Federal Register / Vol. 65, No. 102 / Thursday, May 25, 2000 / Rules and Regulations 33753

No other difference is made between

these two groups of countries while in

a category 2 status.

Transition to New IASA Categorization

System

Countries in the former Category I

will initially be placed in the new

Category 1 (in compliance with ICAO

Standards). Countries in the former

Categories II and III will initially be

placed in the new Category 2 (not in

compliance with ICAO standards). For

those countries not serving the U.S. at

the time of the assessment, an asterisk

‘‘*’’ will be added to their Category 2

determination.

The FAA will review the category

determinations of all countries included

in the IASA categorization scheme at

least once every two years, or when new

information becomes available which

calls into question the country’s ability

to continue complying with minimum

standards for aviation safety. The

purpose of such reviews is to determine

if a country’s CAA continues to comply

with minimum international standard

for aviation safety (Category I) or is

making sustainable progress toward

compliance (Category 2). After each

such review, the FAA will update the

appropriate public disclosure.

The FAA will continue to work with

countries to improve safety oversight

capabilities in cases where the

assessment process has revealed

deficiencies. When FAA determines that

sustainable progress is not being made,

or is not possible under the prevailing

circumstances in the country, it may

advise the Office of the Secretary that

the subject country has not made

significant progress in correcting its

safety oversight deficiencies and

recommend a course of action to review

the status of all authorities issued to

carriers of that country.

Current IASA category determinations

for countries included in the IASA

categorization system are available on

the FAA web-site at http://

www.faa.gov/avr/isa.htm

Issued in Washington, DC on May 15,

2000.

Thomas E. McSweeny,

Associate Administrator for Regulation and

Certification.

[FR Doc. 00–13179 Filed 5–24–00; 8:45 am]

BILLING CODE 4910–13–M

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8884]

RIN 1545–AV88

Consolidated Returns—Limitations on

the Use of Certain Credits

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations regarding certain credits of

corporations that become members of a

consolidated group. The regulations

provide rules for computing the

limitation with respect to certain credits

earned in a separate return limitation

year (SRLY) and the carryover and

carryback of those credits to

consolidated and separate return years.

The regulations also eliminate the

application of the SRLY rules in certain

circumstances in which the rules of

section 383 also apply.

DATES: Effective Date: These regulations

are effective May 25, 2000.

Applicability Dates: For dates of

applicability, see the ‘‘Dates of

Applicability’’ portion of this preamble.

FOR FURTHER INFORMATION CONTACT:

Marie C. Milnes-Vasquez, (202) 622–

7770 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of

Provisions

A. In General

On January 12, 1998, the IRS and

Treasury published in the Federal

Register a Treasury decision (TD 8751,

63 FR 1740) containing temporary

regulations concerning the use of certain

tax attributes by a consolidated group.

In part, these regulations provided rules

governing the absorption of general

business credits and minimum tax

credits carried from separate return

limitation years (SRLYs), and

eliminated SRLY restrictions with

respect to recapture of overall foreign

losses (OFLs) and on the use of foreign

tax credits of corporations joining a

group. Further, this Treasury decision

contained a final regulation eliminating

the limitation on credit carryovers

following a consolidated return change

of ownership (CRCO).

A notice of proposed rulemaking

cross-referencing the temporary

regulations was published in the

Federal Register on the same day (63 FR

1803). On March 16, 1998, the IRS and

Treasury published temporary

amendments to those consolidated

return regulations (TD 8766, 63 FR

12641) and the corresponding notice of

proposed rulemaking (63 FR 12717)

modifying the general date of

applicability contained in the January

12, 1998 temporary regulations. Per the

amendment, the January 12, 1998

temporary regulations, as amended, are

generally applicable for consolidated

return years for which the due date of

the return is after March 13, 1998. The

amendments provided further guidance

with respect to consolidated return

years beginning on or after January 1,

1997, for which the income tax return

is due on or before March 13, 1998.

On August 11, 1999, the IRS and

Treasury issued final regulations

relating to the recapture of OFLs

(including elimination of any SRLY

limitation on such recapture). (TD 8833,

64 FR 43613).

This Treasury decision adopts

without substantive change the portions

of the temporary regulations that were

issued in 1998, relating to general

business credits and minimum tax

credits, with the addition of the

‘‘overlap rule’’, discussed in Extension

of 1999 Principles of this preamble. This

Treasury decision also makes final the

rules eliminating SRLY restrictions on

the use of foreign tax credits, and the

rules repealing the consolidated return

change of ownership provisions

pertaining to those credits.

B. Extension of 1999 Principles

On July 2, 1999, the IRS and Treasury

published in the Federal Register a

Treasury decision (TD 8823, 64 FR

36092) containing final regulations

providing rules governing the

absorption of certain tax attribute

carryovers and carrybacks from separate

return limitation years (SRLYs). These

tax attributes included net operating

losses and net capital losses. The rules

also governed the absorption of

recognized built-in losses. These

regulations, in part, eliminated the

application of the SRLY rules in certain

circumstances in which the rules of

section 382 also apply (overlap rule).

The IRS and Treasury believe that it

is appropriate to apply a single set of

SRLY principles to all attributes that are

subject to SRLY limitations.

Unnecessary complexity would result

from applying different principles to

different attributes. Accordingly, this

document extends the principles of the

overlap rule of the 1999 final

regulations to the general business

credit and the minimum tax credit.

These final regulations adopt the

mechanism of subgrouping and the

33754 Federal Register / Vol. 65, No. 102 / Thursday, May 25, 2000 / Rules and Regulations

overlap rule set forth in § 1.1502–21

(including the requirements of

coextensive subgroups and

contemporaneity).

C. Dates of Applicability

The final regulations generally are

applicable to consolidated return years

for which the due date of the income tax

return (without extensions) is after

March 13, 1998. However, there are

some special effective dates. The rules

contained in these final regulations

(except the overlap rule) may be applied

optionally to years beginning on or after

January 1, 1997. Application of the

overlap principles of § 1.1502–21(g) is

generally effective for consolidated

return years for which the return

(without extensions) is due after May

25, 2000.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in

Executive Order 12866. Therefore, a

regulatory assessment is not required. It

is hereby certified that these regulations

do not have a significant economic

impact on a substantial number of small

entities. This certification is based on

the fact that these regulations

principally affect persons filing

consolidated federal income tax returns

that have carryover or carryback of

credits from separate return limitation

years. Available data indicates that

many consolidated return filers are large

companies (not small businesses). In

addition, the data indicates that an

insubstantial number of consolidated

return filers that are smaller companies

have credit carryovers or carrybacks,

and thus even fewer of these filers have

credit carryovers or carrybacks that are

subject to the separate return limitation

year rules. Therefore, a Regulatory

Flexibility Analysis under the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) is not required. Pursuant to

section 7805(f) of the Internal Revenue

Code, the notice of proposed rulemaking

accompanying these regulations was

sent to the Small Business

Administration for comment on their

impact on small businesses.

Drafting Information

The principal author of these

regulations is Marie C. Milnes-Vasquez

of the Office of Assistant Chief Counsel

(Corporate). Other personnel from the

IRS and Treasury participated in their

development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by removing the

entries for sections 1.1502–3T and

1.1502–55T and adding entries in

numerical order to read in part as

follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.1502–3 also issued under 26

U.S.C. 1502.

Section 1.1502–4 also issued under 26

U.S.C. 1502. * * *.

Section 1.1502–55 also issued under 26

U.S.C. 1502. * * *

Par. 2. Section 1.1502–3 is amended

as follows:

1. The section heading is revised.

2. Paragraph (b)(3) is added.

3. Paragraphs (c), (d), and (e)(3) are

revised.

The addition and revisions read as

follows:

§ 1.1502–3 Consolidated tax credits.

* * * * *

(b) * * *

(3) Example. The provisions of

paragraphs (a) and (b) of this section

may be illustrated by the following

example:

Example. (i) Corporation P is incorporated

on January 1, 1966. On that same day P

incorporates corporation S, a wholly owned

subsidiary. P and S file consolidated returns

for calendar years 1966 and 1967. P’s and S’s

credit earned, the consolidated credit earned,

and the consolidated limitation based on

amount of tax for 1966 and 1967 are as

follows:

Credit earned Consolidated

credit earned

Consolidated limitation based on

amount of tax

1966:

P ............................................................................................................................. $60,000

S ............................................................................................................................. 30,000 $90,000 $100,000

1967:

P ............................................................................................................................. 40,000

S ............................................................................................................................. 25,000 65,000 50,000

(ii) P’s and S’s credit earned for 1966 are

aggregated, and the group’s consolidated

credit earned, $90,000, is allowable in full to

the group as a credit under section 38 for

1966 since such amount is less than the

consolidated limitation based on amount of

tax for 1966, $100,000.

(iii) Since the consolidated limitation

based on amount of tax for 1967 is $50,000,

only $50,000 of the $65,000 consolidated

credit earned for such year is allowable to the

group under section 38 as a credit for 1967.

The consolidated unused credit for 1967 of

$15,000 ($65,000 less $50,000) is a

consolidated investment credit carryback and

carryover to the years prescribed in section

46(b). In this case the consolidated unused

credit is a consolidated investment credit

carryback to 1966 (since P and S were not in

existence in 1964 and 1965) and a

consolidated investment credit carryover to

1968 and subsequent years. The portion of

the consolidated unused credit for 1967

which is allowable as a credit for 1966 is

$10,000. This amount shall be added to the

amount allowable as a credit to the group for

1966. The balance of the consolidated

unused credit for 1967 to be carried to 1968

is $5,000. These amounts are computed as

follows:

Federal Register / Vol. 65, No. 102 / Thursday, May 25, 2000 / Rules and Regulations 33755

Consolidated carryback to 1966 .............................................................................................................. .................... .................... $15,000

1966 consolidated limitation based on tax .......................................................................................... .................... $100,000 ....................

Less: Consolidated credit earned for 1966 ............................................................................................. $90,000

Consolidated unused credits attributable to years preceding 1967 .................................................... 0 90,000 ....................

Limit on amount of 1967 consolidated unused credit which may be added as a credit for 1966 .......... .................... .................... 10,000

Balance of 1967 consolidated unused credit to be carried to 1968 ....................................................... .................... .................... 5,000

(c) Limitation on investment credit

carryovers and carrybacks from separate

return limitation years applicable for

consolidated return years for which the

due date of the return is on or before

March 13, 1998—(1) General rule. In the

case of an unused credit of a member of

the group arising in a separate return

limitation year (as defined in § 1.1502–

1(f)) of such member (and in a separate

return limitation year of any

predecessor of such member), the

amount which may be included under

paragraph (b) of this section (computed

without regard to the limitation

contained in paragraph (e) of this

section) shall not exceed the amount

determined under paragraph (c)(2) of

this section.

(2) Computation of limitation. The

amount referred to in paragraph (c)(1) of

this section with respect to a member of

the group is the excess, if any, of—

(i) The limitation based on amount of

tax of the group, minus such limitation

recomputed by excluding the items of

income, deduction, and foreign tax

credit of such member; over

(ii) The sum of the investment credit

earned by such member for such

consolidated return year, and the

unused credits attributable to such

member which may be carried to such

consolidated return year arising in

unused credit years ending prior to the

particular separate return limitation

year.

(3) Special effective date. This

paragraph (c) applies to consolidated

return years for which the due date of

the income tax return (without

extensions) is on or before March 13,

1998. See paragraph (d) of this section

for the rule that limits the group’s use

of a section 38 credit carryover or

carryback from a SRLY for a

consolidated return year for which the

due date of the income tax return

(without extensions) is after March 13,

1998. See also paragraph (d)(4) of this

section for an optional effective date

rule (generally making the rules of this

paragraph (c) inapplicable to a

consolidated return year beginning after

December 31, 1996, if the due date of

the income tax return (without

extensions) for such year is on or before

March 13, 1998).

(4) Examples. The provisions of this

paragraph (c) may be illustrated by the

following examples:

Example 1. (i) Assume the same facts as in

the example contained in paragraph (b)(3) of

this section, except that all the stock of

corporation T, also a calendar year taxpayer,

is acquired by P on January 1, 1968, and that

P, S, and T file a consolidated return for

1968. In 1966, T had an unused credit of

$10,000 which has not been absorbed and is

available as an investment credit carryover to

1968. Such carryover is from a separate

return limitation year. P’s and S’s credit

earned for 1968 is $10,000 each, and T’s

credit earned is $8,000; the consolidated

credit earned is therefore $28,000. The

group’s consolidated limitation based on

amount of tax for 1968 is $50,000. Such

limitation recomputed by excluding the

items of income, deduction, and foreign tax

credit of T is $30,000. Thus, the amount

determined under paragraph (c)(2)(i) of this

section is $20,000 ($50,000 minus $30,000).

Accordingly, the limitation on the carryover

of T’s unused credit is $12,000, the excess of

$20,000 over $8,000 (the sum of T’s credit

earned for the taxable year and any

carryovers from prior unused credit years

(none in this case)). Therefore T’s $10,000

unused credit from 1966 may be carried over

to the consolidated return year without

limitation.

(ii) The group’s consolidated credit earned

for 1968, $28,000, is allowable in full as a

credit under section 38 since such amount is

less than the consolidated limitation based

on amount of tax, $50,000.

(iii) The group’s consolidated investment

credit carryover to 1968 is $15,000,

consisting of the consolidated unused credits

of the group ($5,000) plus T’s separate return

year unused credit ($10,000). The entire

$15,000 consolidated carryover shall be

added to the amount allowable to the group

as a credit under section 38 for 1968, since

such amount is less than $22,000 (the excess

of the consolidated limitation based on tax,

$50,000, over the sum of the consolidated

credit earned for 1968, $28,000, and unused

credits arising in prior unused credit years,

zero).

Example 2. Assume the same facts as in

Example 1, except that the amount

determined under paragraph (c)(2)(i) of this

section is $12,000. Therefore, the limitation

on the carryover of T’s unused credit is

$4,000. Accordingly, the consolidated

investment credit carryover is only $9,000

since the amount of T’s separate return year

unused credit which may be added to the

group’s $ 5,000 consolidated unused credit is

$4,000. These amounts are computed as

follows:

T’s carryover to 1968 ............................................................................................................................... .................... .................... $10,000

Consolidated limitation based on amount of tax minus recomputed limitation ................................... .................... $12,000 ....................

Less: T’s credit earned for 1968 ............................................................................................................. $8,000 .................... ....................

Unused credits attributable to T arising in unused credit years preceding 1966 ................................ 0 $8,000 ....................

Limit on amount of 1966 unused credit of T which may be added to consolidated investment credit

carryover .............................................................................................................................................. .................... .................... 4,000

Balance of 1966 unused credit of T to be carried to 1969 (subject to the limitation contained in paragraph (c) of this section) ...................................................................................................................... .................... .................... 6,000

(d) Limitation on tax credit carryovers

and carrybacks from separate return

limitation years applicable for

consolidated return years for which the

due date of the return is after March 13,

1998—(1) General rule. The aggregate of

a member’s unused section 38 credits

arising in SRLYs that are included in

the consolidated section 38 credits for

all consolidated return years of the

group may not exceed—

(i) The aggregate for all consolidated

return years of the member’s

contributions to the consolidated

section 38(c) limitation for each

consolidated return year; reduced by

(ii) The aggregate of the member’s

section 38 credits arising and absorbed

in all consolidated return years

(whether or not absorbed by the

member).

33756 Federal Register / Vol. 65, No. 102 / Thursday, May 25, 2000 / Rules and Regulations

(2) Computational rules—(i) Member’s

contribution to the consolidated section

38(c) limitation. If the consolidated

section 38(c) limitation for a

consolidated return year is determined

by reference to the consolidated

tentative minimum tax (see section

38(c)(1)(A)), then a member’s

contribution to the consolidated section

38(c) limitation for such year equals the

member’s share of the consolidated net

income tax minus the member’s share of

the consolidated tentative minimum tax.

If the consolidated section 38(c)

limitation for a consolidated return year

is determined by reference to the

consolidated net regular tax liability

(see section 38(c)(1)(B)), then a

member’s contribution to the

consolidated section 38(c) limitation for

such year equals the member’s share of

the consolidated net income tax minus

25 percent of the quantity which is

equal to so much of the member’s share

of the consolidated net regular tax

liability less its portion of the $25,000

amount specified in section 38(c)(1)(B).

The group computes the member’s

shares by applying to the respective

consolidated amounts the principles of

section 1552 and the percentage method

under § 1.1502–33(d)(3), assuming a

100% allocation of any decreased tax

liability. The group must make proper

adjustments so that taxes and credits not

taken into account in computing the

limitation under section 38(c) are not

taken into account in computing the

member’s share of the consolidated net

income tax, etc. (See, for example, the

taxes described in section 26(b) that are

disregarded in computing regular tax

liability.) Also, the group may apportion

all or a part of the $25,000 amount (or

lesser amount if reduced by section

38(c)(3)) for any year to one or more

members.

(ii) Years included in computation.

For purposes of computing the

limitation under this paragraph (d), the

consolidated return years of the group

include only those years, including the

year to which a credit is carried, that the

member has been continuously

included in the group’s consolidated

return, but exclude—

(A) For carryovers, any years ending

after the year to which the credit is

carried; and

(B) For carrybacks, any years ending

after the year in which the credit arose.

(iii) Subgroups and successors. The

SRLY subgroup principles under

§ 1.1502–21(c)(2) apply for purposes of

this paragraph (d). The predecessor and

successor principles under § 1.1502–

21(f) also apply for purposes of this

paragraph (d).

(iv) Overlap with section 383. The

principles under § 1.1502–21(g) apply

for purposes of this paragraph (d). For

example, an overlap of paragraph (d) of

this section and the application of

section 383 with respect to a credit

carryover occurs if a corporation

becomes a member of a consolidated

group (the SRLY event) within six

months of the change date of an

ownership change giving rise to a

section 383 credit limitation with

respect to that carryover (the section 383

event), with the result that the

limitation of this paragraph (d) does not

apply. See §§ 1.1502–21(g)(2)(ii)(A) and

1.383–1; see also § 1.1502–21(g)(4)

(subgroup rules).

(3) Effective date—(i) In general. This

paragraph (d) generally applies to

consolidated return years for which the

due date of the income tax return

(without extensions) is after March 13,

1998.

(A) Contribution years. Except as

provided in paragraph (d)(4)(ii) of this

section, a group does not take into

account a consolidated taxable year for

which the due date of the income tax

return (without extensions) is on or

before March 13, 1998, in determining

a member’s (or subgroup’s)

contributions to the consolidated

section 38(c) limitation under this

paragraph (d).

(B) Special subgroup rule. In the event

that the principles of § 1.1502–21(g)(1)

do not apply to a particular credit

carryover in the current group, then

solely for purposes of applying

paragraph (d) of this section to

determine the limitation with respect to

that carryover and with respect to which

the SRLY register (the aggregate of the

member’s or subgroup’s contribution to

consolidated section 38(c) limitation

reduced by the aggregate of the

member’s or subgroup’s section 38

credits arising and absorbed in all

consolidated return years) began in a

taxable year for which the due date of

the return is on or before May 25, 2000,

the principles of § 1.1502–21(c)(2) shall

be applied without regard to the phrase

‘‘or for a carryover that was subject to

the overlap rule described in paragraph

(g) of this section or § 1.1502–15(g) with

respect to another group (the former

group).’’

(ii) Overlap rule. Paragraph (d)(2)(iv)

of this section (relating to overlap with

section 383) applies to taxable years for

which the due date (without extensions)

of the consolidated return is after May

25, 2000. For purposes of paragraph

(d)(2)(iv) of this section, only an

ownership change to which section 383,

as amended by the Tax Reform Act of

1986 (100 Stat. 2085), applies and

which results in a section 383 credit

limitation shall constitute a section 383

event.

(4) Optional effective date of January

1, 1997. (i) For consolidated taxable

years beginning on or after January 1,

1997, for which the due date of the

income tax return (without extensions)

is on or before March 13, 1998, in lieu

of paragraphs (c) and (e)(3) of this

section (relating to the general business

credit), § 1.1502–4(f)(3) and (g)(3)

(relating to the foreign tax credit), the

next to last sentence of § 1.1502–

9A(a)(2), § 1.1502–9A(b)(1)(v) (relating

to overall foreign losses), and § 1.1502–

55(h)(4)(iii) (relating to the alternative

minimum tax credit), a consolidated

group may apply the corresponding

provisions as they appear in 1998–1

C.B. 655 through 661 (see

§ 601.601(d)(2) of this chapter) (treating

references in such corresponding

provisions to §§ 1.1502–9(b)(1)(ii), (iii),

and (iv) as references to §§ 1.1502–

9(b)(1)(ii), (iii), and (iv)). Also, in the

case of a consolidated return change of

ownership that occurs on or after

January 1, 1997, in a taxable year for

which the due date of the income tax

return (without extensions) is on or

before March 13, 1998, a consolidated

group may choose not to apply

paragraph (e) of this section and

§ 1.1502–4(g) to taxable years ending

after December 31, 1996. A consolidated

group making the choices described in

the two preceding sentences generally

must apply all such corresponding

provisions (including not applying

paragraph (e) of this section and

§ 1.1502–4(g)) for all relevant years.

However, a consolidated group making

the election provided in § 1.1502–

9A(b)(1)(vi) (electing not to apply

§ 1.1502–9A(b)(1)(v) to years beginning

before January 1, 1998) may

nevertheless choose to apply all such

corresponding provisions referred to in

this paragraph (d)(4)(i) other than the

provision corresponding to § 1.1502–

9A(b)(1)(v) for all relevant years.

(ii) If a consolidated group chooses to

apply the corresponding provisions

referred to in paragraph (d)(4)(i) of this

section, the consolidated group shall not

take into account a consolidated taxable

year beginning before January 1, 1997,

in determining a member’s (or

subgroup’s) contributions to the

consolidated section 38(c) limitation

under this paragraph (d).

(5) Example. The following example

illustrates the provisions of this

paragraph (d):

Example. (i) Individual A owns all of the

stock of P and T. P is the common parent of

the P group. P acquires all the stock of T at

the beginning of Year 2. T carries over an

Federal Register / Vol. 65, No. 102 / Thursday, May 25, 2000 / Rules and Regulations 33757

unused section 38 general business credit

from Year 1 of $100,000. The table in

paragraph (i) of this Example shows the

group’s net consolidated income tax,

consolidated tentative minimum tax, and

consolidated net regular tax liabilities, and

T’s share of such taxes computed under the

principles of section 1552 and the percentage

method under § 1.1502–33(d)(3), assuming a

100% allocation of any decreased tax

liability, for Year 2. (The effects of the lower

section 11 brackets are ignored, there are no

other tax credits affecting a group amount or

member’s share, and $1,000s are omitted.)

BILLING CODE 4830–01–P

BILLING CODE 4830–01–C

(ii) T’s Year 1 is a SRLY with respect to the

P group. See § 1.1502–1(f)(2)(ii). T did not

undergo an ownership change giving rise to

a section 383 credit limitation within 6

months of joining the P group. Thus, T’s

$100,000 general business credit arising in

Year 1 is subject to a SRLY limitation in the

P group. The amount of T’s unused section

38 credits from Year 1 that are included in

the consolidated section 38 credits for Year

2 may not exceed T’s contribution to the

consolidated section 38(c) limitation. For

Year 2, the group determines the

consolidated section 38(c) limitation by

reference to consolidated tentative minimum

tax for Year 2. Therefore, T’s contribution to

the consolidated section 38(c) limitation for

Year 2 equals its share of consolidated net

income tax minus its share of consolidated

tentative minimum tax. T’s contribution is

$280,000 minus $160,000, or $120,000.

However, because the group has a

consolidated section 38 limitation of zero, it

may not include any of T’s unused section

38 credits in the consolidated section 38

credits for Year 2.

(iii) The following table shows similar

information for the group for Year 3:

BILLING CODE 4830–01–P

33758 Federal Register / Vol. 65, No. 102 / Thursday, May 25, 2000 / Rules and Regulations

BILLING CODE 4830–01–C

(iv) The amount of T’s unused section 38

credits from Year 1 that are included in the

consolidated section 38 credits for Year 3

may not exceed T’s aggregate contribution to

the consolidated section 38(c) limitation for

Years 2 and 3. For Year 3, the group

determines the consolidated section 38(c)

limitation by reference to the consolidated

tentative minimum tax for Year 3. Therefore,

T’s contribution to the consolidated section

38(c) limitation for Year 3 equals its share of

consolidated net income tax minus its share

of consolidated tentative minimum tax.

Applying the principles of section 1552 and

§ 1.1502–33(d) (taking into account, for

example, that T’s positive earnings and

profits adjustment under § 1.1502–33(d)

reflects its losses actually absorbed by the

group), T’s contribution is $(105,000) minus

$(40,000), or $(65,000). T’s aggregate

contributions to the consolidated section

38(c) limitation for Years 2 and 3 is $120,000

+ $(65,000), or $55,000. The group may

include $55,000 of T’s Year 1 unused section

38 credits in its consolidated section 38 tax

credit in Year 3.

(e) * * *

(3) Special effective date. This

paragraph (e) applies only to a

consolidated return change of

ownership that occurred during a

consolidated return year for which the

due date of the income tax return

(without extensions) is on or before

March 13, 1998. See paragraph (d)(4) of

this section for an optional effective

date rule (generally making the rules of

this paragraph (e) also inapplicable if

the consolidated return change of

ownership occurred on or after January

1, 1997, and during a consolidated

return year for which the due date of the

income tax return (without extensions)

is on or before March 13, 1998).

* * * * *

§ 1.1502–3T [Removed]

Par. 3. Section 1.1502–3T is removed.

Par. 4. Section 1.1502–4 is amended

by revising paragraphs (f)(3) and (g)(3)

to read as follows:

§ 1.1502–4 Consolidated foreign tax credit.

* * * * *

(f)* * *

(3) Limitation on unused foreign tax

credit carryover or carryback from

separate return limitation years.

Paragraphs (f)(1) and (2) of this section

do not apply for consolidated return

years for which the due date of the

income tax return (without extensions)

is after March 13, 1998. For

consolidated return years for which the

due date of the income tax return

(without extensions) is after March 13,

1998, a group shall include an unused

foreign tax of a member arising in a

SRLY without regard to the contribution

of the member to consolidated tax

liability for the consolidated return year.

See also § 1.1502–3(d)(4) for an optional

Federal Register / Vol. 65, No. 102 / Thursday, May 25, 2000 / Rules and Regulations 33759

effective date rule (generally making the

rules of paragraphs (f)(1) and (2) of this

section also inapplicable to a

consolidated return year beginning on

or after January 1, 1997, if the due date

of the income tax return (without

extensions) for such year is on or before

March 13, 1998).

(g)* * *

(3) Special effective date for CRCO

limitation. Paragraphs (g)(1) and (2) of

this section apply only to a consolidated

return change of ownership that

occurred during a consolidated return

year for which the due date of the

income tax return (without extensions)

is on or before March 13, 1998. See also

§ 1.1502–3(d)(4) for an optional effective

date rule (generally making the rules of

paragraph (g)(1) and (2) of this section

also inapplicable if the consolidated

return change of ownership occurred on

or after January 1, 1997, and during a

consolidated return year for which the

due date of the income tax return

(without extensions) is on or before

March 13, 1998).

* * * * *

§ 1.1502–4T [Removed]

Par. 5. Section 1.1502–4T is removed.

Par. 6. Section 1.1502–21 is amended

by revising paragraph (c)(2)(ix) to read

as follows:

§ 1.1502–21 Net operating losses.

* * * * *

(c) * * *

(2) * * *

(ix) Application to other than loss

carryovers. Paragraph (g) of this section

and the phrase ‘‘or for a carryover that

was subject to the overlap rule

described in paragraph (g) of this

section or § 1.1502–15(g) with respect to

another group (the former group)’’ in

this paragraph (c)(2) apply only to

carryovers of net operating losses, net

capital losses, and for taxable years for

which the due date (without extensions)

of the consolidated return is after May

25, 2000, to carryovers of credits

described in section 383(a)(2).

Accordingly, as the context may require,

if another regulation references this

section and such other regulation does

not concern a carryover of net operating

losses, net capital losses, or for taxable

years for which the due date (without

extensions) of the consolidated return is

after May 25, 2000, carryovers of credits

described in section 383(a)(2), then such

reference does not include a reference to

such paragraph or phrase.

* * * * *

Par. 7. Section 1.1502–55 is added to

read as follows:

§ 1.1502–55 Computation of alternative

minimum tax of consolidated groups.

(a) through (h)(3) [Reserved].

(h)(4) Separate return year minimum

tax credit.

(i) and (ii) [Reserved].

(iii)(A) Limitation on portion of

separate return year minimum tax credit

arising in separate return limitation

years. The aggregate of a member’s

minimum tax credits arising in SRLYs

that are included in the consolidated

minimum tax credits for all

consolidated return years of the group

may not exceed—

(1) The aggregate for all consolidated

return years of the member’s

contributions to the consolidated

section 53(c) limitation for each

consolidated return year; reduced by

(2) The aggregate of the member’s

minimum tax credits arising and

absorbed in all consolidated return

years (whether or not absorbed by the

member).

(B) Computational rules—(1)

Member’s contribution to the

consolidated section 53(c) limitation.

Except as provided in the special rule of

paragraph (h)(4)(iii)(B)(2) of this section,

a member’s contribution to the

consolidated section 53(c) limitation for

a consolidated return year equals the

member’s share of the consolidated net

regular tax liability minus its share of

consolidated tentative minimum tax.

The group computes the member’s

shares by applying to the respective

consolidated amounts the principles of

section 1552 and the percentage method

under § 1.1502–33(d)(3), assuming a

100% allocation of any decreased tax

liability. The group makes proper

adjustments so that taxes and credits not

taken into account in computing the

limitation under section 53(c) are not

taken into account in computing the

member’s share of the consolidated net

regular tax, etc. (See, for example, the

taxes described in section 26(b) that are

disregarded in computing regular tax

liability.)

(2) Adjustment for year in which

alternative minimum tax is paid. For a

consolidated return year for which

consolidated tentative minimum tax is

greater than consolidated regular tax

liability, the group reduces the

member’s share of the consolidated

tentative minimum tax by the member’s

share of the consolidated alternative

minimum tax for the year. The group

determines the member’s share of

consolidated alternative minimum tax

for a year using the same method it uses

to determine the member’s share of the

consolidated minimum tax credits for

the year.

(3) Years included in computation.

For purposes of computing the

limitation under this paragraph

(h)(4)(iii), the consolidated return years

of the group include only those years,

including the year to which a credit is

carried, that the member has been

continuously included in the group’s

consolidated return, but exclude any

years after the year to which the credit

is carried.

(4) Subgroup principles. The SRLY

subgroup principles under § 1.1502–

21(c)(2) apply for purposes of this

paragraph (h)(4)(iii). The predecessor

and successor principles under

§ 1.1502–21(f) also apply for purposes of

this paragraph (h)(4)(iii).

(5) Overlap with section 383. The

principles under § 1.1502–21(g) apply

for purposes of this paragraph (h)(4)(iii).

For example, an overlap of this

paragraph (h)(4)(iii) and the application

of section 383 with respect to a credit

carryover occurs if a corporation

becomes a member of a consolidated

group (the SRLY event) within six

months of the change date of an

ownership change giving rise to a

section 383 credit limitation with

respect to that carryover (the section 383

event), with the result that the

limitation of this paragraph (h)(4)(iii)

does not apply. See §§ 1.1502–

21(g)(2)(ii)(A) and 1.383–1; see also

§ 1.1502–21(g)(4) (subgroup rules).

(C) Effective date—(1) In general. This

paragraph (h)(4)(iii) generally applies to

consolidated return years for which the

due date of the income tax return

(without extensions) is after March 13,

1998. See § 1.1502–3(d)(4) for an

optional effective date rule (generally

making this paragraph (h)(4)(iii) also

applicable to a consolidated return year

beginning on or after January 1, 1997, if

the due date of the income tax return

(without extensions) was on or before

March 13, 1998).

(i) Contribution years. In general, a

group does not take into account a

consolidated taxable year for which the

due date of the income tax return

(without extensions) is on or before

March 13, 1998, in determining a

member’s (or subgroup’s) contributions

to the consolidated section 53(c)

limitation under this paragraph

(h)(4)(iii). However, if a consolidated

group chooses to apply the optional

effective date rule, the consolidated

group shall not take into account a

consolidated taxable year beginning

before January 1, 1997 in determining a

member’s (or subgroup’s) contributions

to the consolidated section 53(c)

limitation under this paragraph

(h)(4)(iii).

33760 Federal Register / Vol. 65, No. 102 / Thursday, May 25, 2000 / Rules and Regulations

(ii) Special subgroup rule. In the event

that the principles of § 1.1502–21(g)(1)

do not apply to a particular credit

carryover in the current group, then

solely for purposes of applying this

paragraph (h)(4)(iii) to determine the

limitation with respect to that carryover

and with respect to which the SRLY

register (the aggregate of the member’s

or subgroup’s contribution to

consolidated section 53(c) limitation

reduced by the aggregate of the

member’s or subgroup’s minimum tax

credits arising and absorbed in all

consolidated return years) began in a

taxable year for which the due date of

the return is on or before May 25, 2000,

the principles of § 1.1502–21(c)(2) shall

be applied without regard to the phrase

‘‘or for a carryover that was subject to

the overlap rule described in paragraph

(g) of this section or § 1.1502–15(g) with

respect to another group (the former

group).’’

(2) Overlap rule. Paragraph

(h)(4)(iii)(B)(5) of this section (relating

to overlap with section 383) applies to

taxable years for which the due date

(without extensions) of the consolidated

return is after May 25, 2000. For

purposes of paragraph (h)(4)(iii)(B)(5) of

this section, only an ownership change

to which section 383, as amended by the

Tax Reform Act of 1986 (100 Stat. 2095),

applies and which results in a section

383 credit limitation shall constitute a

section 383 event. The optional effective

date rule of § 1.1502–3(d)(4) (generally

making this paragraph (h)(4)(iii) also

applicable to a consolidated return year

beginning on or after January 1, 1997, if

the due date of the income tax return

(without extensions) was on or before

March 13, 1998) does not apply with

respect to paragraph (h)(4)(iii)(B)(5) of

this section (relating to the overlap

rule).

§ 1.1502–55T [Removed]

Par. 8. Section 1.1502–55T is

removed.

Par. 9. Section 1.1502–98 is amended

by adding a sentence immediately

following the first sentence to read as

follows:

§ 1.1502–98 Coordination with section 383.

* * * For example, subgroups with

respect to the carryover of general

business credits, minimum tax credits,

unused foreign tax, and net capital loss

are determined by applying the

principles of § 1.1502–91(d)(1). * * *

§ 1.1502–9A [Amended]

Par. 10. Section 1.1502–9A is

amended as follows:

1. In paragraph (a)(2), the last

sentence is amended by removing the

language ‘‘1.1502–3T(c)(4)’’ and adding

‘‘1.1502–3(d)(4)’’ in its place.

2. In paragraph (b)(1)(v), the last

sentence is amended by removing the

language ‘‘1.1502–3T(c)(4)’’ and adding

‘‘1.1502–3(d)(4)’’ in its place.

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

Approved: May 8, 2000.

Jonathan Talisman,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 00–11901 Filed 5–24–00; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF TRANSPORTATION

Coast Guard

33 CFR Parts 100, 110, and 165

[CGD01–99–050]

RIN 2115–AA97, AA98, AE46

Temporary Regulations: OPSAIL 2000/

International Naval Review 2000 (INR

2000), Port of New York/New Jersey

AGENCY: Coast Guard, DOT.

ACTION: Temporary final rule.

SUMMARY: The Coast Guard is

establishing temporary regulations in

New York Harbor, Sandy Hook Bay, the

Hudson and East Rivers, and the Kill

Van Kull for OPSAIL 2000/INR 2000

activities. This action is necessary to

provide for the safety of life on

navigable waters during OPSAIL 2000/

INR 2000. This action is intended to

restrict vessel traffic in portions of New

York Harbor, Sandy Hook Bay, the

Hudson and East Rivers, and the Kill

Van Kull.

DATES: This rule is effective from 12

p.m. e.s.t. on June 29, 2000, until 12

p.m. e.s.t. on July 5, 2000.

ADDRESSES: Comments and material

received from the public, as well as

documents indicated in this preamble as

being available in the docket, are part of

docket CGD01–99–050 and are available

for inspection or copying at room 205,

of the Waterways Oversight Branch of

Coast Guard Activities New York,

between 8 a.m., e.s.t. and 3 p.m., e.s.t.

Monday through Friday, except Federal

holidays.

FOR FURTHER INFORMATION CONTACT:

Lieutenant J. Lopez, Waterways

Oversight Branch, Coast Guard

Activities New York (718) 354–4193.

SUPPLEMENTARY INFORMATION:

Regulatory Information

On February 7, 2000, we published a

notice of proposed rulemaking (NPRM)

entitled Temporary Regulations:

OPSAIL 2000/International Naval

Review 2000 (INR 2000), Port of New

York/New Jersey in the Federal Register

(65 FR 5833). On February 14, 2000, we

published a correction to this NPRM

entitled Temporary Regulations:

OPSAIL 2000/International Naval

Review 2000 (INR 2000), Port of New

York/New Jersey in the Federal Register

(65 FR 7333). We received no letters

commenting on the proposed rule. No

public hearing was requested, and none

was held.

Background and Purpose

The U.S. Navy is sponsoring the

International Naval Review. This event

consists of the anchoring of

approximately 50 U.S. and foreign naval

vessels in line between the VerrazanoNarrows Bridge and the George

Washington Bridge. A high level U.S.

dignitary will transit aboard a U.S. Navy

vessel along this line as a ceremonial

review. Operation Sail, Inc. is

sponsoring the seventh OPSAIL Parade

of Tall Ships, as well as a fireworks

display co-sponsored by Macy’s Inc.

Operation Sail consists of a parade of

sailing vessels from the VerrazanoNarrows Bridge north past a reviewing

stand aboard the U.S.S. John F. Kennedy

(CV–67) anchored in Federal Anchorage

21B in Upper New York Bay. This

parade will continue north to the George

Washington Bridge where these vessels

will turn south and go to berth

throughout the Port of New York and

New Jersey. These events are scheduled

to take place on July 4, 2000, in the Port

of New York/New Jersey, on the waters

of New York Harbor, Sandy Hook Bay,

the Hudson and East Rivers, and the Kill

Van Kull. The Coast Guard expects a

minimum of 40,000 spectator craft for

these events. These regulations create

temporary anchorage regulations, vessel

movement controls, and two security

zones. The regulations will be in effect

at various times in the Port of New York

and New Jersey during the period June

29, 2000 through July 5, 2000. The

vessel congestion due to the large

number of participating and spectator

vessels poses a significant threat to the

safety of life. This rulemaking is

necessary to ensure the safety of life on

the navigable waters of the United

States.

Regulated Areas

The Coast Guard is establishing two

regulated areas in New York Harbor that

will be in effect from July 3–5, 2000.

These two regulated areas are needed to

protect the maritime public and

participating vessels from possible

hazards to navigation associated with;