Bulletin No. 1996–30

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Text

July 22, 1996

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be relied

upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 96–36, page 6.

LIFO; price indexes; department stores. The May

1996 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail

inventory and last-in, first-out inventory methods for valuing

inventories for tax years ended on, or with reference to,

May 31, 1996.

T.D. 8676, page 4.

FI-59-94, page 23.

Temporary and proposed regulations under section 166 of

the Code relate to the allowance of a deduction for a

partially worthless debt when the terms of a debt instrument have been modified.

T.D. 8677, page 7.

CO-24-96, page 22.

Final, temporary, and proposed regulations under section

1502 of the Code relate to the limitations on the use of

certain losses and deductions on consolidated returns. A

public hearing on the proposed regulations will be held on

October 17, 1996.

Finding Lists begin on page 32.

Announcement of Disbarments and Suspensions begins on page 29.

IA–26–94, page 24.

Proposed regulations under section 1202 of the Code

relate to the 50-percent exclusion for gain from certain

small business stock. A public hearing will be held on

October 3, 1996.

EXEMPT ORGANIZATIONS

Announcement 96–67, page 26.

A list is given of organizations now classified as private

foundations.

Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining of ficers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

With this in mind, it is the duty of the Service to

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of view.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great cour tesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

law, to try to find the true meaning of the statutory

provision and not to adopt a strained construction in

the belief that he or she is ‘‘protecting the revenue.’’

The revenue is properly protected only when we ascertain and apply the true meaning of the statute.

Introduction

The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for

announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation,

court decisions, and other items of general interest. It is

published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin

contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold on a

single-copy basis.

court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are

cautioned against reaching the same conclusions in

other cases unless the facts and circumstances are

substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on

provisions of the Internal Revenue Code of 1986.

It is the policy of the Service to publish in the Bulletin all

substantive rulings necessary to promote a uniform

application of the tax laws, including all rulings that

supersede, revoke, modify, or amend any of those

previously published in the Bulletin. All published rulings

apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management

are not published; however, statements of internal

practices and procedures that affect the rights and

duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows:

Subpart A, Tax Conventions, and Subpart B, Legislation

and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and

Subparts. Also included in this part are Bank Secrecy

Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the

Treasury’s Office of the Assistant Secretary (Enforcement).

Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts

stated in the revenue ruling. In those based on positions

taken in rulings to taxpayers or technical advice to

Service field offices, identifying details and information

of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory

requirements.

Part IV.—Items of General Interest.

With the exception of the Notice of Proposed Rulemaking and the disbarment and suspension list included in

this part, none of these announcements are consolidated in the Cumulative Bulletins.

Rulings and procedures reported in the Bulletin do not

have the force and effect of Treasury Department

Regulations, but they may be used as precedents.

Unpublished rulings will not be relied on, used, or cited

as precedents by Service personnel in the disposition of

other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations,

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin

of the succeeding quarterly and semi-annual period,

respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 166.—Bad Debts

26 CFR 1.166–3T: Partial or total worthlessness

(temporary).

T.D. 8676

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Modifications of Bad Debts and

Dealer Assignments of Notional

Principal Contracts

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains

temporary regulations relating to the

allowance of a deduction for a partially

worthless debt when the terms of a debt

instrument have been modified. The

temporary regulations provide guidance

to certain taxpayers that modify the

terms of a debt instrument after deducting an amount for partial worthlessness.

This document also contains temporary

regulations relating to certain assignments of notional principal contracts by

dealers in those contracts. The temporary regulations provide guidance to

taxpayers relating to consequences of

these assignments. The text of these

temporary regulations also serves as the

text of the proposed regulations set forth

in FI–59–94 on page 23 in this issue of

the Bulletin.

DATES: These regulations are effective

September 23, 1996.

FOR FURTHER INFORMATION

CONTACT: Concerning the modifications of bad debts, Craig R. Wojay,

Office of Assistant Chief Counsel (Financial Institutions and Products), (202)

622–3920 (not a toll-free number), and

concerning dealer assignments of notional principal contracts, Thomas J.

Kelly, Office of the Assistant Chief

Counsel (Financial Institutions and

Products), (202) 622– 3940 (not a tollfree number).

SUPPLEMENTARY

INFORMATION:

57034 [FI–31–92, 1992–2 C.B. 683]) a

notice of proposed rulemaking that set

forth proposed income tax regulations

(26 CFR part 1) under section 1001 of

the Internal Revenue Code (Code). Under § 1.1001–3(a) of the proposed regulations, a significant modification of a

debt instrument is deemed to result in

an exchange of the original debt instrument for a modified instrument that

differs materially either in kind or in

extent. This rule is retained in the final

regulations under § 1.1001–3, published

in TD 8675, 1996–29 I.R.B. 50. Thus,

when a debt is significantly modified, a

taxpayer (holder) is required to recognize gain or loss based on the difference

between the issue price of the significantly modified debt and the taxpayer’s

adjusted issue price in the original instrument.

Prior to finalizing the § 1.1001–3

regulations, the IRS and Treasury received comments that gain recognized

as the result of a significant modification of a debt instrument often is attributable to the fact that the taxpayer

previously claimed a deduction for partial worthlessness with respect to the

debt. According to the commentators,

the modification does not alter the fact

that a portion of the debt remains uncollectible. Thus, the commentators suggested that, in this situation, a taxpayer

should be permitted to offset the gain

with a corresponding bad debt deduction.

The IRS and Treasury also received

comments that the assignment by a

dealer in notional principal contracts of

its position in a contract to another

dealer should not result in a deemed

exchange under section 1001. Although

the dealer will recognize gain or loss on

the disposition of its position, treating

the transaction as a deemed exchange

would force the counterparty to realize

the gain or loss on the contract even

though the counterparty is maintaining

its position. The commentators argued

that dealer-to-dealer assignments are a

common business practice and that these

assignments have relatively little significance to the dealers’ counterparties.

Explanation of Provisions

Background

On December 2, 1992, the IRS published in the Federal Register (57 FR

Section 166(a)(2) and § 1.166–3(a)

provide that a deduction for a partially

worthless debt is allowed only to the

extent the debt is charged off in the

taxable year. The charge-off requirement

is also contained in § 1.166–2(d)(1) and

(3), which provides for a conclusive

presumption of worthlessness under certain circumstances.

In general, the amount of a deduction

on account of partial worthlessness is

the amount by which the adjusted basis

of a debt (as determined under section

1011) exceeds the amount recoverable

on the debt. The amount of the deduction, however, may not exceed the

amount charged off during the taxable

year. The charge-off requirement is satisfied for a debt when a portion of the

debt is removed from a taxpayer’s

books and records. This generally is

accomplished by reducing the debt’s

book basis. Thus, when an amount has

been deducted for partial worthlessness,

there is generally a reduction of both the

book basis and tax basis of a debt.

When a taxpayer is required to recognize gain under section 1001 because of

a modification of a debt instrument, the

taxpayer’s tax basis in the debt is increased by the amount of gain recognized. Commentators on the proposed

§ 1.1001–3 regulations have indicated,

however, that regulatory and general

accounting principles generally would

not permit a corresponding increase in

the book basis of the debt. Because the

prior charge-off is not restored (that is,

the book basis of the debt is not increased), there is no opportunity for the

taxpayer to take a new charge-off for

pre-existing worthlessness. Thus, the

charge-off requirement of section

166(a)(2) can never be satisfied with

respect to the amount by which the

debt’s tax basis exceeds its book basis

as a result of the modification, and the

excess would not be allowed as a deduction until the debt becomes totally

worthless.

The temporary regulations contained

in this document set forth limited circumstances under which a taxpayer will

be permitted to deduct an amount on

account of a partially worthless debt

even though no amount has been

charged off within the taxable year. The

purpose of these temporary regulations

is to preserve the portion of a taxpayer’s

bad debt deduction with respect to a

partially worthless debt that corresponds

to the amount the taxpayer would have

been entitled to deduct for partial worthlessness with respect to the modified

debt if the book basis of the modified

debt were increased to the same extent

as the tax basis of that debt. Thus, these

temporary regulations apply only if all

of the following conditions are satisfied.

First, a significant modification of a

debt instrument (within the meaning of

§ 1.1001–3) must result in a taxpayer’s

recognition of gain under § 1.1001–

1(a). In addition, the debt must have

been previously charged off and deducted by the taxpayer, and the prior

charge-off and deduction must have satisfied the requirements of § 1.166–

3(a)(1) and (2). If these conditions are

satisfied, then a modified debt is

deemed to have been charged off in the

year in which gain is recognized. The

amount of the charge-off, however, is

limited to the difference between the tax

basis of the debt and the greater of the

book basis or the fair market value of

the debt.

Both the proposed and the final regulations under § 1.1001–3 deal only with

modifications of debt instruments. In

response to comments on the proposed

regulations, however, the temporary

regulations contained in this document

provide a limited rule dealing with a

dealer’s assignment of its position in an

interest rate or commodity swap, or

other notional principal contract to another dealer. If the assignment is permitted by the terms of the contract, the

assignment will not be treated as a

deemed exchange by the nonassigning

party of the original contract for a new

contract that differs materially either in

kind or in extent. Thus, an assignment

to which the rule applies does not

trigger gain or loss to the dealer’s

counterparty. No inference is intended

with respect to whether an assignment

of rights by one party to other types of

bilateral contracts results in an exchange

or other disposition under section 1001

by the nonassigning party.

Effective Dates

The temporary regulations apply to

significant modifications of debt instruments and assignments of interest rate

swaps, commodity swaps, and other notional principal contracts occurring on or

after September 23, 1996.

Special Analyses

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 also has been determined

that section 553(b) of the Administrative

Procedure Act (5 U.S.C. chapter 5) and

the Regulatory Flexibility Act (5 U.S.C.

chapter 6) do not apply to these regulations, and, therefore, a Regulatory Flexibility Analysis is not required. Pursuant

to section 7805(f) of the Internal Revenue Code, these temporary regulations

will be submitted to the Chief Counsel

for Advocacy of the Small Business

Administration for comment on their

impact on small business.

Drafting Information

The principal author of the regulations concerning the modification of bad

debts is Craig R. Wojay, Office of the

Assistant Chief Counsel (Financial Institutions and Products), IRS. The principal author of the regulations concerning

the dealer assignments of certain notional principal contracts is Thomas J.

Kelly, Office of the Assistant Chief

Counsel (Financial Institutions and

Products), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 continues to read in part as

follows:

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

Par. 2. Section 1.166–3T is added to

read as follows:

§ 1.166–3T Partial or total worthlessness (temporary).

(a)(1) and (2) [Reserved]. For guidance, see § 1.166– 3(a)(1) and (2).

(3) Significantly modified debt—(i)

Deemed charge-off. If a significant

modification of a debt instrument

(within the meaning of § 1.1001–3) during a taxable year results in the recognition of gain by a taxpayer under

§ 1.1001–1(a), and if the requirements

of paragraph (a)(3)(ii) of this section are

met, there is a deemed charge-off of the

debt during that taxable year in the

amount specified in paragraph (a)(3)(iii)

of this section.

(ii) Requirements for deemed chargeoff. A debt is deemed to have been

charged off only if—

(A) The taxpayer (or, in the case of a

debt that constitutes transferred basis

property within the meaning of section

7701(a)(43), a transferor taxpayer) has

claimed a deduction for partial worthlessness of the debt in any prior taxable

year; and

(B) Each prior charge-off and deduction for partial worthlessness satisfied

the requirements of paragraphs (a)(1)

and (2) of this section.

(iii) Amount of deemed charge-off.

The amount of the deemed charge-off, if

any, is the amount by which the tax

basis of the debt exceeds the greater of

the fair market value of the debt or the

amount of the debt recorded on the

taxpayer’s books and records reduced as

appropriate for a specific allowance for

loan losses. The amount of the deemed

charge-off, however, may not exceed the

amount of recognized gain described in

paragraph (a)(3)(i) of this section.

(iv) Effective date. This paragraph

(a)(3) is effective September 23, 1996.

(b) [Reserved]. For further guidance,

see § 1.166–3(b).

Par. 3. Section 1.1001–4T is added to

read as follows:

§ 1.1001–4T Modifications of certain

notional principal contracts.

(a) Dealer assignments. For purposes

of § 1.1001–1(a), the substitution of a

new party on an interest rate or commodity swap, or other notional principal

contract (as defined in § 1.446–3(c)(1))

is not treated as a deemed exchange by

the nonassigning party of the original

contract for a modified contract that

differs materially either in kind or in

extent if—

(1) The party assigning its rights and

obligations under the contract and the

party to which the rights and obligations

are assigned are both dealers in notional

principal contracts, as defined in

§ 1.446–3(c)(4)(iii); and

(2) The terms of the contract permit

the substitution.

(b) Effective date. This section is effective September 23, 1996.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved May 31, 1996.

Leslie Samuels,

Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on

June 24, 1996, 8:45 a.m., and published in the

issue of the Federal Register for June 25, 1996, 61

F.R. 32653)

Section 472.—Last-in, First-out

Inventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; department

stores. The May 1996 Bureau of Labor

Statistics price indexes are accepted for

use by department stores employing the

retail inventory and last-in, first-out inventory methods for valuing inventories

for tax years ended on, or with reference

to, May 31, 1996.

Rev. Rul. 96–36

The following Department Store Inventory Price Indexes for May 1996

were issued by the Bureau of Labor

Statistics on June 12, 1996. The indexes

are accepted by the Internal Revenue

Service, under § 1.472–1(k) of the Income Tax Regulations and Rev. Proc.

86–46, 1986–2 C.B. 739, for appropriate

application to inventories of department

stores employing the retail inventory

and last-in, first-out inventory methods

for tax years ended on, or with reference

to, May 31, 1996.

The Department Store Inventory Price

Indexes are prepared on a national basis

and include (a) 23 major groups of

departments, (b) three special combinations of the major groups - soft goods,

durable goods, and miscellaneous goods,

and (c) a store total, which covers all

departments, including some not listed

separately, except for the following:

candy, foods, liquor, tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE

INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Groups

May

1995

May

1996

Percent

Change from

May 1995 to

May 19961

1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9. Women’s Outerwear and Girls’ Wear. . . . . . . . . . . . . . . . . . . . . . . . .

10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14. Notions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20. Radio and Television. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21. Recreation and Education2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22. Home Improvements2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23. Auto Accessories2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

507.4

643.5

635.2

920.2

599.2

529.4

283.1

539.4

437.0

610.4

575.7

483.8

984.9

750.3

857.9

655.3

569.4

775.1

247.3

84.8

114.3

122.3

107.2

545.1

649.3

659.7

906.5

631.2

534.1

286.8

550.8

417.9

626.1

593.3

493.3

1020.1

773.8

883.8

668.0

576.1

803.9

245.1

79.2

112.8

127.2

107.4

7.4

0.9

3.9

21.5

5.3

0.9

1.3

2.1

24.4

2.6

3.1

2.0

3.6

3.1

3.0

1.9

1.2

3.7

20.9

26.6

21.3

4.0

0.2

Groups 1–15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

597.1

603.0

1.0

Groups 16–20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

465.4

467.6

0.5

114.2

113.7

20.4

552.4

556.3

0.7

Groups 21–23: Misc. Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Store Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Absence of a minus sign before percentage change in this column signifies price increase.

Indexes on a January 1986=100 base.

The store total index covers all departments, including some not listed separately, except for the following: candy, foods,

liquor, tobacco, and contract departments.

DRAFTING INFORMATION

The principal author of this revenue ruling is Stan Michaels of the Office of Assistant Chief Counsel (Income Tax and

Accounting). For further information regarding this revenue ruling, contact Mr. Michaels on (202) 622–4970 (not a toll-free

call).

Section 1502.—Regulations

26 CFR 1.1502–21T: Net operating losses (temporary).

T.D. 8677

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

Consolidated Returns—Limitations

on the Use of Certain Losses and

Deductions

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary amendments to the

consolidated return regulations relating

to deductions and losses of members.

The temporary amendments concern the

method for computing the limitations

with respect to separate return limitation

year (SRLY) losses. They also concern

the rules relating to carryover and carryback of losses to consolidated and

separate return years and to the built-in

deduction rules. Final amendments are

made amending definitions and redesignating sections displaced by temporary

regulations. The text of these temporary

regulations also serves as the text of the

proposed regulations set forth in CO–

24–96 on page 22 in this issue of the

Bulletin.

DATES: These amendments are effective Thursday, June 27, 1996. For dates

of application and special transition

rules, see Effective Dates under

SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION

CONTACT: David B. Friedel at (202)

622–7550 (not a toll-free number).

SUPPLEMENTARY

INFORMATION:

Paperwork Reduction Act

The collection of information contained in the temporary regulations has

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under the

control number 1545–1237. Section

1.1502–21T(b)(3) requires a response

from certain consolidated groups. The

IRS requires the information to assure

that an election to relinquish a carryback

period is properly documented.

Reponses to this collection of information are required to obtain a benefit

(relating to the carryover of losses

which would otherwise be carried back).

An agency may not conduct or sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information displays a valid control number.

For further information concerning

this collection of information, and where

to submit comments on the collection of

information and the accuracy of the

estimated burden, and suggestions for

reducing this burden, please refer to the

preamble to the cross-referencing notice

of proposed rulemaking published in

this issue of the Bulletin.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns

and tax return information are confidential, as required by 26 U.S.C. 6103.

Background and Explanation of Provisions

On February 4, 1991, the IRS and

Treasury published in the Federal Register a notice of proposed rulemaking

(CO–078–90, 56 FR 4228) setting forth

amendments to the rules regarding the

net operating losses, built-in deductions,

and capital losses of consolidated

groups, including rules regarding the

carryover and carryback of losses to

consolidated and separate return years.

Some of the amendments are clarifying,

and some change the existing rules. The

principal changes related to losses arising in (or carried to) SRLY years. The

preamble to the proposed amendments

explains the proposed changes in detail.

The IRS and Treasury also published

Notice 91–27 (1991–2 C.B. 629) to

advise of intended modifications to the

proposed amendments.

Generally, section 1503(a) requires

that a consolidated group determine its

tax in accordance with the regulations

under section 1502 prescribed before the

last day prescribed by law for the filing

of its tax return. Many of the proposed

amendments have proposed effective

dates of January 29, 1991, and other

transitional rules for their application.

Because of this effective date, consolidated groups have been uncertain

whether the existing rules or the proposed rules (if adopted) will determine

their use of losses for consolidated return years ending on or after January 29,

1991.

To address the uncertainty, the IRS

and Treasury are issuing this Treasury

decision to adopt temporary amendments to the rules regarding a consolidated group’s losses, including the carryover and carryback of SRLY losses.

The temporary amendments are substantially identical to the rules proposed on

January 29, 1991. A more detailed discussion of the effective dates of the

temporary amendments, including special transitional rules, is set forth below

under Effective Dates.

These temporary amendments primarily address the uncertainty created by

the proposed effective dates. They do

not address the comments on the proposed amendments. Many of these comments are still under consideration.

As companions to this Treasury decision, the IRS and Treasury also issue

two other sets of temporary regulations

under sections 382 and 383 concerning

the use of losses and deductions by

consolidated groups and by members of

controlled groups. See TD 8678 and TD

8679 published elsewhere in the Bulletin.

Effective Date

The temporary amendments are generally effective for consolidated return

years beginning on or after January 1,

1997. However, two important changes

are made to the effective date provisions

set forth in the proposed rules.

As proposed, the amendments generally applied to consolidated return years

ending on or after January 29, 1991,

without regard to the year in which the

losses arose and without regard to

whether the losses are subject to the

SRLY rules. An exception to the general

effective date rules was made for the

proposed SRLY rules and built-in deduction rules, which generally applied

only to losses and deductions of corporations that became members (and acquisitions occurring) on or after January

29, 1991, without regard to when they

arose. Thus, the proposed amendments

required the losses and deductions of

members acquired before January 29,

1991, to remain subject to the existing

SRLY limitations.

The temporary amendments revise

this treatment. Losses and deductions of

a member (including SRLY losses) carried to consolidated return years beginning on or after January 1, 1997, are

governed by the temporary amendments,

regardless of the year in which the loss

or deduction was recognized, and regardless of when the member with the

SRLY loss became a member of the

group.

The temporary amendments also contain rules relating to consolidated return

years ending on or after January 29,

1991, and beginning before January 1,

1997. Specifically, a consolidated group

may apply the temporary amendments to

those consolidated return years provided

that three principal conditions are met:

(1) all the temporary amendments must

be applied consistently on the group’s

final return (original or amended return)

for each such year for which the statute

of limitations does not preclude the

filing of an amended return on January

1, 1997; (2) the temporary amendments

relating to the treatment of built-in deductions and SRLY losses must be applied with respect to the losses and

deductions of those corporations that

became members of the group, and to

acquisitions occurring, on or after January 29, 1991, and only with respect to

such losses and deductions; and (3)

appropriate adjustments must be made

in the earliest subsequent open year to

reflect any inconsistency in a year for

which the statute of limitations precludes the filing of an amended return

on January 1, 1997. Until consolidated

return years beginning on or after January 1, 1997, the rules of the existing

regulations relating to the treatment of

built-in deductions and SRLY losses

continue to apply to corporations that

became members before, and to acquisitions occurring before, January 29,

1991. See § 1.1502–21T(g)(3).

Accordingly, 26 CFR parts 1 and 602

are amended as follows:

Paragraph 1. The authority citation

for Part 1 is amended in part by adding

citations in numerical order to read as

follows:

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

Section 1.1502–0 also issued under 26

U.S.C. 1502.* * *

Section 1.1502–1T also issued under

26 U.S.C. 1502.

Section 1.1502–2 also issued under 26

U.S.C. 1502.* * *

Section 1.1502–15T also issued under

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

Section 1.1502–21T also issued under

26 U.S.C. 1502.

Section 1.1502–22T also issued under

26 U.S.C. 1502.

Section 1.1502–23T also issued under

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

Section 1.1502–79T also issued under

26 U.S.C. 1502.

Section 1.1502–15A also issued under

26 U.S.C. 1502.

Section 1.1502–21A also issued under

26 U.S.C. 1502.

Section 1.1502–22A also issued under

26 U.S.C. 1502. Section 1.1502–23A

also issued under 26 U.S.C. 1502.

Section 1.1502–41A also issued under

26 U.S.C. 1502.

Section 1.1502–79A also issued under

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

Par. 2. In the list below, for each

section indicated in the left column,

remove the wording indicated in the

middle column, and add the wording

indicated in the right column.

Affected Section

Remove

Add

1.469–1(h)(2)

1.1502–21 (consolidated net operating

loss), and 1.1502–22 (consolidated net

capital gain or loss)

1.1502–21T (Net operating losses (temporary)), and 1.1502–22T (consolidated

net capital gain and loss (temporary))

1.597–2(c)(5), first sentence

§§ 1.1502–15, 1.1502–21, and

1.1502–22

§§ 1.1502–15T, 1.1502–21T, and

1.1502–22T (or §§ 1.1502–15A, 1.1502–

21A, and 1.1502–22A, as appropriate)

1.597–2(c)(5), second sentence

§§ 1.1502–15, 1.1502–21 or 1.1502–22

§§ 1.1502–15T, 1.1502–21T or 1.1502–

22T (or §§ 1.1502–15A, 1.1502–21A or

1.1502–22A, as appropriate)

1.597–4(g)(3), fifth sentence

§§ 1.1502–15, 1.1502–21 and

1.1502–22

§§ 1.1502–15T, 1.1502–21T and

1.1502–22T (or §§ 1.1502–15A, 1.1502–

21A and 1.1502–22A, as appropriate)

1.597–4(g)(3), sixth sentence

§§ 1.1502–15, 1.1502–21, or 1.1502–22 §§ 1.1502–15T, 1.1502–21T, or 1.1502–

22T (or §§ 1.1502–15A, 1.1502–21A, or

1.1502–22A, as appropriate)

1.904(f)–3(a)

(or §§ 1.1502–21(b) and 1.1502–79(a))

(or § 1.1502–21T(b)

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 these regulations is David B. Friedel of the Office

of Assistant Chief Counsel (Corporate),

IRS. Other personnel from the IRS and

Treasury participated in their development.

Adoption of Amendments to the Regulations

PART 1—INCOME TAXES

(or §§ 1.1502–21A(b) and 1.1502–

79A(a), as appropriate))

Affected Section

Remove

Add

1.904(f)–3(b)

(or §§ 1.1502–22 and 1.1502–79(b)

(or § 1.1502–22T(b) (or §§ 1.1502–22A

and 1.1502–79A(b), as appropriate))

1.1341–1(f)(2)(i)

§ 1.1502–2A

§ 1.1502–2A (as contained in the 26

C.F.R. edition revised as of April 1,

1996)

1.1502–9(a), seventh sentence

§ 1.1502–79

§ 1.1502–21T(b)(2) (or § 1.1502–79A,

as appropriate)

1.1502–9(a), eighth sentence

§ 1.1502–79

§ 1.1502–21T(b)(1) (or § 1.1502–79A,

as appropriate)

1.1502–9(f) Example 5(ii)

§ 1.1502–21(c)

§ 1.1502–21A(c)

1.1502–11(a)(2)

§ 1.1502–21

§§ 1.1502–21T (or 1.1502–21A, as

appropriate)

1.1502–11(a)(3)

§ 1.1502–22

§§ 1.1502–22T (or 1.1502–22A, as

appropriate)

1.1502–11(a)(4)

§ 1.1502–23

§§ 1.1502–23T (or 1.1502–23A, as

appropriate)

1.1502–11(b)(2)(iii) Example 1(c)

§ 1.1502–79

§ 1.1502–21T (or § 1.1502–79A, as

appropriate)

1.1502–11(b)(2)(iii) Example 2(d)

§ 1.1502–79

§§ 1.1502–21T and 1.1502–22T, respectively (or § 1.1502–79A, as appropriate),

1.1502–11(b)(2)(iii) Example 3(e)

§ 1.1502–79

§ 1.1502–21T (or § 1.1502–79A, as

appropriate)

1.1502–12(b)

§ 1.1502–15 shall be taken into account as provided in that section

§§ 1.1502–15A or 1.1502–15T shall be

taken into account as provided in those

sections

1.1502–13(c)(7)(ii) Example 10(d)

§ 1.1502–21(c)

§ 1.1502–21T(c)

1.1502–13(g)(5) Example 4(b)

§ 1.1502–15

§ 1.1502–15T (or § 1.1502–15A, as

appropriate)

1.1502–13(h)(2), Example 1(a)

§ 1.1502–21(c)

§ 1.1502–21T(c)

1.1502–13(h)(2) Example 1(b)

§ 1.1502–21(c)

§ 1.1502–21T(c)

1.1502–13(h)(2) Example 2(a)

§ 1.1502–15

§ 1.1502–15T

1.1502–13(h)(2) Example 2(b)

1.1502–22

1.1502–22T

1.1502–15(a)(1), first sentence

§ 1.1502–21(c)

§ 1.1502–21A(c)

1.1502–15(a)(1), first sentence

§ 1.1502–22(c)

§ 1.1502–22A(c)

1.1502–15(a)(1), second sentence

under §§ 1.1502–21, 1.1502–22, and

1.1502–79

under §§ 1.1502–21A, 1.1502–22A, and

1.1502–79A (or §§ 1.1502–21T and

1.1502–22T, as appropriate)

1.1502–15(a)(1), second sentence

in § 1.1502–21(c) or § 1.1502–22(c)

(as the case may be)

in §§ 1.1502–21T(c) or 1.1502–22T(c)

(or §§ 1.1502–21A(c) or 1.1502–22A(c),

as appropriate), as the case may be

1.1502–15(a)(3)

§ 1.1502–31A(b)(9)

§ 1.1502–31A(b)(9) (as contained in the

26 C.F.R. edition revised as of April 1,

1996)

1.1502–18(f)(1)(ii), (1)(iii), (2)(i), (2)(ii),

and (4) Example (i) and (ii)

§ 1.1502–39A

§ 1.1502–39A (as contained in the 26

C.F.R. edition revised as of April 1,

1996)

1.1502–18(f)(5)

§ 1.1502–31A(b)(1)

§ 1.1502–31A(b)(1) (as contained in the

26 C.F.R. edition revised as of April 1,

1996)

1.1502–20(a)(1)

1.1502–15(b)

1.1502–11(c)

1.1502–20(c)(4), Example 7(iii)

§ 1.1502–21

§§ 1.1502–21A or 1.1502–21T

Affected Section

Remove

Add

1.1502–20(g)(3), Example 1(i)

§ 1.1502–21

§§ 1.1502–21A or 1.1502–21T

1.1502–20(g)(3), Example 2(i)

§ 1.1502–21

§§ 1.1502–21A or 1.1502–21T

1.1502–21(b)(1)

paragraph (a) of § 1.1502–79

§§ 1.1502–79A(a)

1.1502–21(b)(1)

§ 1.1502–15

§ 1.1502–15A (or § 1.1502–11(c), as

appropriate)

1.1502–21(b)(2)(i)

paragraph (a)(4) of § 1.1502–79

this paragraph

1.1502–21(e)(1)(i)

paragraph (a)(3) of § 1.1502–79

this paragraph

1.1502–22(a)(1)(ii)

§ 1.1502–23

§§ 1.1502–23A or 1.1502–23T

1.1502–22(a)(3)

§ 1.1502–15

§§ 1.1502–15A and 1.1502–11(c)

1.1502–22(b)(1)

paragraph (b) of § 1.1502–79

§ 1.1502–79A(b) (or § 1.1502–22T(b),

as appropriate)

1.1502–23

§§ 1.1502–21(c) and 1.1502–22(c), as

provided in § 1.1502–15(a)

§§ 1.1502–21A(c) and 1.1502–22A(c),

as provided in § 1.1502–15A(a) (or

§§ 1.1502–21T(c) and 1.1502–22T(c), as

provided in § 1.1502-15T(a), as appropriate)

1.1502–26(a)(1)(ii) concluding text

paragraph (f) of § 1.1502–21

§§ 1.1502–21T(e) or 1.1502–21A(f), as

appropriate,

1.1502–32(b)(5) Example 2(b)

1.1502–79

1.1502–21T(b)

1.1502–41(a)

paragraph (a)(1) of § 1.1502–22

§ 1.1502–22A(a)

1.1502–41(a)

§ 1.1502–23

§ 1.1502–23A

1.1502–41(b)

paragraph (a)(1) of § 1.1502–22

§ 1.1502–22A(a)

1.1502–41(b)

paragraph (b) of § 1.1502–22

§ 1.1502–22A(b)

1.1502–42(f)(4)(i)(A)

§ 1.1502–79(a)(3)

§ 1.1502–21T(b) (or § 1.1502–

79A(a)(3), as appropriate)

1.1502–42(j) Example 4(b)

§ 1.1502–79(a)(3)

§ 1.1502–79A(a)(3)

1.1502–42(j) Example 4(c)

§ 1.1502–21(b)(3)

§ 1.1502–21A(b)(3)

1.1502–42(j) Example 4(c)

§ 1.1502–79(a)(3)

§ 1.1502–79A(a)(3)

1.1502–43(b)(2)(iv)

§ 1.1502–21(a)

§§ 1.1502–21T(a) or 1.1502–21A(a), as

appropriate

1.1502–43(b)(2)(v)

§ 1.1502–22(a)

§§ 1.1502–22T(a) or 1.1502–22A(a), as

appropriate

1.1502–43(b)(2)(vi)

§ 1.1502–41(a)

§§ 1.1502–22T(a) or 1.1502–41A, as

appropriate

1.1502–43(b)(2)(vi)

§ 1.1502–41(b)

§§ 1.1502–22T(a) or 1.1502–41A, as

appropriate

1.1502–43(b)(2)(vii)

§ 1.1502–22(b)

§§ 1.1502–22T(b) or 1.1502–22A(b), as

appropriate

1.1502–43(b)(2)(vi ii)

Section 1.1502–15 (built-in deductions)

does

Sections 1.1502–15A (Limitations on

built-in deductions not subject to

§ 1.1502–15T) and 1.1502–15T (SRLY

limitation on built-in losses (temporary))

1.1502–44(b)(2)

§ 1.1502–21

§§ 1.1502–21T or 1.1502–21A (as

appropriate)

1.1502–44(b)(3)

§ 1.1502–22

§§ 1.1502–22T or 1.1502–22A (as

appropriate)

1.1502–47(h)(2)(i)

§ 1.1502–21

§§ 1.1502–21T or 1.1502–21A (as

appropriate)

Affected Section

Remove

Add

1.1502–47(h)(2)(ii)

§ 1.1502–21(f)

§§ 1.1502–21(A)(f) or 1.1502–21T(e)

(as appropriate)

1.1502–47(h)(2)(iii)

§ 1.1502–21

§§ 1.1502–21A or 1.1502–21T (as

appropriate)

1.1502–47(h)(2)(iv)

§ 1.1502–21

§§ 1.1502–21A or 1.1502–21T (as

appropriate)

1.1502–47(h)(2)(vii) Example

§§ 1.1502–21 and 1.1502–79

§§ 1.1502–21A and 1.1502–79A

1.1502–47(h)(3)(iii)

§ 1.1502–21(c)

§§ 1.1502–21A(c) or 1.1502–21T(c) (as

appropriate)

1.1502–47(h)(3)(iv) and (v)

§ 1.1502–21(d)

§ 1.1502–21A(d)

1.1502–47(h)(4)(i), first sentence

§ 1.1502–22

§§ 1.1502–22T or 1.1502–22A (as

appropriate)

1.1502–47(h)(4)(i), second sentence

§ 1.1502–22(a)

§§ 1.1502–22T or 1.1502–22A(a) (as

appropriate)

1.1502–47(h)(4)(ii), first sentence

§ 1.1502–22

§§ 1.1502–22A or 1.1502–22T

1.1502–47(h)(4)(ii), first sentence

§ 1.1502–21

§§ 1.1502–21T or 1.1502–21A (as

appropriate)

1.1502–47(h)(4)(ii), second sentence

‘‘§ 1.1502–22(d)’’

‘‘§ 1.1502–22A(d)’’

1.1502–47(h)(4)(ii), second sentence

‘‘§ 1.1502–21(d)’’

‘‘§ 1.1502–21A(d)’’

1.1502–47(h)(4)(iii)

§ 1.1502–22(b)(1)

§§ 1.1502–22A(b)(1) or 1.1502–22T(b)

1.1502–47(k)(5)

§ 1.1502–22

§§ 1.1502–22T or 1.1502–22A (as

appropriate)

1.1502–47(l)(3)(i)

§ 1.1502–21

§§ 1.1502–21T or 1.1502–21A (as

appropriate)

1.1502–47(m)(2)(ii)

§ 1.1502–21

§§ 1.1502–21T or 1.1502–21A (as

appropriate)

1.1502–47(m)(2)(ii)

§ 1.1502–22

§§ 1.1502–22T or 1.1502–22A (as

appropriate)

1.1502–47(m)(3)(i)

§§ 1.1502–21 and 1.1502–22

§§ 1.1502–21T and 1.1502–22T (or

§§ 1.1502–21A and 1.1502–22A, as

appropriate)

1.1502–47(m)(3)(vi)(A), both instances

§ 1.1502–79(a)(3)

§§ 1.1502–21T(b) or 1.1502–79A(a)(3)

(as appropriate)

1.1502–47(m)(3)(vii)

§ 1.1502–21(b)(3)(ii)

§ 1.1502–21A(b)(3)(ii)

1.1502–47(m)(3)(ix )

§ 1.1502–15 (including the exceptions

in paragraph (a)(4) thereof)

§§ 1.1502–15T and 1.1502–15A (including applicable exceptions thereto)

1.1502–47(m)(5) Example 4

§ 1.1502–15

§ 1.1502–15A

1.1502–47(o)(2)(i)

§ 1.1502–41

§§ 1.1502–41A or 1.1502–22T (as

appropriate)

1.1502–47(o)(2)(ii)

§ 1.1502–41

§§ 1.1502–41A or 1.1502–22T (as

appropriate)

1.1502–47(q)

§ 1.1502–21(b)(3) and § 1.1502–

79(a)(3)

§§ 1.1502–21A(b)(3) and 1.1502–

79A(a)(3) (or § 1.1502–21T, as appropriate)

1.1502–78(a)

§ 1.1502–79 (a), (b), or (c)

§§ 1.1502–21T(b), 1.1502–22T(b), or

1.1502–79(c) (or §§ 1.1502–79A(a),

1.1502–79A(b), or 1.1502–79(c), as

appropriate)

1.1502–79(a)(1)(i)

§ 1.1502–21

§ 1.1502–21A

1.1502–79(b)(1)

1.1502–22

1.1502–22A

Affected Section

Remove

Add

1.1502–79(c)(1)

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

§ 1.1502–21T(b) (or §§ 1.1502–

79A(a)(1) and (2), as appropriate)

1.1502–79(d)(1)

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

§ 1.1502–21T(b) (or §§ 1.1502–

79A(a)(1) and (2), as appropriate)

1.1502–79(e)(1)

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

§ 1.1502–21T(b) (or §§ 1.1502–

79A(a)(1) and (2), as appropriate)

1.1502–80(c)

§ 1.1502–15(b)

§ 1.1502–11(c)

1.1502–100(c)(2)

§ 1.1502–21

§§ 1.1502–21A or 1.1502–21T (as

appropriate)

1.1503–2(d)(2)(i)

§ 1.1502–21(c)

§§ 1.1502–21A(c) or 1.1502–21T(c), as

appropriate

1.1503–2(d)(2)(ii)

§ 1.1502–21(c)

§§ 1.1502–21A(c) or 1.1502–21T(c), as

appropriate

1.1503–2(d)(4) Example 1(iv)

1.1502–22

1.1502–22T(c)

1.1503–2(d)(4) Example 2(iv)

§ 1.1502–21(c)

§ 1.1502–21A(c)

1.1503–2(g)(2)(vii)(B)(1)

§ 1.1502–21(c)

§§ 1.1502–21A(c) or 1.1502–21T(c) (as

appropriate)

1.1503–2(g)(2)(vii)(B)(2)

§ 1.1502–21(c)

§§ 1.1502–21A(c) or 1.1502–21T(c) (as

appropriate)

1.1503–2(g)(2)(vii)(E)

§ 1.1502–21(c)

§§ 1.1502–21A(c) or 1.1502–21T(c) (as

appropriate)

1.1503–2(g)(2)(vii)(G) Example 1

§ 1.1502–21(c)

§§ 1.1502–21A(c) or 1.1502–21T(c), as

appropriate

1.1503–2(g)(2)(vii)(G) Example 2

§ 1.1502–21(c)

§§ 1.1502–21A(c) or 1.1502–21T(c), as

appropriate

1.1503–2(h)(3)

§ 1.1502–21(c)

§§ 1.1502–21A(c) or 1.1502–21T(c) (as

appropriate)

1.1503–2A(f)(1)(i) intro text

§ 1.1502–79(a)(3)

§ 1.1502–21T(b)

1.1503–2A(f)(1)(i)(C)

§ 1.1502–79

§ 1.1502–22T(b)

1.1503–2A(f)(2)(i)

§ 1.1502–21(c)(2)

§§ 1.1502–21A(c)(2) or 1.1502–21T(c)

(as appropriate)

1.1503–2A(f)(2)(ii)

§ 1.1502–21(c)(2)

§§ 1.1502–21A(c)(2) or 1.1502–21T(c)

(as appropriate)

1.1503–2A(f)(4) Example 2(iv), first sen- § 1.1502–21(c)(2)

tence

§ 1.1502–21A(c)(2)

1.1503–2A(f)(4) Example 2(iv), second

sentence

§ 1.1502–21(c)

§ 1.1502–21A(c)

1.1552–1(a)(3)(i)

§ 1.1502–30A

§ 1.1502–30A (as contained in the 26

C.F.R. edition revised as of April 1,

1996)

1.1552–1(b)(1)

§ 1.1502–30A

§ 1.1502–30A (as contained in the 26

C.F.R. edition revised as of April 1,

1996)

301.6402–7(g)(2)(iii)

§ 1.1502–21(b)

§§ 1.1502–21T(b) or 1.1502–21A(b) (as

appropriate)

301.6402–7(g)(3) Example 2, second

sentence

§ 1.1502–21

§ 1.1502–21T

301.6402–7(g)(3) Example 2, third sentence

§ 1.1502–21(c)

§ 1.1502–21T(c)

301.6402–7(h)(1)(ii) Example(B)

1.1502–21(b)

1.1502–21T(b)

301.6402–7(h)(1)(i i) Example(B)

1.1502–22(b)

1.1502–22T(b)

(i) To which section 381(a) applies;

§ 1.1501–1 [Removed]

Par. 3. Section 1.1501–1 is removed.

Par. 4. The undesignated centerheading immediately following § 1.1504–4

is revised from ‘‘REGULATIONS APPLICABLE TO TAXABLE YEARS

PRIOR TO JANUARY 1, 1966’’ to

‘‘REGULATIONS APPLICABLE TO

TAXABLE YEARS BEFORE JANUARY 1, 1997’’.

§§ 1.1502–0A through 1.1502–3A,

1.1502–10A through 1.1502–19A and

1.1502–30A through 1.1502–51A [Removed]

Par. 5. Sections 1.1502–0A through

1.1502–3A,

1.1502–10A through

1.1502–19A, and 1.1502–30A through

1.1502–51A are removed.

Par. 6. Section 1.1502–0 is revised to

read as follows:

(a) The regulations under section

1502 are applicable to taxable years

beginning after December 31, 1965, except as otherwise provided therein.

(b) The provisions of §§ 1.1502–0A

through

1.1502–3A,

1.1502–10A

through 1.1502–19A, and 1.1502–30A

through 1.1502–51A (as contained in the

26 CFR part 1 edition revised April 1,

1996) are applicable to taxable years

beginning before January 1, 1966.

Par. 7. Section 1.1502–1 is amended

by revising paragraphs (b), (f)(1), and

(f)(2) introductory text, and adding paragraphs (f)(4) and (j), and reserving paragraph (i) to read as follows:

§ 1.1502–1 Definitions

(b) Member. The term member means

a corporation (including the common

parent) that is included in the group, or

as the context may require, a corporation that is included in a subgroup.

(f) Separate return limitation year—

(1) In general. Except as provided in

paragraphs (f)(2) and (3) of this section,

the term separate return limitation year

(or SRLY) means any separate return

year of a member or of a predecessor of

a member.

(2) Exceptions. The term separate return limitation year (or SRLY) does not

include:

(ii) That occurs on or after January 1,

1997, in which the successor’s basis for

the assets is determined, directly or

indirectly, in whole or in part, by reference to the basis of the assets of the

transferor or distributor, but only if the

amount by which basis differs from

value, in the aggregate, is material. In

the case of such a transaction, only one

member may be considered a predecessor to or a successor of one other

member.

(i) [Reserved]

(j) Affiliated. Corporations are affiliated if they are members of a group

with each other.

Par. 8. In § 1.1502–2, paragraph (h)

is revised to read as follows:

§ 1.1502–2 Computation of tax liability.

§ 1.1502–0 Effective dates.

(4) Predecessors and successors. The

term predecessor means a transferor or

distributor of assets to a member (the

successor) in a transaction—

(h) The tax imposed by section 1201,

instead of the taxes computed under

paragraphs (a) and (g) of this section,

computed by reference to the net capital

gain of the group (see § 1.1502–22T)

(or, for consolidated return years to

which § 1.1502–22T does not apply,

computed by reference to the excess of

the consolidated net long-term capital

gain over the consolidated net shortterm capital loss (see § 1.1502–41A for

the determination of the consolidated net

long-term capital gain and the consolidated net short-term capital loss));

Par. 9. In § 1.1502–15, paragraph (b)

is redesignated as paragraph (c) of

§ 1.1502–11, and the heading of newly

designated § 1.1502–11, paragraph (c)

is revised to read as follows:

§ 1.1502–11 Consolidated taxable income.

to pre-1966 distributions. * * *

Par. 10. Section 1.1502–15 is redesignated as § 1.1502–15A; the section

heading of the newly designated

§ 1.1502–15A is revised; and paragraph

(b) is added to read as follows:

§ 1.1502–15A Limitations on the allowance of built-in deductions for consolidated return years beginning before

January 1, 1997.

(b) Effective date. This section applies to any consolidated return years to

which § 1.1502–21T does not apply.

See § 1.1502–21T(g) for effective dates

of that section.

Par. 11. Section 1.1502–15T is added

to read as follows:

§ 1.1502–15T SRLY limitation

built-in losses (temporary).

(a) SRLY limitation. Built-in losses

are subject to the SRLY limitation under

§§ 1.1502–21T(c) and 1.1502–22T(c)

(including applicable subgroup principles). Built-in losses are treated as

deductions or losses in the year recognized, except for the purpose of determining the amount of, and the extent to

which the built-in loss is limited by, the

SRLY limitation for the year in which it

is recognized. Solely for such purpose, a

built-in loss is treated as a hypothetical

net operating loss carryover or net capital loss carryover arising in a SRLY,

instead of as a deduction or loss in the

year recognized. To the extent that a

built-in loss is allowed as a deduction

under this section in the year it is

recognized, it offsets any consolidated

taxable income for the year before any

loss carryovers or carrybacks are allowed as a deduction. To the extent not

so allowed, it is treated as a separate net

operating loss or net capital loss carryover or carryback arising in the year

of recognition and, under § 1.1502–

21T(c) or § 1.1502–22T(c), the year of

recognition is treated as a SRLY.

(b) Built-in losses—(1) Defined. If a

corporation has a net unrealized built-in

loss under section 382(h)(3) (as modified by this section) on the day it

becomes a member of the group

(whether or not the group is a consolidated group), its deductions and losses

are built-in losses under this section to

the extent they are treated as recognized

built-in

losses

under

section

382(h)(2)(B) (as modified by this section). This paragraph (b) generally applies separately with respect to each

member, but see paragraph (c) of this

section for circumstances in which it is

applied on a subgroup basis.

(2) Operating rules. Solely for purposes of applying paragraph (b)(1) of

this section, the principles of § 1.1502–

94T(c) apply with appropriate adjustments, including the following:

(i) Ownership change. A corporation

is treated as having an ownership

change under section 382(g) on the day

the corporation becomes a member of a

group, and no other events (e.g., a

subsequent ownership change under section 382(g) while it is a member) are

treated as causing an ownership change.

In the case of an asset acquisition by a

group, the assets and liabilities acquired

directly from the same transferor pursuant to the same plan are treated as the

assets and liabilities of a corporation

that becomes a member of the group

(and has an ownership change) on the

date of the acquisition.

(ii) Recognized built-in gain or loss.

A loss that is included in the determination of net unrealized built-in gain or

loss and that is recognized but disallowed or deferred (e.g., under

§ 1.1502–20 or section 267) is not

treated as a built-in loss unless and until

the loss would be allowed during the

recognition period without regard to the

application of this section. Section

382(h)(1)(B)(ii) does not apply to the

extent it limits the amount of recognized

built-in loss that may be treated as a

pre-change loss to the amount of the net

unrealized built-in loss.

In general. In the case of a subgroup,

the principles of paragraph (b) of this

section apply to the subgroup, and not

separately to its members. Thus, the net

unrealized built-in loss and recognized

built-in loss for purposes of paragraph

(b) of this section are based on the

aggregate amounts for each member of

the subgroup.

(2) Members of subgroups. A subgroup is composed of those members

that have been continuously affiliated

with each other for the 60 consecutive

month period ending immediately before

they become members of the group in

which the loss is recognized. A member

remains a member of the subgroup until

it ceases to be affiliated with the loss

member. For this purpose, the principles

of § 1.1502–21T(c)(2)(iv) through (vi)

apply with appropriate adjustments.

(3) Built-in amounts. Solely for purposes of determining whether the subgroup has a net unrealized built-in loss

or whether it has a recognized built-in

loss, the principles of §§ 1.1502–91T(g)

and (h) apply with appropriate adjustments.

(d) Examples. For purposes of the

examples in this section, unless otherwise stated, all groups file consolidated

returns, all corporations have calendar

taxable years, the facts set forth the only

corporate activity, value means fair market value and the adjusted basis of each

asset equals its value, all transactions

are with unrelated persons, and the

application of any limitation or threshold under section 382 is disregarded.

The principles of this section are illustrated by the following examples:

Example 1. Determination of recognized built-in

loss. (a) P buys all the stock of T during Year 1

for $100, and T becomes a member of the P

group. T has three depreciable assets. Asset 1 has

an unrealized loss of $20 (basis $45, value $25),

asset 2 has an unrealized loss of $25 (basis $50,

value $25), and asset 3 has an unrealized gain of

$25 (basis $25, value $50).

(b) Under paragraph (b)(2)(i) of this section, T

is treated as having an ownership change under

section 382(g) on becoming a member of the P

group. This treatment does not depend on whether

P’s acquisition of the T stock actually constitutes

an ownership change under section 382(g), or

whether T is subject to any limitation under

section 382. Under paragraph (b)(1) of this section, none of T’s $45 of unrealized loss is treated

as a built-in loss unless T has a net unrealized

built-in loss under section 382(h)(3) on becoming

a member of the P group.

unrealized built-in loss on becoming a member of

the P group (($20) + ($25) + $25 = ($20)).

Assume that this amount exceeds the threshold

requirement in section 382(h)(3)(B). Under section

382(h)(2)(B), the entire amount of T’s $45 unrealized loss is treated as a built-in loss to the extent

it is recognized during the 5-year recognition

period described in section 382(h)(7). Under paragraph (b)(2)(ii) of this section, the restriction

under section 382(h)(1)(B)(ii), which limits the

amount of recognized built-in loss that is treated

as pre-change loss to the amount of the net

unrealized built-in loss, is inapplicable for this

purpose. Consequently, the entire $45 of unrealized loss (not just the $20 net unrealized loss) is

treated under paragraph (b)(1) of this section as a

built-in loss to the extent it is recognized within 5

years of T’s becoming a member of the P group.

Under paragraph (a) of this section, a built-in loss

is subject to the SRLY limitation under § 1.1502–

21T(c)(1).

(d) Under paragraph (b)(2)(i) of this section,

the results would be the same if T transferred all

of its assets and liabilities to a subsidiary of the P

group in a single transaction described in section

351.

Example 2. Actual application of section 382

not relevant. (a) The facts are the same as in

Example 1, except that P buys 55 percent of the

stock of T during Year 1, resulting in an ownership change of T under section 382(g). During

Year 2, P buys the 45 percent balance of the T

stock, and T becomes a member of the P group.

(b) Although T has an ownership change for

purposes of section 382 in Year 1 and not Year 2,

T’s joining the P group in Year 2 is treated as an

ownership change under section 382(g) for purposes of this section. Consequently, for purposes

of this section, whether T has a net unrealized

built-in loss under section 382(h)(3) is determined

as if the day T joined the P group were a change

date. Thus, the results are the same as in Example 1.

Example 3. Determination of a recognized

built-in loss of a subgroup. (a) During Year 1, P

buys all of the stock of S for $100, and S

becomes a member of the P group. M is the

common parent of another group. At the beginning

of Year 7, M acquires all of the stock of P, and P

and S become members of the M group. At the

time of M’s acquisition of the P stock, P has

(disregarding the stock of S) a $10 net unrealized

built-in gain (two depreciable assets, asset 1 with

a basis of $35 and a value of $55, and asset 2

with a basis of $55 and a value of $45), and S has

a $75 net unrealized built-in loss (two depreciable

assets, asset 3 with a basis of $95 and a value of

$10, and asset 4 with a basis of $10 and a value

of $20).

(b) Under paragraph (c) of this section, P and S

compose a subgroup on becoming members of the

M group because P and S were continuously

affiliated for the 60 month period ending immediately before they became members of the M

group. Consequently, paragraph (b) of this section

does not apply to P and S separately. Instead, their

separately computed unrealized gains and losses

are aggregated for purposes of determining

whether and the extent to which any unrealized

loss is treated as built-in loss under this section

and is subject to the SRLY limitation under

§ 1.1502–21T(c).

subgroup has a net unrealized built-in loss on the

day P and S become members of the M group

determined by treating the day they become

members as a change date. The net unrealized

built-in loss is the aggregate of P’s net unrealized

built-in gain of $10 and S’s net unrealized built-in

loss of $75, or an aggregate net unrealized built-in

loss of $65. (The stock of S owned by P is

disregarded for purposes of determining the net

unrealized built- in loss. However, any loss allowed on the sale of the stock within the recognition period is taken into account in determining

recognized built-in loss.) Assume that the $65 net

unrealized built-in loss exceeds the threshold requirement under section 382(h)(3)(B).

(d) Under paragraphs (b)(1), (b)(2)(ii), and (c)

of this section, a loss recognized during the 5-year

recognition period on an asset of P or S held on

the day that P and S became members of the M

group is a built-in loss except to the extent the

group establishes that such loss exceeds the

amount by which the adjusted basis of such asset

on the day the member became a member exceeded the fair market value of such asset on that

same day. If P sells asset 2 for $45 in Year 7 and

recognizes a $10 loss, the entire $10 loss is treated

as a built-in loss under paragraphs (b)(2)(ii) and

Year 7 and recognizes an $85 loss, the entire $85

loss is treated as a built-in loss under paragraphs

(b)(2)(ii) and (c) of this section (not just the $55

balance of the P subgroup’s $65 net unrealized

built-in loss).

(e) The determination of whether P and S

constitute a SRLY subgroup for purposes of loss

carryovers and carrybacks, and the extent to which

built-in losses are not allowed under the SRLY

limitation, is made under § 1.1502–21T(c).

Example 4. Computation of SRLY limitation. (a)

During Year 1, individual A forms T by contributing $300 and T sustains a $100 net operating loss.

During Year 2, T’s assets decline in value to $100.

At the beginning of Year 3, P buys all the stock of

T for $100, and T becomes a member of the P

group with a net unrealized built-in loss of $100.

Assume that $100 exceeds the threshold requirements of section 382(h)(3)(B). During Year 3, T

recognizes its unrealized built-in loss as a $100

ordinary loss. The members of the P group

contribute the following net income to the consolidated taxable income of the P group (disregarding

T’s recognized built-in loss and any consolidated

net operating loss deduction under § 1.1502–21T)

for Years 3 and 4:

P group

(without T)

Year 3

Year 4

Total

$100

$200

100

CTI

$160

$140

$300.

(b) Under paragraph (b) of this section, T’s

$100 ordinary loss in Year 3 (not taken into

account in the consolidated taxable income computations above) is a built-in loss. Under paragraph (a) of this section, the built-in loss is treated

as a net operating loss carryover for purposes of

determining the SRLY limitation under § 1.1502–

21T(c).

$100 built-in loss and $100 net operating loss

carryover from Year 1 to the aggregate of the P

group’s consolidated taxable income through Year

3 determined by reference to only T’s items. For

this purpose, consolidated taxable income is determined without regard to any consolidated net

operating loss deductions under § 1.1502–21T(a).

(d) The P group’s consolidated taxable income

through Year 3 is $60 when determined by

reference to only T’s items. Under § 1.1502–

21T(c), the SRLY limitation for Year 3 is therefore

$60.

(e) Under paragraph (a) of this section, the

$100 built- in loss is treated as a current deduction

for all purposes other than determination of the

SRLY limitation under § 1.1502–21T(c). Consequently, a deduction for the built-in loss is allowed

in Year 3 before T’s loss carryover from Year 1 is

allowed, but only to the extent of the $60 SRLY

limitation. None of T’s Year 1 loss carryover is

allowed because the built-in loss ($100) exceeds

the SRLY limitation for Year 3.

(f) The $40 balance of the built-in loss that is

not allowed in Year 3 because of the SRLY

limitation is treated as a $40 net operating loss

arising in Year 3 that is carried to other years in

accordance with the rules of § 1.1502–21T(b).

The $40 net operating loss is treated under

paragraph (a) of this section and § 1.1502–

21T(c)(1)(ii) as a loss carryover or carryback from

Year 3 that arises in a SRLY, and is subject to the

rules of § 1.1502–21T (including § 1.1502–

21T(c)) rather than this section.

(g) The facts are the same as in paragraphs (a)

through (f) of this Example 4, except that T also

recognizes additional built-in losses in Year 4. For

purposes of determining the SRLY limitation for

these additional losses in Year 4 (or any subsequent year), the $60 of built-in loss allowed as a

deduction in Year 3 is treated under paragraph (a)

of this section as a deduction in Year 3 that

reduces the P group’s consolidated taxable income

when determined by reference to only T’s items.

Example 5. Built-in loss exceeding consolidated

taxable income in the year recognized. (a) P buys

all the stock of T during Year 1, and T becomes a

member of the P group. At the time of acquisition,

T has a depreciable asset with an unrealized loss

of $45 (basis $100, value $55), which exceeds the

threshold requirements of section 382(h)(3)(B).

During Year 2, T sells its asset for $55 and

recognizes the unrealized built-in loss. The P

group has $10 of consolidated taxable income in

Year 2, computed by disregarding T’s recognition

of the $45 built-in loss and the consolidated net

operating loss deduction, while the consolidated

taxable income would be $25 if determined by

reference to only T’s items (other than the $45

loss).

(b) T’s $45 loss is recognized in Year 2 and,

under paragraph (b) of this section, constitutes a

built-in loss. Under paragraph (a) of this section

and § 1.1502–21T(c)(1)(ii), the loss is treated as a

net operating loss carryover to Year 2 for purposes

of applying the SRLY limitation under § 1.1502–

21T(c).

aggregate of the P group’s consolidated taxable

income through Year 2 determined by reference to

only T’s items. For this purpose, consolidated

taxable income is determined by disregarding any

built-in loss that is treated as a net operating loss

carryover, and any consolidated net operating loss

deductions under § 1.1502–21T(a). Consolidated

taxable income so determined is $25.

(d) Under § 1.1502–21T(c), $25 of the $45

built-in loss could be deducted in Year 2. Because

the P group has only $10 of consolidated taxable

income (determined without regard to the $45),

the $25 loss creates a consolidated net operating

loss of $15. This loss is carried back or over under

the rules of § 1.1502-21T(b) and absorbed under

the rules of § 1.1502–21T(a). This loss is not

treated as arising in a SRLY (see § 1.1502–

21T(c)(1)(ii)) and therefore is not subject to the

SRLY limitation under § 1.1502–21T(c) in any

consolidated return year of the group to which it is

carried. The remaining $20 is treated as a loss

carryover arising in a SRLY and is subject to the

limitation of § 1.1502–21T(c) in the year to which

it is carried.

(e) Predecessors and successors. For

purposes of this section, any reference

to a corporation or member includes, as

the context may require, a reference to a

successor or predecessor, as defined in

§ 1.1502–1(f)(4).

(f) Effective date—(1) In general.

This section applies to built-in losses

recognized in consolidated return years

beginning on or after January 1, 1997.

(2) Application to prior periods. See

§ 1.1502–21T(g)(3) for rules generally

permitting a group to apply the rules of

this section to consolidated return years

ending on or after January 29, 1991, and

beginning before January 1, 1997. A

group must treat all corporations that

were affiliated on January 1, 1987, and

continuously thereafter as having met

the 60 consecutive month requirement

of paragraph (c)(2) of this section on

any day before January 1, 1992, on

which the determination of net unrealized built-in gain or loss of a subgroup

is made.

Par. 12. Section 1.1502–21 is redesignated as § 1.1502–21A; the heading of

the newly designated § 1.1502–21A is

revised; and paragraphs (d)(4), (e)(3)

and (h) are added to read as follows:

§ 1.1502–21A Consolidated net operating loss deduction generally applicable

for consolidated return years beginning

before January 1, 1997.

(d) * * *

(4) Cross-reference. See § 1.1502–

21T(d)(1) for the rule that applies the

principles of this paragraph (d) in con-

solidated return years beginning on or

after January 1, 1997, with respect to a

consolidated return change of ownership

occurring before January 1, 1997.

(e) * * *

(3) Effective date. This paragraph (e)

disallows or reduces the net operating

loss carryovers of a member as a result

of a transaction to which old section

382 (as defined in § 1.382–2T(f)(21))

applies. See § 1.1502–21T(d)(2) for the

rule that applies the principles of this

paragraph (e) in consolidated return

years beginning on or after January 1,

1997, with respect to such a transaction.

(h) Effective date. Except as provided

in § 1.1502–21T(d)(1), (d)(2), and

(g)(3), this section applies to consolidated return years beginning before

January 1, 1997.

Par. 13. Section 1.1502–21T is added

to read as follows:

§ 1.1502–21T Net operating losses

(temporary).

(a) Consolidated net operating loss

deduction. The consolidated net operating loss deduction (or CNOL deduction)

for any consolidated return year is the

aggregate of the net operating loss carryovers and carrybacks to the year. The

net operating loss carryovers and carrybacks consist of—

(1) Any CNOLs (as defined in paragraph (e) of this section) of the consolidated group; and

(2) Any net operating losses of the

members arising in separate return

years.

(b) Net operating loss carryovers and

carrybacks to consolidated return and

separate return years. Net operating

losses of members arising during a

consolidated return year are taken into

account in determining the group’s

CNOL under paragraph (e) of this section for that year. Losses taken into

account in determining the CNOL may

be carried to other taxable years

(whether consolidated or separate) only

under this paragraph (b).

(1) Carryovers and carrybacks generally. The net operating loss carryovers

and carrybacks to a taxable year are

determined under the principles of section 172 and this section. Thus, losses

permitted to be absorbed in a consolidated return year generally are absorbed

in the order of the taxable years in

which they arose, and losses carried

from taxable years ending on the same

date, and which are available to offset

consolidated taxable income for the

year, generally are absorbed on a pro

rata basis. See Example 2 of paragraph

(c)(1)(iii) of this section for an illustration of pro rata absorption of losses

subject to a SRLY limitation. Additional

rules provided under the Code or regulations also apply. See, e.g., section

382(l)(2)(B).

(2) Carryovers and carrybacks of

CNOLs to separate return years—(i) In

general. If any CNOL that is attributable to a member may be carried to a

separate return year of the member, the

amount of the CNOL that is attributable

to the member is apportioned to the

member (apportioned loss) and carried

to the separate return year. If carried

back to a separate return year, the

apportioned loss may not be carried

back to an equivalent, or earlier, consolidated return year of the group; if

carried over to a separate return year,

the apportioned loss may not be carried

over to an equivalent, or later, consolidated return year of the group. For rules

permitting the reattribution of losses of

a subsidiary to the common parent when

loss is disallowed on the disposition of

subsidiary stock, see § 1.1502–20(g).

(ii) Special rules—(A) Year of departure from group. If a corporation ceases

to be a member during a consolidated

return year, net operating loss carryovers

attributable to the corporation are first

carried to the consolidated return year,

and only the amount so attributable that

is not absorbed by the group in that year

is carried to the corporation’s first separate return year.

(B) Offspring rule. In the case of a

member that has been a member continuously since its organization, the

CNOL attributable to the member is

included in the carrybacks to consolidated return years before the member’s

existence. See paragraph (f) of this

section for applications to predecessors

and successors. If the group did not file

a consolidated return for a carryback

year, the loss may be carried back to a

separate return year of the common

parent under paragraph (b)(2)(i) of this

section, but only if the common parent

was not a member of a different consolidated group or of an affiliated group

filing separate returns for the year to

which the loss is carried or any subsequent year in the carryback period.

Following an acquisition described in

§ 1.1502–75(d)(2) or (3), references to

the common parent are to the corporation that was the common parent immediately before the acquisition.

(iii) Equivalent years. Taxable years

are equivalent if they bear the same

numerical relationship to the consolidated return year in which a CNOL

arises, counting forward or backward

from the year of the loss. For example,

in the case of a member’s third taxable

year (which was a separate return year)

that preceded the consolidated return

year in which the loss arose, the equivalent year is the third consolidated return

year preceding the consolidated return

year in which the loss arose. See paragraph (b)(3)(iii) of this section for certain short taxable years that are disregarded in making this determination.

(iv) Amount of CNOL attributable to

a member. The amount of a CNOL that

is attributable to a member is determined by a fraction the numerator of

which is the separate net operating loss

of the member for the year of the loss

and the denominator of which is the

sum of the separate net operating losses

for that year of all members having such

losses. For this purpose, the separate net

operating loss of a member is determined by computing the CNOL by

reference to only the member’s items of

income, gain, deduction, and loss, including the member’s losses and deductions actually absorbed by the group in

the taxable year (whether or not absorbed by the member).

(v) Examples. For purposes of the

examples in this section, unless otherwise stated, all groups file consolidated

returns, all corporations have calendar

taxable years, the facts set forth the only

corporate activity, value means fair market value and the adjusted basis of each

asset equals its value, all transactions

are with unrelated persons, and the

application of any limitation or threshold under section 382 is disregarded.

The principles of this paragraph (b)(2)

are illustrated by the following examples:

Example 1. Offspring rule. (a) P is formed at

the beginning of Year 1 and files a separate return.

P forms S on March 15 of Year 2, and P and S

file a consolidated return. P purchases all the stock

of T at the beginning of Year 3, and T becomes a

member of the P group. T was formed in Year 2

and filed a separate return for that year. P, S, and

T sustain a $1,100 CNOL in Year 3 and, under

paragraph (b)(2)(iv) of this section, the loss is

attributable $200 to P, $300 to S, and $600 to T.

(b) Of the $1,100 CNOL in Year 3, the $500

amount of the CNOL that is attributable to P and

S ($200 + $300) may be carried to P’s separate

return in Year 1. Even though S was not in

existence in Year 1, the $300 amount of the

CNOL attributable to S may be carried back to P’s

separate return in Year 1 because S (unlike T) has

been a member of the P group since its organization and P is a qualified parent under paragraph

(b)(2)(ii)(B) of this section. To the extent not

absorbed in that year, the loss may then be carried

to the P group’s return in Year 2. The $600

amount of the CNOL attributable to T is a net

operating loss carryback to T’s separate return in

Year 2.

Example 2. Departing members. (a) The facts

are the same as in Example 1. In addition, on June

15 of Year 4, P sells all the stock of T. The P

group’s consolidated return for Year 4 includes the

income of T through June 15. T files a separate

return for the period from June 16 through

December 31.

(b) $600 of the Year 3 CNOL attributable to T

is appor- tioned to T and is carried back to its

separate return in Year 2. To the extent the $600 is

not absorbed in T’s separate return in Year 2, it is

carried to the consolidated return in Year 4 before

being carried to T’s separate return in Year 4. Any

portion of the loss not absorbed in T’s Year 2 or in

the P group’s Year 4 is then carried to T’s separate

return in Year 4.

(3) Special rules—(i) Election to relinquish carry-back. A group may make

an irrevocable election under section

172(b)(3) to relinquish the entire carryback period with respect to a CNOL

for any consolidated return year. The

election may not be made separately for

any member (whether or not it remains

a member), and must be made in a

separate statement entitled ‘‘THIS IS

AN ELECTION UNDER SECTION

1.1502–21T(b)(3)(i) TO WAIVE THE

ENTIRE CARRYBACK PERIOD PURSUANT TO SECTION 172(b)(3) FOR

THE [insert consolidated return year]

CNOLs OF THE CONSOLIDATED

GROUP OF WHICH [insert name and

employer identification number of common parent] IS THE COMMON PARENT.’’ The statement must be signed by

the common parent and filed with the

group’s income tax return for the consolidated return year in which the loss

arises.

(ii) Special election for groups that

include insolvent financial institutions.

For rules applicable to relinquishing the

entire carryback period with respect to

losses attributable to insolvent financial

institutions, see § 301.6402–7 of this

chapter.

(iii) Short years in connection with

transactions to which section 381(a)

applies. If a member distributes or transfers assets to a corporation that is a

member immediately after the distribution or transfer in a transaction to which

section 381(a) applies, the transaction

does not cause the distributor or

transferor to have a short year within

the consolidated return year of the group

in which the transaction occurred that is

counted as a separate year for purposes

of determining the years to which a net

operating loss may be carried.

(iv) Special status losses. [Reserved]

carryovers and carrybacks from separate return limitation years—(1) SRLY

limitation—(i) General rule. The aggregate of the net opera- ting loss carryovers and carrybacks of a member

arising (or treated as arising) in SRLYs

that are included in the CNOL deductions for all consolidated return years of

the group under paragraph (a) of this

section may not exceed the aggregate

consolidated taxable income for all consolidated return years of the group determined by reference to only the member’s items of income, gain, deduction,

and loss. For this purpose—

(A) Consolidated taxable income is

computed without regard to CNOL deductions;

(B) Consolidated taxable income

takes into account the member’s losses

and deductions (including capital losses)

actual- ly absorbed by the group in

consolidated return years (whether or

not absorbed by the member);

years of the group include only those

years, including the year to which the

loss is carried, that the member has been

continuously included in the group’s

consolidated return, but exclude:

(1) For carryovers, any years ending

after the year to which the loss is

carried; and

(2) For carrybacks, any years ending

after the year in which the loss arose;

and

(D) The treatment under § 1.1502–

15T of a built-in loss as a hypothetical

net operating loss carryover in the year

recognized is solely for purposes of

determining the limitation under this

paragraph (c) with respect to the loss in

that year and not for any other purpose.

Thus, for purposes of determining consolidated taxable income for any other

losses, a built-in loss allowed under this

section in the year it arises is taken into

account.

(ii) Losses treated as arising in

SRLYs. If a net operating loss carryover

or carryback did not arise in a SRLY but

is attributable to a built-in loss (as

defined under § 1.1502–15T), the carryover or carryback is treated for purposes of this paragraph (c) as arising in

a SRLY if the built-in loss was not

allowed, after application of the SRLY

limitation, in the year it arose. For an

illustration, see § 1.1502–15T(d), Example 5.

(iii) Examples. The principles of this

paragraph (c)(1) are illustrated by the

following examples:

Example 1. Determination of SRLY limitation.

(a) In Year 1, individual A forms T and T sustains

a $100 net operating loss that is carried forward. P

buys all the stock of T at the beginning of Year 2,

and T becomes a member of the P group. The P

group has $300 of consolidated taxable income in

Year 2 (com- puted without regard to the CNOL

deduction). Such consolidated taxable income

would be $70 if determined by reference to only

T’s items.

(b) T’s $100 net operating loss carryover from

Year 1 arose in a SRLY. See § 1.1502–1(f)(2)(iii).

Thus, the $100 net operating loss carryover is

subject to the SRLY limitation in paragraph (c)(1)

of this section. The SRLY limitation for Year 2 is

consolidated taxable income determined by reference to only T’s items, or $70. Thus, $70 of the

loss is included under paragraph (a) of this section

in the P group’s CNOL deduction for Year 2.

of this Example 1, except that such consolidated

taxable income (computed without regard to the

CNOL deduction and by reference to only T’s

items) is a loss (a CNOL) of $370. Because the

SRLY limitation may not exceed the consolidated

taxable income determined by reference to only

T’s items, and such items aggregate to a CNOL,

T’s $100 net operating loss carryover from Year 1

is not allowed under the SRLY limitation in Year

2. Moreover, if consolidated taxable income (computed without regard to the CNOL deduction and

by reference to only T’s items) did not exceed

$370 in Year 3, the carryover would still be

restricted under § 1.1502–21T(c) in Year 3, because the aggregate consolidated taxable income

for all consolidated return years of the group

computed by reference to only T’s items would

not be a positive amount.

Example 2. Net operating loss carryovers. (a) In

Year 1, individual A forms P and P sustains a $40

net operating loss that is carried forward. P has no

income in Year 2. Unrelated corporation T sustains

a net operating loss of $50 in Year 2 that is

carried forward. P buys the stock of T during Year

3, but T is not a member of the P group for each

day of the year. P and T file separate returns and

sustain net operating losses of $120 and $60,

respectively, for Year 3. The P group files

consolidat- ed returns beginning in Year 4. During

Year 4, the P group has $160 of consolidated

taxable income (computed without regard to the

CNOL deduction). Such consolidated taxable income would be $70 if determined by reference to

only T’s items. These results are summarized as

follows:

Separate/

Separate Separate Affiliated

Year 1

Year 2

Year 3

$(40)

$(120)

(50)

(60)

Consolidated

Year 4

$90

CTI

$160.

(b) P’s Year 1, Year 2, and Year 3 are not

SRLYs with respect to the P group. See § 1.1502–

1(f)(2)(i). Thus, P’s $40 net operating loss arising

in Year 1 and $120 net operating loss arising in

Year 3 are not subject to the SRLY limitation

under paragraph (c) of this section. Under the

principles of section 172, paragraph (b) of this

section requires that the loss arising in Year 1 be

the first loss absorbed by the P group in Year 4.

Absorption of this loss leaves $120 of the group’s

consolidated taxable income available for offset by

other loss carryovers.

respect to the P group. See § 1.1502–1(f)(2)(ii).

Thus, T’s $50 net operating loss arising in Year 2

and $60 net operating loss arising in Year 3 are

subject to the SRLY limitation. Under paragraph

(c)(1) of this section, the SRLY limitation for Year

4 is $70, and under paragraph (b) of this section,

T’s $50 loss from Year 2 must be included under

paragraph (a) of this section in the P group’s

CNOL deduction for Year 4. The absorption of

this loss leaves $70 of the group’s consolidated

taxable income available for offset by other loss

carryovers.

(d) P and T each carry over net operating losses

to Year 4 from a taxable year ending on the same

date (Year 3). The losses carried over from Year 3

total $180. Under paragraph (b) of this section, the

losses carried over from Year 3 are absorbed on a

pro rata basis, even though one arises in a SRLY

and the other does not. However, the group cannot

absorb more than $20 of T’s $60 net operating

loss arising in Year 3 because its $70 SRLY

limitation for Year 4 is reduced by T’s $50 Year 2

SRLY loss already included in the CNOL deduction for Year 4. Thus, the absorption of Year 3

losses is as follows:

Amount of P’s Year 3 losses

absorbed = $120/($120 + $20) x $70 = $60

Amount of T’s Year 3 losses

absorbed = $ 20/($120 + $20) x $70 = $10.

(e) The absorption of $10 of T’s Year 3 loss

further reduces T’s SRLY limitation to $10 ($70 of

initial SRLY limita- tion, reduced by the $60 net

operating loss already included in the CNOL

deductions for Year 4 under paragraph (a) of this

section).

(f) P carries its remaining $60 Year 3 net

operating loss and T carries its remaining $50 Year

3 net operating loss over to Year 5. Assume that,

in Year 5, the P group has $90 of consolidated

taxable income (computed without regard to the

CNOL deduction). The group’s CTI determined by

reference to only T’s items is a CNOL of $4. For

Year 5, the CNOL deduction includes $60 of P’s

Year 3 loss but only $6 of T’s Year 3 loss (the

aggregate consolidated taxable income for Years 4

and 5 deter- mined by reference to T’s items, or

$66, reduced by T’s SRLY losses actually absorbed by the group in Year 4, or $60).

Example 3. Net operating loss carrybacks.

(a)(1) P owns all of the stock of S and T. The

members of the P group contribute the following

to the consolidated taxable income of the P group

for Years 1, 2, and 3:

Year 1

$100

Year 2

$60

Year 3

$80

(50)

Total

$240

(10)

CTI

$150

$90

$60

$300.

(2) P sells all of the stock of T to individual A

at the beginning of Year 4. For its Year 4 separate

return year, T has a net operating loss of $30.

(b) T’s Year 4 is a SRLY with respect to the P

group. See § 1.1502–1(f)(1). T’s $30 net operating

loss carryback to the P group from Year 4 is not

allowed under § 1.1502–21T(c) to be included in

the CNOL deduction under paragraph (a) of this

section for Year 1, 2, or 3, because the P group’s

consolidated taxable income would not be a

positive amount if determined by reference to only

T’s items for all consolidated return years through

Year 4 (without regard to the $30 net operating

loss). However, the $30 loss is carried forward to

T’s Year 5 and succeeding taxable years as

provided under the Code.

Example 4. Computation of SRLY limitation for

built-in losses treated as net operating loss car-

ryovers. (a) In Year 1, individual A forms T by

contributing $300 and T sustains a $100 net

operating loss. During Year 2, T’s assets decline in

value by $100. At the beginning of Year 3, P buys

all the stock of T for $100, and T becomes a

member of the P group. At the time of the

acquisition, T has a $100 net unrealized built-in

loss, which exceeds the threshold requirements of

section 382(h)(3)(B). During Year 3, T recognizes

its unrealized loss as a $100 or- dinary loss. The

members of the P group contribute the following

to the consolidated taxable income of the P group

for Years 3 and 4 (computed without regard to T’s

recognition of its unrealized loss and any CNOL

deduction under § 1.1502–21T):

P group

(without T)

Year 3

$100

Year 4

$100

Total

$200

100

CTI

$160

$140

$300.

(b) Under § 1.1502–15T(a), T’s $100 of ordinary loss in Year 3 constitutes a built-in loss that

is subject to the SRLY limitation under § 1.1502–

21T(c). The amount of the limitation is determined

by treating the deduction as a net operating loss

carryover from a SRLY. The built-in loss is

therefore subject to a $60 SRLY limitation for

Year 3. The built-in loss is treated as a net

operating loss carryover solely for purposes of

deter- mining the extent to which the loss is not

allowed by reason of the SRLY limitation, and for

all other purposes the loss remains a loss arising

in Year 3. Consequently, under paragraph (b) of

this section, the $60 allowed under the SRLY

limitation is absorbed by the P group before T’s

$100 net operating loss carryover from Year 1 is

allowed.

the built- in loss that is not allowed in Year 3

because of the SRLY limi- tation is treated as a

$40 net operating loss arising in Year 3 that is

subject to the SRLY limitation because, under

§ 1.1502–21T(c)(1)(ii), Year 3 is treated as a

SRLY, and is carried to other years in accordance

with the rules of paragraph (b) of this section. The

SRLY limitation for Year 4 is the P group’s consolidated taxable income for Year 3 and Year 4

determined by reference to only T’s items and

without regard to the group’s CNOL deductions

($60 + $40), reduced by T’s loss actually absorbed by the group in Year 3 ($60). The SRLY

limitation for Year 4 is $40.

(d) Under paragraph (c) of this section and the

prin- ciples of section 172(b), $40 of T’s $100 net

operating loss carryover from Year 1 is included in

the CNOL deduction under paragraph (a) of this

section in Year 4.

(2) SRLY subgroup limitation. In the

case of a net operating loss carryover or

carryback for which there is a SRLY

subgroup, the principles of paragraph

(c)(1) of this section apply to the SRLY

subgroup, and not separately to its members. Thus, the contribution to consolidated taxable income and the net operating loss carryovers and carrybacks

arising (or treated as arising) in SRLYs

that are included in the CNOL deductions for all consolidated return years of

the group under paragraph (a) of this

section are based on the aggregate

amounts of income, gain, deduction, and

loss of the members of the SRLY sub-

group for the relevant consolidated return years (as provided in paragraph

(c)(1)(i)(C) of this section). For an illustration of aggregate amounts during the

relevant consolidated return years following the year in which a member of a

SRLY subgroup ceases to be a member

of the group, see paragraph (c)(2)(vii)

Example 4 of this section. A SRLY

subgroup may exist only for a carryover

or carryback arising in a year that is not

a SRLY (and is not treated as a SRLY

under paragraph (c)(1)(ii) of this section) with respect to another group (the

former group), whether or not the group

is a consolidated group. A separate

SRLY subgroup is determined for each

such carryover or carryback. A consolidated group may include more than one

SRLY subgroup and a member may be a

member of more than one SRLY subgroup. Solely for purposes of determining the members of a SRLY subgroup

with respect to a loss:

(i) Carryovers. In the case of a carryover, the SRLY subgroup is composed

of the member carrying over the loss

(the loss member) and each other member that was a member of the former

group that becomes a member of the

group at the same time as the loss

member. A member remains a member

of the SRLY subgroup until it ceases to

be affiliated with the loss member. The

aggregate determination described in

paragraph (c)(1) of this section and this

paragraph (c)(2) includes the amounts of

income, gain, deduction, and loss of

each member of the SRLY subgroup for

the consolidated return years during

which it remains a member of the SRLY

subgroup. For an illustration of the

aggregate deter- mination of a SRLY

subgroup, see paragraph (c)(2)(vii) Example 2 of this section.

(ii) Carrybacks. In the case of a

carryback, the SRLY subgroup is composed of the member carrying back the

loss (the loss member) and each other

member of the group from which the

loss is carried back that has been continuously affiliated with the loss member from the year to which the loss is

carried through the year in which the

loss arises.

(iii) Built-in losses. In the case of a

built-in loss, the SRLY subgroup is

composed of the member recognizing

the loss (the loss member) and each

other member that was part of the

subgroup with respect to the loss determined under § 1.1502–15T(c)(2) immediately before the members became

members of the group. The principles of

paragraphs (c)(2)(i) and (ii) of this section apply to determine the SRLY subgroup for the built-in loss that is, under

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

treated as arising in a SRLY with respect to the group in which the loss is

recognized. For this purpose and as the

context requires, a reference in those

paragraphs to a group or former group

is a reference to the subgroup determined under § 1.1502–15T(c)(2).

(iv) Principal purpose of avoiding or

increasing a SRLY limitation. The members composing a SRLY subgroup are

not treated as a SRLY subgroup if any

of them is formed, acquired, or availed

of with a principal purpose of avoiding

the application of, or increasing any

limitation under, this paragraph (c). Any

member excluded from a SRLY subgroup, if excluded with a prin- cipal

purpose of so avoiding or increasing any

SRLY limitation, is treated as included

in the SRLY subgroup.

(v) Coordination with other limitations. This paragraph (c)(2) does not

allow a net operating loss to offset

income to the extent inconsistent with

other limitations or restrictions on the

use of losses, such as a limitation based

on the nature or activities of members.

For example, any dual consolidated loss

may not reduce the taxable income to an

extent greater than that allowed under

section 1503(d) and § 1.1503–2. See

also § 1.1502–47(q) (relating to preemption of rules for life-nonlife groups).

(vi) Anti-duplication. If the same item

of income or deduction could be taken

into account more than once in determining a limitation under this paragraph

(c), or in a manner inconsistent with any

other provision of the Code or regulations incorporating this paragraph (c),

the item of income or deduction is taken

into account only once and in such

manner that losses are absorbed in accordance with the ordering rules in

paragraph (b) of this section and the

underlying purposes of this section.

(vii) Examples. The principles of this

paragraph (c)(2) are illustrated by the

following examples:

Example 1. Members of SRLY subgroups. (a)

During Year 1, P sustains a $50 net operating loss.

At the beginning of Year 2, P buys all the stock of

S at a time when the aggregate basis of S’s assets

exceeds their aggregate value by $70 (as determined under § 1.1502–15T). At the beginning of

Year 3, P buys all the stock of T, T has a $60 net

operating loss carryover at the time of the acquisition, and T becomes a member of the P group.

During Year 4, S forms S1 and T forms T1, each

by contributing assets with built-in gains which

are, in the aggregate, material. S1 and T1 become

members of the P group. M is the common parent

of another group. During Year 7, M acquires all of

the stock of P, and the members of the P group

become members of the M group for the balance

of Year 7. The $50 and $60 loss carryovers of P

and T are carried to Year 7 of the M group, and

the value and basis of S’s assets did not change

after it became a member of the former P group.

(b) Under paragraph (c)(2) of this section, a

separate SRLY subgroup is determined for each

loss carryover and built-in loss. In the P group, P’s

$50 loss carryover is not treated as arising in a

SRLY. See § 1.1502–1(f). Consequently, the carryover is not subject to limitation under paragraph

treated as arising in a SRLY and is subject to the

limitation under paragraph (c) of this section. A

SRLY subgroup with respect to that loss is

composed of members which were members of the

P group, the group as to which the loss was not a

SRLY. The SRLY subgroup is composed of P, the

member carrying over the loss, and each other

member of the P group that became a member of

the M group at the same time as P. A member of

the SRLY subgroup remains a member until it

ceases to be affiliated with P. For Year 7, the

SRLY subgroup is composed of P, S, T, S1, and

T1.

(d) In the P group, S’s $70 unrealized loss, if

recognized within the 5-year recognition period

after S becomes a member of the P group, is

subject to limitation under paragraph (c) of this

section. See § 1.1502–15T and paragraph (c)(1)(ii)

of this section. Because S was not continuously

affiliated with P, T, or T1 for 60 consecutive

months prior to joining the P group, these corporations cannot be included in a SRLY subgroup with

respect to S’s unrealized loss in the P group. See

paragraph (c)(2)(iii) of this section. As a successor

to S, S1 is included in a subgroup with S in the P

group. Because S did not cease to exist, however,

S1’s contribution to consolidated taxable income

may not be used to increase the consolidated

taxable income of the P group that may be offset

by the built-in loss. See paragraph (f) of this

section.

(e) In the M group, S’s $70 unrealized loss, if

recognized within the 5-year recognition period

after S becomes a member of the M group, is

subject to limitation under paragraph (c) of this

section. Prior to becoming a member of the M

group, S had been continuously affiliated with P

(but not T or T1) for 60 consecutive months and

S1 is a successor that has remained continuously

affiliated with S. Those members had a net

unrealized built-in loss immediately before they

became members of the group under § 1.1502–

15T(c). Consequently, in Year 7, S, S1, and P

compose a subgroup in the M group with respect

to S’s unrealized loss. S1’s contribution to consolidated taxable income may not be used to increase

the consolidated taxable income of the M group

that may be offset by the recognized built- in loss.

See paragraph (f) of this section.

(f) In the P group, T’s $60 loss carryover arose

in a SRLY and is subject to limitation under

paragraph (c) of this section. P, S, and S1 were

not members of the group in which T’s loss arose

and cannot be members of a SRLY subgroup with

respect to the carryover in the P group. See

paragraph (c)(2)(i) of this section. As a successor

to T, T1 is included in a SRLY subgroup with T in

the P group; however, because T did not cease to

exist, T1’s contribution to consolidated taxable

income may not be used to increase the consolidated taxable income of the P group that may be

offset by the carryover. See paragraph (f) of this

section.

(g) In the M group, T’s $60 loss carryover

arose in a SRLY and is subject to limitation under

paragraph (c) of this section. T and T1 remain the

only members of a SRLY subgroup with respect to

the carryover, but T1’s contribution to consolidated taxable income may not be used to increase

consolidated taxable income of the M group that

may be offset by the carryover. See paragraph (f)

of this section.

Example 2. Computation of SRLY subgroup

limitation. (a) Individual A forms S. Individual B

forms T. In Year 2, P buys all the stock of S and T

from A and B, and S and T become members of

the P group. For Year 3, the P group has a $45

CNOL, which is attributable to P, and which P

carries forward. M is the common parent of

another group. At the beginning of Year 4, M

acquires all of the stock of P and the former

members of the P group become members of the

M group.

(b) P’s year to which the loss is attributable,

Year 3, is a SRLY with respect to the M group.

See § 1.1502–1(f)(1). However, P, S, and T compose a SRLY subgroup with respect to the Year 3

loss under paragraph (c)(2)(i) of this section

because Year 3 is not a SRLY (and is not treated

as a SRLY) with respect to the P group. P’s loss is

carried over to the M group’s Year 4 and is

therefore subject to the SRLY subgroup limitation

in paragraph (c)(2) of this section.

the CNOL deduction for Year 4). However, such

consolidated taxable income would be $45 if

determined by reference to only the items of P, S,

and T, the members included in the SRLY subgroup with respect to P’s loss carryover. Therefore, the SRLY subgroup limitation under paragraph (c)(2) of this section for P’s net operating

loss carryover from Year 3 is $45. Because the M

group has only $10 of consolidated taxable income

in Year 4, however, only $10 of P’s net operating

loss carryover is included in the CNOL deduction

under paragraph (a) of this section in Year 4.

(d) In Year 5, the M group has $100 of

consolidated taxable income (computed without

regard to the CNOL deduction for Year 5). Neither

P, S, nor T has any items of income, gain,

deduction, or loss in Year 5. Although the members of the SRLY subgroup do not contribute to

the $100 of consolidated taxable income in Year 5,

the SRLY subgroup limitation for Year 5 is $35

(the sum of SRLY subgroup consolidated taxable

income of $45 in Year 4 and $0 in Year 5, less the

$10 net operating loss carryover actually absorbed

by the M group in Year 4). Therefore, $35 of P’s

net operating loss carryover is included in the

CNOL deduction under paragraph (a) of this

section in Year 5.

Example 3. Inclusion in more than one SRLY

subgroup. (a) At the beginning of Year 1, S buys

all the stock of T, and T becomes a member of the

S group. For Year 1, the S group has a CNOL of

$10, all of which is attributable to S and is carried

over to Year 2. At the beginning of Year 2, P buys

all the stock of S, and S and T become members

of the P group. For Year 2, the P group has a

CNOL of $35, all of which is attributable to P and

is carried over to Year 3. At the beginning of Year

3, M acquires all of the stock of P and the former

members of the P group become members of the

M group.

(b) P’s and S’s net operating losses arising in

SRLYs with respect to the M group are subject to

limitation under paragraph (c) of this section. P, S,

and T compose a SRLY subgroup for purposes of

determining the limitation for P’s $35 net operating loss carryover arising in Year 2 because, under

paragraph (c)(2)(i) of this section, Year 2 is not a

SRLY with respect to the P group. Similarly, S

and T compose a SRLY subgroup for purposes of

determining the limitation for S’s $10 net operating loss carryover arising in Year 1 because Year 1

is not a SRLY with respect to the S group.

subgroup with respect to P’s losses and the SRLY

subgroup with respect to S’s losses. Under paragraph (c)(2) of this section, S’s and T’s items

cannot be included in the determination of the

SRLY subgroup limitation for both SRLY subgroups for the same consolidated return year;

paragraph (c)(2)(vi) of this section requires the M

group to consider the items of S and T only once

so that the losses are absorbed in the order of the

taxable years in which they were sustained. Because S’s loss was incurred in Year 1, while P’s

loss was incurred in Year 2, the items will be

added in the determination of the consolidated

taxable income of the S and T SRLY subgroup to

enable S’s loss to be absorbed first. The taxable

income of the P, S, and T SRLY subgroup is then

computed by including the consolidated taxable

income for the S and T SRLY subgroup less the

amount of any net operating loss carryover of S

that is absorbed after applying this section to the S

subgroup for the year.

Example 4. Corporation ceases to be affiliated

with a SRLY subgroup. (a) P and S are members

of the P group and the P group has a CNOL of

$30 in Year 1, all of which is attributable to P and

carried over to Year 2. At the beginning of Year 2,

M acquires all of the stock of P, and P and S

become members of the M group. P and S

compose a SRLY subgroup with respect to P’s net

operating loss carryover. For Year 2, consolidated

taxable income of the M group determined by

reference to only the items of P (and without

regard to the CNOL deduction for Year 2) is $40.

However, such consolidated taxable income of the

M group determined by reference to the items of

both P and S is a loss of $20. Thus, the SRLY

subgroup limitation under paragraph (c)(2) of this

section prevents the M group from including any

of P’s net operating loss carryover in the CNOL

deduction under paragraph (a) of this section in

Year 2, and P carries the loss to Year 3.

(b) At the end of Year 2, P sells all of the S

stock and S ceases to be a member of the M

group and, in turn, ceases to be affiliated with the

P subgroup. For Year 3, consolidated taxable

income of the M group is $50 (determined without

regard to the CNOL deduction for Year 3), and

such consolidated taxable income would be $10 if

determined by reference to only items of P.

However, the limitation under paragraph (c) of this

section for Year 3 for P’s net operating loss

carryover still prevents the M group from including any of P’s loss in the CNOL deduction under

paragraph (a) of this section. The limitation results

from the inclusion of S’s items for Year 2 in the

determination of the SRLY subgroup limitation for

Year 3 even though S ceased to be a member of

the M group (and the P subgroup) at the end of

Year 2. Thus, the M group’s consolidated taxable

income determined by reference to only the SRLY

subgroup members’ items for all consolidated

return years of the group through Year 3 (determined without regard to the CNOL deduction) is

not a positive amount.

(d) Coordination with consolidated

return change of ownership limitation

and transactions subject to old section

382—(1) Consolidated return changes

of ownership. If a consolidated return

change of ownership occurred before

January 1, 1997, the principles of

§ 1.1502–21A(d) apply to determine the

amount of the aggregate of the net

operating losses attributable to old members of the group that may be included

in the consolidated net operating loss

deduction under paragraph (a) of this

section. For this purpose, § 1.1502–1(g)

is applied by treating that date as the

end of the year of change.

(2) Old section 382. The principles of

§ 1.1502–21A(e) apply to disallow or

reduce the amount of a net operating

loss carryover of a member as a result

of a transaction subject to old section

382.

(e) Consolidated net operating loss.

Any excess of deductions over gross

income, as determined under § 1.1502–

11(a) (without regard to any consolidated net operating loss deduction), is

also referred to as the consolidated net

operating loss (or CNOL).

(f) Predecessors and successors—(1)

In general. For purposes of this section,

any reference to a corporation, member,

common parent, or subsidiary, includes,

as the context may require, a reference

to a successor or predecessor, as defined

in § 1.1502–1(f)(4).

(2) Limitation on SRLY subgroups.

Except as the Commissioner may otherwise determine, any increase in the

consolidated taxable income of a SRLY

subgroup that is attributable to a successor is disregarded unless the successor

acquires substantially all the assets and

liabilities of its predecessor and the

predecessor ceases to exist.

(g) Effective date—(1) In general.

This section generally applies to consolidated return years beginning on or

after January 1, 1997.

(2) SRLY limitation. Except in the

case of those members (including members of a SRLY subgroup) described in

paragraph (g)(3)(iii) of this section, a

group does not take into account a

consolidated taxable year beginning before January 1, 1997, in determining the

aggregate of the consolidated taxable

income under paragraph (c)(1) of this

section (including for purposes of

§ 1.1502–15T and § 1.1502–22T(c)) for

the members (or SRLY subgroups).

(3) Application to prior periods. A

consolidated group may apply the rules

of this section to all consolidated return

years ending on or after January 29,

1991, and beginning before January 1,

1997, provided that—

(i) The group’s tax liability as shown

on an original or an amended return is

consistent with the application of the

rules of this section (other than this

paragraph (g)) and §§ 1.1502–15T,

1.1502–22T, 1.1502–23T, 1.1502–91T

through 1.1502–96T, and 1.1502–98T

for each such year for which the statute

of limitations does not preclude the

filing of an amended return on January

1, 1997;

(ii) Each section described in paragraph (g)(3)(i) of this section and

§ 1.1502–1(f)(4)(ii) is applied by substituting ‘‘taxable years ending on or after

January 29, 1991’’ for ‘‘taxable years

beginning on or after January 1, 1997’’

(and ‘‘before January 29, 1991’’ for

‘‘before January 1, 1997’’ in the case of

consolidated return changes of ownership) as the context requires.

(iii) The rules of paragraph (c) of this

section and §§ 1.1502–15T and 1.1502–

22T(c) are applied only with respect to

the losses and deductions of those corporations that became members of the

group (including members of a subgroup), and to acquisitions occurring, on

or after January 29, 1991, (and only

with respect to such losses and deductions);

(iv) The rules of §§ 1.1502–15A,

1.1502–21A(c) and 1.1502–22A(c) are

applied with respect to the losses and

deductions of those corporations that

became members of the group, and to

acquisitions occurring, before January

29, 1991; and

(v) Appropriate adjustments are made

in the earliest subsequent open year to

reflect any inconsistency in a year for

which the statute of limitations precludes the filing of an amended return

on January 1, 1997.

(4) Waiver of carrybacks. Paragraph

(b)(3)(i) of this section (relating to the

waiver of carrybacks) applies to net

operating losses arising in a consolidated return year for which the due date

of the income tax return (without regard

to extensions) is on or after Monday,

August 26, 1996.

Par. 14. Section 1.1502–22 is redesignated as § 1.1502–22A; the heading of

the newly designated § 1.1502–22A is

revised; and paragraphs (d)(3) and (e)

are added to read as follows:

§ 1.1502–22A Consolidated net capital

gain or loss generally applicable for

consolidated return years beginning before January 1, 1997.

(d) * * *

(3) Cross-reference. See § 1.1502–

22T(d) for the rule that applies the

principles of this paragraph (d) in consolidated return years beginning on or

after January 1, 1997, with respect to a

consolidated return change of ownership

occurring before January 1, 1997.

(e) Effective date. This section applies to any consolidated return years to

which § 1.1502–21T(g) does not apply.

See § 1.1502–21T(g) for effective dates

of that section.

Par. 15. Section 1.1502–22T is added

to read as follows:

§ 1.1502–22T Consolidated

gain and loss (temporary).

capital

(a) Capital gain. The determinations

under section 1222, including capital

gain net income, net long-term capital

gain, and net capital gain, with respect

to members during consolidated return

years are not made separately. Instead,

consolidated amounts are determined for

the group as a whole. The consolidated

capital gain net income for any consolidated return year is determined by reference to—

(1) The aggregate gains and losses of

members from sales or exchanges of

capital assets for the year (other than

gains and losses to which section 1231

applies);

(2) The consolidated net section 1231

gain for the year (determined under

§ 1.1502–23T); and

(3) The net capital loss carryovers or

carrybacks to the year.

(b) Net capital loss carryovers and

carrybacks—(1) In general. The determinations under section 1222, including

net capital loss and net short-term capital loss, with respect to members during

consolidated return years are not made

separately.

Instead,

consolidated

amounts are determined for the group as

a whole. Losses included in the consolidated net capital loss may be carried to

consolidated return years, and, after apportionment, may be carried to separate

return years. The net capital loss carryovers and carrybacks consist of—

(i) Any consolidated net capital

losses of the group; and

(ii) Any net capital losses of the

members arising in separate return

years.

(2) Carryovers and carrybacks generally. The net capital loss carryovers and

carrybacks to a taxable year are determined under the principles of section

1212 and this section. Thus, losses permitted to be absorbed in a consolidated

return year generally are absorbed in the

order of the taxable years in which they

were sustained, and losses carried from

taxable years ending on the same date,

and which are available to offset consolidated capital gain net income, generally are absorbed on a pro rata basis.

Additional rules provided under the

Code or regulations also apply, as well

as the SRLY limitation under paragraph

382(l)(2)(B).

(3) Carryovers and carrybacks of

consolidated net capital losses to separate return years. If any consolidated

net capital loss that is attributable to a

member may be carried to a separate

return year under the principles of

§ 1.1502–21T(b)(2), the amount of the

consolidated net capital loss that is

attributable to the member is apportioned and carried to the separate return

year (apportioned loss).

(4) Special rules—(i) Short years in

connection with transactions to which

section 381(a) applies. If a member

distributes or transfers assets to a corporation that is a member immediately

after the distribution or transfer in a

transaction to which section 381(a) applies, the transaction does not cause the

distributor or transferor to have a short

year within the consolidated return year

of the group in which the transaction

occurred that is counted as a separate

year for purposes of determining the

years to which a net capital loss may be

carried.

(ii) Special status losses. [Reserved]

carryovers and carrybacks from separate return limitation years. The aggregate of the net capital losses of a

member arising (or treated as arising) in

SRLYs that are included in the determination of consolidated capital gain net

income for all consolidated return years

of the group under paragraph (a) of this

section may not exceed the aggregate of

the consolidated capital gain net income

for all consolidated return years of the

group determined by reference to only

the member’s items of gain and loss

from capital assets as defined in section

1221 and trade or business assets defined in section 1231(b), including the

member’s losses actually absorbed by

the group in the taxable year (whether

or not absorbed by the member). The

principles of § 1.1502–21T(c)(including

the SRLY subgroup principles under

§ 1.1502–21T(c)(2)) apply with appropriate adjustments for purposes of applying this paragraph (c).

(d) Coordination with respect to consolidated return change of ownership

limitation occurring in consolidated return years beginning before January 1,

1997. If a consolidated return change of

ownership occurred before January 1,

1997, the principles of § 1.1502–22A(d)

apply to determine the amount of the

aggregate of the net capital loss attributable to old members of the group (as

those terms are defined in § 1.1502–

1(g)), that may be included in the net

capital loss carryover under paragraph

(b) of this section. For this purpose,

§ 1.1502–1(g) is applied by treating that

date as the end of the year of change.

(e) Consolidated net capital loss. Any

excess of losses over gains, as determined under paragraph (a) of this section (without regard to any carryovers or

carrybacks), is also referred to as the

consolidated net capital loss.

(f) Predecessors and successors. For

purposes of this section, the principles

of § 1.1502–21T(f) apply with appropriate adjustments.

(g) Effective date—(1) In general.

This section applies to consolidated return years beginning on or after January

1, 1997.

(2) Application to prior periods. See

§ 1.1502–21T(g)(3) for rules generally

permitting a group to apply the rules of

this section to consolidated return years

ending on or after January 29, 1991, and

beginning before January 1, 1997.

Par. 16. Section 1.1502–23 is redesignated § 1.1502–23A; the section heading of the newly designated § 1.1502–

23A is revised; the current text of the

section is designated as paragraph (a)

and paragraph (b) is added to read as

follows:

§ 1.1502–23A Consolidated net section

1231 gain or loss generally applicable

for consolidated return years beginning

before January 1, 1997.

(b) Effective date. This section applies to any consolidated return years to

which § 1.1502–21T(g) does not apply.

See § 1.1502–21T(g) for effective dates

of that section.

Par. 17. Section 1.1502–23T is added

to read as follows:

§ 1.1502–23T Consolidated net section

1231 gain or loss (temporary).

(a) In general. Net section 1231 gains

and losses of members arising during

consolidated return years are not determined separately. Instead, the consolidated net section 1231 gain or loss is

determined under this section for the

group as a whole.

(b) Recapture of ordinary loss. [Reserved]

This section applies to gains and losses

arising in the determination of consolidated net section 1231 gain or loss for

taxable years beginning on or after

January 1, 1997.

(2) Application to prior periods. See

§ 1.1502–21T(g)(3) for rules generally

permitting a group to apply the rules of

this section to consolidated return years

ending on or after January 29, 1991, and

beginning before January 1, 1997.

Par. 18. Section 1.1502–41 is redesignated as § 1.1502–41A; the section

heading of the newly designated

§ 1.1502–41A is revised; and paragraph

§ 1.1502–41A Determination of consolidated net long-term capital gain and

consolidated net short-term capital loss

generally applicable for consolidated return years beginning before January 1,

1997.

which § 1.1502–21T(g) does not apply.

See § 1.1502–21T(g) for effective dates

of that section.

Par. 19. Section 1.1502–79A is added

to read as follows:

§ 1.1502–79A Separate return years

generally applicable for consolidated return years beginning before January 1,

1997.

(a) through (e) [Reserved]

(f) Effective date. Paragraphs (a) and

(b) of this section apply to losses arising

in consolidated return years to which

§ 1.1502–21T(g) does not apply. For

this purpose net operating loss deductions, carryovers, and carrybacks arise in

the year from which they are carried.

See § 1.1502–21T(g) for effective dates

of that section.

Par. 20. In § 1.1502–79, paragraphs

(a) and (b) are redesignated as

§ 1.1502–79A, paragraphs (a) and (b).

Par. 21. Section 1.1502–79 is

amended by adding new paragraphs (a)

and (b) to read as follows:

§ 1.1502–79 Separate return years.

(a) Carryover and carryback of consolidated net operating losses to separate return years. For losses arising 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 con-

solidated 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.

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.

(Filed by the Office of the Federal Register on

June 26, 1996, 8:45 a.m., and published in the

issue of the Federal Register for June 27, 1996, 61

F.R. 33321)

Part IV. Items of General Interest

Notice of Proposed Rulemaking

and Notice of Public Hearing

Consolidated Returns—Limitations

on the Use of Certain Losses and

Deductions

FOR FURTHER INFORMATION CONTACT: Concerning the regulations,

David B. Friedel, (202) 622–7550; concerning submissions and the hearing,

Evangelista Lee, (202) 622–7190 (not

toll-free numbers).

CO–24–96

SUPPLEMENTARY

INFORMATION:

AGENCY: Internal Revenue Service

(IRS), Treasury.

Paperwork Reduction Act

ACTION: Withdrawal of prior proposed

rule, notice of proposed rulemaking by

cross-reference to temporary regulations,

and notice of public hearing.

SUMMARY: On January 29, 1991, proposed rules under section 1502 were

filed with the Office of the Federal

1991–1 C.B. 757). A public hearing was

held on April 8, 1991. The IRS and

Treasury published Notice 91–27

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

modifications to the proposed regulations. The January, 1991, proposed rules

are withdrawn, and these proposed rules

are issued in their place.

In TD 8677 on page 7 of this issue of

the Bulletin, the IRS is issuing temporary regulations relating to the carryover

and carryback of losses to consolidated

and separate return years. The text of

those temporary regulations also serves

as the text of these proposed regulations.

This document also provides a notice of

public hearing on these proposed regulations.

DATES: Written comments must be received by Wednesday, September 25,

1996. Outlines of topics to be discussed

at the public hearing scheduled for

Thursday, October 17, 1996, at 10 a.m.

must be received by Thursday, September 26, 1996.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (CO–24–96), room

5228, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. In the alternative, submissions may be hand delivered between

the hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (CO–24–96), Courier’s Desk, Internal Revenue Service,

1111 Constitution Avenue NW., Washington, DC. The public hearing will be

held in the NYU Classroom, Room

2615, Internal Revenue Building, 1111

Constitution Avenue NW., Washington,

DC 20224.

The collection of information contained in this notice of proposed

rulemaking has been reviewed and approved by the Office of Management

and Budget in accordance with the Paperwork Reduction Act (44 U.S.C.

3507) under the control number 1545–

1237. Section 1.1502–21(b)(3) requires

a response from certain consolidated

groups. The IRS requires the information to assure that an election to relinquish a carryback period is properly

documented.

Comments concerning the collection

of information should be sent to the

Office of Management and Budget,

Attn: Desk Officer for the Department

of Treasury, Office of Information and

Regulatory Affairs, Washington, DC,

20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, T:FP. Washington, DC,

20224. Comments on the collection of

information should be received by Monday, August 26, 1996.

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.

The collection of information is in

Proposed § 1.1502–21(b)(3). That section permits an election to relinquish a

carryback period with respect to a consolidated net operating loss. The common parent of the group files the statement evidencing the election with the

income tax return of the group. This

information is required by the IRS to

assure that an election to relinquish a

carryback period is properly documented. The likely respondents and/or

recordkeepers are certain consolidated

groups of corporations. Responses to

this collection of information are required to obtain a benefit (relating to the

carryover of losses which would otherwise be carried back).

Books or records relating to this 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.

Estimated total annual reporting burden: 1,000 hours. The estimated annual

burden per respondent varies from five

to thirty minutes, depending on individual circumstances, with an estimated

average of ten minutes. Estimated number of respondents: 6,000. Estimated

annual frequency of responses: 1.

Background

Temporary regulations in TD 8677 of

this issue of the Bulletin amend the

Income Tax Regulations (26 CFR par 1)

relating to deductions and losses of

members. The temporary amendments

concern the method for computing the

limitations with respect to separate return limitation year (SRLY) losses. They

also concern the rules relating to carryover and carryback of losses to consolidated and separate return years and

to the built-in deductions rules. The

final regulations that are proposed to be

based on these proposed regulations

would be added to part 1 of title 26 of

the Code of Federal Regulations. Those

final regulations would provide rules for

computing the limitations with respect

to separate return limitation year

(SRLY) losses. They also concern the

rules relating to carryover and carryback

of losses to consolidated and separate

return years and to the built-in deductions rules.

For the text of these new temporary

regulations, see TD 8677. The preamble

to the temporary regulations explains the

regulations.

Proposed Effective Date

For dates of application and special

transition rules, see the discussion of

Effective Dates under SUPPLEMENTARY INFORMATION relating to the

temporary regulations, published elsewhere in this issue of the Bulletin.

Special Analyses

It has been determined that this notice

of proposed rulemaking 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

1996–30

I.R.B.

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, this notice of proposed rulemaking will be submitted to

the Chief Counsel for Advocacy of the

Small Business Administration for comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8)

copies) that are submitted timely to the

IRS. All comments will be available for

public inspection and copying.

A public hearing has been scheduled

for Monday, September 16, 1996, at 10

a.m. in the NYU Classroom, Room

2615, Internal Revenue Building, 1111

Constitution Avenue NW., Washington,

DC. Because of access restrictions, visitors will not be admitted beyond the

building lobby more than 15 minutes

before the hearing starts.

The rules of 26 CFR 601.601(a)(3)

apply to the hearing.

Persons that wish to present oral

comments at the hearing must submit

written comments by Wednesday, September 25, 1996, and submit an outline

of the topics to be discussed and the

time to be devoted to each topic (signed

original and eight (8) copies) by Thursday, September 26, 1996.

A period of 10 minutes will be allotted to each person for making comments.

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

Drafting Information

The principal author of these regulations is David B. Friedel, Office of

Assistant Chief Counsel (Corporate),

IRS. However, other personnel from the

IRS and Treasury Department participated in their development.

Withdrawal of Notice of Proposed

Rulemaking

Accordingly, under the authority of 26

U.S.C. 7805, the notice of proposed

1996–30

I.R.B.

rulemaking that was published on January 29, 1991 (56 FR 4228) is withdrawn.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

Part 1 is amended in part by adding

citations in numerical order to read as

follows:

Authority: 26 U.S.C. 7805

***

Section 1.1502–15 also issued under

26 U.S.C. 1502.

***

Section 1.1502–21 also issued under

26 U.S.C. 1502.

Section 1.1502–22 also issued under

26 U.S.C. 1502.

Section 1.1502–23 also issued under

26 U.S.C. 1502.

Section 1.1502–79 also issued under

26 U.S.C. 1502.

Section 1.1502–15A also issued under

26 U.S.C. 1502.

Section 1.1502–21A also issued under

26 U.S.C. 1502.

Section 1.1502–22A also issued under

26 U.S.C. 1502.

Section 1.1502–23A also issued under

26 U.S.C. 1502.

Section 1.1502–41A also issued under

26 U.S.C. 1502.

Section 1.1502–79A also issued under

26 U.S.C. 1502.

***

Par. 2. Section 1.1502–15 is added to

read as follows:

§ 1.1502–15 SRLY limitation on built-in

losses.

[The text of this proposed section is

the same as the text of § 1.1502–15T

published elsewhere in this issue of the

Bulletin.]

Par. 3. Section 1.1502–21 is added to

read as follows:

§ 1.1502–21 Net operating losses.

[The text of this proposed section is

the same as the text of § 1.1502–21T

published elsewhere in this issue of the

Bulletin.]

Par. 4. Section 1.1502–22 is added to

read as follows:

§ 1.1502–22 Consolidated capital gain

and loss.

[The text of this proposed section is

the same as the text of § 1.1502–22T

published elsewhere in this issue of the

Bulletin.]

Par. 5. Section 1.1502–23 is added to

read as follows:

§ 1.1502–23 Consolidated net section

1231 gain or loss.

[The text of this proposed section is

the same as the text of § 1.1502–23T

published elsewhere in this issue of the

Bulletin.]

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

June 26, 1996, 8:45 a.m., and published in the

issue of the Federal Register for June 27, 1996, 61

F.R. 33393)

Notice of Proposed Rulemaking

Modifications of Bad Debts and

Dealer Assignments of Notional

Principal Contracts

FI-59-94

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary

regulations.

SUMMARY: In TD 8676 on page 4 of

this issue of the Bulletin, the IRS is

issuing temporary regulations relating to

the allowance of a deduction for a

partially worthless debt when the terms

of a debt instrument have been modified. The temporary regulations provide

relief to certain taxpayers that are required to recognize gain as the result of

modifying a debt instrument, when a

portion of the gain is in part caused by

a reduction of the debt’s basis attributable to a bad debt deduction claimed in

a prior taxable year. The temporary

regulations provide guidance to taxpayers that modify the terms of a debt

instrument after deducting an amount

for partial worthlessness.

In TD 8676 the IRS is also issuing

temporary regulations relating to certain

assignments of notional principal contracts by dealers in those contracts. The

temporary regulations provide guidance

to taxpayers relating to consequences of

these assignments.

The text of those temporary regulations also serves as the text of these

proposed regulations.

DATES: Written comments and requests

for a public hearing must be received by

September 23, 1996.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (FI-59-94), room

5228, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. In the alternative, submissions may be hand delivered between

the hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (FI-59-94), Courier’s

Desk, Internal Revenue Service, 1111

Constitution Avenue NW., Washington,

D.C. 20224

FOR FURTHER INFORMATION CONTACT: Craig R. Wojay, Office of Assistant Chief Counsel, Financial Institutions

and Products, (202) 622-3920 (not a

toll-free number) concerning the modifications of bad debts, and Thomas J.

Kelly, Office of Assistant Chief Counsel,

Financial Institutions and Products,

(202) 622-3940 (not a toll-free number)

concerning dealer assignments of notional principal contracts.

SUPPLEMENTARY

INFORMATION:

Background

Temporary regulations in TD 8676

amend the Income Tax Regulations (26

CFR part 1) relating to section 166. The

temporary regulations contain rules relating to the requirement that a debt be

charged off before a deduction on account of partial worthlessness is allowed. The rules apply to certain taxpayers who are required to recognize

gain as the result of a significant modification of a debt instrument.

Temporary regulations in TD 8676

amend the Income Tax Regulations (26

CFR part 1) relating to section 1001.

The temporary regulations contain rules

relating to certain assignments of notional principal contracts by dealers in

those contracts.

The text of those temporary regulations also serves as the text of these

proposed regulations. The preamble to

the temporary regulations explains the

temporary regulations.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a significant regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It also has been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility

Act (5 U.S.C. chapter 6) do not apply to

these regulations, and, therefore, a

Regulatory Flexibility Analysis is not

required. Pursuant to section 7805(f) of

the Internal Revenue Code, this notice

of proposed rulemaking will be submitted to the Chief Counsel for Advocacy

of the Small Business Administration for

comment on its impact on small business.

Par. 2. Section 1.166-3 is amended by

adding paragraph (a)(3) to read as follow:

Comments and Requests for a Public

Hearing

[The text of proposed section

1.1001-4 is the same as the text of

§ 1.1001-4T published elsewhere in this

issue of the Bulletin].

Before these proposed regulations are

adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8)

copies) that are submitted timely to the

IRS. All comments will be available for

public inspection and copying. A public

hearing may be scheduled if requested

in writing by any person that timely

submits written comments. If a public

hearing is scheduled, notice of the date,

time, and place for the hearing will be

published in the Federal Register.

§ 1.166-3 Partial or total worthlessness.

[The text of proposed paragraph

(a)(3) is the same as the text of

§ 1.166-3T(a)(3) published elsewhere in

this issue of the Bulletin].

Par. 3. Section 1.1001-4 is added to

read as follows:

§ 1.1001-4 Modifications of notional

principal contracts.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

June 24, 1996, 8:45 a.m., and published in the

issue of the Federal Register for June 25, 1996, 61

F.R. 32728)

Notice of Proposed Rulemaking

and Notice of Public Hearing

Qualified Small Business Stock

Drafting Information

IA-26-94

The principal author of the regulations concerning the modifications of

bad debts is Craig R. Wojay, Office of

Assistant Chief Counsel (Financial Institutions and Products), IRS. The principal author of the regulations concerning

dealer assignments of notional principal

contracts is Thomas J. Kelly, Office of

Assistant Chief Counsel (Financial Institutions and Products), IRS. However,

other personnel from the IRS and Treasury Department participated in their

development.

AGENCY: Internal Revenue Service

(IRS), Treasury.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting

recordkeeping requirements.

and

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 continues to read in part as

follows:

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

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains

proposed regulations relating to the 50percent exclusion for gain from certain

small business stock. The proposed

regulations reflect changes to the law

made by the Omnibus Budget Reconciliation Act of 1993 (OBRA ’93) and

provide guidance to the issuers and

owners of the stock of certain small

businesses. This document also provides

a notice of public hearing on these

proposed regulations.

DATES: Written comments and outlines

of oral comments to be presented at the

public hearing scheduled for October 3,

1996 must be received by September 4,

1996.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (IA-26-94), Room

5226, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. In the alternative, submissions may be hand delivered between

1996–30

I.R.B.

the hours of 8 a.m. and 5 p.m. to

CC:DOM:CORP:R (IA-26-94), Courier’s Desk, Internal Revenue Service,

1111 Constitution Avenue, NW., Washington, DC. The public hearing will be

held in Room 2615, Internal Revenue

Building, 1111 Constitution Avenue,

NW., Washington, DC 20224.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Catherine A. Prohofsky at (202)

622-4930; concerning submissions and

the public hearing, Christina Vasquez at

(202) 622-7180; (not toll-free numbers).

SUPPLEMENTARY

INFORMATION:

Background

This document contains proposed

amendments to the Income Tax Regulations (26 CFR part 1) relating to section

1202 of the Internal Revenue Code.

Section 1202 was added by section

13113 of OBRA ’93. Section 1202 allows a taxpayer (other than a corporation) to exclude 50 percent of certain

gain from the sale of qualified small

business stock held for more than 5

years.

Section 1202(c)(1) provides that only

stock acquired after August 10, 1993, at

its original issuance in exchange for

money, property other than stock, or as

compensation for services to the corporation (other than as an underwriter)

qualifies for the exclusion (the original

issue requirement). Section 1202(c)(3)

provides two rules to prevent evasion of

the original issue requirement. Under the

first rule, the exclusion does not apply

to stock acquired by the taxpayer if, at

any time during the 4-year period beginning 2 years before the issuance of such

stock, the corporation purchased (directly or indirectly) any of its stock

from the taxpayer or a related person.

Section 1202(c)(3)(A). Under the second

rule, the exclusion does not apply to

stock issued by a corporation if, during

the 2-year period beginning 1 year before the issuance of such stock, the

corporation made one or more purchases

of its stock with an aggregate value (as

of the time of the respective purchases)

exceeding 5 percent of the aggregate

value of all of its stock as of the

beginning of the 2-year period. Section

1202(c)(3)(B).

The IRS and Treasury are concerned

that, in many cases, redemptions that

have neither the purpose nor the effect

of evading the original issue require-

1996–30

I.R.B.

ment may result in disqualification under these rules. Section 1202(k) authorizes Treasury to prescribe such

regulations as may be appropriate to

carry out the purposes of section 1202.

Explanation of provisions

The proposed regulations permit a

corporation to redeem de minimis

amounts of stock without violating the

anti-evasion rules. The proposed regulations also provide that certain redemptions that are incident to events affecting

a shareholder and are unlikely to result

in evasion of the original issue requirement are disregarded in determining

whether redemptions exceed the de

minimis amounts. In particular, redemptions upon termination of a shareholder’s employment or the death, disability,

or mental incompetency of a shareholder

are disregarded. Finally, the regulations

clarify that transfers of stock by a

shareholder to an employee in connection with the performance of services

are not treated as redemptions for purposes of the anti-evasion rules.

The regulations will apply to stock

issued after the date they are published

as final regulations. The regulations will

also apply to stock issued on or before

that date, but only with respect to the

effect of redemptions occurring after

that date.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a significant regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It also has been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility

Act (5 U.S.C. chapter 6) do not apply to

these proposed regulations, and, therefore, a Regulatory Flexibility Analysis is

not required. Pursuant to section 7805(f)

of the Internal Revenue Code, this notice of proposed rulemaking will be

submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on

small businesses.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations, consideration will be given to any written comments (a signed original and 8 copies)

that are submitted timely to the IRS. All

comments will be available for public

inspection and copying.

The IRS and Treasury invite comments on matters addressed in the proposed regulations and suggestions for

any additional exceptions and clarifications that may be appropriate in the

context of the purpose of section

1202(c)(3) and the regulatory authority

granted in section 1202(k). The IRS and

Treasury specifically invite comments

from the small business community.

The IRS and Treasury are particularly

interested in comments regarding the

scope of the exception for redemptions

incident to termination of employment.

The IRS and Treasury are committed to

extending the exception to independent

contractors, but seek comments regarding how to determine when a termination of the independent contractor’s services has occurred.

A public hearing has been scheduled

for October 3, 1996, at 10 a.m. in Room

2615, Internal Revenue Building, 1111

Constitution Avenue, NW., Washington,

DC. Because of access restrictions, visitors will not be admitted beyond the

building lobby more than 15 minutes

before the hearing starts.

The rules of 26 CFR 601.601(a)(3)

apply to the hearing.

Persons that wish to present oral

comments at the hearing must submit

written comments and an outline of

topics to be discussed and the time to be

devoted to each topic (signed original

and 8 copies) by September 4, 1996.

A period of 10 minutes will be allotted to each person for making comments.

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

Drafting Information

The principal author of these regulations is Catherine A. Prohofsky, Office

of Assistant Chief Counsel (Income Tax

and Accounting). However, other personnel from the IRS and Treasury Department participated in their development.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by adding an entry in

numerical order to read as follows:

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

Section 1.1202-2 is also issued under 26

U.S.C. 1202(k).

***

Par. 2. Sections 1.1202-0 and

1.1202-2 are added to read as follows:

§ 1.1202-0 Table of contents.

This section lists the major captions

that appear in the regulations under

§ 1.1202-2.

§ 1.1202-2 Qualified small business

stock; effect of redemptions.

(a) Redemptions from taxpayer or related person.

(1) In general.

(2) De minimis amount.

(b) Significant redemptions.

(1) De minimis amount.

(2) Special rule.

not treated as purchases.

(d) Exceptions for termination of services, death, or disability or mental

incompetency.

(1) Termination of services.

(2) Death.

(3) Disability or mental incompetency.

(e) Effective date.

§ 1.1202-2 Qualified small business

stock; effect of redemptions.

(a) Redemptions from taxpayer or related person—(1) In general. Stock acquired by a taxpayer is not qualified

small business stock if, in one or more

purchases during the 4-year period beginning on the date 2 years before the

issuance of the stock, the issuing corporation purchases (directly or indirectly)

more than a de minimis amount of its

stock from the taxpayer or from a

person related (within the meaning of

section 267(b) or 707(b)) to the taxpayer.

(2) De minimis amount. For purposes

of this paragraph (a), stock exceeds a de

minimis amount only if the aggregate

amount paid for the stock exceeds

$10,000 and more than 2 percent of the

stock held by the taxpayer and related

persons is acquired. The following rules

apply for purposes of determining

whether the 2-percent limit is exceeded.

The percentage of stock acquired in any

single purchase is determined by dividing the stock’s value (as of the time of

purchase) by the value (as of the time of

purchase) of all stock held (directly or

indirectly) by the taxpayer and related

persons immediately before the purchase. The percentage of stock acquired

in multiple purchases is the sum of the

percentages determined for each separate purchase.

(b) Significant redemptions—(1) In

general. Stock is not qualified small

business stock if, in one or more purchases during the 2-year period beginning on the date 1 year before the

issuance of the stock, the issuing corporation purchases more than a de minimis

amount of its stock and the purchased

stock has an aggregate value (as of the

time of the respective purchases) exceeding 5 percent of the aggregate value

of all of the issuing corporation’s stock

as of the beginning of such 2-year

period.

(2) De minimis amount. For purposes

of this paragraph (b), stock exceeds a de

minimis amount only if the aggregate

amount paid for the stock exceeds

$10,000 and more than 2 percent of all

outstanding stock is purchased. The following rules apply for purposes of determining whether the 2-percent limit is

exceeded. The percentage of the stock

acquired in any single purchase is determined by dividing the stock’s value (as

of the time of purchase) by the value (as

of the time of purchase) of all stock

outstanding immediately before the purchase. The percentage of stock acquired

in multiple purchases is the sum of the

percentages determined for each separate purchase.

not treated as purchases. A transfer of

stock by a shareholder to an employee

or independent contractor (or to a beneficiary of an employee or independent

contractor) is not treated as a purchase

of the stock by the issuing corporation

for purposes of this section even if the

stock is treated as having first been

transferred to the corporation under

§ 1.83- 6(d)(1) (relating to transfers by

shareholders to employees or independent contractors).

(d) Exceptions for termination of services, death, or disability or mental

incompetency. A stock purchase is disregarded for purposes of this section if—

(1) Termination of services—(i) Employees and directors. The stock was

acquired by the seller in connection with

the performance of services as an employee or director and the stock is

purchased from the seller incident to the

seller’s retirement or other bona fide

termination of such services;

(ii) Independent contractors. [Reserved];

(2) Death. The stock is purchased

from the deceased shareholder’s estate,

beneficiary, heir, surviving joint tenant,

or from a surviving spouse or a trust

established by a decedent, the stock is

purchased within 3 years and 9 months

from the date of death, and the stock (or

an option to acquire the stock) was

acquired by the seller before or on

account of the death of the decedent; or

(3) Disability or mental incompetency. The stock is purchased incident to

the disability or mental incompetency of

the selling shareholder.

(e) Effective date. This section applies to stock issued after the date these

regulations are published as final regulations in the Federal Register. This

section also applies to stock issued on

or before the date these regulations are

published as final regulations in the

Federal Register, but only with respect

to the effect of purchases by the issuing

corporation that occur after that date.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

June 3, 1996, 11:29 a.m., and published in the

issue of the Federal Register for June 6, 1996, 61

F.R. 28821)

Foundations Status of Certain

Organizations

Announcement 96–67

The following organizations have

failed to establish or have been unable

to maintain their status as public charities or as operating foundations. Accordingly, grantors and contributors may not,

after this date, rely on previous rulings

or designations in the Cumulative List

of Organizations (Publication 78), or on

the presumption arising from the filing

of notices under section 508(b) of the

Code. This listing does not indicate that

the organizations have lost their status

as organizations described in section

501(c)(3), eligible to receive deductible

contributions.

Former Public Charities. The following organizations (which have been

treated as organizations that are not

private foundations described in section

509(a) of the Code) are now classified

as private foundations:

Abode Incorporation, New Orleans, LA

Addiction Recovery Resources, Inc.,

Jonesboro, GA

1996–30

I.R.B.

African American Cultural and Economic Alliance Inc., Washington, DC

Agape House Inc., Hoyleton, IL

Agricultural Educational Foundation

Inc., 1497 N 1050 E Road,

Monticello, IL

Alle-Kiski Literacy Council Inc., New

Kensington, PA

Archway Programs Delaware Inc., Atco,

Armin Mattli Foundation, Inc., Orlando,

Athenaeum Theatre Company, Chicago,

Audio Optics Inc., West Orange, NJ

Aware Incorporated, Clayton, MO

Calvert Chamber Foundation Inc.,

Prince Frederick, MD

Canaan House, Lynchburg, VA

Center for Families in Change Inc.,

Meadville, PA

Center for Law in the Public Interest

Foundation, Woodland Hills, CA

Central Minnesota Youth Symphony

Inc., St. Cloud, MN

Centro Comunal Unidad Community

Center Inc., Washington, DC

Cherry Tree Music CO-OP, Philadelphia,

Citizens Advisory to Probation and Parole, Festus, MO

Civil Justice for Civil Liberty, Omaha,

Coalition to Avert Prison Recidivism,

Galesburg, IL

Collingwood Foundation Inc., Gibsonia,

Committee for a Greener Glencoe,

Glencoe, IL

Community Connections Publications

Inc., Asheville, NC

Community Education Institute, Cleveland, TN

Community Human Development Center

Inc., Philadelphia, PA

Compass Theatre Inc., Princeton, NJ

Consensus Foundation, Dallas, TX

Coping Kids Inc., East Petersburg, PA

Crawford County Literacy Council Inc.,

Meadville, PA

Creekside

Community

Center,

Muscatine, IA

Dauphin County Counseling Center,

Harrisburg, PA

Delaware Valley Housing Corporation,

Philadelphia, PA

District of Columbia Cancer Consortium, Washington, DC

Dodge County Friends of the Arts Inc.,

Eastman, GA

Dorothy B Ferebee Foundation Incorporated, Washington, DC

Douglas County High School Academic

Booster Club Inc., Douglasville, GA

1996–30

I.R.B.

Durham Ecumenical Youth Choir,

Durham, NC

East Asia Research Institute, Washington, DC

Evensong Chorale Inc., Virgina Beach,

Employment Development Services, Baton Rouge, LA

Emporia Community Development Inc.,

Emporia, VA

End-Time Deliverance Center Inc.,

Clinton, MS

Equipping the Saints Ministries Inc.,

Deerfield Beach, FL

Fenwick Transportation Corporation,

Woodstown, NJ

First Ozark Housing Development

Corp., Mountain Home, AR

Fish and Wildlife Alliance, Anoka, MN

Food Phone of The Lehigh Valley,

Bethlehem, PA

Foundation for the Advancement & Support of Educ of Namibia Inc., Washington, DC

Fourth Street Consortium Inc., Reading,

Freedom Faith Ministries Inc., Kenosha,

Friends of Justice, Kansas City, MO

Friends of the Decorative Arts, Inc.,

Lake Charles, LA

Friends of Transportation, Inc.,

Asheville, NC

Flying Pig Theatre, Pittsburgh, PA

G.A.N.A.S., Denver, CO

Gentle Hands Ministries, Gastonia, NC

Georgetown Preparatory School Alumni

Association Inc., Rockville, MD

Grand Ma’s Hands, Charlotte, NC

Granville Academy National Inc.,

Lawrenceville, NJ

Grassroot Arts, Kankakee, IL

Green Lake County Humane Society

Inc., Green Lake, WI

Gymnastic Expressions, Montoursville,

Haddock Foundation, Morrisville, NC

Harmonia Music Club, Lebanon, PA

Heritage Foundation at Whiteman Air

Force Base, Whiteman AFB, MO

His Higher Hopes Inc., Independence,

Historic Wills Preservation Project Inc.,

Reading, PA

Holiday House of Federation Housing

Inc., Philadelphia, PA

Interamerican Mustic Festival of Florida,

Inc., Miami, FL

International Assoc. of Black Professional, Landover, MD

International Missions Outreach, Harrisonville, MO

Iowa Historic Preservation Alliance,

West Branch, IA

Irish American Unity Foundation,

Boynton Beach, FL

Joyfull Ministries Inc., Pensacola, FL

Kansas City Area Teachers of Mathematics Inc., Kansas City, MO

Kirke Harris Ensemble, Landover, MD

Krisle Christian Ministries, Whitehouse,

L B G I Educational Services, Chicago,

L C 38 Charity Fund Inc., Philadelphia,

Learning Center for Christ, Washington,

Lincolnton Chorus Booster, Inc.,

Lincolnton, NC

Living Composers Inc., Atlanta, GA

Mineral Area Choir Connection,

Desloge, MO

Minnesota Asian Youth Support Group

Inc., Minneapolis, MN

Miracle on Caney Creek, Inc., Lexington, KY

MLAC Inc., Pittsburgh, PA

Mooresville Foundation For Excellance

in Education, Mooresville, NC

Muhammad Ali Education and Humanitarian Foundation, Chicago, IL

National Academic Association, Columbus, OH

National Coalition for Human Rights,

Minneapolis, MN

National Housing Preservation Corp.,

Nashville, TN

Native American Television Inc., St.

Cloud, MN

Nebraska Vegetarian Society, Lincoln,

New Horizons Charity, Mackinaw, IL

New Outlook Inc., Jacksonville, FL

North Carolina Foundation for International Commerce, Research Triangle

Park, NC

Northwest Suburban Bar Association

Foundation, Arlington Heights, IL

Nurses for Human Development Education Inc., Jonesboro, AR

Off the Streets, Hoffman Estates, IL

If an organization listed above submits information that warrants the renewal of its classification as a public

charity or as a private operating foundation, the Internal Revenue Service will

issue a ruling or determination letter

with the revised classification as to

foundation status. Grantors and contributors may thereafter rely upon such ruling or determination letter as provided

in section 1.509(a)–7 of the Income Tax

Regulations. It is not the practice of the

Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.

Announcement of the Disbarment, Suspension, and Consent to Voluntary

Suspension of Attorneys, Certified Public Accountants, Enrolled Agents and

Enrolled Actuaries From Practice Before the Internal Revenue Service

Under 31 Code of Federal Regulations, Part 10, an attorney, certified public accountant, enrolled agent or enrolled

actuary, in order to avoid the institution

or conclusion of a proceeding for his

disbarment or suspension from practice

before the Internal Revenue Service,

may offer his consent to suspension

from such practice. The Director of

Practice, in his discretion, may suspend

an attorney, certified public accountant,

enrolled agent or enrolled actuary in

accordance with the consent offered.

Attorneys, certified public accountants, enrolled agents and enrolled actuaries are prohibited in any Internal Rev-

enue Service matter from directly or

indirectly employing, accepting assistance from, being employed by, or sharing fees with, any practitioner disbarred

or suspended from practice before the

Internal Revenue Service.

To enable attorneys, certified public

accountants, enrolled agents and enrolled actuaries to identify practitioners

under consent suspension from practice

before the Internal Revenue Service, the

Director of Practice will announce in the

Internal Revenue Bulletin the names and

addresses of practitioners who have

been suspended from such practice, their

designation as attorney, certified public

accountant, enrolled agent or enrolled

actuary and date or period of suspension. This announcement will appear in

the weekly Bulletin at the earliest practicable date after such action and will

continue to appear in the weekly Bulletins for five successive weeks or for as

many weeks as is practicable for each

attorney, certified public accountant, enrolled agent or enrolled actuary so suspended and will be consolidated and

published in the Cumulative Bulletin.

The following individuals have been

placed under consent suspension from

practice before the Internal Revenue

Service:

Name

Address

Designation

Date of Suspension

Bruender, Lawrence

Pallman, James J.

Pribble Jr., William C.

Pyburn, Richard E.

Scalise, James J.

Kieldaisch, Dale W.

Ogorek, Charolotte F.

Korman, Steven B.

Myers, Donald L.

Sharrett, William R.

Cornwell, Douglas S.

Chang, Sun Kun

Cariveau, Stewart

Carter, Gary E.

Underwood, Wendell L.

Candiloro, James A.

Schwartz, Leonard J.

Forrester, Donald F.

Shade, Stephen E.

Woods, James G.

Grove, Michael J.

Jenkins, Frank

Brewton III, George W.

Fischer, Randall E.

Rhoney, Brian

Devereux, Michael J.

Cranston, Robert S.

Miller, Dwight W.

Beck, Clyde E.

Seal, Ernest E.

Dicker, Joseph W.

Lesueur, MN

New Haven, CT

Minneapolis, MN

Downers Grove, IL

New Britain, CT

Manteno, Il

Park Ridge, IL

Mulford, CT

Olney, MD

Paradise, CA

Norwalk, CT

McLean, VA

Minneapolis, MN

Ashdown, AR

Sedalia, MO

Glastonbury, CT

Danbury, CT

Fairfield, OH

Clearwater, FL

Huntington, CT

Alliance, Oh

Montgomery, AL

Greenville, MS

Lombard, IL

Wheaton, IL

Florissant, MO

Saugerties, NY

Overland Pk, KS

Salina, KS

Cleveland, MS

Minneapolis, MN

Attorney

CPA

Attorney

CPA

Attorney

CPA

Enrolled Agent

CPA

Enrolled Agent

CPA

Enrolled Agent

CPA

Enrolled Agent

CPA

Attorney

Indefinite from April 18, 1996

April 19, 1996 to October 18, 1996

Indefinite from May 1, 1996

May 1, 1996 to October 31, 1997

May 1, 1996 to July 31, 1996

May 1, 1996 to October 31, 1996

May 3, 1996 to July 2, 1996

May 3, 1996 to February 2, 1997

May 7, 1996 to May 6, 1998

May 8, 1996 to November 7, 1996

May 10, 1996 to November 9, 1996

May 13, 1996 to July 12, 1996

May 30, 1996 to August 29, 1996

June 1, 1996 to August 31, 1996

June 1, 1996 to July 31, 1996

June 1, 1996 to November 30, 1996

June 1, 1996 to February 28, 1997

Indefinite from June 4, 1996

June 8, 1996 to May 7, 1997

July 1, 1996 to June 30, 1997

July 1, 1996 to December 31, 1996

July 1, 1996 to September 30, 1996

July 1, 1996 to Decemer 31, 1996

July 1, 1996 to March 31, 1997

July 1, 1996 to December 31, 1996

July 1, 1996 to June 30, 1997

July 1, 1996 to October 31, 1996

August 1, 1996 to July 31, 1998

August 1, 1996 to October 31, 1996

Under Section 330, Title 31 of the

United States Code, the Secretary of the

Treasury, after due notice and opportunity for hearing, is authorized to suspend or disbar from practice before the

Internal Revenue Service any person

who has viol

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