the former member (or new loss subgroup)
ceases to be a member of the consolidated group (determined without
regard to any apportionment under this section);
(v) If any net unrealized built-in gain is being apportioned, the
amount of the loss group's (or loss subgroup's) net unrealized built-in
gain (as determined under paragraph (c) (2)(ii) of this section) that
may be apportioned to members that ceased to be members during the
consolidated return year;
(vi) The amount of the value element and adjustment element of the
consolidated section 382 limitation (or subgroup section 382
limitation) that is apportioned to the former member (or new loss
subgroup) pursuant to paragraph (c) of this section;
(vii) The amount of the loss group's (or loss subgroup's) net
unrealized built-in gain that is apportioned to the former member (or
new loss subgroup) pursuant to paragraph (c) of this section;
(viii) If the former member is allocated any net unrealized built-
in loss under paragraph (e) of this section, the amount of any
adjustment element apportioned to the former member that is
attributable to recognized built-in gains (determined in a manner that
will enable both the group and the former member to apply the
principles of Sec. 1.1502-93(c));
(ix) The name and E.I.N. of the common parent making the
apportionment.
(2) Signing of the election. The election statement must be signed
by both the common parent and the former member (or, in the case of a
loss subgroup, the common parent and the loss subgroup parent) by
persons authorized to sign their respective income tax returns. If the
allocation is made to a loss subgroup for which an election under
Sec. 1.1502-91(d)(4) is made, and not separately to its members, the
election statement under this paragraph (e) must be signed by the
common parent and any member of the new loss subgroup by persons
authorized to sign their respective income tax returns.
(3) Filing of the election. The election statement must be filed by
the common parent of the group that is apportioning the consolidated
section 382 limitation (or the subgroup section 382 limitation) or the
loss group's net unrealized built-in gain (or loss subgroup's net
unrealized built-in gain) with its income tax return for the taxable
year in which the former member (or new loss subgroup) ceases to be a
member. The common parent must also deliver a copy of the statement to
the former member (or the members of the new loss subgroup) on or
before the day the group files its income tax return for the
consolidated return year that the former member (or new loss subgroup)
ceases to be a member. A copy of the statement must be attached to the
first return of the former member (or the first return in which the
members of a new loss subgroup join) that is filed after the close of
the consolidated return year of the group of which the former member
(or the members of a new loss subgroup) ceases to be a member.
(4) Revocation of election. An election statement made under
paragraph (c) of this section is revocable only with the consent of the
Commissioner.
Sec. 1.1502-96 Miscellaneous rules.
(a) End of separate tracking of losses--(1) Application. This
paragraph (a) applies to a member (or a loss subgroup) with a net
operating loss carryover that arose (or is treated under Sec. 1.1502-
21(c) as arising) in a SRLY, or a member (or loss subgroup) with a net
unrealized built-in loss determined at the time that the member (or
loss subgroup) becomes a member of the consolidated group if there is--
(i) An ownership change of the member (or loss subgroup) within six
months before, on, or after becoming a member of the group; or
(ii) A period of 5 consecutive years following the day that the
member (or loss subgroup) becomes a member of a group during which the
member (or loss subgroup) has not had an ownership change.
(2) Effect of end of separate tracking--(i) Net operating loss
carryovers. If this paragraph (a) applies with respect to a member (or
loss subgroup) with a net operating loss carryover, then, starting on
the day after the earlier of the change date (but not earlier than the
day the member (or loss subgroup) becomes a member of the consolidated
group) or the last day of the 5 consecutive year period described in
paragraph (a)(1)(ii) of this section, such loss carryover is treated as
described in Sec. 1.1502-91(c)(1)(i). The preceding sentence also
applies for purposes of determining whether there is an ownership
change with respect to such loss carryover following such change date
or 5 consecutive year period. Thus, for example, starting the day after
the change date (but not earlier than the day the member (or loss
subgroup) becomes a member of the consolidated group) or
[[Page 36171]]
the end of the 5 consecutive year period--
(A) The consolidated group which includes the new loss member or
loss subgroup is no longer required to separately track owner shifts of
the stock of the new loss member or subgroup parent to determine if an
ownership change occurs with respect to the loss carryover of the new
loss member or members included in the loss subgroup;
(B) The group is a loss group because the member's loss carryover
is treated as a loss described in Sec. 1.1502-91(c)(1)(i);
(C) There is an ownership change with respect to such loss
carryover only if the group has an ownership change; and
(D) If the group has an ownership change, such loss carryover is a
pre-change consolidated attribute subject to the loss group's
consolidated section 382 limitation.
(ii) Net unrealized built-in losses. If this paragraph (a) applies
with respect to a new loss member described in Sec. 1.1502-94(a)(1)(ii)
(or a loss subgroup described in Sec. 1.1502-91(d)(2)) then, starting
on the day after the earlier of the change date (but not earlier than
the day the member (or loss subgroup) becomes a member of the group) or
the last day of the 5 consecutive year period described in paragraph
(a)(1)(ii) of this section, the member (or members of the loss
subgroup) are treated, for purposes of applying Sec. 1.1502-
91(g)(2)(ii), as if they have been affiliated with the common parent
for 5 consecutive years. Starting on that day, the member's (or the
members of the loss subgroup's) separately computed net unrealized
built-in loss is included in the determination whether the group has a
net unrealized built-in loss, and there is an ownership change with
respect to the member's separately computed net unrealized built-in
loss only if the group (including the member) has a net unrealized
built-in loss and has an ownership change. Thus, for example, starting
the day after the change date (but not earlier than the day the member
(or loss subgroup) becomes a member of the consolidated group), or the
end of the 5 consecutive period
(A) The consolidated group which includes the new loss member or
loss subgroup is no longer required to separately track owner shifts of
the stock of the new loss member or subgroup parent to determine if an
ownership change occurs with respect to the net unrealized built-in
loss of the new loss member or members of the loss subgroup;
(B) The group includes the member's (or the loss subgroup members')
separately computed net unrealized built-in loss in determining whether
it is a loss group under Sec. 1.1502-91(c)(1)(iii);
(C) There is an ownership change with respect to such net
unrealized built-in loss only if the group is a loss group and has an
ownership change; and
(D) If the group has an ownership change, the member's separately
computed net unrealized built-in loss and its assets are taken into
account in determining the group's pre-change consolidated attributes
described in Sec. 1.1502-91(e)(1) (relating to recognized built-in
losses) that are subject to the group's consolidated section 382
limitation.
(iii) Common parent not common parent for five years. If the common
parent has become the common parent of an existing group within the
previous 5-year period in a transaction described in Sec. 1.1502-
75(d)(2)(ii) or (3), appropriate adjustments must be made in applying
paragraphs (a)(2)(ii) and (3) of this section. In such a case, as the
context requires, references to the common parent are to the former
common parent.
(3) Continuing effect of end of separate tracking--(i) In general.
As the context may require, a current group determines which of its
members are included in a loss subgroup on any testing date by taking
into account the application of this section in the former group. See
the example in Sec. 1.1502-91(f)(2). For this purpose, corporations
that are treated under paragraph (a)(2)(ii) of this section as having
been affiliated with the common parent of the former group for 5
consecutive years are also treated as having been affiliated with any
other members that have been (or are treated as having been) affiliated
with the common parent. The corporations are treated as having been
affiliated with such other members for the same period of time that
those members have been (or are treated as having been) affiliated with
the common parent. If two or more corporations become members of the
group at the same time, but paragraph (a)(1) of this section does not
apply to every such corporation, then immediately after the
corporations become members of the group, the corporations to which
paragraph (a)(1) of this section applied are treated as not having been
previously affiliated, for purposes of applying this paragraph (a)(3),
with the corporations to which paragraph (a)(2)(ii) of this section did
not apply.
(ii) Example. The following example illustrates the principles of
this paragraph (a)(3):
Example. (i) L has owned all the stock of L1 for three years. At
the close of December 31, Year 1, the M group purchases all the L
stock, and L and L1 become members of the M group. Other than the
stock of L1, L has one asset (the L loss asset) with a net
unrealized built-in loss of $200 on this date. L1 has one asset with
a net unrealized built-in gain of $50 (the L1 gain asset). L and L1
do not compose a loss subgroup because they do not meet the five
year affiliation requirement of Sec. 1.1502-91(d)(2)(i). L is a new
loss member, and M's purchase of L causes an ownership change of L.
At the close of December 31, Year 4, at a time when L1 has been
affiliated with the M group for three years and has been affiliated
with L for six years, the S group purchases all the M stock. On this
date, the L loss asset has a net unrealized built-in loss of $300,
the L1 gain asset has a net unrealized built-in gain of $80, and M,
the common parent of the M group, has one asset with a net
unrealized built-in gain of $200.
(ii) Paragraph (a)(1) of this section applies to L because L is
a new loss member described in Sec. 1.1502-94(a)(1)(ii) that has an
ownership change upon becoming a member of the M group on December
31, Year 1. Accordingly, L is treated as having been affiliated with
M for 5 consecutive years, and the L loss asset with a net
unrealized built-in loss of $300 is included in the determination
whether the M group has a net unrealized built-in loss.
(iii) The S group determines which of its members are included
in a loss subgroup by taking into account application of paragraph
(a) of this section in the M group. For this purpose, application of
paragraph (a) of this section causes L to be treated as having been
affiliated with M (or as having been a member of the M group) for 5
consecutive years as of January 1, Year 2. Therefore, the S group
includes L in the determination whether the M subgroup acquired by S
on December 31, Year 4, has a net unrealized built-in loss.
(iv) Because paragraph (a)(1) of this section applied to L when
L became a member of the M group, but did not apply to L1, L is
treated as not having been affiliated with L1 before L and L1 joined
the M group. Also, L1 is not included in the determination whether
the M subgroup has a net unrealized built-in loss because L1 has not
been continuously affiliated with members of the M group for the
five consecutive year period ending immediately before they become
members of the S group. See Sec. 1.1502-91(g)(2).
(4) Special rule for testing period. For purposes of determining
the beginning of the testing period for a loss group, the member's (or
loss subgroup's) net operating loss carryovers (or net unrealized
built-in loss) described in paragraph (a)(2) of this section are
considered to arise--
(i) In a case described in paragraph (a)(1)(i) of this section, in
a taxable year that begins not earlier than the later of the day
following the change date or the day that the member becomes a member
of the group; and
[[Page 36172]]
(ii) In a case described in paragraph (a)(1)(ii) of this section,
in a taxable year that begins 3 years before the end of the 5
consecutive year period.
(5) Limits on effects of end of separate tracking. The rule
contained in this paragraph (a) applies solely for purposes of
Secs. 1.1502-91 through 1.1502-95 and this section (other than
paragraph (b)(2)(ii)(B) of this section (relating to the definition of
pre-change attributes of a subsidiary)) and Sec. 1.1502-98, and not for
purposes of other provisions of the consolidated return regulations.
However, the rule contained in this paragraph (a) does apply in
Secs. 1.1502-15(g), 1.1502-21(g) and 1.1502-22(g) for purposes of
determining the composition of loss subgroups defined in Sec. 1.1502-
91(d). See also paragraph (c) of this section for the continuing effect
of an ownership change with respect to pre-change attributes.
(b) Ownership change of subsidiary--(1) Ownership change of a
subsidiary because of options or plan or arrangement. Notwithstanding
Sec. 1.1502-92, a subsidiary may have an ownership change for purposes
of section 382 with respect to its attributes which a group or loss
subgroup includes in making a determination under Sec. 1.1502-91(c)(1)
(relating to the definition of loss group) or Sec. 1.1502-91(d)
(relating to the definition of loss subgroup). The subsidiary has such
an ownership change if it has an ownership change under the principles
of Sec. 1.1502-95(b) and section 382 and the regulations thereunder
(determined on a separate entity basis by treating the subsidiary as
not being a member of a consolidated group) in the event of--
(i) The deemed exercise under Sec. 1.382-4(d) of an option or
options (other than an option with respect to stock of the common
parent) held by a person (or persons acting pursuant to a plan or
arrangement) to acquire more than 20 percent of the stock of the
subsidiary; or
(ii) An increase by 1 or more 5-percent shareholders, acting
pursuant to a plan or arrangement to avoid an ownership change of a
subsidiary, in their percentage ownership interest in the subsidiary by
more than 50 percentage points during the testing period of the
subsidiary through the acquisition (or deemed acquisition pursuant to
Sec. 1.382-4(d)) of ownership interests in the subsidiary and in
higher-tier members with respect to the subsidiary.
(2) Effect of the ownership change--(i) In general. If a subsidiary
has an ownership change under paragraph (b)(1) of this section, the
amount of consolidated taxable income for any post-change year that may
be offset by the pre-change losses of the subsidiary shall not exceed
the section 382 limitation for the subsidiary. For purposes of this
limitation, the value of the subsidiary is determined solely by
reference to the value of the subsidiary's stock.
(ii) Pre-change losses. The pre-change losses of a subsidiary are--
(A) Its allocable part of any consolidated net operating loss which
is attributable to it under Sec. 1.1502-21(b) (determined on the last
day of the consolidated return year that includes the change date) that
is not carried back and absorbed in a taxable year prior to the year
including the change date;
(B) Its net operating loss carryovers that arose (or are treated
under Sec. 1.1502-21(c) as having arisen) in a SRLY; and
(C) Its recognized built-in loss with respect to its separately
computed net unrealized built-in loss, if any, determined on the change
date.
(3) Coordination with Secs. 1.1502-91, 1.1502-92, and 1.1502-94. If
an increase in percentage ownership interest causes an ownership change
with respect to an attribute under this paragraph (b) and under
Sec. 1.1502-92 on the same day, the ownership change is considered to
occur only under Sec. 1.1502-92 and not under this paragraph (b). See
Sec. 1.1502-94 for anti-duplication rules relating to value.
(4) Example. The following example illustrates paragraph (b)(1)(ii)
of this section:
Example. Plan to avoid an ownership change of a subsidiary. (i)
L owns all the stock of L1, L1 owns all the stock of L2, L2 owns all
the stock of L3, and L3 owns all the stock of L4. The L group has a
consolidated net operating loss arising in Year 1 that is carried
over to Year 2. L has assets other than its L1 stock with a value of
$900. L1, L2, and L3 own no assets other than their L2, L3, and L4
stock. L4 has assets with a value of $100. During Year 2, A, B, C,
and D, acting pursuant to a plan to avoid an ownership change of L4,
acquire the following ownership interests in the members of the L
loss group: (A) on September 11, Year 2, A acquires 20 percent of
the L1 stock from L and B acquires 20 percent of the L2 stock from
L1; and (B) on September 20, Year 2, C acquires 20 percent of the
stock of L3 from L2 and D acquires 20 percent of the stock of L4
from L3.
(ii) The acquisitions by A, B, C, and D pursuant to the plan
have increased their respective percentage ownership interests in L4
by approximately 10, 13, 16, and 20 percentage points, for a total
of approximately 59 percentage points during the testing period.
This more than 50 percentage point increase in the percentage
ownership interest in L4 causes an ownership change of L4 under
paragraph (b)(2) of this section.
(c) Continuing effect of an ownership change. A loss corporation
(or loss subgroup) that is subject to a limitation under section 382
with respect to its pre-change losses continues to be subject to the
limitation regardless of whether it becomes a member or ceases to be a
member of a consolidated group. See Sec. 1.382-5(d) (relating to
successive ownership changes and absorption of a section 382
limitation).
(d) Losses reattributed under Sec. 1.1502-20(g)--(1) In general.
This paragraph (d) contains rules relating to net operating carryovers
that are reattributed to the common parent under Sec. 1.1502-20(g).
References in this paragraph (d) to a subsidiary are references to the
subsidiary (or lower tier subsidiary) whose net operating loss
carryover is reattributed to the common parent.
(2) Deemed section 381(a) transaction. Under Sec. 1.1502-20 (g)(1),
the common parent succeeds to the reattributed losses as if the losses
were succeeded to in a transaction described in section 381(a). In
general, Secs. 1.1502-91 through 1.1502-95, this section, and
Sec. 1.1502-98 are applied to the reattributed net operating loss
carryovers in accordance with that characterization. See generally,
Sec. 1.382-2(a)(1)(ii) (relating to distributor or transferor loss
corporations in transactions under section 381), Sec. 1.1502-(1)(f)(4)
(relating to the definition of predecessor and successor) and
Sec. 1.1502-91(j) (relating to predecessor and successor corporations).
For example, if the reattributed net operating loss carryover is a pre-
change attribute subject to a section 382 limitation, it remains
subject to that limitation following the reattribution. In certain
cases, the limitation applicable to the reattributed loss is zero
unless the common parent apportions all or part of the limitation to
itself. (See paragraph (d)(4) of this section.)
(3) Rules relating to owner shifts--(i) In general. Any owner shift
of the subsidiary (including any deemed owner shift resulting from
section 382(g)(4)(D) or 382(l)(3)) in connection with the disposition
of the stock of the subsidiary is not taken into account in determining
whether there is an ownership change with respect to the reattributed
net operating loss carryover. However, any owner shift with respect to
the successor corporation that is treated as continuing in existence
under Sec. 1.382-2(a)(1)(ii) must be taken into account for such
purpose if such owner shift is effected by the reattribution and an
owner shift of the stock of the subsidiary not held directly or
indirectly by the common parent would
[[Page 36173]]
have been taken into account if such shift had occurred immediately
before the reattribution. See paragraph (d)(3)(ii) Example 2 of this
section.
(ii) Examples. The following examples illustrate the principles of
this paragraph (d)(3):
Example 1. No owner shift for reattributed loss. (i) P, the
common parent of a consolidated group, owns 60% of the stock of L,
and B owns the remaining 40%. L has a net operating loss carryover
of $100 from year 1 that it carries over to Years 2, 3, and 4. At
the beginning of Year 2, P purchases 40% of the L stock from B,
which does not cause an ownership change of L. On December 31, Year
3, P sells all of the L stock to M. Pursuant to Sec. 1.1502-20(g), P
reattributes $10 of L's $100 net operating loss carryover to itself,
and L carries $90 of its net operating loss carryover to its Year 4.
(ii) The sale of the L stock to M does not cause an owner shift
that is taken into account in determining if there is an ownership
change with respect to the $10 reattributed loss. Following the
reattribution, Sec. 1.1502-94(b) continues to apply to determine if
there is an ownership change with respect to the $10 reattributed
loss, until, under paragraph (a) of this section, the loss is
treated as described in Sec. 1.1502-91(c)(1)(i). In applying
Sec. 1.1502-94(b), the 40 percentage point increase by the P
shareholders prior to the reattribution is taken into account. The
sale of the L stock to M does cause an ownership change of L with
respect to the $90 of its net operating loss that it carries over to
Year 4.
Example 2. Owner shift for reattributed loss. The facts are the
same as in Example 1, except that P only purchases 20% of the L
stock from B and sells 80% of the L stock to M. L is a new loss
member, and, under Sec. 1.1502-94(b)(1), an owner shift of the stock
of L not held directly or indirectly by the common parent (the 20%
of L stock still held by B) would have been taken into account if
such shift had occurred immediately before the reattribution.
Following the reattribution, Sec. 1.1502-94(b) continues to apply to
determine if there is an ownership change with respect to the $10
reattributed loss, until, under paragraph (a) of this section, the
loss is treated as described in Sec. 1.1502-91(c)(1)(i). With
respect to the $10 reattributed loss, the P shareholders have
increased their percentage ownership interest by 40 percentage
points. The P shareholders have increased their ownership interests
by 20 percentage points as a result of P's purchase of stock from B,
and, under Sec. 1.382-2(a)(1)(ii), are treated as increasing their
interests by an additional 20 percentage points as a result of the
reattribution. (The acquisition of the L stock by M does not,
however, effect an owner shift for the $10 of reattributed loss.)
The sale of the L stock to M causes an ownership change of L with
respect to the $90 of net operating loss that L carries over to Year
4.
(4) Rules relating to the section 382 limitation--(i) Reattributed
loss is a pre-change separate attribute of a new loss member. If the
reattributed net operating loss carryover is a pre-change separate
attribute of a new loss member that is subject to a separate section
382 limitation prior to the disposition of subsidiary stock, the common
parent's limitation with respect to that loss is zero, except to the
extent that the common parent apportions to itself, under paragraph
(d)(5) of this section, all or part of such limitation. A separate
section 382 limitation is the limitation described in Sec. 1.1502-94(b)
that applies to a pre-change separate attribute.
(ii) Reattributed loss is a pre-change subgroup attribute. If the
reattributed net operating loss carryover is a pre-change subgroup
attribute subject to a subgroup section 382 limitation prior to the
disposition of subsidiary stock, and, immediately after the
reattribution, the common parent is not a member of the loss subgroup,
the section 382 limitation with respect to that net operating loss
carryover is zero, except to the extent that the common parent
apportions to itself, under paragraph (d)(5) of this section, all or
part of the subgroup section 382 limitation. See, however, Sec. 1.1502-
95(d)(3) Example 6, for an illustration of a case where the common
parent, as successor to the subsidiary, is a member of the loss
subgroup immediately after the reattribution.
(iii) Potential application of section 382(l)(1). In general, the
value of the stock of the common parent is used to determine the
section 382 limitation for an ownership change with respect to the
reattributed net operating loss carryover that occurs at the time of,
or after, the reattribution. For example, if the net operating loss
carryover is a pre-change consolidated attribute, the value of the
stock of the common parent is used to determine the section 382
limitation, and no adjustment to that value is required because of the
deemed section 381(a) transaction. However, if the net operating loss
carryover is a pre-change separate attribute of a new loss member (or
is a pre-change attribute of a loss subgroup member and the common
parent was not the loss subgroup parent immediately before the
reattribution), the deemed section 381(a) transaction is considered to
constitute a capital contribution with respect to the new loss member
(or loss subgroup member) for purposes of section 382(l)(1).
Accordingly, if that section applies because the deemed capital
contribution is (or is considered under section 382(l)(1)(B) to be)
part of a plan described in section 382(l)(1)(A), the value of the
stock of the common parent after the deemed section 381(a) transaction
must be adjusted to reflect the capital contribution. Ordinarily, this
will require the value of the stock of the common parent to be reduced
to an amount that represents the value of the stock of the subsidiary
(or loss subgroup of which the subsidiary was a member) when the
reattribution occurred.
(iv) Duplication or omission of value. In determining any section
382 limitation with respect to the reattributed net operating loss
carryover and with respect to other pre-change losses, appropriate
adjustments must be made so that value is not improperly omitted or
duplicated as a result of the reattribution. For example, if the
subsidiary has an ownership change upon its departure, and the common
parent (as successor) has an ownership change with respect to the
reattributed pre-change separate attribute upon its reattribution under
paragraph (d)(3)(i) of this section, proper adjustments must be made so
that the value of the subsidiary is not taken into account more than
once in determinining the section 382 limitation for the reattributed
loss and the loss that is not reattributed.
(v) Special rule for continuity of business requirement. If the
reattributed net operating loss carryover is a pre-change attribute of
new loss member and the reattribution occurs within the two year period
beginning on the change date, then, starting immediately after the
reattribution, the continuity of business requirement of section
382(c)(1) is applied with respect to the business enterprise of the
common parent. Similar principles apply if the reattributed net
operating loss carryover is a pre-change subgroup attribute and, on the
day after the reattribution, the common parent is not a member of the
loss subgroup.
(5) Election to reattribute section 382 limitation--(i) Effect of
election. The common parent may elect to apportion to itself all or
part of any separate section 382 limitation or subgroup section 382
limitation to which the net operating loss carryover is subject
immediately before the reattribution. However, no net unrealized built-
in gain of the member (or loss subgroup) whose net operating loss
carryover is reattributed can be apportioned to the common parent. The
principles of Sec. 1.1502-95(c) apply to the apportionment, treating,
as the context requires, references to the former member as references
to the common parent, and references to the consolidated section 382
limitation as references to the separate section 382 limitation (or
subgroup section 382 limitation) that is being apportioned. Thus, for
example, the common parent can reattribute to itself all or part of the
value element or adjustment element of the limitation, and any part of
such
[[Page 36174]]
element that is apportioned requires a corresponding reduction in such
element of the separate section 382 limitation of the subsidiary whose
net operating loss carryover is reattributed (or in the subgroup
section 382 limitation if the reattributed loss is a pre-change
subgroup attribute). Appropriate adjustments must be made to the
separate section 382 limitation (or subgroup section 382 limitation)
for the consolidated return year in which the reattribution is made to
reflect that the reattributed net operating loss carryover is an
attribute acquired by the common parent during the year in a
transaction to which section 381(a) applies. The election is made by
the common parent as part of the election to reattribute the net
operating loss carryover. See Sec. 1.1502-20(g)(4) for the time and
manner of making the election.
(ii) Examples. The following examples illustrate the principles of
this paragraph (d)(5):
Example 1. Consequence of apportionment. (i) P, the common
parent of a consolidated group, purchases all of the stock of L on
December 31, Year 1. L carries over a net operating loss arising in
Year 1 to each of the next 5 taxable years. The purchase of the L
stock causes an ownership change of L, and results in a separate
section 382 limitation of $10 for L's net operating loss carryover
based on the value of the L stock. On July 2, Year 3, P sells 30
percent of the L stock to A. Under Sec. 1.1502-20(g), P elects to
apportion to itself $110 of L's $200 net operating loss carryover. P
also elects to apportion to itself $6 of the $10 value element of
the separate section 382 limitation.
(ii) For the consolidated return years ending after December 31,
Year 3, P's separate section 382 limitation with respect to the
reattributed net operating loss carryover is $6, adjusted as
appropriate for any short taxable year, unused section 382
limitation, or other adjustment. For the P group's consolidated
return year ending December 31, Year 3, the separate section 382
limitation for L's net operating loss carryover is $8, the sum of $5
and $3. Five dollars of the limitation is the amount that bears the
same relationship to $10 as the number of days in the period ending
with the deemed section 381(a) transaction, 183 days, bears to 365.
Three dollars of the limitation is the amount that bears the same
relationship to $6 as the number of days in the period between July
3 and December 31, 182, bears to 365.
(iii) For L's taxable years ending after December 31, Year 3,
L's separate section 382 limitation for its $90 of net operating
loss carryover that was not reattributed to P is $4, adjusted as
appropriate for any short taxable year, unused section 382
limitation, or other adjustment. For L's short taxable year ending
December 31, Year 3, the section 382 limitation for its $90 of net
operating loss carryover is $2, the amount that bears the same
relationship to $4 (the portion of the value element that was not
apportioned to P), as the number of days during the short taxable
year, 182 days, bears to 365. See Sec. 1.382-5(c).
Example 2. No apportionment required for consolidated pre-change
attribute. (i) P, the common parent of a consolidated group, forms
L. For Year 1, L has an operating loss of $70 that is not absorbed
and is included in the group's consolidated net operating loss that
is carried over to subsequent years. On January 1 of Year 3, A buys
all of the P stock and the P group has an ownership change. The
consolidated section 382 limitation based on the value of the P
stock is $10.
(ii) On April 13 of Year 4, P sells all of the stock of L to B
and, under Sec. 1.1502-20(g), elects to reattribute to itself $45 of
L's net operating loss carryover. Following the reattribution, the
$45 portion of the Year 1 net operating loss carryover retains its
character as a pre-change consolidated attribute, and remains
subject to so much of the $10 consolidated section 382 limitation as
P does not elect to apportion to L under Sec. 1.1502-95(c).
(e) Time and manner of making election under Sec. 1.1502-91(d)(4)--
(1) In general. This paragraph (e) prescribes the time and manner of
making the election under Sec. 1.1502-91(d)(4), relating to treating
two or more corporations as treating the section 1504(a)(1) requirement
of Sec. 1.1502-91(d)(1)(ii) and (d)(2)(ii) as satisfied.
(2) Election statement. An election under Sec. 1.1502-91(d)(4) must
be made by the common parent. The election must be made in the form of
the following statement: ``THIS IS AN ELECTION UNDER Sec. 1.1502-
91(d)(4) TO TREAT THE FOLLOWING CORPORATIONS AS MEETING THE
REQUIREMENTS OF Sec. 1.1502-91 (d)(1)(ii) AND (d)(2)(ii) IMMEDIATELY
AFTER THEY BECAME MEMBERS OF THE GROUP.'' [List separately the name of
each corporation, its E.I.N., and the date that it became a member of
the group]. If separate elections are being made for corporations that
became members at different times or that were acquired from different
affiliated groups, provide a separate statement and list for each
election.
(3) The election statement must be filed by the common parent with
its income tax return for the consolidated return year in which the
members with respect to which the election is made become members of
the group. Such election must be filed on or before the due date for
such income tax return, including extensions.
(4) An election made under this paragraph (e) is irrevocable.
Sec. 1.1502-97 Special rules under section 382 for members under the
jurisdiction of a court in a title 11 or similar case.
[Reserved]
Sec. 1.1502-98 Coordination with section 383.
The rules contained in Secs. 1.1502-91 through 1.1502-96 also apply
for purposes of section 383, with appropriate adjustments to reflect
that section 383 applies to credits and net capital losses. Similarly,
in the case of net capital losses, general business credits, and excess
foreign taxes that are pre-change attributes, Sec. 1.383-1 applies the
principles of Secs. 1.1502-91 through 1.1502-96. For example, if a loss
group has an ownership change under Sec. 1.1502-92 and has a carryover
of unused general business credits from a pre-change consolidated
return year to a post-change consolidated return year, the amount of
the group's regular tax liability for the post-change year that can be
offset by the carryover cannot exceed the consolidated section 383
credit limitation for that post-change year, determined by applying the
principles of Secs. 1.383-1(c)(6) and 1.1502-93 (relating to the
computation of the consolidated section 382 limitation).
Sec. 1.1502-99 Effective dates.
(a) In general. Except as provided in paragraphs (b) and (c) of
this section, Secs. 1.1502-91 through 1.1502-96 and Sec. 1.1502-98
apply to any testing date on or after June 25, 1999. Sections 1.1502-94
through 1.1502-96 also apply to a corporation that becomes a member of
a group or ceases to be a member of a group (or loss subgroup) on any
date on or after June 25, 1999.
(b) Special rules--(1) Election to treat subgroup parent
requirement as satisfied. Section 1.1502-91(d)(4), Sec. 1.1502-
91(d)(7), Example 4, Sec. 1.1502-92(b)(1)(iii), Sec. 1.1502-92(b)(2),
Example 5, the last two sentences of Sec. 1.1502-95(b)(3), Sec. 1.1502-
95(d)(2)(i), and Sec. 1.1502-96(e)(all of which relate to the election
under Sec. 1.1502-91(d)(4) to treat the loss subgroup parent
requirement as satisfied) apply to corporations that become members of
a consolidated group in taxable years for which the due date of the
income tax return (without extensions) is after June 25, 1999.
(2) Principal purpose of avoiding a limitation. The third sentence
of Sec. 1.1502-91(d)(5) (relating to members excluded from a loss
subgroup) applies to corporations that become members of a consolidated
group on or after June 25, 1999.
(3) Ceasing to be a member of a loss subgroup--(i) Ownership change
of a loss subgroup. Section 1.1502-95(d)(2)(ii) and Sec. 1.1502-
95(d)(3), Example 3 apply to corporations that cease to bear a
relationship described in section 1504(a)(1) to a loss subgroup parent
in taxable years for which the
[[Page 36175]]
due date of the income tax return (without extensions) is after June
25, 1999.
(ii) Expiration of 5-year period. Section 1.1502-95(d)(2)(iii)
applies with respect to the day after the last day of any 5 consecutive
year period described in that section that ends in a taxable year for
which the due date of the income tax return (without extensions) is
after June 25, 1999.
(4) Reattribution of net operating loss carryovers under
Sec. 1.1502-20(g). Section 1.1502-96(d) applies to reattributions of
net operating loss carryovers (or capital loss carryovers) in taxable
years for which the due date of the income tax return (without
extensions) is after June 25, 1999; except that the election under
Sec. 1.1502-96(d)(5) (relating to an election to reattribute section
382 limitation) can be made with any election under Sec. 1.1502-
20(g)(4) to reattribute to the common parent a net operating loss or
net capital loss that is timely filed on or after June 25, 1999.
(5) Election to apportion net unrealized built-in gain. In the case
of corporations that cease to be members of a loss group (or loss
subgroup) before June 25, 1999 in a taxable year for which the due date
of the income tax return (without extensions) is after June 25, 1999,
Sec. 1.1502-95(a), (b), (c), and (f) apply to those corporations if the
common parent makes the election described in the second sentence of
paragraph (c)(1) of Sec. 1.1502-95 in the time and manner prescribed in
paragraph (f) of Sec. 1.1502-95.
(c) Testing period may include a period beginning before June 25,
1999--
(1) In general. A testing period for purposes of Secs. 1.1502-91
through 1.1502-96 and 1.1502-98 may include a period beginning before
June 25, 1999. Thus, for example, in applying Sec. 1.1502-
92(b)(1)(i)(relating to the determination of an ownership change of a
loss group), the determination of the lowest percentage of ownership
interest of any 5-percent shareholder of the common parent during a
testing period ending on a testing date occurring on or after June 25,
1999 takes into account the period beginning before June 25, 1999,
except to the extent that the period is more than 3 years before the
testing date or is otherwise before the beginning of the testing
period. See Sec. 1.1502-92(b)(1).
(2) Transition rule for net unrealized built-in loss. A loss group
(or loss subgroup) that has a net unrealized built-in loss on a testing
date on or after June 25, 1999 may apply Sec. 1.1502-91A(g) (and
Sec. 1.1502-96A(a) as it relates to Sec. 1.1502-91A(g)) for the period
ending on the day before June 25, 1999 to determine under Sec. 1.382-
2T(d)(ii)(A) the earliest date that its testing period begins (treating
the day before June 25, 1999 as the end of a taxable year.) Thus, for
example, if a consolidated group with no net operating losses has a net
unrealized built-in loss determined under Sec. 1.1502-91(g) on a
testing date after June 25, 1999, but, under Sec. 1.1502-91A(g), does
not have a net unrealized built-in loss for the period ending on the
day before June 25, 1999, the group's testing period begins no earlier
than June 25, 1999.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 14. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 15. In Sec. 602.101, paragraph (b) is amended by removing the
entry for Sec. 1.1502-95T, revising the entry for Sec. 1.1502-20, and
adding entries in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.1502-20.................................................. 1545-1160
1545-1218
* * * * *
1.1502-95.................................................. 1545-1218
1.1502-96.................................................. 1545-1218
1.1502-95A................................................. 1545-1218
* * * * *
------------------------------------------------------------------------
John M. Dalrymple,
Acting Deputy Commissioner of Internal Revenue.
Approved: June 18, 1999.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 99-16162 Filed 6-25-99; 1:27 pm]
BILLING CODE 4830-01-U
