[Federal Register Volume 66, Number 121 (Friday, June 22, 2001)]
[Rules and Regulations]
[Pages 33463-33464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15576]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8950]
RIN 1545-AY58


Guidance on Filing an Application for a Tentative Carryback 
Adjustment in a Consolidated Return Context

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to the 
filing of an application for a tentative carryback adjustment. These 
regulations provide guidance as to the time for filing such application 
by a consolidated group and by certain corporations for the separate 
return year created by their becoming a member of a consolidated group. 
These final regulations may affect all consolidated groups.

DATES: Effective Date: June 22, 2001.
    Applicability Date: For dates of applicability, see Sec. 1.1502-
78(e)(2)(v) of these regulations.

FOR FURTHER INFORMATION CONTACT: Christopher M. Bass or Frances L. 
Kelly, (202) 622-7770 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR Part 1) under section 1502 of the Internal Revenue Code of 1986 
(Code), relating to the filing of an application for a tentative 
carryback adjustment. The amendments provide guidance as to the time 
for filing an application for a tentative carryback adjustment by a 
consolidated group. The amendments also extend the time for filing an 
application for a tentative carryback adjustment by certain 
corporations for the separate return year created by their becoming new 
members of a consolidated group.
    On January 4, 2001, a temporary regulation (TD 8919, 2001-6 I.R.B. 
505) was published in the Federal Register (66 FR 713). On this same 
day, a notice of proposed rulemaking (REG-119352-00, 2001-6 I.R.B. 525) 
cross-referencing the temporary regulation and a notice of public 
hearing were published in the Federal Register (66 FR 747). No comments 
or requests to speak were received from the public in response to the 
notice of proposed rulemaking. Accordingly, the public hearing 
scheduled for April 26, 2001 was canceled in the Federal Register (66 
FR 19104) on April 13, 2001. The proposed regulation is adopted as 
amended by this Treasury Decision, and the corresponding temporary 
regulation is removed.

Explanation of Provisions

    The amendments adopted by this Treasury Decision provide a general 
rule for all corporations filing consolidated returns stating that the 
provisions of section 6411(a) shall apply to determine the time for 
filing an application for a tentative carryback adjustment by a 
consolidated group. In addition, the amendments provide a special rule 
for applications filed by certain corporations that become new members 
of a consolidated group, extending the period of time for filing an 
application for a tentative carryback adjustment resulting from losses 
or credits arising in the new member's last separate return year. For 
these purposes, the separate return year is treated as ending on the 
same date as the end of the current taxable year of the consolidated 
group.
    Until Form 1139 (Application for a Tentative Carryback Adjustment) 
is modified to reflect the changes made by this regulation, an 
application for a tentative carryback adjustment filed under the 
special rule must include additional information in the form of a 
statement, ``Filed pursuant to Treas. Reg. section 1.1502-78(e)(2),'' 
in red, at the top of the current Form 1139. In addition, the Form 1139 
must state, in red, the ``year end'' of the consolidated group that the 
new member joins. In response to the changes made by this regulation, 
IRS Service Centers developed a procedure to assist in processing 
applications filed under Sec. 1.1502-78(e)(2). This procedure requires 
that the additional information, as set forth above, be included on the 
Form 1139. This procedure supplements existing guidelines for filing 
and processing Form 1139.
    The proposed regulation (66 FR 747) was issued as Sec. 1.1502-
78T(g). This final regulation adopts the substance of the proposed 
regulation and renumbers such provision as Sec. 1.1502-78(e).

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 this regulation will not impose a significant economic 
impact on a substantial number of small entities because it affects a 
relatively small number of corporations and few, if any, of those 
corporations are likely to be small businesses. 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 Code, 
the notice of proposed rulemaking that preceded these regulations was 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Drafting Information

    The principal authors of these regulations are Christopher M. Bass 
and Frances L. Kelly, Office of the Associate Chief Counsel 
(Corporate). However, other personnel from the IRS and Treasury 
Department 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 1.1502-78(b) and 1.1502-78T and by 
adding an entry in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.1502-78 also issued under 26 U.S.C. 1502, 6402(k), and 
6411(c). * * *


    Par. 2. Section 1.1502-78 is amended by adding paragraph (e) to 
read as follows:


Sec. 1.1502-78  Tentative carryback adjustments.

* * * * *
    (e) Time for filing application--(1) General rule. The provisions 
of section 6411(a) apply to the filing of an application for a 
tentative carryback adjustment by a consolidated group.
    (2) Special rule for new members--(i) New member. A new member is a 
corporation that, in the preceding taxable year, did not qualify as a 
member, as defined in Sec. 1.1502-1(b), of the consolidated group that 
it now joins.
    (ii) End of taxable year. Solely for the purpose of complying with 
the twelve-month requirement for making an application for a tentative 
carryback adjustment under section 6411(a), the separate return year of 
a qualified new member shall be treated as ending on the same date as 
the end of the current taxable year of the consolidated group that the 
qualified new member joins.
    (iii) Qualified new member. A new member of a consolidated group

[[Page 33464]]

qualifies for purposes of the provisions of this paragraph (e)(2) if, 
immediately prior to becoming a new member, either--
    (A) It was the common parent of a consolidated group; or
    (B) It was not required to join in the filing of a consolidated 
return.
    (iv) Examples. The provisions of this paragraph (e)(2) may be 
illustrated by the following examples:

    Example 1. Individual A owns 100 percent of the stock of X, a 
corporation that is not a member of a consolidated group and files 
separate tax returns on a calendar year basis. On January 31 of year 
1, X becomes a member of the Y consolidated group, which also files 
returns on a calendar year basis. X is a qualified new member as 
defined in paragraph (e)(2)(iii)(B) of this section because, 
immediately prior to becoming a new member of the Y consolidated 
group, X was not required to join in the filing of a consolidated 
return. As a result of its becoming a new member of Group Y, X's 
separate return for the short taxable year (January 1 of year 1 
through January 31 of year 1) is due September 15 of year 2 (with 
extensions). See Sec. 1.1502-76(c). Group Y's consolidated return is 
also due September 15 of year 2 (with extensions). See Sec. 1.1502-
76(c). Solely for the purpose of complying with the twelve-month 
requirement for making an application for a tentative carryback 
adjustment under section 6411(a), X's taxable year for the separate 
return year is treated as ending on December 31 of year 1. X's 
application for a tentative carryback adjustment is therefore due on 
or before December 31 of year 2.

    Example 2. Assume the same facts as in Example 1 except that 
immediately prior to becoming a new member of Group Y, X was a 
member of the Z consolidated group. Because X was required to join 
in the filing of the consolidated return for Group Z, X is not a 
qualified new member as defined in paragraph (e)(2)(iii) of this 
section. X's items for the one-month period will be included in the 
consolidated return for Group Z. Group Z's application for a 
tentative carryback adjustment, if any, continues to be due within 
12 months of the end of its taxable year, which is not affected by 
X's change in status as a new member of Group Y.

    (v) Effective date. The provisions of this paragraph (e)(2) apply 
for applications by new members of consolidated groups for tentative 
carryback adjustments resulting from net operating losses, net capital 
losses, or unused business credits arising in separate return years of 
new members that begin on or after January 1, 2001.


Sec. 1.1502-78T  [Removed]

    Par. 3. Section 1.1502-78T is removed.

    Approved: June 13, 2001.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.

Mark A. Weinberger,
Assistant Secretary of the Treasury.
[FR Doc. 01-15576 Filed 6-21-01; 8:45 am]
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