Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33335

in consolidated return years beginning

before January 1, 1997, see § 1.1502–

79A(a). For later years, see § 1.1502–

21T(b).

(b) Carryover and carryback of

consolidated net capital loss to separate

return years. For losses arising in

consolidated return years beginning

before January 1, 1997, see § 1.1502–

79A(b). For later years, see § 1.1502–

22T(b).

* * * * *

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 22. The authority citation for part

602 continues to read in part as follows:

Authority: 26 U.S.C. 7805.

Par. 23. 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.

* * * * *

1.1502–21T ....................... 1545–1237

* * * * *

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: May 31, 1996.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 96–15823 Filed 6–26–96; 8:45 am]

BILLING CODE 4830–01–U

26 CFR Parts 1 and 602

[TD 8678]

RIN 1545–AU36

Regulations Under Section 1502 of the

Internal Revenue Code of 1986;

Limitations on Net Operating Loss

Carryforwards and Certain Built-in

Losses and Credits Following an

Ownership Change of a Consolidated

Group

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains

temporary regulations regarding the

operation of sections 382 and 383 of the

Internal Revenue Code of 1986 (relating

to limitations on net operating loss

carryforwards and certain built-in losses

and credits following an ownership

change) with respect to consolidated

groups. The regulations include rules

for determining whether a loss group or

a loss subgroup has an ownership

change, for computing a consolidated

section 382 limitation or subgroup

section 382 limitation, and for applying

sections 382 and 383 to corporations

that join or leave a group. The rules are

necessary to provide guidance to such

groups on the use of certain of their tax

attributes. 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).

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 1545–1218. The

collection requires a response from

certain consolidated groups. The IRS

requires the information described in

§ 1.1502–95T(e) to assure that a section

382 limitation is properly determined in

cases of corporations that cease to be

members of a group. Responses to this

collection of information are required to

obtain a benefit (relating to the section

382 limition applicable to the departing

member(s)).

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

regarding the use of built-in deductions

and net operating losses and capital

losses, including the carryover and

carryback of separate return limitation

year (SRLY) losses of members of

consolidated groups. The preambles to

the three proposed regulations explain

their rules in detail. The IRS and

Treasury also published Notice 91–27

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

modifications to the proposed

regulations.

For reasons explained in the preamble

to TD 8677 (published elsewhere in this

issue of the Federal Register), the IRS

and Treasury are issuing temporary

amendments concerning the use of

built-in deductions and net operating

losses and capital losses of members of

consolidated groups. Some of the rules

in those temporary amendments are

closely related to rules regarding the

application of section 382 to members of

consolidated groups (for example, rules

relating to built-in deductions and

subgroups). Because of the close

relationship, and in order to give

consolidated groups immediate

guidance on the application of sections

382 and 383, the IRS and Treasury are

issuing these temporary amendments.

The temporary amendments are

substantially identical to the rules

proposed on January 29, 1991.

These temporary amendments do not

address the comments on the proposed

amendments. Many of these comments

are still under consideration.

As a companion to this Treasury

decision, the IRS and Treasury are also

issuing temporary regulations relating to

the application of sections 382 and 383

by members of controlled groups. See

TD 8679 published elsewhere in this

issue of the Federal Register.

Effective Dates

The temporary regulations are

generally effective for testing dates that

occur on or after January 1, 1997.

Transition rules contained in the

proposed amendments are retained and

made applicable to testing dates before

January 1, 1997.
33336 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

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 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 will primarily

affect affiliated groups of corporations

that have elected to file consolidated

returns, which tend to be larger

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 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.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping

requirements.

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 adding entries

in numerical order to read as follows:

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

Section 1.1502–91T also issued under 26

U.S.C. 382(m) and 26 U.S.C. 1502.

Section 1.1502–92T also issued under 26

U.S.C. 382(m) and 26 U.S.C. 1502.

Section 1.1502–93T also issued under 26

U.S.C. 382(m) and 26 U.S.C. 1502.

Section 1.1502–94T also issued under 26

U.S.C. 382(m) and 26 U.S.C. 1502.

Section 1.1502–95T also issued under 26

U.S.C. 382(m) and 26 U.S.C. 1502.

Section 1.1502–96T also issued under 26

U.S.C. 382(m) and 26 U.S.C. 1502.

Section 1.1502–98T also issued under 26

U.S.C. 382(m) and 26 U.S.C. 1502.

Section 1.1502–99T also issued under 26

U.S.C. 382(m) and 26 U.S.C. 1502. * * *

Par. 2. Sections 1.1502–90T through

1.1502–99T are added to read as

follows:

§ 1.1502–90T Table of contents

(temporary).

The following table contains the

major headings in §§ 1.1502–91T

through 1.1502–99T.

§ 1.1502–91T Application of section 382

with respect to a consolidated group

(temporary).

(a) Determination and effect of an ownership

change.

(1) In general.

(2) Special rule for post-change year that

includes the change date.

(3) Cross reference.

(b) Definitions and nomenclature.

(c) Loss group.

(1) Defined.

(2) Coordination with rule that ends separate

tracking.

(3) Example.

(d) Loss subgroup.

(1) Net operating loss carryovers.

(2) Net unrealized built-in loss.

(3) Loss subgroup parent.

(4) Principal purpose of avoiding a

limitation.

(5) Special rules.

(6) Examples.

(e) Pre-change consolidated attribute.

(1) Defined.

(2) Example.

(f) Pre-change subgroup attribute.

(1) Defined.

(2) Example.

(g) Net unrealized built-in gain and loss.

(1) In general.

(2) Members included.

(i) Consolidated group.

(ii) Loss subgroup.

(3) Acquisitions of built-in gain or loss assets.

(4) Indirect ownership.

(h) Recognized built-in gain or loss.

(1) In general. [Reserved]

(2) Disposition of stock or an intercompany

obligation of a member.

(3) Deferred gain or loss.

(4) Exchanged basis property.

(i) [Reserved]

(j) Predecessor and successor corporations.

§ 1.1502–92T Ownership change of a loss

group or a loss subgroup (temporary).

(a) Scope.

(b) Determination of an ownership change.

(1) Parent change method.

(i) Loss group.

(ii) Loss subgroup.

(2) Examples.

(3) Special adjustments.

(i) Common parent succeeded by a new

common parent.

(ii) Newly created loss subgroup parent.

(iii) Examples.

(4) End of separate tracking of certain losses.

(c) Supplemental rules for determining

ownership change.

(1) Scope.

(2) Cause for applying supplemental rule.

(3) Operating rules.

(4) Supplemental ownership change rules.

(i) Additional testing dates for the common

parent (or loss subgroup parent).

(ii) Treatment of subsidiary stock as stock of

the common parent (or loss subgroup

parent).

(iii) 5-percent shareholder of the common

parent (or loss subgroup parent).

(5) Examples.

(d) Testing period following ownership

change under this section.

(e) Information statements.

(1) Common parent of a loss group.

(2) Abbreviated statement with respect to loss

subgroups.

§ 1.1502–93T Consolidated section 382

limitation (or subgroup section 382

limitation) (temporary).

(a) Determination of the consolidated section

382 limitation (or subgroup section 382

limitation).

(1) In general.

(2) Coordination with apportionment rule.

(b) Value of the loss group (or loss subgroup).

(1) Stock value immediately before

ownership change.

(2) Adjustment to value.

(3) Examples.

(c) Recognized built-in gain of a loss group

or loss subgroup.

(d) Continuity of business.

(1) In general.

(2) Example.

(e) Limitations of losses under other rules.

§ 1.1502–94T Coordination with section

382 and the regulations thereunder when a

corporation becomes a member of a

consolidated group (temporary).

(a) Scope.

(1) In general.

(2) Successor corporation as new loss

member.

(3) Coordination in the case of a loss

subgroup.

(4) End of separate tracking of certain losses.

(5) Cross-reference.

(b) Application of section 382 to a new loss

member.

(1) In general.

(2) Adjustment to value.

(3) Pre-change separate attribute defined.

(4) Examples.

(c) Built-in gains and losses.

(d) Information statements.

§ 1.1502–95T Rules on ceasing to be a

member of a consolidated group (or loss

subgroup) (temporary).

(a) In general.

(1) Consolidated group.

(2) Election by common parent.

(3) Coordination with §§ 1.1502–91T through

1.1502–93T.

(b) Separate application of section 382 when

a member leaves a consolidated group.

(1) In general.

(2) Effect of a prior ownership change of the

group.

(3) Application in the case of a loss subgroup.

(4) Examples.

(c) Apportionment of a consolidated section

382 limitation.

(1) In general.

(2) Amount of apportionment.

(3) Effect of apportionment on the

consolidated section 382 limitation.

(4) Effect on corporations to which the

consolidated section 382 limitation is

apportioned.
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33337

(5) Deemed apportionment when loss group

terminates.

(6) Appropriate adjustments when former

member leaves during the year.

(7) Examples.

(d) Rules pertaining to ceasing to be a

member of a loss subgroup.

(1) In general.

(2) Examples.

(e) Filing the election to apportion.

(1) Form of the election to apportion.

(2) Signing of the election.

(3) Filing of the election.

(4) Revocation of election.

§ 1.1502–96T Miscellaneous rules

(temporary).

(a) End of separate tracking of losses.

(1) Application.

(2) Effect of end of separate tracking.

(3) Continuing effect of end of separate

tracking.

(4) Special rule for testing period.

(5) Limits on effects of end of separate

tracking.

(b) Ownership change of subsidiary.

(1) Ownership change of a subsidiary because

of options or plan or arrangement.

(2) Effect of the ownership change.

(i) In general.

(ii) Pre-change losses.

(3) Coordination with §§ 1.1502–91T,

1.1502–92T, and 1.1502–94T.

(4) Example.

(c) Continuing effect of an ownership change.

§ 1.1502–97T Special rules under section

382 for members under the jurisdiction of a

court in a title 11 or similar case (temporary).

[Reserved]

§ 1.1502–98T Coordination with section

383 (temporary).

§ 1.1502–99T Effective dates (temporary).

(a) Effective date.

(b) Testing period may include a period

beginning before January 1, 1997.

(c) Transition rules.

(1) Methods permitted.

(i) In general.

(ii) Adjustments to offset excess limitation.

(iii) Coordination with effective date.

(2) Permitted methods.

(d) Amended returns.

(e) Section 383.

§ 1.1502–91T Application of section 382

with respect to a consolidated group

(temporary).

(a) Determination and effect of an

ownership change—(1) In general. This

section and §§ 1.1502–92T and 1.1502–

93T set forth the rules for determining

an ownership change under section 382

for members of consolidated groups and

the section 382 limitations with respect

to attributes described in paragraphs (e)

and (f) of this section. These rules

generally provide that an ownership

change and the section 382 limitation

are determined with respect to these

attributes for the group (or loss

subgroup) on a single entity basis and

not for its members separately.

Following an ownership change of a

loss group (or a loss subgroup) under

§ 1.1502–92T, the amount of

consolidated taxable income for any

post-change year which may be offset by

pre-change consolidated attributes (or

pre-change subgroup attributes) shall

not exceed the consolidated section 382

limitation (or subgroup section 382

limitation) for such year as determined

under § 1.1502–93T.

(2) Special rule for post-change year

that includes the change date. If the

post-change year includes the change

date, section 382(b)(3)(A) is applied so

that the consolidated section 382

limitation (or subgroup section 382

limitation) does not apply to the portion

of consolidated taxable income that is

allocable to the period in the year on or

before the change date. See generally

§ 1.382–6 (relating to the allocation of

income and loss). The allocation of

consolidated taxable income for the

post-change year that includes the

change date must be made before taking

into account any consolidated net

operating loss deduction (as defined in

§ 1.1502–21T(a)).

(3) Cross reference. See §§ 1.1502–94T

and 1.1502–95T for rules that apply

section 382 to a corporation that

becomes or ceases to be a member of a

group or loss subgroup.

(b) Definitions and nomenclature. For

purposes of this section and §§ 1.1502–

92T through 1.1502–99T, unless

otherwise stated:

(1) The definitions and nomenclature

contained in section 382 and the

regulations thereunder (including the

nomenclature and assumptions relating

to the examples in § 1.382–2T(b)) and

this section and §§ 1.1502–92T through

1.1502–99T apply; and

(2) In all examples, all groups file

consolidated returns, all corporations

file their income tax returns on a

calendar year basis, the only 5-percent

shareholder of a corporation is a public

group, the facts set forth the only owner

shifts during the testing period, and

each asset of a corporation has a value

equal to its adjusted basis.

(c) Loss group—(1) Defined. A loss

group is a consolidated group that:

(i) Is entitled to use a net operating

loss carryover to the taxable year that

did not arise (and is not treated under

§ 1.1502–21T(c) as arising) in a SRLY;

(ii) Has a consolidated net operating

loss for the taxable year in which a

testing date of the common parent

occurs (determined by treating the

common parent as a loss corporation);

or

(iii) Has a net unrealized built-in loss

(determined under paragraph (g) of this

section by treating the date on which

the determination is made as though it

were a change date).

(2) Coordination with rule that ends

separate tracking. A consolidated group

may be a loss group because a member’s

losses that arose in (or are treated as

arising in) a SRLY are treated as

described in paragraph (c)(1)(i) of this

section. See § 1.1502–96T(a).

(3) Example. The following example

illustrates the principles of this

paragraph (c).

Example. Loss group. (a) L and L1 file

separate returns and each has a net operating

loss carryover arising in Year 1 that is carried

over to Year 2. A owns 40 shares and L owns

60 shares of the 100 outstanding shares of L1

stock. At the close of Year 1, L buys the 40

shares of L1 stock from A. For Year 2, L and

L1 file a consolidated return. The following

is a graphic illustration of these facts:

BILLING CODE 4830–01–U
33338 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

(b) L and L1 become a loss group at the

beginning of Year 2 because the group is

entitled to use the Year 1 net operating loss

carryover of L, the common parent, which

did not arise (and is not treated under

§ 1.1502–21T(c) as arising) in a SRLY. See

§ 1.1502–94T for rules relating to the

application of section 382 with respect to

L1’s net operating loss carryover from Year

1 which did arise in a SRLY.

(d) Loss subgroup—(1) Net operating

loss carryovers. Two or more

corporations that become members of a

consolidated group (the current group)

compose a loss subgroup if:

(i) They were affiliated with each

other in another group (the former

group), whether or not the group was a

consolidated group;

(ii) They bear the relationship

described in section 1504(a)(1) to each

other through a loss subgroup parent

immediately after they become members

of the current group; and

(iii) At least one of the members

carries over a net operating loss that did

not arise (and is not treated under

§ 1.1502–21T(c) as arising) in a SRLY

with respect to the former group.

(2) Net unrealized built-in loss. Two

or more corporations that become

members of a consolidated group

compose a loss subgroup if they:

(i) Have been continuously affiliated

with each other for the 5 consecutive

year period ending immediately before

they become members of the group;

(ii) Bear the relationship described in

section 1504(a)(1) to each other through

a loss subgroup parent immediately

after they become members of the

current group; and

(iii) Have a net unrealized built-in

loss (determined under paragraph (g) of

this section on the day they become

members of the group by treating that

day as though it were a change date).

(3) Loss subgroup parent. A loss

subgroup parent is the corporation that

bears the same relationship to the other

members of the loss subgroup as a

common parent bears to the members of

a group.

(4) Principal purpose of avoiding a

limitation. The corporations described

in paragraph (d)(1) or (2) of this section

do not compose a loss subgroup if any

one of them is formed, acquired, or

availed of with a principal purpose of

avoiding the application of, or

increasing any limitation under, section

382. Instead, § 1.1502–94T applies with

respect to the attributes of each such

corporation. This paragraph (d)(4) does

not apply solely because, in connection

with becoming members of the group,

the members of a group (or loss

subgroup) are rearranged to bear a

relationship to the other members

described in section 1504(a)(1).
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33339

(5) Special rules. See § 1.1502–95T(d)

for rules concerning when a corporation

ceases to be a member of a loss

subgroup. See also § 1.1502–96T(a) for a

special rule regarding the end of

separate tracking of SRLY losses of a

member that has an ownership change

or that has been a member of a group for

at least 5 consecutive years.

(6) Examples. The following examples

illustrate the principles of this

paragraph (d).

Example 1. Loss subgroup. (a) P owns all

the L stock and L owns all the L1 stock. The

P group has a consolidated net operating loss

arising in Year 1 that is carried to Year 2. On

May 2, Year 2, P sells all the stock of L to

A, and L and L1 thereafter file consolidated

returns. A portion of the Year 1 consolidated

net operating loss is apportioned under

§ 1.1502–21T(b) to each of L and L1, which

they carry over to Year 2. The following is

a graphic illustration of these facts:

(b) (1) L and L1 compose a loss subgroup

within the meaning of paragraph (d)(1) of this

section because—

(i) They were affiliated with each other in

the P group (the former group);

(ii) They bear a relationship described in

section 1504(a)(1) to each other through a

loss subgroup parent (L) immediately after

they became members of the L group; and

(iii) At least one of the members (here, both

L and L1) carries over a net operating loss to

the L group (the current group) that did not

arise in a SRLY with respect to the P group.

(2) Under paragraph (d)(3) of this section,

L is the loss subgroup parent of the L loss

subgroup.

Example 2. Loss subgroup—section

1504(a)(1) relationship. (a) P owns all the

stock of L and L1. L owns all the stock of L2.

L1 and L2 own 40 percent and 60 percent of

the stock of L3, respectively. The P group has

a consolidated net operating loss arising in

Year 1 that is carried over to Year 2. On May

22, Year 2, P sells all the stock of L and L1

to P1, the common parent of another

consolidated group. The Year 1 consolidated

net operating loss is apportioned under

§ 1.1502–21T(b), and each of L, L1, L2, and

L3 carries over a portion of such loss to the

first consolidated return year of the P1 group

ending after the acquisition. The following is

a graphic illustration of these facts:
33340 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

BILLING CODE 4830–01–C

(b) L and L2 compose a loss subgroup

within the meaning of paragraph (d)(1) of this

section. Neither L1 nor L3 is included in a

loss subgroup because neither bears a

relationship described in section 1504(a)(1)

through a loss subgroup parent to any other

member of the former group immediately

after becoming members of the P1 group.

Example 3. Loss subgroup—section

1504(a)(1) relationship. The facts are the

same as in Example 2, except that the stock

of L1 is transferred to L in connection with

the sale of the L stock to P1. L, L1, L2, and

L3 compose a loss subgroup within the

meaning of paragraph (d)(1) of this section

because—

(1) They were affiliated with each other in

the P group (the former group);

(2) They bear a relationship described in

section 1504(a)(1) to each other through a

loss subgroup parent (L) immediately after

they become members of the P1 group; and

(3) At least one of the members (here, each

of L, L1, L2, and L3) carries over to the P1

group (the current group) a net operating loss

that did not arise in a SRLY with respect to

the P group (the former group).

(e) Pre-change consolidated

attribute—(1) Defined. A pre-change

consolidated attribute of a loss group

is—

(i) Any loss described in paragraph

(c)(1) (i) or (ii) of this section (relating

to the definition of loss group) that is

allocable to the period ending on or

before the change date; and

(ii) Any recognized built-in loss of the

loss group.

(2) Example. The following example

illustrates the principle of this

paragraph (e).

Example. Pre-change consolidated

attribute. (a) The L group has a consolidated

net operating loss arising in Year 1 that is

carried over to Year 2. The L loss group has

an ownership change at the beginning of Year

2.

(b) The net operating loss carryover of the

L loss group from Year 1 is a pre-change

consolidated attribute because the L group

was entitled to use the loss in Year 2, the loss

did not arise in a SRLY with respect to the

L group, and therefore the loss was described

in paragraph (c)(1)(i) of this section. Under

paragraph (a) of this section, the amount of

consolidated taxable income of the L group

for Year 2 that may be offset by this loss

carryover may not exceed the consolidated

section 382 limitation of the L group for that

year. See § 1.1502–93T for rules relating to

the computation of the consolidated section

382 limitation.

(f) Pre-change subgroup attribute—(1)

Defined. A pre-change subgroup

attribute of a loss subgroup is—
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33341

(i) Any net operating loss carryover

described in paragraph (d)(1)(iii) of this

section (relating to the definition of loss

subgroup); and

(ii) Any recognized built-in loss of the

loss subgroup.

(2) Example. The following example

illustrates the principle of this

paragraph (f).

Example. Pre-change subgroup attribute.

(a) P is the common parent of a consolidated

group. P owns all the stock of L, and L owns

all the stock of L1. L2 is not a member of an

affiliated group, and has a net operating loss

arising in Year 1 that is carried over to Year

2. On December 11, Year 2, L1 acquires all

the stock of L2, causing an ownership change

of L2. During Year 2, the P group has a

consolidated net operating loss that is carried

over to Year 3. On November 2, Year 3, M

acquires all the L stock from P. M, L, L1, and

L2 thereafter file consolidated returns. All of

the P group Year 2 consolidated net operating

loss is apportioned under § 1.1502–21T(b) to

L and L2, which they carry over to the M

group.

(b)(1) L, L1, and L2 compose a loss

subgroup because—

(i) They were affiliated with each other in

the P group (the former group);

(ii) They bore a relationship described in

section 1504(a)(1) to each other through a

loss subgroup parent (L) immediately after

they became members of the L group; and

(iii) At least one of the members (here, both

L and L2) carries over a net operating loss to

the M group (the current group) that is

described in paragraph (d)(1)(iii) of this

section.

(2) For this purpose, L2’s loss from Year 1

that was a SRLY loss with respect to the P

group (the former group) is treated as

described in paragraph (d)(1)(iii) of this

section because of the application of the

principles of § 1.1502–96T(a). See paragraph

(d)(5) of this section. M’s acquisition results

in an ownership change of L, and therefore

the L loss subgroup under § 1.1502–92T(a)(2).

See § 1.1502–93T for rules governing the

computation of the subgroup section 382

limitation.

(c) In the M group, L2’s Year 1 loss

continues to be subject to a section 382

limitation resulting from the ownership

change that occurred on December 11, Year

2. See § 1.1502–96T(c).

(g) Net unrealized built-in gain and

loss—(1) In general. The determination

whether a consolidated group (or loss

subgroup) has a net unrealized built-in

gain or loss under section 382(h)(3) is

based on the aggregate amount of the

separately computed net unrealized

built-in gains or losses of each member

that is included in the group (or loss

subgroup) under paragraph (g)(2) of this

section, including items of built-in

income and deduction described in

section 382(h)(6). Thus, for example,

amounts deferred under section 267, or

under § 1.1502–13 (other than amounts

deferred with respect to the stock of a

member (or an intercompany obligation)

included in the group (or loss subgroup)

under paragraph (g)(2) of this section)

are built-in items. The threshold

requirement under section 382(h)(3)(B)

applies on an aggregate basis and not on

a member-by-member basis. The

separately computed amount of a

member included in a group or loss

subgroup does not include any

unrealized built-in gain or loss on stock

(including stock described in section

1504(a)(4) and § 1.382–2T(f)(18)(ii) and

(iii)) of another member included in the

group or loss subgroup (or on an

intercompany obligation). However, a

member of a group or loss subgroup

includes in its separately computed

amount the unrealized built-in gain or

loss on stock of another member (or on

an intercompany obligation) not

included in the group or loss subgroup.

If a member is not included in a group

(or loss subgroup) under paragraph

(g)(2) of this section, the determination

of whether the member has a net

unrealized built-in gain or loss under

section 382(h)(3) is made on a separate

entity basis. See § 1.1502–94(c) (relating

to built-in gain or loss of a new loss

member) and § 1.1502–96(a) (relating to

the end of separate tracking of certain

losses).

(2) Members included—(i)

Consolidated group. The members

included in the determination whether

a consolidated group has a net

unrealized built-in gain or loss are all

members of the group on the day that

the determination is made other than—

(A) A new loss member with a net

unrealized built-in loss described in

§ 1.1502–94T(a)(1)(ii); and

(B) Members included in a loss

subgroup described in § 1.1502–

91T(d)(2).

(ii) Loss subgroup. The members

included in the determination whether

a loss subgroup has a net unrealized

built-in gain or loss are those members

described in paragraphs (d)(2)(i) and (ii)

of this section.

(3) Acquisitions of built-in gain or loss

assets. A member of a consolidated

group (or loss subgroup) may not, in

determining its separately computed net

unrealized built-in gain or loss, include

any gain or loss with respect to assets

acquired with a principal purpose to

affect the amount of its net unrealized

built-in gain or loss. A group (or loss

subgroup) may not, in determining its

net unrealized built-in gain or loss,

include any gain or loss of a member

acquired with a principal purpose to

affect the amount of its net unrealized

built-in gain or loss.

(4) Indirect ownership. A member’s

separately computed net unrealized

built-in gain or loss is adjusted to the

extent necessary to prevent any

duplication of unrealized gain or loss

attributable to the member’s indirect

ownership interest in another member

through a nonmember if the member has

a 5-percent or greater ownership interest

in the nonmember.

(h) Recognized built-in gain or loss—

(1) In general. [Reserved]

(2) Disposition of stock or an

intercompany obligation of a member.

Gain or loss recognized by a member on

the disposition of stock (including stock

described in section 1504(a)(4) and

§ 1.382–2T(f)(18)(ii) and (iii)) of another

member or an intercompany obligation

is treated as a recognized built-in gain

or loss under section 382(h)(2) (unless

disallowed under § 1.1502–20 or

otherwise), even though gain or loss on

such stock or obligation was not

included in the determination of a net

unrealized built-in gain or loss under

paragraph (g)(1) of this section.

(3) Deferred gain or loss. Gain or loss

that is deferred under provisions such

as section 267 and § 1.1502–13 is treated

as recognized built-in gain or loss only

to the extent taken into account by the

group during the recognition period.

(4) Exchanged basis property. If the

adjusted basis of any asset is

determined, directly or indirectly, in

whole or in part, by reference to the

adjusted basis of another asset held by

the member at the beginning of the

recognition period, the asset is treated,

with appropriate adjustments, as held

by the member at the beginning of the

recognition period.

(i) [Reserved]

(j) Predecessor and successor

corporations. A reference in this section

and §§ 1.1502–92T through 1.1502–99T

to a corporation, member, common

parent, loss subgroup parent, or

subsidiary includes, as the context may

require, a reference to a predecessor or

successor corporation. For example, the

determination whether a successor

satisfies the continuous affiliation

requirement of paragraph (d)(2)(i) of this

section is made by reference to its

predecessor.

§ 1.1502–92T Ownership change of a loss

group or a loss subgroup (temporary).

(a) Scope. This section provides rules

for determining if there is an ownership

change for purposes of section 382 with

respect to a loss group or a loss

subgroup. See § 1.1502–94T for special

rules for determining if there is an

ownership change with respect to a new

loss member and § 1.1502–96T(b) for

special rules for determining if there is

an ownership change of a subsidiary.

(b) Determination of an ownership

change—(1) Parent change method—(i)
33342 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

Loss group. A loss group has an

ownership change if the loss group’s

common parent has an ownership

change under section 382 and the

regulations thereunder. Solely for

purposes of determining whether the

common parent has an ownership

change—

(A) The losses described in § 1.1502–

91T(c) are treated as net operating losses

(or a net unrealized built-in loss) of the

common parent; and

(B) The common parent determines

the earliest day that its testing period

can begin by reference to only the

attributes that make the group a loss

group under § 1.1502–91T(c).

(ii) Loss subgroup. A loss subgroup

has an ownership change if the loss

subgroup parent has an ownership

change under section 382 and the

regulations thereunder. The principles

of § 1.1502–95T(b) (relating to ceasing to

be a member of a consolidated group)

apply in determining whether the loss

subgroup parent has an ownership

change. Solely for purposes of

determining whether the loss subgroup

parent has an ownership change—

(A) The losses described in § 1.1502–

91T(d) are treated as net operating

losses (or a net unrealized built-in loss)

of the loss subgroup parent;

(B) The day that the members of the

loss subgroup become members of the

group (or a loss subgroup) is treated as

a testing date within the meaning of

§ 1.382–2(a)(4); and

(C) The loss subgroup parent

determines the earliest day that its

testing period can begin under § 1.382–

2T(d)(3) by reference to only the

attributes that make the members a loss

subgroup under § 1.1502–91T(d).

(2) Examples. The following examples

illustrate the principles of this

paragraph (b).

Example 1. Loss group—ownership change

of the common parent. (a) A owns all the L

stock. L owns 80 percent and B owns 20

percent of the L1 stock. For Year 1, the L

group has a consolidated net operating loss

that resulted from the operations of L1 and

that is carried over to Year 2. The value of

the L stock is $1000. The total value of the

L1 stock is $600 and the value of the L1 stock

held by B is $120. The L group is a loss group

under § 1.1502–91T(c)(1) because it is

entitled to use its net operating loss carryover

from Year 1. On August 15, Year 2, A sells

51 percent of the L stock to C. The following

is a graphic illustration of these facts:

BILLING CODE 4830–01–U

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

section 382 and the regulations thereunder

are applied to L to determine whether it (and

therefore the L loss group) has an ownership

change with respect to its net operating loss

carryover from Year 1 attributable to L1 on

August 15, Year 2. The sale of the L stock to

C causes an ownership change of L under

§ 1.382–2T and of the L loss group under

paragraph (b)(1)(i) of this section. The

amount of consolidated taxable income of the

L loss group for any post-change taxable year

that may be offset by its pre-change

consolidated attributes (that is, the net

operating loss carryover from Year 1

attributable to L1) may not exceed the

consolidated section 382 limitation for the L

loss group for the taxable year.

Example 2. Loss group—owner shifts of

subsidiaries disregarded. (a) The facts are the

same as in Example 1, except that on August

15, Year 2, A sells only 49 percent of the L

stock to C and, on December 12, Year 3, in

an unrelated transaction, B sells the 20

percent of the L1 stock to D. A’s sale of the

L stock to C does not cause an ownership

change of L under § 1.382–2T nor of the L

loss group under paragraph (b)(1)(i) of this

section. The following is a graphic

illustration of these facts:
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33343

(b) B’s subsequent sale of L1 stock is not

taken into account for purposes of

determining whether the L loss group has an

ownership change under paragraph (b)(1)(i)

of this section, and, accordingly, there is no

ownership change of the L loss group. See

paragraph (c) of this section, however, for a

supplemental ownership change method that

would apply to cause an ownership change

if the purchases by C and D were pursuant

to a plan or arrangement.

Example 3. Loss subgroup—ownership

change of loss subgroup parent controls. (a)

P owns all the L stock. L owns 80 percent

and A owns 20 percent of the L1 stock. The

P group has a consolidated net operating loss

arising in Year 1 that is carried over to Year

2. On September 9, Year 2, P sells 51 percent

of the L stock to B, and L1 is apportioned a

portion of the Year 1 consolidated net

operating loss under § 1.1502–21T(b), which

it carries over to its next taxable year. L and

L1 file a consolidated return for their first

taxable year ending after the sale to B. The

following is a graphic illustration of these

facts:
33344 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

(b) Under § 1.1502–91T(d)(1), L and L1

compose a loss subgroup on September 9,

Year 2, the day that they become members of

the L group. Under paragraph (b)(1)(ii) of this

section, section 382 and the regulations

thereunder are applied to L to determine

whether it (and therefore the L loss subgroup)

has an ownership change with respect to the

portion of the Year 1 consolidated net

operating loss that is apportioned to L1 on

September 9, Year 2. L has an ownership

change resulting from P’s sale of 51 percent

of the L stock to A. Therefore, the L loss

subgroup has an ownership change with

respect to that loss.

Example 4. Loss group and loss subgroup—

contemporaneous ownership changes. (a) A

owns all the stock of corporation M, M owns

35 percent and B owns 65 percent of the L

stock, and L owns all the L1 stock. The L

group has a consolidated net operating loss

arising in Year 1 that is carried over to Year

2. On May 19, Year 2, B sells 45 percent of

the L stock to M for cash. M, L, and L1

thereafter file consolidated returns. L and L1

are each apportioned a portion of the Year 1

consolidated net operating loss, which they

carry over to the M group’s Year 2 and Year

3 consolidated return years. The M group has

a consolidated net operating loss arising in

Year 2 that is carried over to Year 3. On June

9, Year 3, A sells 70 percent of the M stock

to C. The following is a graphic illustration

of these facts:
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33345

(b) Under § 1.1502–91T(d)(1), L and L1

compose a loss subgroup on May 19, Year 2,

the day they become members of the M

group. Under paragraph (b)(1)(ii) of this

section, section 382 and the regulations

thereunder are applied to L to determine

whether L (and therefore the L loss subgroup)

has an ownership change with respect to the

loss carryovers from Year 1 on May 19, Year

2, a testing date because of B’s sale of L stock

to M. The sale of L stock to M results in only

a 45 percentage point increase in A’s

ownership of L stock. Thus, there is no

ownership change of L (or the L loss

subgroup) with respect to those loss

carryovers under paragraph (b)(1)(ii) of this

section on that day.

(c) June 9, Year 3, is also a testing date with

respect to the L loss subgroup because of A’s

sale of M stock to C. The sale results in a 56

percentage point increase in C’s ownership of

L stock, and L has an ownership change.

Therefore, the L loss subgroup has an

ownership change on that day with respect

to the loss carryovers from Year 1.

(d) Paragraph (b)(1)(i) of this section

requires that section 382 and the regulations

thereunder be applied to M to determine

whether M (and therefore the M loss group)

has an ownership change with respect to the

net operating loss carryover from Year 2 on

June 9, Year 3, a testing date because of A’s

sale of M stock to C. The sale results in a 70

percentage point increase in C’s ownership of

M stock, and M has an ownership change.

Therefore, the M loss group has an

ownership change on that day with respect

to that loss carryover.

(3) Special adjustments—(i) Common

parent succeeded by a new common

parent. For purposes of determining if a

loss group has an ownership change, if

the common parent of a loss group is

succeeded or acquired by a new

common parent and the loss group

remains in existence, the new common

parent is treated as a continuation of the

former common parent with appropriate

adjustments to take into account shifts

in ownership of the former common

parent during the testing period

(including shifts that occur incident to

the common parent’s becoming the

former common parent).

(ii) Newly created loss subgroup

parent. For purposes of determining if a

loss subgroup has an ownership change,

if the member that is the loss subgroup

parent has not been the loss subgroup

parent for at least 3 years as of a testing

date, appropriate adjustments must be

made to take into account owner shifts

of members of the loss subgroup so that

the structure of the loss subgroup does

not have the effect of avoiding an

ownership change under section 382.

(See paragraph (b)(3)(iii) Example 3 of

this section.)

(iii) Examples. The following

examples illustrate the principles of this

paragraph (b)(3).

Example 1. New common parent acquires

old common parent. (a) A, who owns all the

L stock, sells 30 percent of the L stock to B

on August 26, Year 1. L owns all the L1

stock. The L group has a consolidated net

operating loss arising in Year 1 that is carried

over to Year 3. On July 16, Year 2, A and B

transfer their L stock to a newly created

holding company, HC, in exchange for 70

percent and 30 percent, respectively, of the

HC stock. HC, L, and L1 thereafter file

consolidated returns. Under the principles of

§ 1.1502–75(d), the L loss group is treated as

remaining in existence, with HC taking the

place of L as the new common parent of the

loss group. The following is a graphic

illustration of these facts:

BILLING CODE 4830–01–U
33346 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 33347

(b) On November 11, Year 3, A sells 25

percent of the HC stock to B. For purposes

of determining if the L loss group has an

ownership change under paragraph (b)(1)(i)

of this section on November 11, Year 3, HC

is treated as a continuation of L under

paragraph (b)(3)(i) of this section because it

acquired L and became the common parent

without terminating the L loss group.

Accordingly, HC’s testing period commences

on January 1, Year 1, the first day of the

taxable year of the L loss group in which the

consolidated net operating loss that is carried

over to Year 3 arose (see § 1.382–2T(d)(3)(i)).

Immediately after the close of November 11,

Year 3, B’s percentage ownership interest in

the common parent of the loss group (HC)

has increased by 55 percentage points over

its lowest percentage ownership during the

testing period (zero percent). Accordingly,

HC and the L loss group have an ownership

change on that day.

Example 2. New common parent in case in

which common parent ceases to exist. (a) A,

B, and C each own one-third of the L stock.

L owns all the L1 stock. The L group has a

consolidated net operating loss arising in

Year 2 that is carried over to Year 3. On

November 22, Year 3, L is merged into P, a

corporation owned by D, and L1 thereafter

files consolidated returns with P. A, B, and

C, as a result of owning stock of L, own 90

percent of P’s stock after the merger. D owns

the remaining 10 percent of P’s stock. The

merger of L into P qualifies as a reverse

acquisition of the L group under § 1.1502–

75(d)(3)(i), and the L loss group is treated as

remaining in existence, with P taking the

place of L as the new common parent of the

L group. The following is a graphic

illustration of these facts:

BILLING CODE 4830–01–U

(b) For purposes of determining if the L

loss group has an ownership change on

November 22, Year 3, the day of the merger,

P is treated as a continuation of L so that the

testing period for P begins on January 1, Year

2, the first day of the taxable year of the L

loss group in which the consolidated net

operating loss that is carried over to Year 3

arose. Immediately after the close of

November 22, Year 3, D is the only 5-percent

shareholder that has increased his ownership

interest in P during the testing period (from

zero to 10 percentage points).

(c) The facts are the same as in paragraph

(a) of this Example 2, except that A has held

231⁄3 shares (231⁄3 percent) of L’s stock for

five years, and A purchased an additional 10

shares of L stock from E two years before the

merger. Immediately after the close of the day

of the merger (a testing date), A’s ownership

interest in P, the common parent of the L loss

group, has increased by 62⁄3 percentage

points over her lowest percentage ownership

during the testing period (231⁄3 percent to 30

percent).

(d) The facts are the same as in (a) of this

Example 2, except that P has a net operating

loss arising in Year 1 that is carried to the

first consolidated return year ending after the

day of the merger. Solely for purposes of

determining whether the L loss group has an

ownership change under paragraph (b)(1)(i)

of this section, the testing period for P
33348 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

commences on January 1, Year 2. P does not

determine the earliest day for its testing

period by reference to its net operating loss

carryover from Year 1, which §§ 1502–1(f)(3)

and 1.1502–75(d)(3)(i) treat as arising in a

SRLY. See § 1.1502–94T to determine the

application of section 382 with respect to P’s

net operating loss carryover.

Example 3. Newly acquired loss subgroup

parent. (a) P owns all the L stock and L owns

all the L1 stock. The P group has a

consolidated net operating loss arising in

Year 1 that is carried over to Year 3. On

January 19, Year 2, L issues a 20 percent

stock interest to B. On February 5, Year 3, P

contributes its L stock to a newly formed

subsidiary, HC, in exchange for all the HC

stock, and distributes the HC stock to its sole

shareholder A. HC, L, and L1 thereafter file

consolidated returns. A portion of the P

group’s Year 1 consolidated net operating

loss is apportioned to L and L1 under

§ 1.1502–21T(b) and is carried over to the HC

group’s year ending after February 5, Year 3.

HC, L, and L1 compose a loss subgroup

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

respect to the net operating loss carryovers

from Year 1. The following is a graphic

illustration of these facts:

BILLING CODE 4830–01–C

(b) February 5, Year 3, is a testing date for

HC as the loss subgroup parent with respect

to the net operating loss carryovers of L and

L1 from Year 1. See paragraph (b)(1)(ii)(B) of

this section. For purposes of determining

whether HC has an ownership change on the

testing date, appropriate adjustments must be

made with respect to the changes in the

percentage ownership of the stock of HC

because HC was not the loss subgroup parent

for at least 3 years prior to the day on which

it became a member of the HC loss subgroup

(a testing date). The appropriate adjustments

include adjustments so that HC succeeds to

the owner shifts of other members of the

former group. Thus, HC succeeds to the

owner shift of L that resulted from the sale

of the 20 percent interest to B in determining

whether the HC loss subgroup has an

ownership change on February 5, Year 3, and

on any subsequent testing date that includes

January 19, Year 2.

(4) End of separate tracking of certain

losses. If § 1.1502–96T(a) (relating to the

end of separate tracking of attributes)

applies to a loss subgroup, then, while

one or more members that were

included in the loss subgroup remain

members of the consolidated group,

there is an ownership change with

respect to their attributes described in

§ 1.1502–96T(a)(2) only if the

consolidated group is a loss group and

has an ownership change under

paragraph (b)(1)(i) of this section (or

such a member has an ownership

change under § 1.1502–96T(b) (relating

to ownership changes of subsidiaries)).

If, however, the loss subgroup has had
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33349

an ownership change before § 1.1502–

96T(a) applies, see § 1.1502–96T(c) for

the continuing application of the

subgroup’s section 382 limitation with

respect to its pre-change subgroup

attributes.

(c) Supplemental rules for

determining ownership change—(1)

Scope. This paragraph (c) contains a

supplemental rule for determining

whether there is an ownership change of

a loss group (or loss subgroup). It

applies in addition to, and not instead

of, the rules of paragraph (b) of this

section. Thus, for example, if the

common parent of the loss group has an

ownership change under paragraph (b)

of this section, the loss group has an

ownership change even if, by applying

this paragraph (c), the common parent

would not have an ownership change.

(2) Cause for applying supplemental

rule. This paragraph (c) applies to a loss

group (or loss subgroup) if—

(i) Any 5-percent shareholder of the

common parent (or loss subgroup

parent) increases its percentage

ownership interest in the stock of

both—

(A) A subsidiary of the loss group (or

loss subgroup) other than by a direct or

indirect acquisition of stock of the

common parent (or loss subgroup

parent); and

(B) The common parent (or loss

subgroup parent); and

(ii) Those increases occur within a 3

year period ending on any day of a

consolidated return year or, if shorter,

the period beginning on the first day

following the most recent ownership

change of the loss group (or loss

subgroup).

(3) Operating rules. Solely for

purposes of this paragraph (c)—

(i) A 5-percent shareholder of the

common parent (or loss subgroup

parent) is treated as increasing its

percentage ownership interest in the

common parent (or loss subgroup

parent) or a subsidiary to the extent, if

any, that any person acting pursuant to

a plan or arrangement with the 5-

percent shareholder increases its

percentage ownership interest in the

stock of that entity;

(ii) The rules in section 382(l)(3) and

§§ 1.382–2T(h) and 1.382–4(d) (relating

to constructive ownership) apply with

respect to the stock of the subsidiary by

treating such stock as stock of a loss

corporation; and

(iii) In the case of a loss subgroup, a

subsidiary includes any member of the

loss subgroup other than the loss

subgroup parent. (The loss subgroup

parent is, however, a subsidiary of the

loss group of which it is a member.)

(4) Supplemental ownership change

rules. The determination whether the

common parent (or loss subgroup

parent) has an ownership change is

made by applying paragraph (b)(1) of

this section as modified by the

following additional rules—

(i) Additional testing dates for the

common parent (or loss subgroup

parent). A testing date for the common

parent (or loss subgroup parent) also

includes—

(A) Each day on which there is an

increase in the percentage ownership of

stock of a subsidiary as described in

paragraph (c)(2) of this section; and

(B) The first day of the first

consolidated return year for which the

group is a loss group (or the members

compose a loss subgroup);

(ii) Treatment of subsidiary stock as

stock of the common parent (or loss

subgroup parent). The common parent

(or loss subgroup parent) is treated as

though it had issued to the person

acquiring (or deemed to acquire) the

subsidiary stock an amount of its own

stock (by value) that equals the value of

the subsidiary stock represented by the

percentage increase in that person’s

ownership of the subsidiary

(determined on a separate entity basis).

A similar principle applies if the

increase in percentage ownership

interest is effected by a redemption or

similar transaction; and

(iii) 5-percent shareholder of the

common parent (or loss subgroup

parent). Any person described in

paragraph (c)(3)(i) of this section who is

acting pursuant to the plan or

arrangement is treated as a 5-percent

shareholder of the common parent (or

loss subgroup parent).

(5) Examples. The following examples

illustrate the principles of this

paragraph (c).

Example 1. Stock of the common parent

under supplemental rules. (a) A owns all the

L stock. L is not a member of an affiliated

group and has a net operating loss carryover

arising in Year 1 that is carried over to Year

6. On September 20, Year 6, L transfers all

of its assets and liabilities to a newly created

subsidiary, S, in exchange for S stock. L and

S thereafter file consolidated returns. On

November 23, Year 6, B contributes cash to

L in exchange for a 45 percent ownership

interest in L and contributes cash to S for a

20 percent ownership interest in S.

(b) B is a 5-percent shareholder of L who

increases his percentage ownership interest

in L and S during the 3 year period ending

on November 23, Year 6. Under paragraph

(c)(4)(ii) of this section, the determination

whether L (the common parent of a loss

group) has an ownership change on

November 23, Year 6 (or on any testing date

in the testing period which includes

November 23, Year 6), is made by applying

paragraph (b)(1)(i) of this section and by

treating the value of B’s 20 percent

ownership interest in S as if it were L stock

issued to B.

Example 2. Plan or arrangement—public

offering of subsidiary stock. (a) A owns all

the stock of L and L owns all the stock of L1.

The L group has a consolidated net operating

loss arising in Year 1 that resulted from the

operations of L1 and that is carried over to

Year 2. As part of a plan, A sells 49 percent

of the L stock to B on October 7, Year 2, and

L1 issues new stock representing a 20 percent

ownership interest in L1 to the public on

November 6, Year 2. The following is a

graphic illustration of these facts:

BILLING CODE 4830–01–U
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BILLING CODE 4830–01–C

(b) A’s sale of the L stock to B does not

cause an ownership change of the L loss

group on October 7, Year 2, under the rules

of § 1.382–2T and paragraph (b)(1)(i) of this

section.

(c) Because the issuance of L1 stock to the

public occurs in connection with B’s

acquisition of L stock pursuant to a plan,

paragraph (c)(4) of this section applies to

determine whether the L loss group has an

ownership change on November 6, Year 2 (or

on any testing date for which the testing

period includes November 6, Year 2).

(d) Testing period following

ownership change under this section. If

a loss group (or a loss subgroup) has had

an ownership change under this section,

the testing period for determining a

subsequent ownership change with

respect to pre-change consolidated

attributes (or pre-change subgroup

attributes) begins no earlier than the

first day following the loss group’s (or

loss subgroup’s) most recent change

date.

(e) Information statements.—(1)

Common parent of a loss group. The

common parent of a loss group must file

the information statement required by

§ 1.382–2T(a)(2)(ii) for a consolidated

return year because of any owner shift,

equity structure shift, or the issuance or

transfer of an option—

(i) With respect to the common parent

and with respect to any subsidiary stock

subject to paragraph (c) of this section;

and

(ii) With respect to an ownership

change described in § 1.1502–96T(b)

(relating to ownership changes of

subsidiaries).

(2) Abbreviated statement with

respect to loss subgroups. The common

parent of a consolidated group that has

a loss subgroup during a consolidated

return year must file the information

statement required by § 1.382–

2T(a)(2)(ii) because of any owner shift,

equity structure shift, or issuance or

transfer of an option with respect to the

loss subgroup parent and with respect to

any subsidiary stock subject to

paragraph (c) of this section. Instead of

filing a separate statement for each loss

subgroup parent, the common parent

(which is treated as a loss corporation)

may file the single statement described

in paragraph (e)(1) of this section. In

addition to the information concerning

stock ownership of the common parent,

the single statement must identify each

loss subgroup parent and state which

loss subgroups, if any, have had

ownership changes during the

consolidated return year. The loss

subgroup parent is, however, still

required to maintain the records

necessary to determine if the loss

subgroup has an ownership change.
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33351

This paragraph (e)(2) applies with

respect to the attributes of a loss

subgroup until, under § 1.1502–96T(a),

the attributes are no longer treated as

described in § 1.1502–91T(d) (relating to

the definition of loss subgroup). After

that time, the information statement

described in paragraph (e)(1) of this

section must be filed with respect to

those attributes.

§ 1.1502–93T Consolidated section 382

limitation (or subgroup section 382

limitation) (temporary).

(a) Determination of the consolidated

section 382 limitation (or subgroup

section 382 limitation)—(1) In general.

Following an ownership change, the

consolidated section 382 limitation (or

subgroup section 382 limitation) for any

post-change year is an amount equal to

the value of the loss group (or loss

subgroup), as defined in paragraph (b) of

this section, multiplied by the long-term

tax-exempt rate that applies with

respect to the ownership change, and

adjusted as required by section 382 and

the regulations thereunder. See, for

example, section 382(b)(2) (relating to

the carryforward of unused section 382

limitation), section 382(b)(3)(B) (relating

to the section 382 limitation for the

post-change year that includes the

change date), section 382(m)(2) (relating

to short taxable years), and section

382(h) (relating to recognized built-in

gains and section 338 gains).

(2) Coordination with apportionment

rule. For special rules relating to

apportionment of a consolidated section

382 limitation (or a subgroup section

382 limitation) when one or more

corporations cease to be members of a

loss group (or a loss subgroup) and to

aggregation of amounts so apportioned,

see § 1.1502–95T(c).

(b) Value of the loss group (or loss

subgroup)—(1) Stock value immediately

before ownership change. Subject to any

adjustment under paragraph (b)(2) of

this section, the value of the loss group

(or loss subgroup) is the value,

immediately before the ownership

change, of the stock of each member,

other than stock that is owned directly

or indirectly by another member. For

this purpose—

(i) Ownership is determined under

§ 1.382–2T;

(ii) A member is considered to

indirectly own stock of another member

through a nonmember only if the

member has a 5-percent or greater

ownership interest in the nonmember;

and

(iii) Stock includes stock described in

section 1504(a)(4) and § 1.382–

2T(f)(18)(ii) and (iii).

(2) Adjustment to value. The value of

the loss group (or loss subgroup), as

determined under paragraph (b)(1) of

this section, is adjusted under any rule

in section 382 or the regulations

thereunder requiring an adjustment to

such value for purposes of computing

the amount of the section 382

limitation. See, for example, section

382(e)(2) (redemptions and corporate

contractions), section 382(l)(1) (certain

capital contributions) and section

382(l)(4) (ownership of substantial

nonbusiness assets). The value of the

loss group (or loss subgroup)

determined under this paragraph (b) is

also adjusted to the extent necessary to

prevent any duplication of the value of

the stock of a member. For example, the

principles of § 1.382–8T (relating to

controlled groups of corporations) apply

in determining the value of a loss group

(or loss subgroup) if, under § 1.1502–

91T(g)(2), members are not included in

the determination whether the group (or

loss subgroup) has a net unrealized

built-in loss.

(3) Examples. The following examples

illustrate the principles of this

paragraph (b).

Example 1. Basic case. (a) L, L1, and L2

compose a loss group. L has outstanding

common stock, the value of which is $100.

L1 has outstanding common stock and

preferred stock that is described in section

1504(a)(4). L owns 90 percent of the L1

common stock, and A owns the remaining 10

percent of the L1 common stock plus all the

preferred stock. The value of the L1 common

stock is $40, and the value of the L1 preferred

stock is $30. L2 has outstanding common

stock, 50 percent of which is owned by L and

50 percent by L1. The L group has an

ownership change. The following is a graphic

illustration of these facts:

BILLING CODE 4830–01–U

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

the L group does not include the value of the

stock of any member that is owned directly

or indirectly by another member in

computing its consolidated section 382

limitation. Accordingly, the value of the

stock of the loss group is $134, the sum of

the value of—

(1) The common stock of L ($100);

(2) the 10 percent of the L1 common stock

($4) owned by A; and

(3) The L1 preferred stock ($30) owned by

A.

Example 2. Indirect ownership. (a) L and

L1 compose a consolidated group. L’s stock

has a value of $100. L owns 80 shares (worth

$80) and corporation M owns 20 shares

(worth $20) of the L1 stock. L also owns 79

percent of the stock of corporation M. The L

group has an ownership change. The

following is a graphic illustration of these

facts:
33352 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

BILLING CODE 4830–01–C

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

because of L’s more than 5 percent

ownership interest in M, a nonmember, L is

considered to indirectly own 15.8 shares of

the L1 stock held by M (79% x 20 shares).

The value of the L loss group is $104.20, the

sum of the values of—

(1) The L stock ($100); and

(2) The L1 stock not owned directly or

indirectly by L (21% x $20, or $4.20).

(c) Recognized built-in gain of a loss

group or loss subgroup. If a loss group

(or loss subgroup) has a net unrealized

built-in gain, any recognized built-in

gain of the loss group (or loss subgroup)

is taken into account under section

382(h) in determining the consolidated

section 382 limitation (or subgroup

section 382 limitation).

(d) Continuity of business—(1) In

general. A loss group (or a loss

subgroup) is treated as a single entity for

purposes of determining whether it

satisfies the continuity of business

enterprise requirement of section

382(c)(1).

(2) Example. The following example

illustrates the principle of this

paragraph (d).

Example. Continuity of business enterprise.

L owns all the stock of two subsidiaries, L1

and L2. The L group has an ownership

change. It has pre-change consolidated

attributes attributable to L2. Each of the

members has historically conducted a

separate line of business. Each line of

business is approximately equal in value.

One year after the ownership change, L

discontinues its separate business and the

business of L2. The separate business of L1

is continued for the remainder of the 2 year

period following the ownership change. The

continuity of business enterprise requirement

of section 382(c)(1) is met even though the

separate businesses of L and L2 are

discontinued.

(e) Limitations of losses under other

rules. If a section 382 limitation for a

post-change year exceeds the

consolidated taxable income that may

be offset by pre-change attributes for any

reason, including the application of the

limitation of § 1.1502–21T(c), the

amount of the excess is carried forward

under section 382(b)(2) (relating to the

carryforward of unused section 382

limitation).

§ 1.1502–94T Coordination with section

382 and the regulations thereunder when a

corporation becomes a member of a

consolidated group (temporary).

(a) Scope—(1) In general. This section

applies section 382 and the regulations

thereunder to a corporation that is a

new loss member of a consolidated

group. A corporation is a new loss

member if it—

(i) Carries over a net operating loss

that arose (or is treated under § 1.1502–

21T(c) as arising) in a SRLY with

respect to the current group, and that is

not described in § 1.1502–91T(d)(1); or

(ii) Has a net unrealized built-in loss

(determined under paragraph (c) of this

section on the day it becomes a member

of the current group by treating that day

as a change date) that is not taken into

account under § 1.1502–91T(d)(2) in

determining whether two or more

corporations compose a loss subgroup.

(2) Successor corporation as new loss

member. A new loss member also

includes any successor to a corporation

that has a net operating loss carryover

arising in a SRLY and that is treated as

remaining in existence under § 1.382–

2(a)(1)(ii) following a transaction

described in section 381(a).

(3) Coordination in the case of a loss

subgroup. For rules regarding the

determination of whether there is an

ownership change of a loss subgroup

with respect to a net operating loss or

a net unrealized built-in loss described

in § 1.1502–91T(d) (relating to the

definition of loss subgroup) and the

computation of a subgroup section 382

limitation following such an ownership

change, see §§ 1.1502–92T and 1.1502–

93T.

(4) End of separate tracking of certain

losses. If § 1.1502–96T(a) (relating to the

end of separate tracking of attributes)

applies to a new loss member, then,

while that member remains a member of

the consolidated group, there is an

ownership change with respect to its

attributes described in § 1.1502–

96T(a)(2) only if the consolidated group

is a loss group and has an ownership

change under § 1.1502–92T(b)(1)(i) (or

that member has an ownership change

under § 1.1502–96T(b) (relating to

ownership changes of subsidiaries)). If,

however, the new loss member has had

an ownership change before § 1.1502–

96T(a) applies, see § 1.1502–96T(c) for

the continuing application of the section

382 limitation with respect to the

member’s pre-change losses.

(5) Cross-reference. See section 382(a)

and § 1.1502–96T(c) for the continuing

effect of an ownership change after a

corporation becomes or ceases to be a

member.

(b) Application of section 382 to a

new loss member—(1) In general.

Section 382 and the regulations

thereunder apply to a new loss member

to determine, on a separate entity basis,

whether and to what extent a section

382 limitation applies to limit the

amount of consolidated taxable income

that may be offset by the new loss

member’s pre-change separate

attributes. For example, if an ownership

change with respect to the new loss

member occurs under section 382 and

the regulations thereunder, the amount

of consolidated taxable income for any

post-change year that may be offset by

the new loss member’s pre-change

separate attributes shall not exceed the

section 382 limitation as determined

separately under section 382(b) with

respect to that member for such year. If
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33353

the post-change year includes the

change date, section 382(b)(3)(A) is

applied so that the section 382

limitation of the new loss member does

not apply to the portion of the taxable

income for such year that is allocable to

the period in such year on or before the

change date. See generally § 1.382–6

(relating to the allocation of income and

loss).

(2) Adjustment to value. The value of

the new loss member is adjusted to the

extent necessary to prevent any

duplication of the value of the stock of

a member. For example, the principles

of § 1.382–8T (relating to controlled

groups of corporations) apply in

determining the value of a new loss

member.

(3) Pre-change separate attribute

defined. A pre-change separate attribute

of a new loss member is—

(i) Any net operating loss carryover of

the new loss member described in

paragraph (a)(1) of this section; and

(ii) Any recognized built-in loss of the

new loss member.

(4) Examples. The following examples

illustrate the principles of this

paragraph (b).

Example 1. Basic case. (a) A and P each

own 50 percent of the L stock. On December

19, Year 6, P purchases 30 percent of the L

stock from A for cash. L has net operating

losses arising in Year 1 and Year 2 that it

carries over to Year 6 and Year 7. The

following is a graphic illustration of these

facts:

BILLING CODE 4830–01–U

(b) L is a new loss member because it has

net operating loss carryovers that arose in a

SRLY with respect to the P group and L is

not a member of a loss subgroup under

§ 1.1502–91T(d). Under section 382 and the

regulations thereunder, L is a loss

corporation on December 19, Year 6, that day

is a testing date for L, and the testing period

for L commences on December 20, Year 3.

(c) P’s purchase of L stock does not cause

an ownership change of L on December 19,

Year 6, with respect to the net operating loss

carryovers from Year 1 and Year 2 under

section 382 and § 1.382–2T. The use of the

loss carryovers, however, is subject to

limitation under § 1.1502–21T(c).

Example 2. Multiple new loss members. (a)

The facts are the same as in Example 1, and,

on December 31, Year 6, L purchases all the

stock of L1 from B for cash. L1 has a net

operating loss of $40 arising in Year 3 that

it carries over to Year 7. The following is a

graphic illustration of these facts:
33354 Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations

BILLING CODE 4830–01–C

(b) L1 is a new loss member because it has

a net operating loss carryover from Year 3

that arose in a SRLY with respect to the P

group and L1 is not a member of a loss

subgroup under § 1.1502–91T(d)(1).

(c) L’s purchase of all the stock of L1

causes an ownership change of L1 on

December 31, Year 6, under section 382 and

§ 1.382–2T. Accordingly, a section 382

limitation based on the value of the L1 stock

immediately before the ownership change

limits the amount of consolidated taxable

income of the P group for any post-change

year that may be offset by L1’s loss from Year

3.

(d) L1’s ownership change in connection

with its becoming a member of the P group

is an ownership change described in

§ 1.1502–96T(a). Thus, starting on January 1,

Year 7, the P group no longer separately

tracks owner shifts of the stock of L1 with

respect to L1’s loss from Year 3. Instead, the

P group is a loss group because of such loss

under § 1.1502–91T(c).

Example 3. Ownership changes of new loss

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

Example 2, and, on April 30, Year 7, C

purchases all the stock of P for cash.

(b) L is a new loss member on April 30,

Year 7, because its Year 1 and Year 2 losses

arose in SRLYs with respect to the P group

and it is not a member of a loss subgroup

under § 1.1502–91T(d)(1). The testing period

for L commences on May 1, Year 4. C’s

purchase of all the P stock causes an

ownership change of L on April 30, Year 7,

under section 382 and § 1.382–2T with

respect to its Year 1 and Year 2 losses.

Accordingly, a section 382 limitation based

on the value of the L stock immediately

before the ownership change limits the

amount of consolidated taxable income of the

P group for any post-change year that may be

offset by L’s Year 1 and Year 2 losses. The

use of those carryovers is also subject to

limitation under § 1.1502–21T(c).

(c) The P group is a loss group on April 30,

Year 7, because it is entitled to use L1’s loss

from Year 3, and such loss is no longer

treated as a loss of a new loss member

starting the day after L1’s ownership change

on December 31, Year 6. See §§ 1.1502–

96T(a) and 1.1502–91T(c)(2). C’s purchase of

all the P stock causes an ownership change

of P, and therefore the P loss group, on April

30, Year 7, with respect to L1’s Year 3 loss.

Accordingly, a consolidated section 382

limitation based on the value of the P stock

immediately before the ownership change

limits the amount of consolidated taxable

income of the P group for any post-change

year that may be offset by L1’s Year 3 loss.

(c) Built-in gains and losses. As the

context may require, the principles of

§§ 1.1502–91T(g) and (h) and 1.1502–

93T(c) (relating to built-in gains and

losses) apply to a new loss member on

a separate entity basis. See § 1.1502–

91T(g)(3).

(d) Information statements. The

common parent of a consolidated group

that has a new loss member subject to

paragraph (b)(1) of this section during a

consolidated return year must file the

information statement required by

§ 1.382–2T(a)(2)(ii) because of any

owner shift, equity structure shift, or

issuance or transfer of an option with
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respect to the new loss member. Instead

of filing a separate statement for each

new loss member the common parent

may file a single statement described in

§ 1.382–2T(a)(2)(ii) with respect to the

stock ownership of the common parent

(which is treated as a loss corporation).

In addition to the information

concerning stock ownership of the

common parent, the single statement

must identify each new loss member

and state which new loss members, if

any, have had ownership changes

during the consolidated return year. The

new loss member is, however, required

to maintain the records necessary to

determine if it has an ownership

change. This paragraph (d) applies with

respect to the attributes of a new loss

member until an event occurs which

ends separate tracking under § 1.1502–

96T(a). After that time, the information

statement described in § 1.1502–

92T(e)(1) must be filed with respect to

these attributes.

§ 1.1502–95T Rules on ceasing to be a

member of a consolidated group (or loss

subgroup) (temporary).

(a) In general—(1) Consolidated

group. This section provides rules for

applying section 382 on or after the day

that a member ceases to be a member of

a consolidated group (or loss subgroup).

The rules concern how to determine

whether an ownership change occurs

with respect to losses of the member,

and how a consolidated section 382

limitation (or subgroup section 382

limitation) is apportioned to the

member. As the context requires, a

reference in this section to a loss group,

a member, or a corporation also

includes a reference to a loss subgroup,

and a reference to a consolidated section

382 limitation also includes a reference

to a subgroup section 382 limitation.

(2) Election by common parent. Only

the common parent (not the loss

subgroup parent) may make the election

under paragraph (c) of this section to

apportion either a consolidated section

382 limitation or a subgroup section 382

limitation.

(3) Coordination with §§ 1.1502–91T

through 1.1502–93T. For rules regarding

the determination of whether there is an

ownership change of a loss subgroup

and the computation of a subgroup

section 382 limitation following such an

ownership change, see §§ 1.1502–91T

through 1.1502–93T.

(b) Separate application of section

382 when a member leaves a

consolidated group—(1) In general.

Except as provided in §§ 1.1502–91T

through 1.1502–93T (relating to rules

applicable to loss groups and loss

subgroups), section 382 and the

regulations thereunder apply to a

corporation on a separate entity basis

after it ceases to be a member of a

consolidated group (or loss subgroup).

Solely for purposes of determining

whether a corporation has an ownership

change—

(i) Any portion of a consolidated net

operating loss that is apportioned to the

corporation under § 1.1502–21T(b) is

treated as a net operating loss of the

corporation beginning on the first day of

the taxable year in which the loss arose;

(ii) The testing period may include

the period during which (or before

which) the corporation was a member of

the group (or loss subgroup); and

(iii) Except to the extent provided in

§ 1.1502–20(g) (relating to reattributed

losses), the day it ceases to be a member

of a consolidated group is treated as a

testing date of the corporation within

the meaning of § 1.382–2(a)(4).

(2) Effect of a prior ownership change

of the group. If a loss group has had an

ownership change under § 1.1502–92T

before a corporation ceases to be a

member of a consolidated group (the

former member)—

(i) Any pre-change consolidated

attribute that is subject to a consolidated

section 382 limitation continues to be

treated as a pre-change loss with respect

to the former member after the attribute

is apportioned to the former member;

(ii) The former member’s section 382

limitation with respect to such attribute

is zero except to the extent the common

parent apportions under paragraph (c) of

this section all or a part of the

consolidated section 382 limitation to

the former member;

(iii) The testing period for

determining a subsequent ownership

change with respect to such attribute

begins no earlier than the first day

following the loss group’s most recent

change date; and

(iv) As generally provided under

section 382, an ownership change of the

former member that occurs on or after

the day it ceases to be a member of a

loss group may result in an additional,

lesser limitation amount with respect to

such loss.

(3) Application in the case of a loss

subgroup. If two or more former

members are included in the same loss

subgroup immediately after they cease

to be members of a consolidated group,

the principles of paragraphs (b) and (c)

of this section apply to the loss

subgroup. Therefore, for example, an

apportionment by the common parent

under paragraph (c) of this section is

made to the loss subgroup rather than

separately to its members.

(4) Examples. The following examples

illustrate the principles of this

paragraph (b).

Example 1. Treatment of departing

member as a separate corporation

throughout the testing period. (a) A owns all

the L stock. L owns all the stock of L1 and

L2. The L group has a consolidated net

operating loss arising in Year 1 that is carried

over to Year 3. On January 12, Year 2, A sells

30 percent of the L stock to B. On February

7, Year 3, L sells 40 percent of the L2 stock

to C, and L2 ceases to be a member of the

group. A portion of the Year 1 consolidated

net operating loss is apportioned to L2 under

§ 1.1502–21T(b) and is carried to L2’s first

separate return year, which ends December

31, Year 3. The following is a graphic

illustration of these facts:

BILLING CODE 4830–01–U
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BILLING CODE 4830–01–C
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33357

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

L2 is a loss corporation on February 7, Year

3. Under paragraph (b)(1)(iii) of this section,

February 7, Year 3, is a testing date. Under

paragraph (b)(1)(ii) of this section, the testing

period for L2 with respect to this testing date

commences on January 1, Year 1, the first day

of the taxable year in which the portion of

the consolidated net operating loss

apportioned to L2 arose. Therefore, in

determining whether L2 has an ownership

change on February 7, Year 3, B’s purchase

of 30 percent of the L stock and C’s purchase

of 40 percent of the L2 stock are each owner

shifts. L2 has an ownership change under

section 382(g) and § 1.382–2T because B and

C have increased their ownership interests in

L2 by 18 and 40 percentage points,

respectively, during the testing period.

Example 2. Effect of prior ownership

change of loss group. (a) L owns all the L1

stock and L1 owns all the L2 stock. The L

loss group had an ownership change under

§ 1.1502–92T in Year 2 with respect to a

consolidated net operating loss arising in

Year 1 and carried over to Year 2 and Year

3. The consolidated section 382 limitation

computed solely on the basis of the value of

the stock of L is $100. On December 31, Year

2, L1 sells 25 percent of the stock of L2 to

B. L2 is apportioned a portion of the Year 1

consolidated net operating loss which it

carries over to its first separate return year

ending after December 31, Year 2. L2’s

separate section 382 limitation with respect

to this loss is zero unless L elects to

apportion all or a part of the consolidated

section 382 limitation to L2. (See paragraph

(c) of this section for rules regarding the

apportionment of a consolidated section 382

limitation.) L apportions $50 of the

consolidated section 382 limitation to L2.

(b) On December 31, Year 3, L1 sells its

remaining 75 percent stock interest in L2 to

C, resulting in an ownership change of L2.

L2’s section 382 limitation computed on the

change date with respect to the value of its

stock is $30. Accordingly, L2’s section 382

limitation for post-change years ending after

December 31, Year 3, with respect to its prechange losses, including the consolidated net

operating losses apportioned to it from the L

group, is $30, adjusted as required by section

382 and the regulations thereunder.

(c) Apportionment of a consolidated

section 382 limitation—(1) In general.

The common parent may elect to

apportion all or any part of a

consolidated section 382 limitation to a

former member (or loss subgroup). See

paragraph (e) of this section for the time

and manner of making the election to

apportion.

(2) Amount of apportionment. The

common parent may apportion all or

part of each element of the consolidated

section 382 limitation determined under

§ 1.1502–93T. For this purpose, the

consolidated section 382 limitation

consists of two elements—

(i) The value element, which is the

element of the limitation determined

under section 382(b)(1) (relating to

value multiplied by the long-term taxexempt rate) without regard to such

adjustments as those described in

section 382(b)(2) (relating to the

carryforward of unused section 382

limitation), section 382(b)(3)(B) (relating

to the section 382 limitation for the

post-change year that includes the

change date), section 382(h) (relating to

built-in gains and section 338 gains),

and section 382(m)(2) (relating to short

taxable years); and

(ii) The adjustment element, which is

so much (if any) of the limitation for the

taxable year during which the former

member ceases to be a member of the

consolidated group that is attributable to

a carryover of unused limitation under

section 382(b)(2) or to recognized builtin gains under 382(h).

(3) Effect of apportionment on the

consolidated section 382 limitation. The

value element of the consolidated

section 382 limitation for any postchange year ending after the day that a

former member (or loss subgroup)

ceases to be a member(s) is reduced to

the extent that it is apportioned under

this paragraph (c). The consolidated

section 382 limitation for the postchange year in which the former

member (or loss subgroup) ceases to be

a member(s) is also reduced to the

extent that the adjustment element for

that year is apportioned under this

paragraph (c).

(4) Effect on corporations to which the

consolidated section 382 limitation is

apportioned. The amount of the value

element that is apportioned to a former

member (or loss subgroup) is treated as

the amount determined under section

382(b)(1) for purposes of determining

the amount of that corporation’s (or loss

subgroup’s) section 382 limitation for

any taxable year ending after the former

member (or loss subgroup) ceases to be

a member(s). Appropriate adjustments

must be made to the limitation based on

the value element so apportioned for a

short taxable year, carryforward of

unused limitation, or any other

adjustment required under section 382.

The adjustment element apportioned to

a former member (or loss subgroup) is

treated as an adjustment under section

382(b)(2) or section 382(h), as

appropriate, for the first taxable year

after the member (or members) ceases to

be a member (or members).

(5) Deemed apportionment when loss

group terminates. If a loss group

terminates, to the extent the

consolidated section 382 limitation is

not apportioned under paragraph (c)(1)

of this section, the consolidated section

382 limitation is deemed to be

apportioned to the loss subgroup that

includes the common parent, or, if there

is no loss subgroup that includes the

common parent immediately after the

loss group terminates, to the common

parent. A loss group terminates on the

first day of the first taxable year that is

a separate return year with respect to

each member of the former loss group.

(6) Appropriate adjustments when

former member leaves during the year.

Appropriate adjustments are made to

the consolidated section 382 limitation

for the consolidated return year during

which the former member (or loss

subgroup) ceases to be a member(s) to

reflect the inclusion of the former

member in the loss group for a portion

of that year.

(7) Examples. The following examples

illustrate the principles of this

paragraph (c).

Example 1. Consequence of

apportionment. (a) L owns all the L1 stock

and L1 owns all the L2 stock. The L group

has a $200 consolidated net operating loss

arising in Year 1 that is carried over to Year

2. At the close of December 31, Year 1, the

group has an ownership change under

§ 1.1502–92T. The ownership change results

in a consolidated section 382 limitation of

$10 based on the value of the stock of the

group. On August 29, Year 2, L1 sells 30

percent of the stock of L2 to A. L2 is

apportioned $90 of the group’s $200

consolidated net operating loss under

§ 1.1502–21T(b). L, the common parent,

elects to apportion $6 of the consolidated

section 382 limitation to L2. The following is

a graphic illustration of these facts:

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(b) For its separate return years ending

after August 29, Year 2 (other than the

taxable year ending December 31, Year 2),

L2’s section 382 limitation with respect to

the $90 of the group’s net operating loss

apportioned to it is $6, adjusted, as

appropriate, for any short taxable year,

unused section 382 limitation, or other

adjustment. For its consolidated return years

ending after August 29, Year 2, (other than

the year ending December 31, Year 2) the L

group’s consolidated section 382 limitation

with respect to the remaining $110 of prechange consolidated attribute is $4 ($10

minus the $6 value element apportioned to

L2), adjusted, as appropriate, for any short

taxable year, unused section 382 limitation,

or other adjustment.

(c) For the L group’s consolidated return

year ending December 31, Year 2, the value

element of its consolidated section 382

limitation is increased by $4 (rounded to the

nearest dollar), to account for the period

during which L2 was a member of the L

group ($6, the consolidated section 382

limitation apportioned to L2, times 241/365,

the ratio of the number of days during Year

2 that L2 is a member of the group to the

number of days in the group’s consolidated

return year). See paragraph (c)(6) of this

section. Therefore, the value element of the

consolidated section 382 limitation for Year

2 of the L group is $8 (rounded to the nearest

dollar).

(d) The section 382 limitation for L2’s short

taxable year ending December 31, Year 2, is

$2 (rounded to the nearest dollar), which is

the amount that bears the same relationship

to $6, the value element of the consolidated

section 382 limitation apportioned to L2, as

the number of days during that short taxable

year, 124 days, bears to 365. See § 1.382–4(c).

Example 2. Consequence of no

apportionment. The facts are the same as in

Example 1, except that L does not elect to

apportion any portion of the consolidated

section 382 limitation to L2. For its separate

return years ending after August 29, Year 2,

L2’s section 382 limitation with respect to

the $90 of the group’s pre-change

consolidated attribute apportioned to L2 is

zero under paragraph (b)(2)(ii) of this section.

Thus, the $90 consolidated net operating loss

apportioned to L2 cannot offset L2’s taxable

income in any of its separate return years

ending after August 29, Year 2. For its

consolidated return years ending after August

29, Year 2, the L group’s consolidated section

382 limitation with respect to the remaining

$110 of pre-change consolidated attribute is

$10, adjusted, as appropriate, for any short

taxable year, unused section 382 limitation,

or other adjustment.

Example 3. Apportionment of adjustment

element. The facts are the same as in

Example 1, except that L2 ceases to be a

member of the L group on August 29, Year

3, and the L group has a $4 carryforward of

an unused consolidated section 382

limitation (under section 382(b)(2)) to the

1993 consolidated return year.

The carryover of unused limitation

increases the consolidated section 382

limitation for the Year 3 consolidated return

year from $10 to $14. L may elect to

apportion all or any portion of the $10 value

element and all or any portion of the $4

adjustment element to L2.

(d) Rules pertaining to ceasing to be

a member of a loss subgroup—(1) In

general. A corporation ceases to be a

member of a loss subgroup—

(i) On the first day of the first taxable

year for which it files a separate return;

or

(ii) The first day that it ceases to bear

a relationship described in section

1504(a)(1) to the loss subgroup parent

(treating for this purpose the loss

subgroup parent as the common parent

described in section 1504(a)(1)(A)).

(2) Examples. The principles of this

paragraph (d) are illustrated by the

following examples.

Example 1. Basic case. (a) P owns all the

L stock, L owns all the L1 stock and L1 owns

all the L2 stock. The P group has a

consolidated net operating loss arising in

Year 1 that is carried over to Year 2. On

December 11, Year 2, P sells all the stock of

L to corporation M. Each of L, L1, and L2 is

apportioned a portion of the Year 1

consolidated net operating loss, and

thereafter each joins with M in filing

consolidated returns. Under § 1.1502–92T,

the L loss subgroup has an ownership change

on December 11, Year 2. The L loss subgroup

has a subgroup section 382 limitation of

$100. The following is a graphic illustration

of these facts:

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(b) On May 22, Year 3, L1 sells 40 percent

of the L2 stock to A. L2 carries over a portion

of the P group’s net operating loss from Year

1 to its separate return year ending December

31, Year 3. Under paragraph (d)(1) of this

section, L2 ceases to be a member of the L

loss subgroup on May 22, Year 3, which is

both (1) the first day of the first taxable year

for which it files a separate return and (2) the

day it ceases to bear a relationship described

in section 1504(a)(1) to the loss subgroup

parent, L. The net operating loss of L2 that

is carried over from the P group is treated as

a pre-change loss of L2 for its separate return

years ending after May 22, Year 3. Under

paragraphs (a)(2) and (b)(2) of this section,

the separate section 382 limitation with

respect to this loss is zero unless M elects to

apportion all or a part of the subgroup

section 382 limitation of the L loss subgroup

to L2.

Example 2. Formation of a new loss

subgroup. The facts are the same as in

Example 1, except that A purchases 40

percent of the L1 stock from L rather than

purchasing L2 stock from L1. L1 and L2 file

a consolidated return for their first taxable

year ending after May 22, Year 3, and each

of L1 and L2 carries over a part of the net

operating loss of the P group that arose in

Year 1. Under paragraph (d)(1) of this

section, L1 and L2 cease to be members of

the L loss subgroup on May 22, Year 3. The

net operating losses carried over from the P

group are treated as pre-change subgroup

attributes of the loss subgroup composed of

L1 and L2. The subgroup section 382

limitation with respect to those losses is zero

unless M elects to apportion all or part of the

subgroup section 382 limitation of the L loss

subgroup to the L1 loss subgroup. The

following is a graphic illustration of these

facts:

BILLING CODE 4830–01–U

Example 3. Ceasing to bear a section

1504(a)(1) relationship to a loss subgroup

parent. (a) A owns all the stock of P, and P

owns all the stock of L1 and L2. The P group

has a consolidated net operating loss arising

in Year 1 that is carried over to Year 3 and

Year 4. Corporation M acquires all the stock

of P on November 11, Year 3, and P, L1, and

L2 thereafter file consolidated returns with

M. M’s acquisition results in an ownership

change of the P loss subgroup under

§ 1.1502–92T(b)(1)(ii). The following is a

graphic illustration of these facts:

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BILLING CODE 4830–01–C
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(b) P distributes the L2 stock to M on

October 7, Year 4. L2 ceases to be a member

of the P loss subgroup on October 7, Year 4,

the first day that it ceases to bear the

relationship described in section 1504(a)(1)

to P, the P loss subgroup parent. See

paragraph (d)(1)(ii) of this section. Thus, the

section 382 limitation with respect to the prechange subgroup attributes attributable to L2

is zero except to the extent M elects to

apportion all or a part of the subgroup

section 382 limitation of the P loss subgroup

to L2.

Example 4. Relationship through a

successor. The facts are the same as in

Example 3, except that, instead of P’s

distributing the stock of L2, L2 merges into

L1 on October 7, Year 4. L1 (as successor to

L2 in the merger within the meaning of

§ 1.382–2T(f)(4)) continues to bear a

relationship described in section 1504(a)(1)

to P, the loss subgroup parent. Thus, L2 does

not cease to be a member of the P loss

subgroup as a result of the merger.

(e) Filing the election to apportion—

(1) Form of the election to apportion. An

election under paragraph (c) of this

section must be made by the common

parent. The election must be made in

the form of the following statement:

‘‘THIS IS AN ELECTION UNDER

§ 1.1502–95T OF THE INCOME TAX

REGULATIONS TO APPORTION ALL

OR PART OF THE [insert either

CONSOLIDATED SECTION 382

LIMITATION or SUBGROUP SECTION

382 LIMITATION, as appropriate] TO

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

corporation (or the corporations that

compose a new loss subgroup) to which

allocation is made]. The declaration

must also include the following

information, as appropriate—

(i) The date of the ownership change

that resulted in the consolidated section

382 limitation (or subgroup section 382

limitation);

(ii) The amount of the consolidated

section 382 limitation (or subgroup

section 382 limitation) for the taxable

year during which the former member

(or new loss subgroup) ceases to be a

member of the consolidated group

(determined without regard to any

apportionment under this section;

(iii) The amount of the value element

and adjustment element of the

consolidated section 382 limitation (or

subgroup section 382 limitation) that is

apportioned to the former member (or

new loss subgroup) pursuant to

paragraph (c) of this section; and

(iv) The name and E.I.N. of the

common parent making the

apportionment.

(2) Signing of the election. The

election statement must be signed by

both the common parent and the former

member (or, in the case of a loss

subgroup, the common parent and the

loss subgroup parent) by persons

authorized to sign their respective

income tax returns.

(3) Filing of the election. The election

statement must be filed by the common

parent of the group that is apportioning

the consolidated section 382 limitation

(or the subgroup section 382 limitation)

with its income tax return for the

taxable year in which the former

member (or new loss subgroup) ceases

to be a member. The common parent

must also deliver a copy of the

statement to the former member (or the

members of the new loss subgroup) on

or before the day the group files its

income tax return for the consolidated

return year that the former member (or

new loss subgroup) ceases to be a

member. A copy of the statement must

be attached to the first return of the

former member (or the first return in

which the members of a new loss

subgroup join) that is filed after the

close of the consolidated return year of

the group of which the former member

(or the members of a new loss subgroup)

ceases to be a member.

(4) Revocation of election. An election

statement made under paragraph (c) of

this section is revocable only with the

consent of the Commissioner.

§ 1.1502–96T Miscellaneous rules

(temporary).

(a) End of separate tracking of

losses—(1) Application. This paragraph

(a) applies to a member (or a loss

subgroup) with a net operating loss

carryover that arose (or is treated under

§ 1.1502–21T(c) as arising) in a SRLY (or

a net unrealized built-in gain or loss

determined at the time that the member

(or loss subgroup) becomes a member of

the consolidated group if there is—

(i) An ownership change of the

member (or loss subgroup in connection

with, or after, becoming a member of the

group; or

(ii) A period of 5 consecutive years

following the day that the member (or

loss subgroup) becomes a member of a

group during which the member (or loss

subgroup) has not had an ownership

change.

(2) Effect of end of separate tracking.

If this paragraph (a) applies with respect

to a member (or loss subgroup), then,

starting on the day after the earlier of

the change date (but not earlier than the

day the member (or loss subgroup)

becomes a member of the consolidated

group) or the last day of the 5

consecutive year period described in

paragraph (a)(1)(ii) of this section, the

member’s net operating loss carryover

that arose (or is treated under § 1.1502–

21T(c) as arising) in a SRLY, is treated

as described in § 1.1502–91T(c)(1)(i).

Also, the member’s separately computed

net unrealized built-in gain or loss is

included in the determination whether

the group has a net unrealized built-in

gain or loss. The preceding sentences

also apply for purposes of determining

whether there is an ownership change

with respect to such attributes following

such change date (or earlier day) or 5

consecutive year period. Thus, for

example, starting the day after the

change date or the end of the 5

consecutive year period—

(i) The consolidated group which

includes the new loss member or loss

subgroup is no longer required to

separately track owner shifts of the

stock of the new loss member or loss

subgroup parent to determine if an

ownership change occurs with respect

to the attributes of the new loss member

or members included in the loss

subgroup;

(ii) The group includes the member’s

attributes in determining whether it is a

loss group under § 1.1502–91T(c);

(iii) There is an ownership change

with respect to such attributes only if

the group is a loss group and has an

ownership change; and

(iv) If the group has an ownership

change, such attributes are pre-change

consolidated attributes subject to the

loss group’s consolidated section 382

limitation.

(3) Continuing effect of end of

separate tracking. As the context may

require, a current group determines

which of its members are included in a

loss subgroup on any testing date by

taking into account the application of

this section in the former group. See the

example in § 1.1502–91T(f)(2).

(4) Special rule for testing period. For

purposes of determining the beginning

of the testing period for a loss group, the

member’s (or loss subgroup’s) net

operating loss carryovers (or net

unrealized built-in gain or loss)

described in paragraph (a)(2) of this

section are considered to arise—

(i) in a case described in paragraph

(a)(1)(i) of this section, in a taxable year

that begins not earlier than the later of

the day following the change date or the

day that the member becomes a member

of the group; and (ii) in a case described

in paragraph (a)(1)(ii) of this section, in

a taxable year that begins 3 years before

the end of the 5 consecutive year period.

(5) Limits on effects of end of separate

tracking. The rule contained in this

paragraph (a) applies solely for purposes

of §§ 1.1502–91T through 1.1502–95T

and this section (other than paragraph

(b)(2)(ii)(B) of this section (relating to

the definition of pre-change attributes of

a subsidiary)) and § 1.1502–98T, and not

for purposes of other provisions of the

consolidated return regulations,
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including, for example, §§ 1.1502–15T

and 1.1502–21T (relating to the

consolidated net operating loss

deduction). See also paragraph (c) of

this section for the continuing effect of

an ownership change with respect to

pre-change attributes.

(b) Ownership change of subsidiary—

(1) Ownership change of a subsidiary

because of options or plan or

arrangement. Notwithstanding

§ 1.1502–92T, a subsidiary may have an

ownership change for purposes of

section 382 with respect to its attributes

which a group or loss subgroup includes

in making a determination under

§ 1.1502–91T(c)(1) (relating to the

definition of loss group) or § 1.1502–

91T(d) (relating to the definition of loss

subgroup). The subsidiary has such an

ownership change if it has an ownership

change under the principles of § 1.1502–

95T(b) and section 382 and the

regulations thereunder (determined on a

separate entity basis by treating the

subsidiary as not being a member of a

consolidated group) in the event of—

(i) The deemed exercise under

§ 1.382–4(d) of an option or options

(other than an option with respect to

stock of the common parent) held by a

person (or persons acting pursuant to a

plan or arrangement) to acquire more

than 20 percent of the stock of the

subsidiary; or

(ii) An increase by 1 or more 5-

percent shareholders, acting pursuant to

a plan or arrangement to avoid an

ownership change of a subsidiary, in

their percentage ownership interest in

the subsidiary by more than 50

percentage points during the testing

period of the subsidiary through the

acquisition (or deemed acquisition

pursuant to § 1.382–4(d)) of ownership

interests in the subsidiary and in highertier members with respect to the

subsidiary.

(2) Effect of the ownership change—

(i) In general. If a subsidiary has an

ownership change under paragraph

(b)(1) of this section, the amount of

consolidated taxable income for any

post-change year that may be offset by

the pre-change losses of the subsidiary

shall not exceed the section 382

limitation for the subsidiary. For

purposes of this limitation, the value of

the subsidiary is determined solely by

reference to the value of the subsidiary’s

stock.

(ii) Pre-change losses. The pre-change

losses of a subsidiary are—

(A) Its allocable part of any

consolidated net operating loss which is

attributable to it under § 1.1502–21T(b)

(determined on the last day of the

consolidated return year that includes

the change date) that is not carried back

and absorbed in a taxable year prior to

the year including the change date;

(B) Its net operating loss carryovers

that arose (or are treated under

§ 1.1502–21T(c) as having arisen) in a

SRLY; and

(C) Its recognized built-in loss with

respect to its separately computed net

unrealized built-in loss, if any,

determined on the change date.

(3) Coordination with §§ 1.1502–91T,

1.1502–92T, and 1.1502–94T. If an

increase in percentage ownership

interest causes an ownership change

with respect to an attribute under this

paragraph (b) and under § 1.1502–92T

on the same day, the ownership change

is considered to occur only under

§ 1.1502–92T and not under this

paragraph (b). See § 1.1502–94T for antiduplication rules relating to value.

(4) Example. The following example

illustrates paragraph (b)(1)(ii) of this

section.

Example. Plan to avoid an ownership

change of a subsidiary. (a) L owns all the

stock of L1, L1 owns all the stock of L2, L2

owns all the stock of L3, and L3 owns all the

stock of L4. The L group has a consolidated

net operating loss arising in Year 1 that is

carried over to Year 2. L has assets other than

its L1 stock with a value of $900. L1, L2, and

L3 own no assets other than their L2, L3, and

L4 stock. L4 has assets with a value of $100.

During Year 2, A, B, C, and D, acting

pursuant to a plan to avoid an ownership

change of L4, acquire the following

ownership interests in the members of the L

loss group: (A) on September 11, Year 2, A

acquires 20 percent of the L1 stock from L

and B acquires 20 percent of the L2 stock

from L1; and (B) on September 20, Year 2,

C acquires 20 percent of the stock of L3 from

L2 and D acquires 20 percent of the stock of

L4 from L3. The following is a graphic

illustration of these facts:

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BILLING CODE 4830–01–C

(b) The acquisitions by A, B, C, and D

pursuant to the plan have increased their

respective percentage ownership interests in

L4 by approximately 10, 13, 16, and 20

percentage points, for a total of

approximately 59 percentage points during

the testing period. This more than 50

percentage point increase in the percentage

ownership interest in L4 causes an

ownership change of L4 under paragraph

(b)(2) of this section.

(c) Continuing effect of an ownership

change. A loss corporation (or loss

subgroup) that is subject to a limitation

under section 382 with respect to its

pre-change losses continues to be

subject to the limitation regardless of

whether it becomes a member or ceases

to be a member of a consolidated group.

See § 1.382–5T(d) (relating to successive

ownership changes and absorption of a

section 382 limitation).

§ 1.1502–97T Special rules under section

382 for members under the jurisdiction of

a court in a title 11 or similar case

(temporary). [Reserved]

§ 1.1502–98T Coordination with section

383 (temporary).

The rules contained in §§ 1.1502–91T

through 1.1502–96T also apply for

purposes of section 383, with

appropriate adjustments to reflect that

section 383 applies to credits and net

capital losses. Similarly, in the case of

net capital losses, general business

credits, and excess foreign taxes that are

pre-change attributes, § 1.383–1 applies

the principles of §§ 1.1502–91T through

1.1502–96T. For example, if a loss group

has an ownership change under

§ 1.1502–92T and has a carryover of

unused general business credits from a

pre-change consolidated return year to a

post-change consolidated return year,

the amount of the group’s regular tax

liability for the post-change year that

can be offset by the carryover cannot

exceed the consolidated section 383

credit limitation for that post-change

year, determined by applying the

principles of §§ 1.383–1(c)(6) and

1.1502–93T (relating to the computation

of the consolidated section 382

limitation).

§ 1.1502–99T Effective dates (temporary).

(a) Effective date. Sections 1.1502–

91T through 1.1502–96T and 1.1502–

98T apply to any testing date on or after

January 1, 1997. Sections 1.1502–94T

through 1.1502–96T also apply on any

date on or after January 1, 1997, on

which a corporation becomes a member

of a group or on which a corporation

ceases to be a member of a loss group

(or a loss subgroup).
Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules and Regulations 33365

(b) Testing period may include a

period beginning before January 1, 1997.

A testing period for purposes of

§§ 1.1502–91T through 1.1502–96T and

1.1502–98T may include a period

beginning before January 1, 1997. Thus,

for example, in applying § 1.1502–

92T(b)(1)(i) (relating to the

determination of an ownership change

of a loss group), the determination of the

lowest percentage ownership interest of

any 5-percent shareholder of the

common parent during a testing period

ending on a testing date occurring on or

after January 1, 1997, takes into account

the period beginning before January 1,

1997, except to the extent that the

period is more than 3 years before the

testing date or is otherwise before the

beginning of the testing period. See

§ 1.1502–92T(b)(1).

(c) Transition rules—(1) Methods

permitted—(i) In general. For the period

ending before January 1, 1997, a

consolidated group is permitted to use

any method described in paragraph

(c)(2) of this section which is

consistently applied to determine if an

ownership change occurred with respect

to a consolidated net operating loss, a

net operating loss carryover (including

net operating loss carryovers arising in

SRLYs), or a net unrealized built-in loss.

If an ownership change occurred during

that period, the group is also permitted

to use any method described in

paragraph (c)(2) of this section which is

consistently applied to compute the

amount of the section 382 limitation

that applies to limit the use of taxable

income in any post-change year ending

before, on, or after January 1, 1997. The

preceding sentence does not preclude

the imposition of an additional, lesser

limitation due to a subsequent

ownership change nor, except as

provided in paragraph (c)(1)(iii) of this

section, does it permit the beginning of

a new testing period for the loss group.

(ii) Adjustments to offset excess

limitation. If an ownership change

occurred during the period ending

before January 1, 1997, and a method

described in paragraph (c)(2) of this

section was not used for a post-change

year, the members (or group) must

reduce the section 382 limitation for

post-change years for which an income

tax return is filed after January 1, 1997,

to offset, as quickly as possible, the

effects of any section 382 limitation that

members took into account in excess of

the amount that would have been

allowable under §§ 1.1502–91T through

1.1502–96T and 1.1502–98T.

(iii) Coordination with effective date.

Notwithstanding that a group may have

used a method described in paragraph

(c)(2)(ii) or (iii) of this section for the

period before January 1, 1997,

§§ 1.1502–91T through 1.1502–96T and

1.1502–98T apply to any testing date

occurring on or after January 1, 1997, for

purposes of determining whether there

is an ownership change with respect to

any losses and, if so, the collateral

consequences. Any ownership change of

a member other than the common

parent pursuant to a method described

in paragraph (c)(2)(ii) or (iii) of this

section does not cause a new testing

period of the loss group to begin for

purposes of applying § 1.1502–92T on

or after January 1, 1997.

(2) Permitted methods. The methods

described in this paragraph (c)(2) are:

(i) A method that does not materially

differ from the rules in §§ 1.1502–91T

through 1.1502–96T and 1.1502–98T

(other than those in § 1.1502–95T(c)

(relating to the apportionment of a

section 382 limitation) as they would

apply to a corporation that ceases to be

a member of the group before January 1,

1997). As the context requires, the

method must treat references to rules in

current regulations as references to rules

in regulations generally effective for

taxable years before January 1, 1997.

Thus, for example, the taxpayer must

treat a reference to § 1.382–4(d) (relating

to options) as a reference to § 1.382–

2T(h)(4) for any testing date to which

§ 1.382–2T(h)(4) applies. Similarly, a

reference to § 1.1502–21T(c) may be a

reference to § 1.1502–21A(c), as

appropriate. Furthermore, the method

must treat all corporations that were

affiliated on January 1, 1987, and

continuously thereafter as having met

the 5 consecutive year requirement of

§ 1.1502–91T(d)(2)(i) on any day before

January 1, 1992, on which the

determination of net unrealized built-in

gain or loss of a loss subgroup is made;

(ii) A reasonable application of the

rules in section 382 and the regulations

thereunder applied to each member on

a separate entity basis, treating each

member’s allocable part of a

consolidated net operating loss which is

attributable to it under § 1.1502–21T(b)

as a net operating loss of that member

and applying rules similar to § 1.382–8T

to avoid duplication of value in

computing the section 382 limitation for

the member (see § 1.382–8T(h) (relating

to the effective date and transition rules

regarding controlled groups)); or

(iii) A method approved by the

Commissioner upon application by the

common parent.

(d) Amended returns. A group may

file an amended return in connection

with an ownership change occurring

before January 1, 1997, to modify the

amount of a section 382 limitation with

respect to a consolidated net operating

loss, a net operating loss carryover

(including net operating loss carryovers

arising in SRLYs), or a recognized builtin loss (or gain) only if it files amended

returns:

(1) For the earliest taxable year ending

after December 31, 1986, in which it had

an ownership change, if any, under

§ 1.1502–92T;

(2) For all subsequent taxable years

for which returns have already been

filed as of the date of the amended

return;

(3) The modification with respect to

all members for all taxable years ending

in 1987 and thereafter complies with

§§ 1.1502–91T through 1.1502–96T and

1.1502–98T; and

(4) The amended return(s) permitted

by the applicable statute of limitations

is/are filed before March 26, 1997.

(e) Section 383. This section also

applies for the purposes of section 383,

with appropriate adjustments to reflect

that section 383 applies to credits and

net capital losses.

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 3. The authority citation for part

602 continues to read in part as follows:

Authority: 26 U.S.C. 7805.

Par. 4. 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.

* * * * *

1.1502–95T ............................... 1545–1218

* * * * *

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: May 31, 1996.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 96–15824 Filed 6–26–96; 8:45 am]

BILLING CODE 4830–01–U

26 CFR Parts 301 and 602

[TD 8680]

RIN 1545–AU41

Extensions of Time to Make Elections

AGENCY: Internal Revenue Service (IRS),

Treasury.