Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33313

and the failure to disclose material

information in district court allows the

Commission to obtain injunctive relief

as well as equitable remedies, such as

redress or disgorgement.

IV. Regulatory Flexibility Act

The Regulatory Flexibility Act

(‘‘RFA’’), 5 U.S.C. 601–11, requires an

analysis of the anticipated impact of the

repeal of the Light Bulb Rule on small

businesses. The reasons for repeal of the

rule have been explained in this notice.

Repeal of the Light Bulb Rule would

appear to have little or no effect on

small businesses. Moreover, the

Commission is not aware of any existing

federal laws or regulations that would

conflict with repeal of the Light Bulb

Rule. Further, no comments suggested

any adverse effect on small business

from repeal. For these reasons, the

Commission certifies, pursuant to

Section 605 of the RFA, 5 U.S.C. 605,

that this action will not have a

significant economic impact on a

substantial number of small entities.

V. Paperwork Reduction Act

The Light Bulb Rule imposes thirdparty disclosure requirements that

constitute ‘‘information collection

requirements’’ under the Paperwork

Reduction Act, 44 U.S.C. 3501 et seq.

Accordingly, repeal of the Light Bulb

Rule will eliminate any burdens

imposed by these disclosure

requirements.

List of Subjects in 16 CFR Part 409

Advertising, Consumer protection,

Energy conservation, Labeling, Lamp

products, Trade practices.

PART 409—[REMOVED]

The Commission, under authority of

Section 18 of the Federal Trade

Commission Act, 15 U.S.C. 57a, amends

chapter I of Title 16 of the Code of

Federal Regulations by removing Part

409.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 96–16301 Filed 6–26–96; 8:45 am]

BILLING CODE 6750–01–P

DEPARTMENT OF STATE

Bureau of Political-Military Affairs

22 CFR Part 126

[Public Notice 2386]

Amendment to the List of Proscribed

Destinations

AGENCY: Department of State.

ACTION: Final rule.

SUMMARY: The Department of State is

amending the International Traffic in

Arms Regulations (ITAR) to reflect that

it is the policy of the United States to

deny licenses, other approvals, exports

and imports of defense articles and

defense services, destined for or

originating in Afghanistan. This

amendment formalizes a policy the U.S.

has had in place since 1992 to deny

import and export licenses for articles

and services originating in or destined

for Afghanistan due to the ongoing civil

war in that country.

EFFECTIVE DATE: June 14, 1996.

FOR FURTHER INFORMATION CONTACT:

Joseph L. Novak, Office of Arms

Transfer and Export Control Policy,

Bureau of Political-Military Affairs,

Department of State (202–736–7996).

SUPPLEMENTARY INFORMATION: The

Department of State is amending the

ITAR to reflect that it is the policy of the

United States, pursuant to § 126.1, to

deny licenses, other approvals, exports

and imports of defense articles and

defense services, destined for or

originating in Afghanistan. Requests for

licenses or other approvals for

Afghanistan involving items covered by

the Munitions List (22 CFR part 121)

will be reviewed with a presumption of

disapproval.

This amendment to the ITAR involves

a foreign affairs function of the United

States and thus is excluded from the

major rule procedure of Executive Order

12291 (46 FR 13193) and the procedures

of 5 U.S.C. 553 and 554. This final rule

does not contain a new or amended

information requirement subject to the

Paperwork Reduction Act (44 U.S.C.

3501 et seq.).

List of Subjects in 22 CFR Part 126

Arms and munitions, Exports.

Accordingly, under the authority of

Section 38 of the Arms Export Control

Act (22 U.S.C. 2778) and Executive

Order 11958, as amended, 22 CFR

subchapter M is amended as follows:

PART 126—[AMENDED]

1. The authority citation for part 126

continues to read as follows:

Authority: Secs. 2, 38, 40, 42, and 71, Arms

Export Control Act, Pub. L. 90–629, 90 Stat.

744 (22 U.S.C. 2752, 2778, 2780, 2791, and

2797); E.O. 11958, 41 FR 4311; E.O. 11322,

32 FR 119; 22 U.S.C. 2658; 22 U.S.C. 287c;

E.O. 12918, 59 FR 28206.

§ 126.1 [Amended]

2. Section 126.1 is amended by

adding ‘‘Afghanistan,’’ immediately

prior to ‘‘Armenia’’ in paragraph (a).

Dated: June 10, 1996.

Lynn E. Davis,

Under Secretary of State for Arms Control

and International Security Affairs.

[FR Doc. 96–16360 Filed 6–26–96; 8:45 am]

BILLING CODE 4710–25–M

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8679]

RIN 1545–AU37

Regulations Under Section 382 of the

Internal Revenue Code of 1986;

Application of Section 382 in Short

Taxable Years and With Respect to

Controlled Groups

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final and temporary

regulations.

SUMMARY: This document contains final

and temporary regulations relating to

limitations on net operating loss

carryforwards and certain built-in losses

following an ownership change and

comply with the statutory direction

under section 382(m) of the Internal

Revenue Code to prescribe regulations

concerning short taxable years and

controlled groups. This document also

contains amendments relating to the

end of separate tracking of the stock

ownership of loss corporations that

cease to exist following a merger or

similar transaction. The text of these

temporary regulations also serves as the

text of the proposed regulations set forth

in the notice of proposed rulemaking on

this subject in the Proposed Rules

section of this issue of the Federal

Register.

DATES: These regulations are effective

June 27, 1996.

For dates of application and special

transition rules, see Effective Dates

under SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT:

David B. Friedel at (202) 622–7550 (not

a toll-free number).
33314 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information

contained in these temporary

regulations has been reviewed and

approved by the Office of Management

and Budget in accordance with the

Paperwork Reduction Act (44 U.S.C.

3507) under the control number 1545–

1434. Section 1.382–8T(h) requires a

response from certain corporations that

are members of controlled groups. The

IRS requires this information to assure

compliance with section 382(m)(5) so

that the value of a loss corporation that

is a member of a controlled group is not

taken into account more than once in

computing a section 382 limitation.

Responses to this collection of

information are required to obtain a

benefit (relating to the restoration of

value for section 382 purposes).

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number.

For further information concerning

this collection of information, and

where to submit comments on the

collection of information and the

accuracy of the estimated burden, and

suggestions for reducing this burden,

please refer to the preamble to the crossreferencing notice of proposed

rulemaking published in the Proposed

Rules section of this issue of the Federal

Register.

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.

Background and Explanation of

Provisions

On February 4, 1991, the IRS and

Treasury issued three notices of

proposed rulemaking, CO–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

the carryover and carryback of losses to

consolidated and separate return years.

For reasons explained in the preamble

to TD 8678 (published elsewhere in this

issue of the Federal Register), the IRS

and Treasury are issuing temporary

amendments concerning the limitations

on net operating loss carryforwards and

certain built-in losses and credits

following an ownership change of a

consolidated group. The temporary

regulations contained in this Treasury

decision complement those other

temporary regulations. They assure that

the members of a controlled group

cannot duplicate value in computing

their respective section 382 limitations,

a result not permitted to members of a

group filing consolidated returns. See

§ 1.1502–93T.

These temporary regulations are

substantially identical to the rules

proposed on January 29, 1991. One

provision (relating to the effects of

successive ownership changes) was

moved from the consolidated return

regulations to the section 382

regulations to clarify that it is applicable

to all corporations. These temporary

amendments do not address the

numerous comments on the proposed

regulations. Many of these comments

are still under consideration.

Effective Dates

The temporary amendments are

generally effective as of January 1, 1997.

The final rules relating to the value of

stock added to § 1.382–2(a)(3)(i) and the

temporary rules in § 1.382–2T(f)(1)(ii)

(relating to the end of separate tracking

of certain loss corporations) are

generally effective as of January 29,

1991. The temporary rules in § 1.382–5T

(relating generally to short taxable years

and successive ownership changes)

generally apply to loss corporations that

have an ownership change to which

section 382(a), as amended by the Tax

Reform Act of 1986, applies.

Special Analysis

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory

assessment is not required. It has also

been determined that section 553(b) of

the Administrative Procedure Act (5

U.S.C. chapter 5) and the Regulatory

Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations, and,

therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to

section 7805(f) of the Internal Revenue

Code, the notice of proposed rulemaking

preceding these regulations were sent to

the Small Business Administration for

comment on their impact on small

business.

Drafting Information: The principal author

of the temporary regulations is David B.

Friedel 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:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for Part 1 is amended by removing the

entries for ‘‘1.382–2’’ and ‘‘1.382–2T’’

and adding entries in numerical order to

read as follows:

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

Section 1.382–2 also issued under 26

U.S.C. 382(k)(1), (l)(3), (m), and 26 U.S.C.

383.

Section 1.382–2T also issued under 26

U.S.C. 382(g)(4)(C), (i), (k)(1) and (6), (l)(3),

(m), and 26 U.S.C. 383.* * *

Section 1.382–5T also issued under 26

U.S.C. 382(m).* * *

Section 1.382–8T also issued under

26 U.S.C. 382(m).* * *

Par. 2. Section 1.382–1 is amended

by:

a. Adding an entry for § 1.382–2,

paragraph (a)(1)(iv).

b. Revising the entry for § 1.382–2,

paragraph (a)(3)(i).

c. Adding entries for § 1.382–2T,

paragraphs (f)(1)(i) through (f)(1)(iii).

d. Adding entries for §§ 1.382–5T and

1.382–8T.

§ 1.382–1 Table of contents.

* * * * *

§ 1.382–2 General rules for ownership

change.

(a) * * *

(1) * * *

(iv) End of separate accounting for

losses and credits of distributor or

transferor loss corporation.

* * * * *

§ 1.382–2T Definition of ownership change

under section 382, as amended by the Tax

Reform Act of 1986 (temporary).

* * * * *

(f) * * *

(1) * * *

(i) In general.

(ii) End of separate accounting for

losses and credits of distributor or

transferor loss corporation.

(iii) Application to other successor

corporations.

* * * * *

§ 1.382–5T Section 382 limitation

(temporary).

(a) Scope.

(b) Computation of value.

(c) Short taxable year.

(d) Successive ownership changes and

absorption of a section 382 limitation.

(1) In general.

(2) Recognized built-in gains and

losses.
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33315

(3) Effective date.

(e) Controlled groups.

(f) Effective date.

* * * * *

§ 1.382–8T Controlled groups (temporary).

(a) Introduction.

(b) Controlled group loss and

controlled group with respect to a

controlled group loss.

(c) Computation of value.

(1) Reduction in value.

(2) Restoration of value.

(3) Reduction in value by the amount

restored.

(4) Appropriate adjustments.

(5) Certain reductions in the value of

members of a controlled group.

(d) No double reduction.

(e) Definitions and nomenclature.

(1) Definitions in Section 382 and the

regulations thereunder.

(2) Controlled group.

(3) Component member.

(4) Predecessor and successor

corporation.

(f) Coordination between consolidated

groups and controlled groups.

(g) Examples.

(h) Time and manner of filing election

to restore.

(1) Statement required.

(2) Revocation of election.

(3) Filing by component member.

(i) [Reserved]

(j) Effective date.

(1) In general.

(2) Transition rule.

(i) In general.

(ii) Special transition rules for

controlled groups that had ownership

changes before January 29, 1991.

(3) Amended returns.

Par. 3. Section 1.382–2 is amended as

follows:

(a) The first sentence of paragraph

(a)(1)(iii) is amended by removing the

language ‘‘Pre-change losses’’ and

adding ‘‘Except as provided in § 1.382–

2T(f)(1)(ii), pre-change losses’’ in its

place.

(b) Paragraph (a)(1)(iv) is added.

(c) The text of § 1.382–2T(f)(18)(i) is

redesignated as the text of § 1.382–

2(a)(3)(i).

(d) Newly designated paragraph

(a)(3)(i) is amended by adding three

sentences at the end.

The additions read as follows:

§ 1.382–2 General rules for ownership

change.

(a) * * *

(1) * * *

(iv) End of separate accounting for

losses and credits of distributor or

transferor loss corporation. For further

guidance, see § 1.382–2T(f)(1)(ii).

* * * * *

(3) * * * (i) * * * Solely for

purposes of determining the percentage

of stock owned by a person, each share

of all the outstanding shares of stock

that have the same material terms is

treated as having the same value. Thus,

for example, a control premium or

blockage discount is disregarded in

determining the percentage of stock

owned by any person. The previous two

sentences of this paragraph (a)(3)(i)

apply to any testing date occurring on

or after January 29, 1991.

* * * * *

Par. 4. Section 1.382–2T is amended

as follows:

(a) Paragraph (e)(2)(iv) Example (1) is

amended by removing the last sentence.

(b) Paragraph (e)(2)(iv) Example (2)(ii)

is amended by adding a sentence at the

end.

(c) Paragraph (e)(2)(iv) Example

(2)(iii) is amended by removing the

language ‘‘, but must be separately

accounted for under § 1.382–2(a)(1)(iii)

of this section’’ from the last sentence.

(d) The text following the heading of

paragraph (f)(1) is designated as

paragraph (f)(1)(i) and a heading for

newly designated paragraph (f)(1)(i) is

added.

(e) Paragraphs (f)(1)(ii) and (f)(1)(iii)

are added.

(f) Paragraph (f)(4) is amended by

removing the word ‘‘loss’’ and by

adding two sentences at the end.

(g) Paragraph (f)(5) is amended by

adding two sentences at the end.

(h) A sentence is added after the

heading of paragraph (f)(18)(i).

(i) Paragraph (h)(2)(i)(A) is amended

by adding the language ‘‘and solely for

the purposes of determining whether a

loss corporation has an ownership

change’’ immediately after ‘‘except as

otherwise provided in this section,’’.

The additions read as follows:

§ 1.382–2T Definitions of ownership

change under section 382, as amended by

the Tax Reform Act of 1986 (temporary).

* * * * *

(e) * * *

(2) * * *

(iv) * * *

Example (2) * * *

(ii) * * * See paragraph (f)(1)(ii) of

this section for rules that end separate

accounting for L1’s pre-change losses on

any testing date occurring on or after

January 29, 1991.

(f) * * *

(1) * * *

(i) In general. * * *

(ii) End of separate accounting for

losses and credits of distributor or

transferor loss corporation. The separate

tracking of owner shifts of the stock of

an acquiring corporation required by

§ 1.382–2(a)(1)(iii) with respect to the

net operating loss carryovers and other

attributes described in § 1.382–2(a)(1)(ii)

ends when a fold-in event occurs. A

fold-in event is either an ownership

change of the distributor or transferor

corporation in connection with, or after,

the transaction to which section 381(a)

applies, or a period of 5 consecutive

years following the section 381(a)

transaction during which the distributor

or transferor corporation has not had an

ownership change. Starting on the day

after the earlier of the change date (but

not earlier than the day of the section

381(a) transaction) or the last day of the

5 consecutive year period, the losses

and other attributes of the distributor or

transferor corporation are treated as

losses and attributes of the acquiring

corporation for purposes of determining

whether an ownership change occurs

with respect to such losses. Also, for

purposes of determining the beginning

of the acquiring corporation’s testing

period, such losses are considered to

arise either in a taxable year that begins

not earlier than the later of the day

following the change date or the day of

the section 381(a) transaction, or in a

taxable year that begins 3 years before

the end of the 5 consecutive year period.

Pre-change losses of a distributor or

transferor corporation that are subject to

a limitation under section 382 continue

to be subject to the limitation

notwithstanding the occurrence of a

fold-in event. Any ownership change

that occurs in connection with, or

subsequent to, the section 381

transaction may result in an additional,

lesser limitation with respect to such

pre-change losses. This paragraph

(f)(1)(ii) applies to any testing date

occurring on or after January 29, 1991.

(iii) Application to other successor

corporations. Section 1.382–2(a)(1)

(relating to the definition of loss

corporation) and this paragraph (f)(1)

also apply, as the context may require,

to successor corporations other than

successors in section 381(a)

transactions. For example, if a

corporation receives assets from the loss

corporation that have basis in excess of

value, the recipient corporation’s basis

for the assets is determined, directly or

indirectly, in whole or in part, by

reference to the loss corporation’s basis,

and the amount by which basis exceeds

value is material, the recipient

corporation is a successor corporation

subject to § 1.382–2(a)(1) and this

paragraph (f)(1). This paragraph

(f)(1)(iii) applies to any testing date

occurring on or after January 1, 1997.

* * * * *
33316 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

(4) Successor corporation. * * * A

successor corporation also includes, as

the context may require, a corporation

which receives an asset or assets from

another corporation if the corporation’s

basis for the asset(s) is determined,

directly or indirectly, in whole or in

part, by reference to the other

corporation’s basis and the amount by

which basis differs from value is, in the

aggregate, material. The previous

sentence of this paragraph (f)(4) applies

to any testing date occurring on or after

January 1, 1997.

(5) Predecessor corporation. * * * A

predecessor corporation also includes,

as the context may require, a

corporation which transfers an asset or

assets to another corporation if the

transferee’s basis for the asset(s) is

determined, directly or indirectly, in

whole or in part, by reference to the

corporation’s basis and the amount by

which basis differs from value is, in the

aggregate, material. The previous

sentence of this paragraph (f)(5) applies

to any testing date occurring on or after

January 1, 1997.

* * * * *

(18) * * * (i) * * * For further

guidance, see § 1.382–2(a)(3)(i).

* * * * *

Par. 5. Sections 1.382–5T and 1.382–

8T are added to read as follows:

§ 1.382–5T Section 382 limitation

(temporary).

(a) Scope. Following an ownership

change, the section 382 limitation for

any post-change year is an amount equal

to the value of the loss corporation

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(m)(2) (relating

to short taxable years), and section

382(h) (relating to recognized built-in

gains and section 338 gains).

(b) Computation of value. [Reserved]

(c) Short taxable year. The section 382

limitation for any post-change year that

is less than 365 days is the amount that

bears the same ratio to the section 382

limitation determined under section

382(b)(1) as the number of days in the

post-change year bears to 365. The

section 382 limitation, as so determined,

is adjusted as required by section 382

and the regulations thereunder. This

paragraph (c) does not apply to a 52–53

week taxable year that is less than 365

days unless a return is required under

section 443 (relating to short periods)

for such year.

(d) Successive ownership changes and

absorption of a section 382 limitation—

(1) In general. If a loss corporation has

two (or more) ownership changes, any

losses attributable to the period

preceding the earlier ownership change

are treated as pre-change losses with

respect to both ownership changes.

Thus, the later ownership change may

result in a lesser (but never in a greater)

section 382 limitation with respect to

such losses. In any case, the amount of

taxable income for any post-change year

that can be offset by pre-change losses

may not exceed the section 382

limitation for such ownership change,

reduced by the amount of taxable

income offset by pre-change losses

subject to any earlier ownership

change(s).

(2) Recognized built-in gains and

losses. [Reserved]

(3) Effective date. This paragraph (d)

applies to taxable years of a loss

corporation beginning on or after

January 1, 1997.

(e) Controlled groups. See § 1.382–8T

for rules for determining the value of a

loss corporation that is a member of a

controlled group.

(f) Effective date. Except as otherwise

provided, this section applies to a loss

corporation that has an ownership

change to which section 382(a), as

amended by the Tax Reform Act of

1986, applies.

§ 1.382–8T Controlled groups (temporary).

(a) Introduction. This section provides

rules to adjust the value of a loss

corporation that is a member of a

controlled group of corporations on a

change date so that the same value is

not included more than once in

computing the limitations under section

382 for the loss corporations that are

members of the controlled group. In

general, the adjustment is made under

paragraph (c) of this section by reducing

the value of the loss corporation by the

value of the stock of each component

member of the controlled group that the

loss corporation owns immediately after

the ownership change. The loss

corporation’s value may, however, be

increased under paragraph (c) of this

section by any amount of value that the

other member elects to restore to the

loss corporation.

(b) Controlled group loss and

controlled group with respect to a

controlled group loss. A controlled

group loss is a pre-change loss (or a net

unrealized built-in loss) of a loss

corporation that is attributable to a

taxable year of the corporation with

respect to which the corporation is a

component member of a controlled

group (as defined by paragraphs (e) (2)

and (3) of this section). The controlled

group with respect to each controlled

group loss is composed of the loss

corporation and each other corporation

that is a component member of a

controlled group that includes the loss

corporation both—

(1) With respect to the taxable year to

which the controlled group loss is

attributable; and

(2) On the date the loss corporation

has an ownership change.

(c) Computation of value. For

purposes of computing the limitation

under section 382 with respect to each

controlled group loss, the value of the

stock of each component member of the

controlled group with respect to that

loss is determined immediately before

the ownership change, and is adjusted

by applying the following rules:

(1) Reduction in value. The value of

the stock of each component member is

reduced by the value (immediately

before the ownership change and

without regard to any restoration of

value or other adjustment under this

section) of the stock of any other

component member directly owned by

the component member immediately

after the ownership change.

(2) Restoration of value. After the

value of the stock of each component

member is reduced pursuant to

paragraph (c)(1) of this section, the

value of the stock of each component

member is increased by the amount of

value, if any, restored to the component

member by another component member

(the electing member) pursuant to this

paragraph (c)(2). The electing member

may elect to restore value to another

component member in an amount that

does not exceed the lesser of—

(i) The sum of—

(A) The value, determined

immediately before the ownership

change, of the electing member’s stock

(after adjustment under paragraph (c)(1)

of this section and before any

restoration of value under this

paragraph (c)(2)); plus

(B) Any amount of value restored to

the electing member by another

component member under this

paragraph (c)(2); or

(ii) The value, determined

immediately before the ownership

change, of the electing member’s stock

(without regard to any adjustment under

this section) that is directly owned by

the other component member

immediately after the ownership

change.

(3) Reduction in value by the amount

restored. The value of the stock of the

electing member is reduced by any
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33317

amount of value that the electing

member elects to restore under

paragraph (c)(2) of this section to

another component member.

(4) Appropriate adjustments.

Appropriate additional adjustments

consistent with paragraphs (c)(1), (2),

and (3) of this section must be made to

prevent any duplication of value. Thus,

for example, adjustments must be made

to reflect—

(i) Any indirect ownership interest in

another component member;

(ii) Any cross ownership of stock by

component members of the controlled

group with respect to the controlled

group loss; and

(iii) Any value used to determine a

limitation under section 382 with

respect to controlled group losses from

the same period.

(5) Certain reductions in the value of

members of a controlled group. A loss

corporation that has an ownership

change is required to make adjustments

consistent with this paragraph (c) with

respect to its stock if the stock of

another corporation in which it had a

direct or indirect ownership interest

was disposed of before the ownership

change, and;

(i) Both corporations were component

members of a controlled group—

(A) With respect to a taxable year to

which a controlled group loss of the loss

corporation is attributable; and

(B) At any time during the 2 year

period before the ownership change;

and

(ii) Both corporations are component

members of a controlled group at any

time during the 2 year period following

the ownership change.

(d) No double reduction. To the extent

consistent with the purposes of this

section, section 382 and this section

shall not be applied to duplicate a

reduction in the value of a loss

corporation. Thus, for example, if the

value of a loss corporation is reduced

under section 382(l)(1) to reflect a

capital contribution of stock of a

component member, it is not again

reduced by such amount under

paragraph (c)(1) of this section. If this

paragraph (d) applies to prevent a

reduction in value from being

duplicated, the application of the other

rules of this section, such as those

relating to the restoration of value, is

correspondingly limited in a manner

consistent with the principles of this

section.

(e) Definitions and nomenclature—(1)

Definitions in section 382 and the

regulations thereunder. Except as

otherwise provided, the definitions and

nomenclature contained in section 382

and the regulations thereunder apply to

this section.

(2) Controlled group. Controlled group

has the same meaning as in section

1563(a), determined by substituting ‘‘50

percent’’ for ‘‘80 percent’’ each place

that it appears, and without regard to

section 1563(a)(4).

(3) Component member. Component

member has the same meaning as in

section 1563(b), determined by

substituting ‘‘December 31 (or the

change date, if earlier)’’ for ‘‘December

31’’ each place it appears, and without

regard to section 1563 (b)(2), (b)(3)(C),

and (b)(4).

(4) Predecessor and successor

corporation. As the context may require,

a reference to a corporation, or

component member includes a reference

to a predecessor or successor

corporation.

(f) Coordination between consolidated

groups and controlled groups. Some or

all of the component members of a

controlled group may also be members

of a consolidated group, and a

controlled group loss may be subject to

a consolidated section 382 limitation or

subgroup section 382 limitation

determined under § 1.1502–93T. Except

as otherwise provided in this paragraph

(f) and §§ 1.1502–91T through 1.1502–

99T, § 1.1502–93T applies instead of

this section when both sections, by their

terms, are otherwise applicable. This

section is applicable and may require an

adjustment to value if a member of a

consolidated group, a loss group, or a

loss subgroup (as those terms are

defined in §§ 1.1502–1(h) and 1.1502–

91T) is also a component member of a

controlled group with respect to a

controlled group loss. Solely for

purposes of applying this section, a

consolidated group, loss group, or loss

subgroup is treated as a single

corporation. Thus to determine the

limitation with respect to any portion of

the pre-change consolidated attributes

or pre-change subgroup attributes of the

loss group or loss subgroup that is a

controlled group loss, the consolidated

section 382 limitation or subgroup

section 382 limitation is computed by

treating the loss group or the loss

subgroup as a single corporation, and

adjusting value in accordance with

paragraph (c) of this section. See

paragraph (g) Example 4 of this section.

(g) Examples. For purposes of the

examples in this section, unless

otherwise stated, the nomenclature and

assumptions of the examples in § 1.382–

2T(b) apply, all corporations file

separate income tax returns on a

calendar year basis, the only 5-percent

shareholder of a corporation is a public

group, and the facts set forth the only

owner shifts with respect to the

corporations during the testing period.

Example 1. Controlled group with respect

to a controlled group loss. (a) Public L owns

all of the L stock, L and Public L1 own 30

percent and 70 percent, respectively, of the

L1 stock, and L1 owns all of the corporation

T stock. L1 has a net operating loss arising

in Year 1 that is carried over to Year 4. L has

a net operating loss arising in Year 2 that is

carried over to Year 4. On August 1, Year 3,

L acquires 30 percent of the stock of L1,

thereby increasing its percentage ownership

interest in L1 to 60 percent. On December 1,

Year 3, L1 purchases all of the stock of

corporation S from Public S. On November

1, Year 4, P acquires all of the L stock. The

acquisition by P of all of the L stock on

November 1, Year 4, causes ownership

changes of both L and L1 under the rules of

§ 1.382–2T. The following is a graphic

illustration of these facts.

BILLING CODE 4830–01–U
33318 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

BILLING CODE 4830–01–C
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33319

(b)(1) Under paragraph (b) of this section,

the Year 1 net operating loss carryover of L1

is a controlled group loss because L1 is a

component member of a controlled group

with respect to Year 1, the year to which the

loss is attributable. L1 and T compose a

controlled group with respect to the net

operating loss carryover because L1 and T are

component members of a controlled group

both—

(A) With respect to the taxable year to

which L1’s net operating loss carryover is

attributable (i.e., Year 1); and

(B) On November 1, Year 4, L1’s change

date. Although L and S are component

members of L1’s controlled group on L1’s

change date, they are not component

members of the controlled group with respect

to the Year 1 net operating loss carryover

because they were not component members

with respect to the year to which the net

operating loss carryover is attributable.

(2) The value of L1’s stock must therefore

be adjusted in accordance with paragraph (c)

of this section to take into account an

adjustment with respect to the T stock (but

not the S stock) in computing L1’s limitation

under section 382 with respect to its net

operating loss carryover.

(c) Although L is a member of a controlled

group composed of L, L1, S, and T on

November 1, Year 4, L’s change date, it is not

a component member of a controlled group

with respect to Year 2, the taxable year to

which its net operating loss carryover is

attributable. Therefore, L’s Year 2 net

operating loss carryover is not a controlled

group loss under paragraph (b) of this section

and the value of L’s stock is not adjusted in

accordance with paragraph (c) of this section

to compute L’s limitation under section 382

with respect to the Year 2 net operating loss

carryover.

Example 2. Adjustments to value of the

controlled group members. (a) Since Year 1,

A has owned all of the stock of L, L and B

have owned 80 percent and 20 percent,

respectively, of the stock of corporation P,

and P and C have owned 75 percent and 25

percent, respectively, of the stock of L1. L

and L1 each has a net operating loss for the

Year 6 taxable year that is carried over to its

respective Year 7 taxable year. On December

1, Year 7, A sells all of the L stock to D. The

sale results in ownership changes of both L

and L1. Immediately before the ownership

changes, the total value of the L1 stock is

$40, the total value of the P stock (including

the value of its L1 stock) is $100, and the

total value of the L stock (including the value

of the P stock) is $200. The following is a

graphic illustration of these facts.

BILLING CODE 4830–01–U

BILLING CODE 4830–01–C

(b) Under paragraph (b) of this section, the

Year 6 net operating loss carryovers of each

of L and L1 are controlled group losses

because each of L and L1 is a component

member of a controlled group with respect to

Year 6, the year to which the losses are

attributable. L, P, and L1 compose controlled

groups with respect to both Year 6 net

operating loss carryovers because L, P, and

L1 are component members of a controlled

group both—

(1) With respect to the taxable years to

which the net operating loss carryovers are

attributable (i.e., Year 6); and

(2) On December 1, Year 7, the change

date.

(c) The value of the stock of L1 for

purposes of determining its limitation under

section 382 with respect to its net operating

loss carryover from Year 6 is $40. L1 does not

elect to restore any value to P under

paragraph (c)(2) of this section.

(d) The value of the stock of P ($100) is

reduced under paragraph (c)(1) of this section

by the value of the stock of L1 that it directly

owns, $30 (75%×$40). Following the

adjustment, the value of the stock of P is $70.

P elects to restore this entire $70 of value to

L.

(e) The value of the stock of L, $200, is

reduced under paragraph (c)(1) of this section

by the value of the stock of P it directly owns,

i.e., $80 (80%×$100), and increased under

paragraph (c)(2) of this section by the amount

P elects to restore to L, i.e., $70. Thus, the

value of the L stock for purposes of

determining L’s limitation under section 382

with respect to its net operating loss

carryover from Year 6 is $190

($200¥$80+$70).

Example 3. Limitation on restoration of

value. (a) The facts are the same as in

Example 2, except that L1 elects to restore

$20 to P. For purposes of determining L1’s

limitation under section 382 with respect to

the Year 6 net operating loss carryover, the

value of the stock of L1 is $20 ($40¥$20)

because the value of its stock is reduced

under paragraph (c)(3) of this section by the

$20 of value it elects to restore to P.

(b) The value of the stock of P ($100) is

reduced under paragraph (c)(1) of this section

by the value of the L1 stock it directly owns

($30), and is increased under paragraph (c)(2)

of this section by the value that L1 elects to

restore to P ($20). Thus, the value of the P

stock is $90 ($100¥$30+$20).

(c)(1) P elects to restore to L the maximum

value permitted under this section. The value

of the stock of L, $200, is reduced under

paragraph (c)(1) of this section by the value

of the P stock it directly owns ($80), and is

increased by the value that P elects to restore

to L. P may elect to restore to L the lesser of—

(A) The sum of the value of its stock

immediately after adjustment under

paragraph (c)(1) of this section (i.e., $70) plus

the value restored to it by L1 (i.e., $20) (a

total of $90); or

(B) The value of the P stock (without regard

to the adjustment required by paragraphs (c)

(1) and (2) of this section) that is directly

owned by L immediately before the

ownership change (i.e., $80).

(2) Thus, $80 is the maximum amount that

P may elect to restore to L. Following the

restoration of value by P, the value of the L

stock for purposes of determining L’s

limitation under section 382 is $200 ($200

¥$80 + $80).

Example 4. Coordination with consolidated

return regulations. (a) P and its wholly

owned subsidiary L file a consolidated

return. L owns 79 percent of the outstanding
33320 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

stock of L1. P acquired the stock of L in Year

1 and L acquired the stock of L1 in Year 2.

The P consolidated group has a consolidated

net operating loss arising in the Year 6

consolidated return year that is carried over

to Year 8. L1 has a net operating loss arising

in its Year 6 taxable year that is also carried

over to Year 8. On January 1, Year 8, the P

consolidated group has an ownership change

under § 1.1502–92T(b)(1)(i) and L1 has an

ownership change under § 1.382–2T.

(b)(1) Under paragraph (b) of this section,

the Year 6 net operating loss carryover of the

P group is a controlled group loss because P,

L, and L1 are component members of a

controlled group with respect to Year 6, the

year to which the loss is attributable. P, L,

and L1 compose a controlled group with

respect to the Year 6 net operating loss

carryover of the P loss group because they are

component members of a controlled group

both—

(A) With respect to the taxable years to

which the net operating loss carryover is

attributable (i.e., Year 6); and

(B) On January 1, Year 8, the P group’s

change date.

(2) Because P and L compose a loss group

(within the meaning of § 1.1502–91T(c)) with

respect to its Year 6 net operating loss

carryover, the P loss group must compute a

consolidated section 382 limitation with

respect to its Year 6 net operating loss

carryover as a result of the ownership

change.

(c) In computing the consolidated section

382 limitation under § 1.1502–93T with

respect to the Year 6 net operating loss

carryover, the value of the P stock

immediately before the ownership change is

reduced under paragraphs (c)(1) and (f) of

this section by the value immediately before

the ownership change of the L1 stock directly

owned by L immediately after the ownership

change. L1 may, however, elect to restore

such value to the P consolidated group to the

extent permitted under paragraph (c)(2) of

this section.

Example 5. Appropriate adjustments for

indirect ownership interest. (a) Individual A

owns all of the stock of L, L owns an 80

percent interest in the capital and profits of

partnership PS, and PS owns 75 percent of

the stock of L1. Both L and L1 have net

operating losses for the Year 1 taxable year

that are carried over to their respective Year

2 taxable years. On December 19, Year 2, A

sells all of the L stock to an unrelated

individual. The sale results in an ownership

change of L and L1.

(b) Under paragraph (b) of this section, the

Year 1 net operating loss carryovers of each

of L and L1 are controlled group losses

because each of L and L1 is a component

member of a controlled group with respect to

Year 1, the year to which the losses are

attributable. L and L1 compose controlled

groups with respect to each corporation’s net

operating loss carryovers because L and L1

are component members of a controlled

group both—

(1) With respect to the taxable years to

which the net operating loss carryovers are

attributable (i.e., Year 1); and

(2) On December 19, Year 2, the change

date.

(c) L has an indirect ownership interest in

L1 which, under paragraph (c)(4) of this

section, must be taken into account in

applying this section. As a result, the value

of the L stock for purposes of determining its

limitation under section 382 with respect to

the Year 1 net operating loss carryover must

be reduced by the value of L’s indirect

ownership interest in the L1 stock (60

percent) that it owns through PS immediately

before the ownership change, and is

increased by the amount (if any) that L1

elects to restore to L under paragraph (c)(2)

of this section. The value of L1 is reduced

under paragraph (c)(3) of this section to the

extent that L1 elects to restore value to L.

(h) Time and manner of filing election

to restore—(1) Statement required. The

election to restore value described in

paragraph (c)(2) of this section must be

in the form set forth below. It must be

signed on behalf of both the electing

member and the corporation to which

such value is restored by persons

authorized to sign their respective

income tax returns. (The common

parent of a consolidated group must

make the election on behalf of the

group.) It must be filed by the loss

corporation with its income tax return

for the taxable year in which the

ownership change occurs (or with an

amended return for such year filed on

or before the due date (including

extensions) of the income tax return of

any component member with respect to

the taxable year in which the ownership

change occurs). The statement must

provide that: ‘‘THIS IS AN ELECTION

UNDER § 1.382–8T OF THE INCOME

TAX REGULATIONS TO RESTORE ALL

OR PART OF THE VALUE OF [insert

name and E.I.N. of the electing member]

TO [insert name and E.I.N. of the

corporation to which value is restored].

The statement must also—

(i) Identify the change date for the loss

corporation in connection with which

the election is made;

(ii) State the value of the electing

member’s stock (without regard to any

adjustment under paragraph (c) of this

section) immediately before the

ownership change;

(iii) State the amount of any reduction

required under paragraph (c)(1) of this

section with respect to stock of the

electing member that is owned directly

or indirectly by the corporation to

which value is restored;

(iv) State the amount of value that the

electing member elects to restore to the

corporation; and

(v) State whether the value of either

component member’s stock was

adjusted pursuant to paragraph (c)(4) of

this section.

(2) Revocation of election. An election

made under this section is revocable

only with the consent of the

Commissioner.

(3) Filing by component member. An

electing member must attach a copy of

the statement described in paragraph

(h)(1) of this section to its income tax

return (or amended return) for the

taxable year which includes the change

date in connection with which the

election is made.

(i) [Reserved]

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

section applies to a loss corporation that

has an ownership change with respect

to a controlled group loss on or after

January 1, 1997.

(2) Transition rule—(i) In general. The

members of a controlled group on

January 1, 1997, that have had an

ownership change with respect to a

controlled group loss before January 1,

1997, must determine the limitations

under section 382 for any post-change

year with respect to controlled group

losses by using a reasonable method to

preclude the value of stock of a

component member that was owned

directly or indirectly by another

member immediately after an ownership

change from being taken into account

more than once in determining the

limitations under section 382 with

respect to controlled group losses. If

such a reasonable method was not used

for a post-change year, subject to the

exception in paragraph (j)(3) of this

section, the members of the controlled

group described in the preceding

sentence must reduce their limitations

under section 382 for post-change years

for which the income tax return is filed

after January 1, 1997, to recapture, as

quickly as possible, any limitation that

members took into account in excess of

the amount that would be allowable

under this section.

(ii) Special transition rule for

controlled groups that had ownership

changes before January 29, 1991. For

purposes of this section, in the case of

an ownership change occurring before

January 29, 1991, the controlled group

with respect to a controlled group loss

does not include a corporation that is

not a component member of the

controlled group on January 29, 1991.

Thus, in the case of an ownership

change occurring before January 29,

1991, paragraph (c) of this section does

not require that a loss corporation that

is a component member of a controlled

group to disregard the value of stock of

another corporation directly owned

immediately after the ownership change

in determining the value of its own

stock unless the other corporation is a

component member of the controlled

group on January 29, 1991.
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33321

(3) Amended returns. A taxpayer that

has had an ownership change before

January 1, 1997, may file an amended

return for any taxable year to modify the

amount of a limitation under section

382 with respect to a controlled group

loss only if—

(i) The modification complies with

the rules contained in this section for

computing a limitation under section

382;

(ii) Any other component member of

the controlled group with respect to the

controlled group loss who elects to

restore value and whose taxable income

is affected by the election to restore

value also files amended returns that

comply with such rules; and

(iii) Corresponding adjustments are

made in amended returns for all taxable

years ending after December 31, 1986.

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 6. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 7. In § 602.101, paragraph (c) is

amended by adding an entry in

numerical order to the table to read as

follows:

§ 602.101 OMB Control numbers.

* * * * *

(c) * * *

CFR part or section where

identified or described

Current

OMB control No.

* * * * *

1.382.8T .................................... 1545–1434 

* * * * *

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: May 31, 1996.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 96–15825 Filed 6–26–96; 8:45 am]

BILLING CODE 4830–01–U

26 CFR Parts 1 and 602

[TD 8677]

RIN 1545–AU35

Consolidated Returns—Limitations on

the use of Certain Losses and

Deductions

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final and temporary

regulations.

SUMMARY: This document contains final

and temporary amendments to the

consolidated return regulations relating

to deductions and losses of members.

The temporary amendments concern the

method for computing the limitations

with respect to separate return

limitation year (SRLY) losses. They also

concern the rules relating to carryover

and carryback of losses to consolidated

and separate return years and to the

built-in deduction rules. Final

amendments are made amending

definitions and redesignating sections

displaced by temporary regulations. The

text of these temporary regulations also

serves as the text of the proposed

regulations set forth in the notice of

proposed rulemaking on this subject in

the Proposed Rules section of this issue

of the Federal Register.

DATES: These amendments are effective

June 27, 1996.

For dates of application and special

transition rules, see Effective Dates

under SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT:

David B. Friedel at (202) 622–7550 (not

a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information

contained in the temporary regulations

has been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork

Reduction Act (44 U.S.C. 3507) under

the control number 1545–1237. Section

1.1502–21T(b)(3) requires a response

from certain consolidated groups. The

IRS requires the information to assure

that an election to relinquish a

carryback period is properly

documented. Reponses to this collection

of information are required to obtain a

benefit (relating to the carryover of

losses which would otherwise be

carried back).

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number.

For further information concerning

this collection of information, and

where to submit comments on the

collection of information and the

accuracy of the estimated burden, and

suggestions for reducing this burden,

please refer to the preamble to the crossreferencing notice of proposed

rulemaking published in the Proposed

Rules section of this issue of the Federal

Register.

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.

Background and Explanation of

Provisions

On February 4, 1991, the IRS and

Treasury published in the Federal

Register a notice of proposed

rulemaking (CO–078–90, 56 FR 4228)

setting forth amendments to the rules

regarding the net operating losses, builtin deductions, and capital losses of

consolidated groups, including rules

regarding the carryover and carryback of

losses to consolidated and separate

return years. Some of the amendments

are clarifying, and some change the

existing rules. The principal changes

related to losses arising in (or carried to)

SRLY years. The preamble to the

proposed amendments explains the

proposed changes in detail. The IRS and

Treasury also published Notice 91–27

(1991–2 C.B. 629) to advise of intended

modifications to the proposed

amendments.

Generally, section 1503(a) requires

that a consolidated group determine its

tax in accordance with the regulations

under section 1502 prescribed before

the last day prescribed by law for the

filing of its tax return. Many of the

proposed amendments have proposed

effective dates of January 29, 1991, and

other transitional rules for their

application. Because of this effective

date, consolidated groups have been

uncertain whether the existing rules or

the proposed rules (if adopted) will

determine their use of losses for

consolidated return years ending on or

after January 29, 1991.

To address the uncertainty, the IRS

and Treasury are issuing this Treasury

decision to adopt temporary

amendments to the rules regarding a

consolidated group’s losses, including

the carryover and carryback of SRLY

losses. The temporary amendments are

substantially identical to the rules

proposed on January 29, 1991. A more

detailed discussion of the effective dates

of the temporary amendments,

including special transitional rules, is

set forth below under Effective Dates.

These temporary amendments

primarily address the uncertainty

created by the proposed effective dates.

They do not address the comments on

the proposed amendments. Many of

these comments are still under

consideration.

As companions to this Treasury

decision, the IRS and Treasury also

issue two other sets of temporary

regulations under sections 382 and 383