# Bulletin No. 1996–31

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A1f7431f29fd3984e

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

Bulletin No. 1996–31
July 29, 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. 96–35, page 4.
Low-income housing tax credit. Assistance provided by
the Federal Emergency Management Agency to the owner
of property that is damaged by a disaster will not result in
a reduction of the eligible basis of the property under
section 42(d)(5), or the recharacterization of the property
under section 42(i)(2) as federally subsidized.
T.D. 8678, page 11.
CO–25–96, page 30.
Temporary and proposed regulations under section 1502
of the Code relate to the limitations on net operating loss
carryforwards and certain built-in losses and credits following an ownership change. A public hearing on the proposed regulations will be held on October 17, 1996.
T.D. 8679, page 4.
CO–26–96, page 31.
Final, temporary, and proposed regulations under section
382 of the Code relate to limitations on net operating loss
carryforwards and certain built-in losses following an ownership change in short taxable years and with respect to
controlled groups. A public hearing on the proposed
regulations will be held on October 17, 1996.
FI–28–96, page 33.
Proposed regulations under section 148 of the Code relate
to the arbitrage restrictions applicable to tax-exempt bonds

Finding Lists begin on page 49.
Announcement of Disbarments and Suspensions begins on page 47.

issued by state and local governments. A public hearing
will be held on October 24, 1996.
FI–48–95, page 36.
Proposed regulations under section 171 of the Code relate
to the federal tax treatment of bond premium and bond
issuance premium. A public hearing will be held on October
23, 1996.

EMPLOYEE PLANS
Notice 96–38, page 29.
Guidelines are set forth for determining for July 1996 the
weighted average interest rate and the resulting permissible range of interest rates used to calculate current
liability for purposes of the full funding limitation of section
412(c)(7) of the Code as amended by the Omnibus Budget
Reconciliation Act of 1987 and by the Uruguay Round
Agreements Act (GATT).

EXEMPT ORGANIZATIONS
Announcement 96–68, page 45.
A list is given of organizations now classified as private
foundations.

ADMINISTRATIVE
Notice 96–37, page 29.
This notice explains the procedure for claiming a refund
based on United States v. IBM, 64 U.S.L.W. 4419 (1996).

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.

2

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.

3

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 42.—Low-Income Housing
Credit
Low-income housing tax credit. Assistance provided by the Federal Emergency Management Agency to the
owner of property that is damaged by a
disaster will not result in a reduction of
the eligible basis of the property under
section 42(d)(5), or the recharacterization of the property under section
42(i)(2) as federally subsidized.
Rev. Rul. 96–35
ISSUES
(1) If a qualified low-income building
is damaged by a disaster and a belowmarket loan is provided by the Federal
Emergency
Management
Agency
(FEMA) to the owner of the building to
repair, reconstruct, or restore the building
to its pre-casualty condition, does the
loan cause the building to be characterized as federally subsidized under
§ 42(i)(2) of the Internal Revenue Code?
(2) If a qualified low-income building
is damaged by a disaster and a grant is
provided by FEMA to the owner of the
building to repair, reconstruct, or restore
the building to its pre-casualty condition, does the grant require the owner to
reduce the building’s eligible basis under § 42(d)(5) to the extent of the
FEMA grant?
FACTS
Taxpayer, T, owns and operates a new
qualified low-income building (as defined in § 42(c)(2)) that qualified for
the 70-percent present value credit under
§ 42(b)(2)(B)(i). The building was partially destroyed by a hurricane during
the building’s 15-year compliance period
(as defined in § 42(i)(1)). The President
declared the area affected by the hurricane a major disaster area, making
available assistance through FEMA. T
received a FEMA below-market loan
and a grant that T used to restore the
building to its pre-casualty condition.
LAW AND ANALYSIS
Section 42 provides a tax credit for
investment in qualified low-income
buildings placed in service after December 31, 1986. For any taxable year in a
10-year credit period, the amount of
credit is equal to the applicable percentage of the qualified basis of each qualified low-income building.
For a qualified low-income building
placed in service after 1987, the term

‘‘applicable percentage’’ means the percentage that will yield over a 10-year
period amounts of credit that have a
present value equal to: (i) 70 percent of
the qualified basis of new buildings that
are not federally subsidized for the
taxable year (70-percent present value
credit), and (ii) 30 percent of the qualified basis of existing buildings, and of
new buildings that are federally subsidized for the taxable year (30-percent
present value credit).
Under § 42(i)(2)(A), a new building
is federally subsidized for any taxable
year if, at any time during the taxable
year or any prior taxable year, there is
or was outstanding any below-market
federal loan, the proceeds of which were
used (directly or indirectly) for the
building or its operation.
Under § 42(c), the qualified basis of
any qualified low-income building for
any taxable year is an amount equal to
the applicable fraction (defined in
§ 42(c)(1)(B)) of the eligible basis of the
building. Section 42(d)(5) provides that
if, during any taxable year of the compliance period, a federal grant is used for a
building or its operation, the eligible
basis of the building for the taxable year
and all succeeding taxable years is reduced to the extent of the federal grant.
The rules of § 42(i)(2) and § 42(d)(5)
limit the low-income housing credit if
federally subsidized loans or federal
grants are used to finance a building or
meet the operating costs of the building.
If a building is damaged in a federally
declared disaster, however, FEMA assistance does not substitute for funds that
were used to determine the building’s
basis nor is it used to meet operating
costs of the building. Rather, FEMA
funds merely help to restore the status of
the building to its pre-casualty condition.
FEMA funds provide no additional federal benefit to taxpayers that § 42(i)(2)
and § 42(d)(5) were intended to limit.
Furthermore, reducing the amount of the
credit available under § 42 would place
the owner of a qualified low-income
building at a disadvantage compared with
other building owners using FEMA funds.
Therefore, the amount of credit available
to a building will not be affected under
§ 42(i)(2) and § 42(d)(5) by the building
owner’s use of FEMA assistance.
HOLDING
(1) A below-market loan provided by
FEMA to the owner of a qualified

4

low-income building damaged by a disaster to repair, reconstruct, or restore
the building to its pre-casualty condition
does not result in characterizing the
building as federally subsidized under
§ 42(i)(2).
(2) A grant provided by FEMA to the
owner of a qualified low-income housing building damaged by a disaster does
not cause a reduction of the building’s
eligible basis under § 42(d)(5) to the
extent that the grant funds are used to
repair, reconstruct, or restore the building to its pre-casualty condition.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Christopher J. Wilson of the
Office of Assistant Chief Counsel
(Passthroughs and Special Industries).
For further information regarding this
revenue ruling contact Mr. Wilson on
(202) 622–3040 (not a toll-free call).
Section 382.—Limitations on Net
Operating Loss Carryforwards and
Certain Built-In Losses Following
Ownership Change
26 CFR 1.382–8T: Controlled groups (temporary).

T.D. 8679
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Regulations Under Section 382 of
the Internal Revenue Code of 1986;
Application of Section 382 in Short
Taxable Years and With Respect to
Controlled Groups
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regulations.
SUMMARY: This document contains final and temporary regulations relating to
limitations on net operating loss carryforwards and certain built-in losses
following an ownership change and
comply with the statutory direction under section 382(m) of the Internal Revenue Code to prescribe regulations concerning short taxable years and
controlled groups. This document also
contains amendments relating to the end
of separate tracking of the stock ownership of loss corporations that cease to
exist following a merger or similar
transaction. The text of these temporary

regulations also serves as the text of the
proposed regulations set forth in CO–
26–96, page 31, in this issue of the
Bulletin.
DATES: These regulations 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 these temporary regulations
has been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under the
control number 1545– 1434. Section
1.382–8T(h) requires a response from
certain corporations that are members of
controlled groups. The IRS requires this
information to assure compliance with
section 382(m)(5) so that the value of a
loss corporation that is a member of a
controlled group is not taken into account more than once in computing a
section 382 limitation. Responses to this
collection of information are required to
obtain a benefit (relating to the restoration of value for section 382 purposes).
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid control number.
For further information concerning
this collection of information, and where
to submit comments on the collection of
information and the accuracy of the
estimated burden, and suggestions for
reducing this burden, please refer to the
preamble to CO–26–96, page 31, 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 issued three notices of proposed rulemaking, CO–132–87 (56 FR

4194), CO–077–90 (56 FR 4183), and
CO–078–90 (56 FR 4228), setting forth
rules regarding the application of sections 382 and 383 by consolidated
groups and by controlled groups, and
the carryover and carryback of losses to
consolidated and separate return years.
For reasons explained in the preamble
to TD 8678 (page 11 in this issue of the
Bulletin), the IRS and Treasury are
issuing temporary amendments concerning the limitations on net operating loss
carryforwards and certain built-in losses
and credits following an ownership
change of a consolidated group. The
temporary regulations contained in this
Treasury decision complement those
other temporary regulations. They assure
that the members of a controlled group
cannot duplicate value in computing
their respective section 382 limitations,
a result not permitted to members of a
group filing consolidated returns. See
§ 1.1502–93T.
These temporary regulations are substantially identical to the rules proposed
on January 29, 1991. One provision
(relating to the effects of successive
ownership changes) was moved from
the consolidated return regulations to the
section 382 regulations to clarify that it
is applicable to all corporations. These
temporary amendments do not address
the numerous comments on the proposed regulations. Many of these comments are still under consideration.
Effective Dates
The temporary amendments are generally effective as of January 1, 1997.
The final rules relating to the value of
stock added to § 1.382–2(a)(3)(i) and
the temporary rules in § 1.382–
2T(f)(1)(ii) (relating to the end of separate tracking of certain loss corporations) are generally effective as of January 29, 1991. The temporary rules in
§ 1.382–5T (relating generally to short
taxable years and successive ownership
changes) generally apply to loss corporations that have an ownership change
to which section 382(a), as amended by
the Tax Reform Act of 1986, applies.
Special Analysis

chapter 6) do not apply to these regulations, and, therefore, a Regulatory Flexibility Analysis is not required. Pursuant
to section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking preceding these regulations
were sent to the Small Business Administration for comment on their impact on
small business.
Drafting Information
The principal author of the temporary
regulations is David B. Friedel of the
Office of Assistant Chief Counsel (Corporate), IRS. Other personnel from the
IRS and Treasury participated in their
development.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for Part 1 is amended by removing the
entries for ‘‘1.382–2’’ and ‘‘1.382–2T’’
and adding entries in numerical order to
read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.382–2 also issued under 26
U.S.C. 382(k)(1), (l)(3), (m), and 26
U.S.C. 383.
Section 1.382–2T also issued under
26 U.S.C. 382(g)(4)(C), (i), (k)(1) and
(6), (l)(3), (m), and 26 U.S.C. 383.* * *
Section 1.382–5T also issued under
26 U.S.C. 382(m).* * *
Section 1.382–8T also issued under
26 U.S.C. 382(m).* * *
Par. 2. Section 1.382–1 is amended
by:
a. Adding an entry for § 1.382–2,
paragraph (a)(1)(iv).
b. Revising the entry for § 1.382–2,
paragraph (a)(3)(i).
c. Adding entries for § 1.382–2T,
paragraphs (f)(1)(i) through (f)(1)(iii).
d. Adding entries for §§ 1.382–5T
and 1.382–8T.
§ 1.382–1 Table of contents.

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) and
the Regulatory Flexibility Act (5 U.S.C.

5

*

*

*

*

*

§ 1.382–2 General rules for ownership
change.
(a) * * *
(1) * * *

(iv) End of separate accounting for
losses and credits of distributor or
transferor loss corporation.
*

*

*

*

*

§ 1.382–2T Definition of ownership
change under section 382, as amended
by the Tax Reform Act of 1986 (temporary).
*

*

*

*

*

(f) * * *
(1) * * *
(i) In general.
(ii) End of separate accounting for
losses and credits of distributor or
transferor loss corporation.
(iii) Application to other successor
corporations.
*

*

*

*

*

§ 1.382–5T Section 382 limitation (temporary).
(a) Scope.
(b) Computation of value.
(c) Short taxable year.
(d) Successive ownership changes
and absorption of a section 382 limitation.
(1) In general.
(2) Recognized built-in gains and
losses.
(3) Effective date.
(e) Controlled groups.
(f) Effective date.
*

*

*

*

*

§ 1.382–8T Controlled groups (temporary).
(a) Introduction.
(b) Controlled group loss and controlled group with respect to a controlled group loss.
(c) Computation of value.
(1) Reduction in value.
(2) Restoration of value.
(3) Reduction in value by the amount
restored.
(4) Appropriate adjustments.
(5) Certain reductions in the value of
members of a controlled group.
(d) No double reduction.
(e) Definitions and nomenclature.
(1) Definitions in Section 382 and the
regulations thereunder.
(2) Controlled group.
(3) Component member.
(4) Predecessor and successor corporation.
(f) Coordination between consolidated groups and controlled groups.
(g) Examples.
(h) Time and manner of filing election to restore.

(1) Statement required.
(2) Revocation of election.
(3) Filing by component member.
(i) [Reserved]
(j) Effective date.
(1) In general.
(2) Transition rule.
(i) In general.
(ii) Special transition rules for controlled groups that had ownership
changes before January 29, 1991.
(3) Amended returns.
Par. 3. Section 1.382–2 is amended as
follows:
a The first sentence of paragraph
(a)(1)(iii) is amended by removing the
language ‘‘Pre-change losses’’ and adding ‘‘Except as provided in § 1.382–
2T(f)(1)(ii), pre-change losses’’ in its
place.
b Paragraph (a)(1)(iv) is added.
c The text of § 1.382–2T(f)(18)(i) is
redesignated as the text of § 1.382–
2(a)(3)(i).
d Newly designated paragraph
(a)(3)(i) is amended by adding three
sentences at the end.
The additions read as follows:
§ 1.382–2 General rules for ownership
change.
(a) * * *
(1) * * *
(iv) End of separate accounting for
losses and credits of distributor or
transferor loss corporation. For further
guidance, see § 1.382–2T(f)(1)(ii).
*

*

*

*

*

(3) * * * (i) * * * Solely for
purposes of determining the percentage
of stock owned by a person, each share
of all the outstanding shares of stock
that have the same material terms is
treated as having the same value. Thus,
for example, a control premium or
blockage discount is disregarded in determining the percentage of stock owned
by any person. The previous two sentences of this paragraph (a)(3)(i) apply
to any testing date occurring on or after
January 29, 1991.
*

*

*

*

*

Par. 4. Section 1.382–2T is amended
as follows:
(a) Paragraph (e)(2)(iv) Example (1)
is amended by removing the last sentence.
(b) Paragraph (e)(2)(iv) Example
(2)(ii) is amended by adding a sentence
at the end.
(c) Paragraph (e)(2)(iv) Example
(2)(iii) is amended by removing the
language ‘‘, but must be separately

6

accounted for under § 1.382–2(a)(1)(iii)
of this section’’ from the last sentence.
(d) The text following the heading of
paragraph (f)(1) is designated as paragraph (f)(1)(i) and a heading for newly
designated paragraph (f)(1)(i) is added.
(e) Paragraphs (f)(1)(ii) and (f)(1)(iii)
are added.
(f) Paragraph (f)(4) is amended by
removing the word ‘‘loss’’ and by adding two sentences at the end.
(g) Paragraph (f)(5) is amended by
adding two sentences at the end.
(h) A sentence is added after the
heading of paragraph (f)(18)(i).
(i) Paragraph (h)(2)(i)(A) is amended
by adding the language ‘‘and solely for
the purposes of determining whether a
loss corporation has an ownership
change’’ immediately after ‘‘except as
otherwise provided in this section,’’.
The additions read as follows:
§ 1.382–2T Definitions of ownership
change under section 382, as amended
by the Tax Reform Act of 1986 (temporary).
*

*

*

*

*

(e) * * *
(2) * * *
(iv) * * *
Example (2) * * *
(ii) * * * See paragraph (f)(1)(ii) of
this section for rules that end separate
accounting for L1’s pre-change losses on
any testing date occurring on or after
January 29, 1991.
(f) * * *
(1) * * *
(i) In general. * * *
(ii) End of separate accounting for
losses and credits of distributor or
transferor loss corporation. The separate
tracking of owner shifts of the stock of
an acquiring corporation required by
§ 1.382–2(a)(1)(iii) with respect to the
net operating loss carryovers and other
attributes described in § 1.382–
2(a)(1)(ii) ends when a fold-in event
occurs. A fold-in event is either an
ownership change of the distributor or
transferor corporation in connection
with, or after, the transaction to which
section 381(a) applies, or a period of 5
consecutive years following the section
381(a) transaction during which the distributor or transferor corporation has not
had an ownership change. Starting on
the day after the earlier of the change
date (but not earlier than the day of the
section 381(a) transaction) or the last
day of the 5 consecutive year period, the
losses and other attributes of the distributor or transferor corporation are

treated as losses and attributes of the
acquiring corporation for purposes of
determining whether an ownership
change occurs with respect to such
losses. Also, for purposes of determining
the beginning of the acquiring corporation’s testing period, such losses are
considered to arise either in a taxable
year that begins not earlier than the later
of the day following the change date or
the day of the section 381(a) transaction,
or in a taxable year that begins 3 years
before the end of the 5 consecutive year
period. Pre-change losses of a distributor
or transferor corporation that are subject
to a limitation under section 382 continue to be subject to the limitation
notwithstanding the occurrence of a
fold-in event. Any ownership change
that occurs in connection with, or subsequent to, the section 381 transaction
may result in an additional, lesser limitation with respect to such pre-change
losses. This paragraph (f)(1)(ii) applies
to any testing date occurring on or after
January 29, 1991.
(iii) Application to other successor
corporations. Section 1.382–2(a)(1) (relating to the definition of loss corporation) and this paragraph (f)(1) also apply, as the context may require, to
successor corporations other than successors in section 381(a) transactions.
For example, if a corporation receives
assets from the loss corporation that
have basis in excess of value, the recipient corporation’s basis for the assets is
determined, directly or indirectly, in
whole or in part, by reference to the loss
corporation’s basis, and the amount by
which basis exceeds value is material,
the recipient corporation is a successor
corporation subject to § 1.382–2(a)(1)
and this paragraph (f)(1). This paragraph
(f)(1)(iii) applies to any testing date
occurring on or after January 1, 1997.
*

*

*

*

*

(4) Successor corporation. * * * A
successor corporation also includes, as
the context may require, a corporation
which receives an asset or assets from
another corporation if the corporation’s
basis for the asset(s) is determined,
directly or indirectly, in whole or in
part, by reference to the other corporation’s basis and the amount by which
basis differs from value is, in the aggregate, material. The previous sentence of
this paragraph (f)(4) applies to any
testing date occurring on or after January 1, 1997.
(5) Predecessor corporation. * * * A
predecessor corporation also includes, as
the context may require, a corporation

which transfers an asset or assets to
another corporation if the transferee’s
basis for the asset(s) is determined,
directly or indirectly, in whole or in
part, by reference to the corporation’s
basis and the amount by which basis
differs from value is, in the aggregate,
material. The previous sentence of this
paragraph (f)(5) applies to any testing
date occurring on or after January 1,
1997.
*

*

*

*

*

(18) * * * (i) * * * For further
guidance, see § 1.382–2(a)(3)(i).
*

*

*

*

*

Par. 5. Sections 1.382–5T and
1.382–8T are added to read as follows:
§ 1.382–5T Section 382 limitation (temporary).
(a) Scope. Following an ownership
change, the section 382 limitation for
any post-change year is an amount equal
to the value of the loss corporation
multiplied by the long-term tax- exempt
rate that applies with respect to the
ownership change, and adjusted as required by section 382 and the regulations thereunder. See, for example, section 382(b)(2) (relating to the
carryforward of unused section 382
limitation), section 382(b)(3)(B) (relating to the section 382 limitation for the
post-change year that includes the
change date), section 382(m)(2) (relating
to short taxable years), and section
382(h) (relating to recognized built-in
gains and section 338 gains).
(b) Computation of value. [Reserved]
(c) Short taxable year. The section
382 limitation for any post-change year
that is less than 365 days is the amount
that bears the same ratio to the section
382 limitation determined under section
382(b)(1) as the number of days in the
post-change year bears to 365. The
section 382 limitation, as so determined,
is adjusted as required by section 382
and the regulations thereunder. This
paragraph (c) does not apply to a 52–53
week taxable year that is less than 365
days unless a return is required under
section 443 (relating to short periods)
for such year.
(d) Successive ownership changes
and absorption of a section 382 limitation—(1) In general. If a loss corporation has two (or more) ownership
changes, any losses attributable to the
period preceding the earlier ownership
change are treated as pre-change losses
with respect to both ownership changes.
Thus, the later ownership change may

7

result in a lesser (but never in a greater)
section 382 limitation with respect to
such losses. In any case, the amount of
taxable income for any post-change year
that can be offset by pre-change losses
may not exceed the section 382 limitation for such ownership change, reduced
by the amount of taxable income offset
by pre-change losses subject to any
earlier ownership change(s).
(2) Recognized built-in gains and
losses. [Reserved]
(3) Effective date. This paragraph (d)
applies to taxable years of a loss corporation beginning on or after January 1,
1997.
(e) Controlled groups. See § 1.382–
8T for rules for determining the value of
a loss corporation that is a member of a
controlled group.
(f) Effective date. Except as otherwise
provided, this section applies to a loss
corporation that has an ownership
change to which section 382(a), as
amended by the Tax Reform Act of
1986, applies.
§ 1.382–8T Controlled groups (temporary).
(a) Introduction. This section provides rules to adjust the value of a loss
corporation that is a member of a controlled group of corporations on a
change date so that the same value is
not included more than once in computing the limitations under section 382 for
the loss corporations that are members
of the controlled group. In general, the
adjustment is made under paragraph (c)
of this section by reducing the value of
the loss corporation by the value of the
stock of each component member of the
controlled group that the loss corporation owns immediately after the ownership change. The loss corporation’s
value may, however, be increased under
paragraph (c) of this section by any
amount of value that the other member
elects to restore to the loss corporation.
(b) Controlled group loss and controlled group with respect to a controlled group loss. A controlled group
loss is a pre-change loss (or a net
unrealized built-in loss) of a loss corporation that is attributable to a taxable
year of the corporation with respect to
which the corporation is a component
member of a controlled group (as defined by paragraphs (e)(2) and (3) of
this section). The controlled group with
respect to each controlled group loss is
composed of the loss corporation and
each other corporation that is a compo-

nent member of a controlled group that
includes the loss corporation both—
(1) With respect to the taxable year
to which the controlled group loss is
attributable; and
(2) On the date the loss corporation
has an ownership change.
(c) Computation of value. For purposes of computing the limitation under
section 382 with respect to each controlled group loss, the value of the stock
of each component member of the controlled group with respect to that loss is
determined immediately before the ownership change, and is adjusted by applying the following rules:
(1) Reduction in value. The value of
the stock of each component member is
reduced by the value (immediately before the ownership change and without
regard to any restoration of value or
other adjustment under this section) of
the stock of any other component member directly owned by the component
member immediately after the ownership change.
(2) Restoration of value. After the
value of the stock of each component
member is reduced pursuant to paragraph (c)(1) of this section, the value of
the stock of each component member is
increased by the amount of value, if
any, restored to the component member
by another component member (the
electing member) pursuant to this paragraph (c)(2). The electing member may
elect to restore value to another component member in an amount that does not
exceed the lesser of—
(i) The sum of—
(A) The value, determined immediately before the ownership change, of
the electing member’s stock (after adjustment under paragraph (c)(1) of this
section and before any restoration of
value under this paragraph (c)(2)); plus
(B) Any amount of value restored to
the electing member by another component member under this paragraph
(c)(2); or
(ii) The value, determined immediately before the ownership change, of
the electing member’s stock (without
regard to any adjustment under this
section) that is directly owned by the
other component member immediately
after the ownership change.
(3) Reduction in value by the amount
restored. The value of the stock of the
electing member is reduced by any
amount of value that the electing member elects to restore under paragraph
(c)(2) of this section to another component member.

(4) Appropriate adjustments. Appropriate additional adjustments consistent
with paragraphs (c)(1), (2), and (3) of
this section must be made to prevent any
duplication of value. Thus, for example,
adjustments must be made to reflect—
(i) Any indirect ownership interest in
another component member;
(ii) Any cross ownership of stock by
component members of the controlled
group with respect to the controlled
group loss; and
(iii) Any value used to determine a
limitation under section 382 with respect
to controlled group losses from the same
period.
(5) Certain reductions in the value of
members of a controlled group. A loss
corporation that has an ownership
change is required to make adjustments
consistent with this paragraph (c) with
respect to its stock if the stock of
another corporation in which it had a
direct or indirect ownership interest was
disposed of before the ownership
change, and;
(i) Both corporations were component
members of a controlled group—
(A) With respect to a taxable year to
which a controlled group loss of the loss
corporation is attributable; and
(B) At any time during the 2 year
period before the ownership change; and
(ii) Both corporations are component
members of a controlled group at any
time during the 2 year period following
the ownership change.
(d) No double reduction. To the extent consistent with the purposes of this
section, section 382 and this section
shall not be applied to duplicate a
reduction in the value of a loss corporation. Thus, for example, if the value of a
loss corporation is reduced under section
382(l)(1) to reflect a capital contribution
of stock of a component member, it is
not again reduced by such amount under
paragraph (c)(1) of this section. If this
paragraph (d) applies to prevent a reduction in value from being duplicated, the
application of the other rules of this
section, such as those relating to the
restoration of value, is correspondingly
limited in a manner consistent with the
principles of this section.
(e) Definitions and nomenclature—
(1) Definitions in section 382 and the
regulations thereunder. Except as otherwise provided, the definitions and nomenclature contained in section 382 and
the regulations thereunder apply to this
section.
(2) Controlled group. Controlled
group has the same meaning as in

8

section 1563(a), determined by substituting ‘‘50 percent’’ for ‘‘80 percent’’ each
place that it appears, and without regard
to section 1563(a)(4).
(3) Component member. Component
member has the same meaning as in
section 1563(b), determined by substituting ‘‘December 31 (or the change date,
if earlier)’’ for ‘‘December 31’’ each
place it appears, and without regard to
section 1563(b)(2), (b)(3)(C), and (b)(4).
(4) Predecessor and successor corporation. As the context may require, a
reference to a corporation, or component
member includes a reference to a predecessor or successor corporation.
(f) Coordination between consolidated groups and controlled groups.
Some or all of the component members
of a controlled group may also be
members of a consolidated group, and a
controlled group loss may be subject to
a consolidated section 382 limitation or
subgroup section 382 limitation determined under § 1.1502–93T. Except as
otherwise provided in this paragraph (f)
and §§ 1.1502–91T through 1.1502–
99T, § 1.1502–93T applies instead of
this section when both sections, by their
terms, are otherwise applicable. This
section is applicable and may require an
adjustment to value if a member of a
consolidated group, a loss group, or a
loss subgroup (as those terms are defined in §§ 1.1502–1(h) and 1.1502–
91T) is also a component member of a
controlled group with respect to a controlled group loss. Solely for purposes
of applying this section, a consolidated
group, loss group, or loss subgroup is
treated as a single corporation. Thus to
determine the limitation with respect to
any portion of the pre-change consolidated attributes or pre-change subgroup
attributes of the loss group or loss
subgroup that is a controlled group loss,
the consolidated section 382 limitation
or subgroup section 382 limitation is
computed by treating the loss group or
the loss subgroup as a single corporation, and adjusting value in accordance
with paragraph (c) of this section. See
paragraph (g) Example 4 of this section.
(g) Examples. For purposes of the
examples in this section, unless otherwise stated, the nomenclature and assumptions of the examples in § 1.382–
2T(b) apply, all corporations file
separate income tax returns on a calendar year basis, the only 5-percent shareholder of a corporation is a public
group, and the facts set forth the only
owner shifts with respect to the corporations during the testing period.

Example 1. Controlled group with respect to a
controlled group loss. (a) Public L owns all of the
L stock, L and Public L1 own 30 percent and 70
percent, respectively, of the L1 stock, and L1
owns all of the corporation T stock. L1 has a net
operating loss arising in Year 1 that is carried over
to Year 4. L has a net operating loss arising in
Year 2 that is carried over to Year 4. On August 1,
Year 3, L acquires 30 percent of the stock of L1,
thereby increasing its percentage ownership interest in L1 to 60 percent. On December 1, Year 3,
L1 purchases all of the stock of corporation S
from Public S. On November 1, Year 4, P acquires
all of the L stock. The acquisition by P of all of
the L stock on November 1, Year 4, causes
ownership changes of both L and L1 under the
rules of § 1.382–2T. The following is a graphic
illustration of these facts.

(b)(1) Under paragraph (b) of this section, the
Year 1 net operating loss carryover of L1 is a
controlled group loss because L1 is a component
member of a controlled group with respect to Year
1, the year to which the loss is attributable. L1
and T compose a controlled group with respect to
the net operating loss carryover because L1 and T
are component members of a controlled group
both—

(A) With respect to the taxable year to which
L1’s net operating loss carryover is attributable
(i.e., Year 1); and
(B) On November 1, Year 4, L1’s change date.
Although L and S are component members of L1’s
controlled group on L1’s change date, they are not
component members of the controlled group with
respect to the Year 1 net operating loss carryover
because they were not component members with
respect to the year to which the net operating loss
carryover is attributable.
(2) The value of L1’s stock must therefore be
adjusted in accordance with paragraph (c) of this
section to take into account an adjustment with
respect to the T stock (but not the S stock) in
computing L1’s limitation under section 382 with
respect to its net operating loss carryover.
(c) Although L is a member of a controlled
group composed of L, L1, S, and T on November
1, Year 4, L’s change date, it is not a component
member of a controlled group with respect to Year
2, the taxable year to which its net operating loss
carryover is attributable. Therefore, L’s Year 2 net
operating loss carryover is not a controlled group
loss under paragraph (b) of this section and the
value of L’s stock is not adjusted in accordance
with paragraph (c) of this section to compute L’s
limitation under section 382 with respect to the
Year 2 net operating loss carryover.
Example 2. Adjustments to value of the controlled group members. (a) Since Year 1, A has
owned all of the stock of L, L and B have owned
80 percent and 20 percent, respectively, of the
stock of corporation P, and P and C have owned
75 percent and 25 percent, respectively, of the
stock of L1. L and L1 each has a net operating
loss for the Year 6 taxable year that is carried over
to its respective Year 7 taxable year. On December
1, Year 7, A sells all of the L stock to D. The sale
results in ownership changes of both L and L1.
Immediately before the ownership changes, the
total value of the L1 stock is $40, the total value
of the P stock (including the value of its L1 stock)
is $100, and the total value of the L stock
(including the value of the P stock) is $200. The
following is a graphic illustration of these facts.

(b) Under paragraph (b) of this section, the
Year 6 net operating loss carryovers of each of L
and L1 are controlled group losses because each
of L and L1 is a component member of a
controlled group with respect to Year 6, the year
to which the losses are attributable. L, P, and L1
compose controlled groups with respect to both
Year 6 net operating loss carryovers because L, P,
and L1 are component members of a controlled
group both—
(1) With respect to the taxable years to which
the net operating loss carryovers are attributable
(i.e., Year 6); and

9

(2) On December 1, Year 7, the change date.
(c) The value of the stock of L1 for purposes of
determining its limitation under section 382 with
respect to its net operating loss carryover from
Year 6 is $40. L1 does not elect to restore any
value to P under paragraph (c)(2) of this section.
(d) The value of the stock of P ($100) is
reduced under paragraph (c)(1) of this section by
the value of the stock of L1 that it directly owns,
$30 (75% x $40). Following the adjustment, the
value of the stock of P is $70. P elects to restore
this entire $70 of value to L.
(e) The value of the stock of L, $200, is
reduced under paragraph (c)(1) of this section by
the value of the stock of P it directly owns, i.e.,
$80 (80% x $100), and increased under paragraph
(c)(2) of this section by the amount P elects to
restore to L, i.e., $70. Thus, the value of the L
stock for purposes of determining L’s limitation
under section 382 with respect to its net operating
loss carryover from Year 6 is $190 ($200 2 $80 +
$70).
Example 3. Limitation on restoration of value.
(a) The facts are the same as in Example 2, except
that L1 elects to restore $20 to P. For purposes of
determining L1’s limitation under section 382 with
respect to the Year 6 net operating loss carryover,
the value of the stock of L1 is $20 ($40 2 $20)
because the value of its stock is reduced under
paragraph (c)(3) of this section by the $20 of
value it elects to restore to P.
(b) The value of the stock of P ($100) is
reduced under paragraph (c)(1) of this section by
the value of the L1 stock it directly owns ($30),
and is increased under paragraph (c)(2) of this
section by the value that L1 elects to restore to P
($20). Thus, the value of the P stock is $90 ($100
2 $30 + $20).
(c)(1) P elects to restore to L the maximum
value permitted under this section. The value of
the stock of L, $200, is reduced under paragraph
(c)(1) of this section by the value of the P stock it
directly owns ($80), and is increased by the value
that P elects to restore to L. P may elect to restore
to L the lesser of—
(A) The sum of the value of its stock immediately after adjustment under paragraph (c)(1) of
this section (i.e., $70) plus the value restored to it
by L1 (i.e., $20) (a total of $90); or
(B) The value of the P stock (without regard to
the adjustment required by paragraphs (c)(1) and
(2) of this section) that is directly owned by L
immediately before the ownership change (i.e.,
$80).
(2) Thus, $80 is the maximum amount that P
may elect to restore to L. Following the restoration of value by P, the value of the L stock for
purposes of determining L’s limitation under section 382 is $200 ($200 2 $80 + $80).
Example 4. Coordination with consolidated return regulations. (a) P and its wholly owned
subsidiary L file a consolidated return. L owns 79
percent of the outstanding stock of L1. P acquired
the stock of L in Year 1 and L acquired the stock
of L1 in Year 2. The P consolidated group has a
consolidated net operating loss arising in the Year
6 consolidated return year that is carried over to
Year 8. L1 has a net operating loss arising in its
Year 6 taxable year that is also carried over to
Year 8. On January 1, Year 8, the P consolidated
group has an ownership change under § 1.1502–
92T(b)(1)(i) and L1 has an ownership change
under § 1.382–2T.
(b)(1) Under paragraph (b) of this section, the
Year 6 net operating loss carryover of the P group
is a controlled group loss because P, L, and L1 are
component members of a controlled group with
respect to Year 6, the year to which the loss is

attributable. P, L, and L1 compose a controlled
group with respect to the Year 6 net operating loss
carryover of the P loss group because they are
component members of a controlled group both—
(A) With respect to the taxable years to which
the net operating loss carryover is attributable (i.e.,
Year 6); and
(B) On January 1, Year 8, the P group’s change
date. (2) Because P and L compose a loss group
(within the meaning of § 1.1502–91T(c)) with
respect to its Year 6 net operating loss carryover,
the P loss group must compute a consolidated
section 382 limitation with respect to its Year 6
net operating loss carryover as a result of the
ownership change.
(c) In computing the consolidated section 382
limitation under § 1.1502–93T with respect to the
Year 6 net operating loss carryover, the value of
the P stock immediately before the ownership
change is reduced under paragraphs (c)(1) and (f)
of this section by the value immediately before the
ownership change of the L1 stock directly owned
by L immediately after the ownership change. L1
may, however, elect to restore such value to the P
consolidated group to the extent permitted under
paragraph (c)(2) of this section.
Example 5. Appropriate adjustments for indirect
ownership interest. (a) Individual A owns all of
the stock of L, L owns an 80 percent interest in
the capital and profits of partnership PS, and PS
owns 75 percent of the stock of L1. Both L and
L1 have net operating losses for the Year 1 taxable
year that are carried over to their respective Year 2
taxable years. On December 19, Year 2, A sells all
of the L stock to an unrelated individual. The sale
results in an ownership change of L and L1.
(b) Under paragraph (b) of this section, the
Year 1 net operating loss carryovers of each of L
and L1 are controlled group losses because each
of L and L1 is a component member of a
controlled group with respect to Year 1, the year
to which the losses are attributable. L and L1
compose controlled groups with respect to each
corporation’s net operating loss carryovers because
L and L1 are component members of a controlled
group both—
(1) With respect to the taxable years to which
the net operating loss carryovers are attributable
(i.e., Year 1); and
(2) On December 19, Year 2, the change date.
(c) L has an indirect ownership interest in L1
which, under paragraph (c)(4) of this section, must
be taken into account in applying this section. As
a result, the value of the L stock for purposes of
determining its limitation under section 382 with
respect to the Year 1 net operating loss carryover
must be reduced by the value of L’s indirect
ownership interest in the L1 stock (60 percent)
that it owns through PS immediately before the
ownership change, and is increased by the amount
(if any) that L1 elects to restore to L under
paragraph (c)(2) of this section. The value of L1 is
reduced under paragraph (c)(3) of this section to
the extent that L1 elects to restore value to L.

(h) Time and manner of filing election to restore—(1) Statement required.
The election to restore value described
in paragraph (c)(2) of this section must
be in the form set forth below. It must
be signed on behalf of both the electing
member and the corporation to which
such value is restored by persons authorized to sign their respective income tax
returns. (The common parent of a consolidated group must make the election

on behalf of the group.) It must be filed
by the loss corporation with its income
tax return for the taxable year in which
the ownership change occurs (or with an
amended return for such year filed on or
before the due date (including extensions) of the income tax return of any
component member with respect to the
taxable year in which the ownership
change occurs). The statement must provide that: ‘‘THIS IS AN ELECTION
UNDER § 1.382– 8T OF THE INCOME TAX REGULATIONS TO RESTORE ALL OR PART OF THE
VALUE OF [insert name and E.I.N. of
the electing member] TO [insert name
and E.I.N. of the corporation to which
value is restored]. The statement must
also—
(i) Identify the change date for the
loss corporation in connection with
which the election is made;
(ii) State the value of the electing
member’s stock (without regard to any
adjustment under paragraph (c) of this
section) immediately before the ownership change;
(iii) State the amount of any reduction required under paragraph (c)(1) of
this section with respect to stock of the
electing member that is owned directly
or indirectly by the corporation to which
value is restored;
(iv) State the amount of value that
the electing member elects to restore to
the corporation; and
(v) State whether the value of either
component member’s stock was adjusted
pursuant to paragraph (c)(4) of this
section.
(2) Revocation of election. An election made under this section is revocable only with the consent of the
Commissioner.
(3) Filing by component member. An
electing member must attach a copy of
the statement described in paragraph
(h)(1) of this section to its income tax
return (or amended return) for the taxable year which includes the change
date in connection with which the election is made.
(i) [Reserved]
(j) Effective date—(1) In general.
This section applies to a loss corporation that has an ownership change with
respect to a controlled group loss on or
after January 1, 1997.
(2) Transition rule—(i) In general.
The members of a controlled group on
January 1, 1997, that have had an
ownership change with respect to a
controlled group loss before January 1,
1997, must determine the limitations

10

under section 382 for any post-change
year with respect to controlled group
losses by using a reasonable method to
preclude the value of stock of a component member that was owned directly or
indirectly by another member immediately after an ownership change from
being taken into account more than once
in determining the limitations under section 382 with respect to controlled
group losses. If such a reasonable
method was not used for a post-change
year, subject to the exception in paragraph (j)(3) of this section, the members
of the controlled group described in the
preceding sentence must reduce their
limitations under section 382 for postchange years for which the income tax
return is filed after January 1, 1997, to
recapture, as quickly as possible, any
limitation that members took into account in excess of the amount that
would be allowable under this section.
(ii) Special transition rule for controlled groups that had ownership
changes before January 29, 1991. For
purposes of this section, in the case of
an ownership change occurring before
January 29, 1991, the controlled group
with respect to a controlled group loss
does not include a corporation that is
not a component member of the controlled group on January 29, 1991. Thus,
in the case of an ownership change
occurring before January 29, 1991, paragraph (c) of this section does not require
that a loss corporation that is a component member of a controlled group to
disregard the value of stock of another
corporation directly owned immediately
after the ownership change in determining the value of its own stock unless the
other corporation is a component member of the controlled group on January
29, 1991.
(3) Amended returns. A taxpayer that
has had an ownership change before
January 1, 1997, may file an amended
return for any taxable year to modify
the amount of a limitation under section
382 with respect to a controlled group
loss only if—
(i) The modification complies with
the rules contained in this section for
computing a limitation under section
382;
(ii) Any other component member of
the controlled group with respect to the
controlled group loss who elects to
restore value and whose taxable income
is affected by the election to restore
value also files amended returns that
comply with such rules; and

(iii) Corresponding adjustments are
made in amended returns for all taxable
years ending after December 31, 1986.
PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 6. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 7. In § 602.101, paragraph (c) is
amended by adding an entry in numerical order to the table to read as follows:
§ 602.101 OMB Control numbers.
*

*

*

*

*

(c) * * *
CFR part or section where
identified or described

Current OMB
control No.

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

Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved May 31, 1996.
Leslie Samuels,
Assistant Secretary of the Treasury.
(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. 33313)

Section 1502.—Regulations
26 CFR 1.1502–91T: Application of section 382
with respect to a consolidated group (temporary).

T.D. 8678
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Regulations Under Section 1502 of
the Internal Revenue Code of 1986;
Limitations on Net Operating Loss
Carryforwards and Certain Built-in
Losses and Credits Following an
Ownership Change of a
Consolidated Group
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations regarding the operation of sections 382 and 383 of the
Internal Revenue Code of 1986 (relating
to limitations on net operating loss carryforwards and certain built-in losses

and credits following an ownership
change) with respect to consolidated
groups. The regulations include rules for
determining whether a loss group or a
loss subgroup has an ownership change,
for computing a consolidated section
382 limitation or subgroup section 382
limitation, and for applying sections 382
and 383 to corporations that join or
leave a group. The rules are necessary
to provide guidance to such groups on
the use of certain of their tax attributes.
The text of these temporary regulations
also serves as the text of CO–25–96,
page 30, in this issue of the Bulletin.
DATES: These regulations 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 1545–1218. The collection requires a response from certain
consolidated groups. The IRS requires
the information described in § 1.1502–
95T(e) to assure that a section 382
limitation is properly determined in
cases of corporations that cease to be
members of a group. Responses to this
collection of information are required to
obtain a benefit (relating to the section
382 limition applicable to the departing
member(s)).
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid control number.
For further information concerning
this collection of information, and where
to submit comments on the collection of
information and the accuracy of the
estimated burden, and suggestions for
reducing this burden, please refer to the
preamble to CO–25–96, page 30, in of
this issue of the Bulletin.

11

Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns
and tax return information are confidential, as required by 26 U.S.C. 6103.
Background and Explanation of Provisions
On February 4, 1991, the IRS and
Treasury issued three notices of proposed rulemaking, CO–132–87 (56 FR
4194), CO–077–90 (56 FR 4183), and
CO–078–90 (56 FR 4228), setting forth
rules regarding the application of sections 382 and 383 by consolidated
groups and by controlled groups, and
regarding the use of built-in deductions
and net operating losses and capital
losses, including the carryover and carryback of separate return limitation year
(SRLY) losses of members of consolidated groups. The preambles to the three
proposed regulations explain their rules
in detail. The IRS and Treasury also
published Notice 91–27 (1991–2 C.B.
629) to advise of intended modifications
to the proposed regulations.
For reasons explained in the preamble
to TD 8677 (published in 1996–30
I.R.B. 7), the IRS and Treasury are
issuing temporary amendments concerning the use of built-in deductions and
net operating losses and capital losses of
members of consolidated groups. Some
of the rules in those temporary amendments are closely related to rules regarding the application of section 382 to
members of consolidated groups (for
example, rules relating to built-in deductions and subgroups). Because of the
close relationship, and in order to give
consolidated groups immediate guidance
on the application of sections 382 and
383, the IRS and Treasury are issuing
these temporary amendments. The temporary amendments are substantially
identical to the rules proposed on January 29, 1991.
These temporary amendments do not
address the comments on the proposed
amendments. Many of these comments
are still under consideration.
As a companion to this Treasury
decision, the IRS and Treasury are also
issuing temporary regulations relating to
the application of sections 382 and 383
by members of controlled groups. See
TD 8679 published on page 4 in this
issue of the Bulletin.

Effective Dates.
The temporary regulations are generally effective for testing dates that occur
on or after January 1, 1997. Transition
rules contained in the proposed amendments are retained and made applicable
to testing dates before January 1, 1997.
SPECIAL ANALYSIS
It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It is hereby certified that these
regulations do not have a significant
economic impact on a substantial number of small entities. This certification is
based on the fact that these regulations
will primarily affect affiliated groups of
corporations that have elected to file
consolidated returns, which tend to be
larger businesses. Therefore, a Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking
preceding these regulations were sent to
the Small Business Administration for
comment on their impact on small business.
DRAFTING INFORMATION
The principal author of the temporary
regulations is David B. Friedel of the
Office of Assistant Chief Counsel (Corporate), IRS. Other personnel from the
IRS and Treasury participated in their
development.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–91T also issued under
26 U.S.C. 382(m) and 26 U.S.C. 1502.
Section 1.1502–92T also issued under
26 U.S.C. 382(m) and 26 U.S.C. 1502.
Section 1.1502–93T also issued under
26 U.S.C. 382(m) and 26 U.S.C. 1502.
Section 1.1502–94T also issued under
26 U.S.C. 382(m) and 26 U.S.C. 1502.
Section 1.1502–95T also issued under
26 U.S.C. 382(m) and 26 U.S.C. 1502.
Section 1.1502–96T also issued under
26 U.S.C. 382(m) and 26 U.S.C. 1502.

Section 1.1502–98T also issued under
26 U.S.C. 382(m) and 26 U.S.C. 1502.
Section 1.1502–99T also issued under
26 U.S.C. 382(m) and 26 U.S.C. 1502.
***
Par. 2. Sections 1.1502–90T through
1.1502–99T are added to read as follows:
§ 1.1502–90T Table of contents (temporary). The following table contains the
major headings in §§ 1.1502–91T
through 1.1502–99T.
§ 1.1502–91T Application of section
382 with respect to a consolidated group
(temporary).
(a) Determination and effect of an ownership change.
(1) In general.
(2) Special rule for post-change year
that includes the change date.
(3) Cross reference.
(b) Definitions and nomenclature.
(c) Loss group.
(1) Defined.
(2) Coordination with rule that ends
separate tracking.
(3) Example.
(d) Loss subgroup.
(1) Net operating loss carryovers.
(2) Net unrealized built-in loss.
(3) Loss subgroup parent.
(4) Principal purpose of avoiding a
limitation.
(5) Special rules.
(6) Examples.
(e) Pre-change consolidated attribute.
(1) Defined.
(2) Example.
(f) Pre-change subgroup attribute.
(1) Defined.
(2) Example.
(g) Net unrealized built-in gain and
loss.
(1) In general.
(2) Members included.
(i) Consolidated group.
(ii) Loss subgroup.
(3) Acquisitions of built-in gain or loss
assets.
(4) Indirect ownership.
(h) Recognized built-in gain or loss.
(1) In general.
(2) Disposition of stock or an intercompany obligation of a member.
(3) Deferred gain or loss.
(4) Exchanged basis property.
(i) [Reserved]
(j) Predecessor and successor corporations.

12

§ 1.1502–92T Ownership change of a
loss group or a loss subgroup (temporary).
(a) Scope.
(b) Determination of an ownership
change.
(1) Parent change method.
(i) Loss group.
(ii) Loss subgroup.
(2) Examples.
(3) Special adjustments.
(i) Common parent succeeded by a new
common parent.
(ii) Newly created loss subgroup parent.
(iii) Examples.
(4) End of separate tracking of certain
losses.
(c) Supplemental rules for determining
ownership change.
(1) Scope.
(2) Cause for applying supplemental
rule.
(3) Operating rules.
(4) Supplemental ownership change
rules.
(i) Additional testing dates for the common parent (or loss subgroup parent).
(ii) Treatment of subsidiary stock as
stock of the common parent (or loss
subgroup parent).
(iii) 5-percent shareholder of the common parent (or loss subgroup parent).
(5) Examples.
(d) Testing period following ownership
change under this section.
(e) Information statements.
(1) Common parent of a loss group.
(2) Abbreviated statement with respect
to loss subgroups.
§ 1.1502–93T Consolidated section 382
limitation (or subgroup section 382 limitation) (temporary).
(a) Determination of the consolidated
section 382 limitation (or subgroup
section 382 limitation).
(1) In general.
(2) Coordination with apportionment
rule.
(b) Value of the loss group (or loss
subgroup).
(1) Stock value immediately before
ownership change.
(2) Adjustment to value.
(3) Examples.
(c) Recognized built-in gain of a loss
group or loss subgroup.
(d) Continuity of business.
(1) In general.
(2) Example.

(e) Limitations of losses under other
rules.
§ 1.1502–94T Coordination with section 382 and the regulations thereunder
when a corporation becomes a member
of a consolidated group (temporary).
(a) Scope.
(1) In general.
(2) Successor corporation as new loss
member.
(3) Coordination in the case of a loss
subgroup.
(4) End of separate tracking of certain
losses.
(5) Cross-reference.
(b) Application of section 382 to a new
loss member.
(1) In general.
(2) Adjustment to value.
(3) Pre-change separate attribute defined.
(4) Examples.
(c) Built-in gains and losses.
(d) Information statements.
§ 1.1502–95T Rules on ceasing to be a
member of a consolidated group (or loss
subgroup) (temporary).
(a) In general.
(1) Consolidated group.
(2) Election by common parent.
(3) Coordination with §§ 1.1502–91T
through 1.1502–93T.
(b) Separate application of section 382
when a member leaves a consolidated group.
(1) In general.
(2) Effect of a prior ownership change
of the group.
(3) Application in the case of a loss
subgroup.
(4) Examples.
(c) Apportionment of a consolidated
section 382 limitation.
(1) In general.
(2) Amount of apportionment.
(3) Effect of apportionment on the consolidated section 382 limitation.
(4) Effect on corporations to which the
consolidated section 382 limitation
is apportioned.
(5) Deemed apportionment when loss
group terminates.
(6) Appropriate adjustments when
former member leaves during the
year.
(7) Examples.
(d) Rules pertaining to ceasing to be a
member of a loss subgroup.
(1) In general.
(2) Examples.
(e) Filing the election to apportion.

(1) Form of the election to apportion.
(2) Signing of the election.
(3) Filing of the election.
(4) Revocation of election.
§ 1.1502–96T Miscellaneous
(temporary).

rules

(a) End of separate tracking of losses.
(1) Application.
(2) Effect of end of separate tracking.
(3) Continuing effect of end of separate
tracking.
(4) Special rule for testing period.
(5) Limits on effects of end of separate
tracking.
(b) Ownership change of subsidiary.
(1) Ownership change of a subsidiary
because of options or plan or arrangement.
(2) Effect of the ownership change.
(i) In general.
(ii) Pre-change losses.
(3) Coordination with §§ 1.1502–91T,
1.1502–92T, and 1.1502–94T.
(4) Example.
(c) Continuing effect of an ownership
change.
§ 1.1502–97T Special rules under section 382 for members under the jurisdiction of a court in a title 11 or similar
case (temporary). [Reserved]
§ 1.1502–98T Coordination with section 383 (temporary).
§ 1.1502–99T Effective dates (temporary).
(a) Effective date.
(b) Testing period may include a period
beginning before January 1, 1997.
(c) Transition rules. (1) Methods permitted. (i) In general.
(ii) Adjustments to offset excess limitation.
(iii) Coordination with effective date.
(2) Permitted methods.
(d) Amended returns.
(e) Section 383.
§ 1.1502–91T Application of section
382 with respect to a consolidated
group (temporary).
(a) Determination and effect of an
ownership change—(1) In general. This
section and §§ 1.1502–92T and 1.1502–
93T set forth the rules for determining
an ownership change under section 382
for members of consolidated groups and
the section 382 limitations with respect
to attributes described in paragraphs (e)
and (f) of this section. These rules
generally provide that an ownership
change and the section 382 limitation

13

are determined with respect to these
attributes for the group (or loss subgroup) on a single entity basis and not
for its members separately. Following an
ownership change of a loss group (or a
loss subgroup) under § 1.1502–92T, the
amount of consolidated taxable income
for any post-change year which may be
offset by pre-change consolidated attributes (or pre-change subgroup attributes) shall not exceed the consolidated section 382 limitation (or
subgroup section 382 limitation) for
such year as determined under
§ 1.1502–93T.
(2) Special rule for post-change year
that includes the change date. If the
post-change year includes the change
date, section 382(b)(3)(A) is applied so
that the consolidated section 382 limitation (or subgroup section 382 limitation)
does not apply to the portion of consolidated taxable income that is allocable to
the period in the year on or before the
change date. See generally § 1.382–6
(relating to the allocation of income and
loss). The allocation of consolidated
taxable income for the post-change year
that includes the change date must be
made before taking into account any
consolidated net operating loss deduction (as defined in § 1.1502–21T(a)).
(3) Cross reference. See §§ 1.1502–
94T and 1.1502–95T for rules that apply
section 382 to a corporation that becomes or ceases to be a member of a
group or loss subgroup.
(b) Definitions and nomenclature. For
purposes of this section and §§ 1.1502–
92T through 1.1502–99T, unless otherwise stated:
(1) The definitions and nomenclature
contained in section 382 and the regulations thereunder (including the nomenclature and assumptions relating to the
examples in § 1.382–2T(b)) and this
section and §§ 1.1502–92T through
1.1502–99T apply; and
(2) In all examples, all groups file
consolidated returns, all corporations file
their income tax returns on a calendar
year basis, the only 5-percent shareholder of a corporation is a public
group, the facts set forth the only owner
shifts during the testing period, and each
asset of a corporation has a value equal
to its adjusted basis.
(c) Loss group—(1) Defined. A loss
group is a consolidated group that:
(i) Is entitled to use a net operating
loss carryover to the taxable year that
did not arise (and is not treated under
§ 1.1502–21T(c) as arising) in a SRLY;

(ii) Has a consolidated net operating
loss for the taxable year in which a
testing date of the common parent occurs (determined by treating the common parent as a loss corporation); or
(iii) Has a net unrealized built-in loss
(determined under paragraph (g) of this
section by treating the date on which the
determination is made as though it were
a change date).
(2) Coordination with rule that ends
separate tracking. A consolidated group
may be a loss group because a member’s losses that arose in (or are treated
as arising in) a SRLY are treated as
described in paragraph (c)(1)(i) of this
section. See § 1.1502–96T(a).
(3) Example. The following example
illustrates the principles of this paragraph (c).
Example. Loss group. (a) L and L1 file separate
returns and each has a net operating loss carryover
arising in Year 1 that is carried over to Year 2. A
owns 40 shares and L owns 60 shares of the 100
outstanding shares of L1 stock. At the close of
Year 1, L buys the 40 shares of L1 stock from A.
For Year 2, L and L1 file a consolidated return.
The following is a graphic illustration of these
facts:

(b) L and L1 become a loss group at the
beginning of Year 2 because the group is entitled
to use the Year 1 net operating loss carryover of
L, the common parent, which did not arise (and is
not treated under § 1.1502–21T(c) as arising) in a
SRLY. See § 1.1502–94T for rules relating to the
application of section 382 with respect to L1’s net
operating loss carryover from Year 1 which did
arise in a SRLY.

(d) Loss subgroup—(1) Net operating
loss carryovers. Two or more corpora-

tions that become members of a consolidated group (the current group) compose
a loss subgroup if:
(i) They were affiliated with each
other in another group (the former
group), whether or not the group was a
consolidated group;
(ii) They bear the relationship described in section 1504(a)(1) to each
other through a loss subgroup parent
immediately after they become members
of the current group; and
(iii) At least one of the members
carries over a net operating loss that did
not arise (and is not treated under
§ 1.1502–21T(c) as arising) in a SRLY
with respect to the former group.
(2) Net unrealized built-in loss. Two
or more corporations that become members of a consolidated group compose a
loss subgroup if they:
(i) Have been continuously affiliated
with each other for the 5 consecutive
year period ending immediately before
they become members of the group;
(ii) Bear the relationship described in
section 1504(a)(1) to each other through
a loss subgroup parent immediately after
they become members of the current
group; and
(iii) Have a net unrealized built-in
loss (determined under paragraph (g) of
this section on the day they become
members of the group by treating that
day as though it were a change date).
(3) Loss subgroup parent. A loss subgroup parent is the corporation that
bears the same relationship to the other
members of the loss subgroup as a
common parent bears to the members of
a group.
(4) Principal purpose of avoiding a
limitation. The corporations described in
paragraph (d)(1) or (2) of this section do
not compose a loss subgroup if any one
of them is formed, acquired, or availed
of with a principal purpose of avoiding
the application of, or increasing any
limitation under, section 382. Instead,
§ 1.1502–94T applies with respect to
the attributes of each such corporation.
This paragraph (d)(4) does not apply
solely because, in connection with becoming members of the group, the
members of a group (or loss subgroup)
are rearranged to bear a relationship to
the other members described in section
1504(a)(1).
(5) Special rules. See § 1.1502–
95T(d) for rules concerning when a
corporation ceases to be a member of a
loss subgroup. See also § 1.1502–
96T(a) for a special rule regarding the
end of separate tracking of SRLY losses

14

of a member that has an ownership
change or that has been a member of a
group for at least 5 consecutive years.
(6) Examples. The following examples illustrate the principles of this
paragraph (d).
Example 1. Loss subgroup. (a) P owns all the L
stock and L owns all the L1 stock. The P group
has a consolidated net operating loss arising in
Year 1 that is carried to Year 2. On May 2, Year 2,
P sells all the stock of L to A, and L and L1
thereafter file consolidated returns. A portion of
the Year 1 consolidated net operating loss is
apportioned under § 1.1502–21T(b) to each of L
and L1, which they carry over to Year 2. The
following is a graphic illustration of these facts:

(b)(1) L and L1 compose a loss subgroup
within the meaning of paragraph (d)(1) of this
section because—
(i) They were affiliated with each other in the P
group (the former group);
(ii) They bear a relationship described in section 1504(a)(1) to each other through a loss
subgroup parent (L) immediately after they became members of the L group; and
(iii) At least one of the members (here, both L
and L1) carries over a net operating loss to the L
group (the current group) that did not arise in a
SRLY with respect to the P group.
(2) Under paragraph (d)(3) of this section, L is
the loss subgroup parent of the L loss subgroup.
Example 2. Loss subgroup—section 1504(a)(1)
relationship. (a) P owns all the stock of L and L1.
L owns all the stock of L2. L1 and L2 own 40
percent and 60 percent of the stock of L3,
respectively. The P group has a consolidated net
operating loss arising in Year 1 that is carried over
to Year 2. On May 22, Year 2, P sells all the stock

of L and L1 to P1, the common parent of another
consolidated group. The Year 1 consolidated net
operating loss is apportioned under § 1.1502–
21T(b), and each of L, L1, L2, and L3 carries
over a portion of such loss to the first consolidated
return year of the P1 group ending after the
acquisition. The following is a graphic illustration
of these facts:

(2) Example. The following example
illustrates the principle of this paragraph
(e).
Example. Pre-change consolidated attribute. (a)
The L group has a consolidated net operating loss
arising in Year 1 that is carried over to Year 2.
The L loss group has an ownership change at the
beginning of Year 2.
(b) The net operating loss carryover of the L
loss group from Year 1 is a pre-change consolidated attribute because the L group was entitled to
use the loss in Year 2, the loss did not arise in a
SRLY with respect to the L group, and therefore
the loss was described in paragraph (c)(1)(i) of
this section. Under paragraph (a) of this section,
the amount of consolidated taxable income of the
L group for Year 2 that may be offset by this loss
carryover may not exceed the consolidated section
382 limitation of the L group for that year. See
§ 1.1502–93T for rules relating to the computation of the consolidated section 382 limitation.

(f) Pre-change subgroup attribute—
(1) Defined. A pre-change subgroup attribute of a loss subgroup is—
(i) Any net operating loss carryover
described in paragraph (d)(1)(iii) of this
section (relating to the definition of loss
subgroup); and
(ii) Any recognized built-in loss of
the loss subgroup.
(2) Example. The following example
illustrates the principle of this paragraph
(f).

(b) L and L2 compose a loss subgroup within
the meaning of paragraph (d)(1) of this section.
Neither L1 nor L3 is included in a loss subgroup
because neither bears a relationship described in
section 1504(a)(1) through a loss subgroup parent
to any other member of the former group immediately after becoming members of the P1 group.
Example 3. Loss subgroup—section 1504(a)(1)
relationship. The facts are the same as in Example
2, except that the stock of L1 is transferred to L in
connection with the sale of the L stock to P1. L,
L1, L2, and L3 compose a loss subgroup within
the meaning of paragraph (d)(1) of this section
because—
(1) They were affiliated with each other in the
P group (the former group);
(2) They bear a relationship described in section 1504(a)(1) to each other through a loss
subgroup parent (L) immediately after they become members of the P1 group; and
(3) At least one of the members (here, each of
L, L1, L2, and L3) carries over to the P1 group
(the current group) a net operating loss that did
not arise in a SRLY with respect to the P group
(the former group).

(e) Pre-change consolidated attribute—(1) Defined. A pre-change consolidated attribute of a loss group is—
(i) Any loss described in paragraph
(c)(1)(i) or (ii) of this section (relating
to the definition of loss group) that is
allocable to the period ending on or
before the change date; and
(ii) Any recognized built-in loss of
the loss group.

Example. Pre-change subgroup attribute. (a) P
is the common parent of a consolidated group. P
owns all the stock of L, and L owns all the stock
of L1. L2 is not a member of an affiliated group,
and has a net operating loss arising in Year 1 that
is carried over to Year 2. On December 11, Year 2,
L1 acquires all the stock of L2, causing an
ownership change of L2. During Year 2, the P
group has a consolidated net operating loss that is
carried over to Year 3. On November 2, Year 3, M
acquires all the L stock from P. M, L, L1, and L2
thereafter file consolidated returns. All of the P
group Year 2 consolidated net operating loss is
apportioned under § 1.1502–21T(b) to L and L2,
which they carry over to the M group.
(b)(1) L, L1, and L2 compose a loss subgroup
because—
(i) They were affiliated with each other in the P
group (the former group);
(ii) They bore a relationship described in section 1504(a)(1) to each other through a loss
subgroup parent (L) immediately after they became members of the L group; and
(iii) At least one of the members (here, both L
and L2) carries over a net operating loss to the M
group (the current group) that is described in
paragraph (d)(1)(iii) of this section.
(2) For this purpose, L2’s loss from Year 1 that
was a SRLY loss with respect to the P group (the
former group) is treated as described in paragraph
(d)(1)(iii) of this section because of the application
of the principles of § 1.1502–96T(a). See paragraph (d)(5) of this section. M’s acquisition results
in an ownership change of L, and therefore the L
loss subgroup under § 1.1502–92T(a)(2). See
§ 1.1502–93T for rules governing the computation
of the subgroup section 382 limitation.
(c) In the M group, L2’s Year 1 loss continues
to be subject to a section 382 limitation resulting
from the ownership change that occurred on
December 11, Year 2. See § 1.1502–96T(c).

15

(g) Net unrealized built-in gain and
loss—(1) In general. The determination
whether a consolidated group (or loss
subgroup) has a net unrealized built-in
gain or loss under section 382(h)(3) is
based on the aggregate amount of the
separately computed net unrealized
built-in gains or losses of each member
that is included in the group (or loss
subgroup) under paragraph (g)(2) of this
section, including items of built-in income and deduction described in section
382(h)(6). Thus, for example, amounts
deferred under section 267, or under
§ 1.1502–13 (other than amounts deferred with respect to the stock of a
member (or an intercompany obligation)
included in the group (or loss subgroup)
under paragraph (g)(2) of this section)
are built-in items. The threshold requirement under section 382(h)(3)(B) applies
on an aggregate basis and not on a
member-by-member basis. The separately computed amount of a member
included in a group or loss subgroup
does not include any unrealized built-in
gain or loss on stock (including stock
described in section 1504(a)(4) and
§ 1.382–2T(f)(18)(ii) and (iii)) of another member included in the group or
loss subgroup (or on an intercompany
obligation). However, a member of a
group or loss subgroup includes in its
separately computed amount the unrealized built-in gain or loss on stock of
another member (or on an intercompany
obligation) not included in the group or
loss subgroup. If a member is not
included in a group (or loss subgroup)
under paragraph (g)(2) of this section,
the determination of whether the member has a net unrealized built-in gain or
loss under section 382(h)(3) is made on
a separate entity basis. See § 1.1502–
94(c) (relating to built-in gain or loss of
a new loss member) and § 1.1502–96(a)
(relating to the end of separate tracking
of certain losses).
(2) Members included—(i) Consolidated group. The members included in
the determination whether a consolidated group has a net unrealized built-in
gain or loss are all members of the
group on the day that the determination
is made other than—
(A) A new loss member with a net
unrealized built-in loss described in
§ 1.1502–94T(a)(1)(ii); and
(B) Members included in a loss subgroup described in § 1.1502–91T(d)(2).
(ii) Loss subgroup. The members included in the determination whether a

loss subgroup has a net unrealized
built-in gain or loss are those members
described in paragraphs (d)(2)(i) and (ii)
of this section.
(3) Acquisitions of built-in gain or
loss assets. A member of a consolidated
group (or loss subgroup) may not, in
determining its separately computed net
unrealized built-in gain or loss, include
any gain or loss with respect to assets
acquired with a principal purpose to
affect the amount of its net unrealized
built-in gain or loss. A group (or loss
subgroup) may not, in determining its
net unrealized built-in gain or loss,
include any gain or loss of a member
acquired with a principal purpose to
affect the amount of its net unrealized
built-in gain or loss.
(4) Indirect ownership. A member’s
separately computed net unrealized
built-in gain or loss is adjusted to the
extent necessary to prevent any duplication of unrealized gain or loss attributable to the member’s indirect ownership
interest in another member through a
nonmember if the member has a
5-percent or greater ownership interest
in the nonmember.
(h) Recognized built-in gain or loss—
(1) In general. [Reserved]
(2) Disposition of stock or an intercompany obligation of a member. Gain
or loss recognized by a member on the
disposition of stock (including stock
described in section 1504(a)(4) and
§ 1.382–2T(f)(18)(ii) and (iii)) of another member or an intercompany obligation is treated as a recognized built-in
gain or loss under section 382(h)(2)
(unless disallowed under § 1.1502–20
or otherwise), even though gain or loss
on such stock or obligation was not
included in the determination of a net
unrealized built-in gain or loss under
paragraph (g)(1) of this section.
(3) Deferred gain or loss. Gain or
loss that is deferred under provisions
such as section 267 and § 1.1502–13 is
treated as recognized built-in gain or
loss only to the extent taken into account by the group during the recognition period.
(4) Exchanged basis property. If the
adjusted basis of any asset is determined, directly or indirectly, in whole or
in part, by reference to the adjusted
basis of another asset held by the member at the beginning of the recognition
period, the asset is treated, with appropriate adjustments, as held by the member at the beginning of the recognition
period.

(i) [Reserved]
(j) Predecessor and successor corporations. A reference in this section and
§§ 1.1502–92T through 1.1502–99T to
a corporation, member, common parent,
loss subgroup parent, or subsidiary includes, as the context may require, a
reference to a predecessor or successor
corporation. For example, the determination whether a successor satisfies the
continuous affiliation requirement of
paragraph (d)(2)(i) of this section is
made by reference to its predecessor.
§ 1.1502–92T Ownership change of a
loss group or a loss subgroup (temporary).
(a) Scope. This section provides rules
for determining if there is an ownership
change for purposes of section 382 with
respect to a loss group or a loss subgroup. See § 1.1502–94T for special
rules for determining if there is an
ownership change with respect to a new
loss member and § 1.1502–96T(b) for
special rules for determining if there is
an ownership change of a subsidiary.
(b) Determination of an ownership
change—(1) Parent change method—(i)
Loss group. A loss group has an ownership change if the loss group’s common
parent has an ownership change under
section 382 and the regulations thereunder. Solely for purposes of determining
whether the common parent has an
ownership change—
(A) The
losses
described
in
§ 1.1502–91T(c) are treated as net operating losses (or a net unrealized built-in
loss) of the common parent; and
(B) The common parent determines
the earliest day that its testing period
can begin by reference to only the
attributes that make the group a loss
group under § 1.1502–91T(c).
(ii) Loss subgroup. A loss subgroup
has an ownership change if the loss
subgroup parent has an ownership
change under section 382 and the regulations thereunder. The principles of
§ 1.1502–95T(b) (relating to ceasing to
be a member of a consolidated group)
apply in determining whether the loss
subgroup parent has an ownership
change. Solely for purposes of determining whether the loss subgroup parent
has an ownership change—
(A) The
losses
described
in
§ 1.1502–91T(d) are treated as net operating losses (or a net unrealized built-in
loss) of the loss subgroup parent;

16

(B) The day that the members of the
loss subgroup become members of the
group (or a loss subgroup) is treated as
a testing date within the meaning of
§ 1.382–2(a)(4); and
(C) The loss subgroup parent determines the earliest day that its testing
period can begin under § 1.382–
2T(d)(3) by reference to only the attributes that make the members a loss
subgroup under § 1.1502–91T(d).
(2) Examples. The following examples illustrate the principles of this
paragraph (b).
Example 1. Loss group—ownership change of
the common parent. (a) A owns all the L stock. L
owns 80 percent and B owns 20 percent of the L1
stock. For Year 1, the L group has a consolidated
net operating loss that resulted from the operations
of L1 and that is carried over to Year 2. The value
of the L stock is $1000. The total value of the L1
stock is $600 and the value of the L1 stock held
by B is $120. The L group is a loss group under
§ 1.1502–91T(c)(1) because it is entitled to use its
net operating loss carryover from Year 1. On
August 15, Year 2, A sells 51 percent of the L
stock to C. The following is a graphic illustration
of these facts:

(b) Under paragraph (b)(1)(i) of this section,
section 382 and the regulations thereunder are
applied to L to determine whether it (and therefore
the L loss group) has an ownership change with
respect to its net operating loss carryover from
Year 1 attributable to L1 on August 15, Year 2.
The sale of the L stock to C causes an ownership
change of L under § 1.382–2T and of the L loss
group under paragraph (b)(1)(i) of this section.
The amount of consolidated taxable income of the
L loss group for any post-change taxable year that
may be offset by its pre-change consolidated
attributes (that is, the net operating loss carryover
from Year 1 attributable to L1) may not exceed
the consolidated section 382 limitation for the L
loss group for the taxable year.
Example 2. Loss group—owner shifts of subsidiaries disregarded. (a) The facts are the same as in
Example 1, except that on August 15, Year 2, A
sells only 49 percent of the L stock to C and, on
December 12, Year 3, in an unrelated transaction, B
sells the 20 percent of the L1 stock to D. A’s sale
of the L stock to C does not cause an ownership
change of L under § 1.382–2T nor of the L loss
group under paragraph (b)(1)(i) of this section. The
following is a graphic illustration of these facts:

(b) B’s subsequent sale of L1 stock is not taken
into account for purposes of determining whether
the L loss group has an ownership change under
paragraph (b)(1)(i) of this section, and, accordingly, there is no ownership change of the L loss
group. See paragraph (c) of this section, however,
for a supplemental ownership change method that
would apply to cause an ownership change if the
purchases by C and D were pursuant to a plan or
arrangement.
Example 3. Loss subgroup—ownership change
of loss subgroup parent controls. (a) P owns all
the L stock. L owns 80 percent and A owns 20
percent of the L1 stock. The P group has a
consolidated net operating loss arising in Year 1
that is carried over to Year 2. On September 9,
Year 2, P sells 51 percent of the L stock to B, and
L1 is apportioned a portion of the Year 1 consolidated net operating loss under § 1.1502–21T(b),
which it carries over to its next taxable year. L
and L1 file a consolidated return for their first
taxable year ending after the sale to B. The
following is a graphic illustration of these facts:

(b) Under § 1.1502–91T(d)(1), L and L1 compose a loss subgroup on September 9, Year 2, the
day that they become members of the L group.
Under paragraph (b)(1)(ii) of this section, section
382 and the regulations thereunder are applied to
L to determine whether it (and therefore the L loss
subgroup) has an ownership change with respect
to the portion of the Year 1 consolidated net
operating loss that is apportioned to L1 on September 9, Year 2. L has an ownership change
resulting from P’s sale of 51 percent of the L
stock to A. Therefore, the L loss subgroup has an
ownership change with respect to that loss.
Example 4. Loss group and loss subgroup—
contemporaneous ownership changes. (a) A owns
all the stock of corporation M, M owns 35 percent
and B owns 65 percent of the L stock, and L owns
all the L1 stock. The L group has a consolidated
net operating loss arising in Year 1 that is carried
over to Year 2. On May 19, Year 2, B sells 45
percent of the L stock to M for cash. M, L, and
L1 thereafter file consolidated returns. L and L1
are each apportioned a portion of the Year 1
consolidated net operating loss, which they carry
over to the M group’s Year 2 and Year 3
consolidated return years. The M group has a
consolidated net operating loss arising in Year 2
that is carried over to Year 3. On June 9, Year 3,
A sells 70 percent of the M stock to C. The
following is a graphic illustration of these facts:

(b) Under § 1.1502–91T(d)(1), L and L1 compose a loss subgroup on May 19, Year 2, the day
they become members of the M group. Under
paragraph (b)(1)(ii) of this section, section 382
and the regulations thereunder are applied to L to
determine whether L (and therefore the L loss
subgroup) has an ownership change with respect
to the loss carryovers from Year 1 on May 19,
Year 2, a testing date because of B’s sale of L
stock to M. The sale of L stock to M results in
only a 45 percentage point increase in A’s ownership of L stock. Thus, there is no ownership
change of L (or the L loss subgroup) with respect
to those loss carryovers under paragraph (b)(1)(ii)
of this section on that day.
(c) June 9, Year 3, is also a testing date with
respect to the L loss subgroup because of A’s sale
of M stock to C. The sale results in a 56
percentage point increase in C’s ownership of L
stock, and L has an ownership change. Therefore,
the L loss subgroup has an ownership change on
that day with respect to the loss carryovers from
Year 1.
(d) Paragraph (b)(1)(i) of this section requires
that section 382 and the regulations thereunder be
applied to M to determine whether M (and
therefore the M loss group) has an ownership
change with respect to the net operating loss
carryover from Year 2 on June 9, Year 3, a testing
date because of A’s sale of M stock to C. The sale
results in a 70 percentage point increase in C’s
ownership of M stock, and M has an ownership
change. Therefore, the M loss group has an
ownership change on that day with respect to that
loss carryover.

(3) Special adjustments—(i) Common
parent succeeded by a new common
parent. For purposes of determining if a
loss group has an ownership change, if
the common parent of a loss group is
succeeded or acquired by a new common parent and the loss group remains
in existence, the new common parent is
treated as a continuation of the former
common parent with appropriate adjustments to take into account shifts in
ownership of the former common parent
during the testing period (including
shifts that occur incident to the common
parent’s becoming the former common
parent).
(ii) Newly created loss subgroup parent. For purposes of determining if a
loss subgroup has an ownership change,
if the member that is the loss subgroup
parent has not been the loss subgroup
parent for at least 3 years as of a testing
date, appropriate adjustments must be
made to take into account owner shifts
of members of the loss subgroup so that
the structure of the loss subgroup does
not have the effect of avoiding an
ownership change under section 382.
(See paragraph (b)(3)(iii) Example 3 of
this section.)
(iii) Examples. The following examples illustrate the principles of this
paragraph (b)(3).
Example 1. New common parent acquires old
common parent. (a) A, who owns all the L stock,

17

sells 30 percent of the L stock to B on August 26,
Year 1. L owns all the L1 stock. The L group has
a consolidated net operating loss arising in Year 1
that is carried over to Year 3. On July 16, Year 2,
A and B transfer their L stock to a newly created
holding company, HC, in exchange for 70 percent
and 30 percent, respectively, of the HC stock. HC,
L, and L1 thereafter file consolidated returns.
Under the principles of § 1.1502–75(d), the L loss
group is treated as remaining in existence, with
HC taking the place of L as the new common
parent of the loss group. The following is a
graphic illustration of these facts:

(b) On November 11, Year 3, A sells 25 percent
of the HC stock to B. For purposes of determining

if the L loss group has an ownership change under
paragraph (b)(1)(i) of this section on November
11, Year 3, HC is treated as a continuation of L
under paragraph (b)(3)(i) of this section because it
acquired L and became the common parent without terminating the L loss group. Accordingly,
HC’s testing period commences on January 1, Year
1, the first day of the taxable year of the L loss
group in which the consolidated net operating loss
that is carried over to Year 3 arose (see § 1.382–
2T(d)(3)(i)). Immediately after the close of November 11, Year 3, B’s percentage ownership
interest in the common parent of the loss group
(HC) has increased by 55 percentage points over
its lowest percentage ownership during the testing
period (zero percent). Accordingly, HC and the L
loss group have an ownership change on that day.
Example 2. New common parent in case in
which common parent ceases to exist. (a) A, B,
and C each own one-third of the L stock. L owns
all the L1 stock. The L group has a consolidated
net operating loss arising in Year 2 that is carried
over to Year 3. On November 22, Year 3, L is
merged into P, a corporation owned by D, and L1
thereafter files consolidated returns with P. A, B,
and C, as a result of owning stock of L, own 90
percent of P’s stock after the merger. D owns the
remaining 10 percent of P’s stock. The merger of
L into P qualifies as a reverse acquisition of the L
group under § 1.1502–75(d)(3)(i), and the L loss
group is treated as remaining in existence, with P
taking the place of L as the new common parent
of the L group. The following is a graphic
illustration of these facts:

(b) For purposes of determining if the L loss
group has an ownership change on November 22,
Year 3, the day of the merger, P is treated as a
continuation of L so that the testing period for P
begins on January 1, Year 2, the first day of the
taxable year of the L loss group in which the
consolidated net operating loss that is carried over
to Year 3 arose. Immediately after the close of
November 22, Year 3, D is the only 5-percent
shareholder that has increased his ownership interest in P during the testing period (from zero to 10
percentage points).
(c) The facts are the same as in paragraph (a)
of this Example 2, except that A has held 231⁄3

18

shares (231⁄3 percent) of L’s stock for five years,
and A purchased an additional 10 shares of L
stock from E two years before the merger. Immediately after the close of the day of the merger (a
testing date), A’s ownership interest in P, the
common parent of the L loss group, has increased
by 62⁄3 percentage points over her lowest percentage ownership during the testing period (231⁄3
percent to 30 percent).
(d) The facts are the same as in (a) of this
Example 2, except that P has a net operating loss
arising in Year 1 that is carried to the first
consolidated return year ending after the day of
the merger. Solely for purposes of determining
whether the L loss group has an ownership change
under paragraph (b)(1)(i) of this section, the
testing period for P commences on January 1, Year
2. P does not determine the earliest day for its
testing period by reference to its net operating loss
carryover from Year 1, which §§ 1502–1(f)(3) and
1.1502–75(d)(3)(i) treat as arising in a SRLY. See
§ 1.1502–94T to determine the application of
section 382 with respect to P’s net operating loss
carryover.
Example 3. Newly acquired loss subgroup parent. (a) P owns all the L stock and L owns all the
L1 stock. The P group has a consolidated net
operating loss arising in Year 1 that is carried over
to Year 3. On January 19, Year 2, L issues a 20
percent stock interest to B. On February 5, Year 3,
P contributes its L stock to a newly formed
subsidiary, HC, in exchange for all the HC stock,
and distributes the HC stock to its sole shareholder
A. HC, L, and L1 thereafter file consolidated
returns. A portion of the P group’s Year 1
consolidated net operating loss is apportioned to L
and L1 under § 1.1502–21T(b) and is carried over
to the HC group’s year ending after February 5,
Year 3. HC, L, and L1 compose a loss subgroup
within the meaning of § 1.1502–91T(d) with
respect to the net operating loss carryovers from
Year 1. The following is a graphic illustration of
these facts:

(b) February 5, Year 3, is a testing date for HC
as the loss subgroup parent with respect to the net
operating loss carryovers of L and L1 from Year 1.
See paragraph (b)(1)(ii)(B) of this section. For
purposes of determining whether HC has an ownership change on the testing date, appropriate adjustments must be made with respect to the changes in
the percentage ownership of the stock of HC
because HC was not the loss subgroup parent for at
least 3 years prior to the day on which it became a
member of the HC loss subgroup (a testing date).
The appropriate adjustments include adjustments so
that HC succeeds to the owner shifts of other
members of the former group. Thus, HC succeeds
to the owner shift of L that resulted from the sale
of the 20 percent interest to B in determining
whether the HC loss subgroup has an ownership
change on February 5, Year 3, and on any subsequent testing date that includes January 19, Year 2.

(4) End of separate tracking of certain
losses. If § 1.1502–96T(a) (relating to
the end of separate tracking of attributes)
applies to a loss subgroup, then, while
one or more members that were included
in the loss subgroup remain members of
the consolidated group, there is an ownership change with respect to their attributes described in § 1.1502–96T(a)(2)
only if the consolidated group is a loss
group and has an ownership change under paragraph (b)(1)(i) of this section (or
such a member has an ownership change
under § 1.1502–96T(b) (relating to ownership changes of subsidiaries)). If, however, the loss subgroup has had an ownership change before § 1.1502–96T(a)
applies, see § 1.1502–96T(c) for the continuing application of the subgroup’s section 382 limitation with respect to its
pre-change subgroup attributes.
(c) Supplemental rules for determining ownership change—(1) Scope. This
paragraph (c) contains a supplemental
rule for determining whether there is an
ownership change of a loss group (or
loss subgroup). It applies in addition to,
and not instead of, the rules of paragraph
(b) of this section. Thus, for example, if
the common parent of the loss group has
an ownership change under paragraph
(b) of this section, the loss group has an
ownership change even if, by applying
this paragraph (c), the common parent
would not have an ownership change.
(2) Cause for applying supplemental
rule. This paragraph (c) applies to a loss
group (or loss subgroup) if—
(i) Any 5-percent shareholder of the
common parent (or loss subgroup parent) increases its percentage ownership
interest in the stock of both—
(A) A subsidiary of the loss group (or
loss subgroup) other than by a direct or
indirect acquisition of stock of the common parent (or loss subgroup parent); and
(B) The common parent (or loss subgroup parent); and

(ii) Those increases occur within a 3
year period ending on any day of a
consolidated return year or, if shorter, the
period beginning on the first day following the most recent ownership change of
the loss group (or loss subgroup).
(3) Operating rules. Solely for purposes of this paragraph (c)—
(i) A 5-percent shareholder of the
common parent (or loss subgroup parent) is treated as increasing its percentage ownership interest in the common
parent (or loss subgroup parent) or a
subsidiary to the extent, if any, that any
person acting pursuant to a plan or
arrangement with the 5-percent shareholder increases its percentage ownership interest in the stock of that entity;
(ii) The rules in section 382(l)(3) and
§§ 1.382–2T(h) and 1.382–4(d) (relating
to constructive ownership) apply with
respect to the stock of the subsidiary by
treating such stock as stock of a loss
corporation; and
(iii) In the case of a loss subgroup, a
subsidiary includes any member of the
loss subgroup other than the loss subgroup parent. (The loss subgroup parent
is, however, a subsidiary of the loss
group of which it is a member.)
(4) Supplemental ownership change
rules. The determination whether the
common parent (or loss subgroup parent) has an ownership change is made
by applying paragraph (b)(1) of this
section as modified by the following
additional rules—
(i) Additional testing dates for the
common parent (or loss subgroup parent).
A testing date for the common parent (or
loss subgroup parent) also includes—
(A) Each day on which there is an
increase in the percentage ownership of
stock of a subsidiary as described in
paragraph (c)(2) of this section; and
(B) The first day of the first consolidated return year for which the group is
a loss group (or the members compose a
loss subgroup);
(ii) Treatment of subsidiary stock as
stock of the common parent (or loss
subgroup parent). The common parent
(or loss subgroup parent) is treated as
though it had issued to the person
acquiring (or deemed to acquire) the
subsidiary stock an amount of its own
stock (by value) that equals the value of
the subsidiary stock represented by the
percentage increase in that person’s
ownership of the subsidiary (determined
on a separate entity basis). A similar
principle applies if the increase in percentage ownership interest is effected by
a redemption or similar transaction; and

19

(iii) 5-percent shareholder of the common parent (or loss subgroup parent).
Any person described in paragraph
(c)(3)(i) of this section who is acting
pursuant to the plan or arrangement is
treated as a 5-percent shareholder of the
common parent (or loss subgroup parent).
(5) Examples. The following examples illustrate the principles of this
paragraph (c).
Example 1. Stock of the common parent under
supplemental rules. (a) A owns all the L stock. L
is not a member of an affiliated group and has a
net operating loss carryover arising in Year 1 that
is carried over to Year 6. On September 20, Year
6, L transfers all of its assets and liabilities to a
newly created subsidiary, S, in exchange for S
stock. L and S thereafter file consolidated returns.
On November 23, Year 6, B contributes cash to L
in exchange for a 45 percent ownership interest in
L and contributes cash to S for a 20 percent
ownership interest in S.
(b) B is a 5-percent shareholder of L who
increases his percentage ownership interest in L and
S during the 3 year period ending on November 23,
Year 6. Under paragraph (c)(4)(ii) of this section,
the determination whether L (the common parent of
a loss group) has an ownership change on November
23, Year 6 (or on any testing date in the testing
period which includes November 23, Year 6), is
made by applying paragraph (b)(1)(i) of this section
and by treating the value of B’s 20 percent ownership interest in S as if it were L stock issued to B.
Example 2. Plan or arrangement—public offering
of subsidiary stock. (a) A owns all the stock of L and
L owns all the stock of L1. The L group has a
consolidated net operating loss arising in Year 1 that
resulted from the operations of L1 and that is carried
over to Year 2. As part of a plan, A sells 49 percent
of the L stock to B on October 7, Year 2, and L1
issues new stock representing a 20 percent ownership
interest in L1 to the public on November 6, Year 2.
The following is a graphic illustration of these facts:

(b) A’s sale of the L stock to B does not cause
an ownership change of the L loss group on
October 7, Year 2, under the rules of § 1.382–2T
and paragraph (b)(1)(i) of this section.
(c) Because the issuance of L1 stock to the
public occurs in connection with B’s acquisition of
L stock pursuant to a plan, paragraph (c)(4) of this
section applies to determine whether the L loss
group has an ownership change on November 6,
Year 2 (or on any testing date for which the
testing period includes November 6, Year 2).

(d) Testing period following ownership change under this section. If a loss
group (or a loss subgroup) has had an
ownership change under this section, the
testing period for determining a subsequent ownership change with respect to
pre-change consolidated attributes (or
pre-change subgroup attributes) begins
no earlier than the first day following
the loss group’s (or loss subgroup’s)
most recent change date.
(e) Information statements—(1) Common parent of a loss group. The common parent of a loss group must file the
information statement required by
§ 1.382–2T(a)(2)(ii) for a consolidated
return year because of any owner shift,
equity structure shift, or the issuance or
transfer of an option—
(i) With respect to the common parent and with respect to any subsidiary
stock subject to paragraph (c) of this
section; and
(ii) With respect to an ownership
change described in § 1.1502–96T(b)
(relating to ownership changes of subsidiaries).
(2) Abbreviated statement with respect to loss subgroups. The common
parent of a consolidated group that has a
loss subgroup during a consolidated return year must file the information statement required by § 1.382–2T(a)(2)(ii)
because of any owner shift, equity structure shift, or issuance or transfer of an
option with respect to the loss subgroup
parent and with respect to any subsidiary stock subject to paragraph (c) of
this section. Instead of filing a separate
statement for each loss subgroup parent,
the common parent (which is treated as
a loss corporation) may file the single
statement described in paragraph (e)(1)
of this section. In addition to the information concerning stock ownership of
the common parent, the single statement
must identify each loss subgroup parent
and state which loss subgroups, if any,
have had ownership changes during the
consolidated return year. The loss subgroup parent is, however, still required
to maintain the records necessary to
determine if the loss subgroup has an
ownership change. This paragraph (e)(2)
applies with respect to the attributes of a

loss subgroup until, under § 1.1502–
96T(a), the attributes are no longer
treated as described in § 1.1502–91T(d)
(relating to the definition of loss subgroup). After that time, the information
statement described in paragraph (e)(1)
of this section must be filed with respect
to those attributes.
§ 1.1502–93T Consolidated section 382
limitation (or subgroup section 382 limitation) (temporary).
(a) Determination of the consolidated
section 382 limitation (or subgroup section 382 limitation)—(1) In general.
Following an ownership change, the
consolidated section 382 limitation (or
subgroup section 382 limitation) for any
post-change year is an amount equal to
the value of the loss group (or loss
subgroup), as defined in paragraph (b)
of this section, multiplied by the longterm tax-exempt rate that applies with
respect to the ownership change, and
adjusted as required by section 382 and
the regulations thereunder. See, for example, section 382(b)(2) (relating to the
carryforward of unused section 382
limitation), section 382(b)(3)(B) (relating to the section 382 limitation for the
post-change year that includes the
change date), section 382(m)(2) (relating
to short taxable years), and section
382(h) (relating to recognized built-in
gains and section 338 gains).
(2) Coordination with apportionment
rule. For special rules relating to apportionment of a consolidated section 382
limitation (or a subgroup section 382
limitation) when one or more corporations cease to be members of a loss
group (or a loss subgroup) and to aggregation of amounts so apportioned, see
§ 1.1502–95T(c).
(b) Value of the loss group (or loss
subgroup)—(1) Stock value immediately
before ownership change. Subject to any
adjustment under paragraph (b)(2) of
this section, the value of the loss group
(or loss subgroup) is the value, immediately before the ownership change, of
the stock of each member, other than
stock that is owned directly or indirectly
by another member. For this purpose—
(i) Ownership is determined under
§ 1.382–2T;
(ii) A member is considered to indirectly own stock of another member
through a nonmember only if the member has a 5-percent or greater ownership
interest in the nonmember; and

20

(iii) Stock includes stock described in
section 1504(a)(4) and § 1.382–
2T(f)(18)(ii) and (iii).
(2) Adjustment to value. The value of
the loss group (or loss subgroup), as
determined under paragraph (b)(1) of
this section, is adjusted under any rule
in section 382 or the regulations thereunder requiring an adjustment to such
value for purposes of computing the
amount of the section 382 limitation.
See, for example, section 382(e)(2) (redemptions and corporate contractions),
section 382(l)(1) (certain capital contributions) and section 382(l)(4) (ownership of substantial nonbusiness assets).
The value of the loss group (or loss
subgroup) determined under this paragraph (b) is also adjusted to the extent
necessary to prevent any duplication of
the value of the stock of a member. For
example, the principles of § 1.382–8T
(relating to controlled groups of corporations) apply in determining the value
of a loss group (or loss subgroup) if,
under § 1.1502–91T(g)(2), members are
not included in the determination
whether the group (or loss subgroup)
has a net unrealized built-in loss.
(3) Examples. The following examples illustrate the principles of this
paragraph (b).
Example 1. Basic case. (a) L, L1, and L2
compose a loss group. L has outstanding common
stock, the value of which is $100. L1 has
outstanding common stock and preferred stock that
is described in section 1504(a)(4). L owns 90
percent of the L1 common stock, and A owns the
remaining 10 percent of the L1 common stock
plus all the preferred stock. The value of the L1
common stock is $40, and the value of the L1
preferred stock is $30. L2 has outstanding common stock, 50 percent of which is owned by L
and 50 percent by L1. The L group has an
ownership change. The following is a graphic
illustration of these facts:

(b) Under paragraph (b)(1) of this section, the L
group does not include the value of the stock of
any member that is owned directly or indirectly by
another member in computing its consolidated
section 382 limitation. Accordingly, the value of
the stock of the loss group is $134, the sum of the
value of—
(1) The common stock of L ($100);
(2) the 10 percent of the L1 common stock ($4)
owned by A; and

(3) The L1 preferred stock ($30) owned by A.
Example 2. Indirect ownership. (a) L and L1
compose a consolidated group. L’s stock has a
value of $100. L owns 80 shares (worth $80) and
corporation M owns 20 shares (worth $20) of the
L1 stock. L also owns 79 percent of the stock of
corporation M. The L group has an ownership
change. The following is a graphic illustration of
these facts:

(b) Under paragraph (b)(1) of this section,
because of L’s more than 5 percent ownership
interest in M, a nonmember, L is considered to
indirectly own 15.8 shares of the L1 stock held by
M (79% x 20 shares). The value of the L loss
group is $104.20, the sum of the values of—
(1) The L stock ($100); and
(2) The L1 stock not owned directly or indirectly by L (21% x $20, or $4.20).

(c) Recognized built-in gain of a loss
group or loss subgroup. If a loss group
(or loss subgroup) has a net unrealized
built-in gain, any recognized built-in
gain of the loss group (or loss subgroup)
is taken into account under section
382(h) in determining the consolidated
section 382 limitation (or subgroup section 382 limitation).
(d) Continuity of business—(1) In
general. A loss group (or a loss subgroup) is treated as a single entity for
purposes of determining whether it satisfies the continuity of business enterprise
requirement of section 382(c)(1).
(2) Example. The following example
illustrates the principle of this paragraph
(d).
Example. Continuity of business enterprise. L
owns all the stock of two subsidiaries, L1 and L2.
The L group has an ownership change. It has
pre-change consolidated attributes attributable to
L2. Each of the members has historically conducted a separate line of business. Each line of
business is approximately equal in value. One year
after the ownership change, L discontinues its
separate business and the business of L2. The
separate business of L1 is continued for the
remainder of the 2 year period following the
ownership change. The continuity of business
enterprise requirement of section 382(c)(1) is met
even though the separate businesses of L and L2
are discontinued.

(e) Limitations of losses under other
rules. If a section 382 limitation for a
post-change year exceeds the consolidated taxable income that may be offset
by pre-change attributes for any reason,
including the application of the limita-

tion of § 1.1502–21T(c), the amount of
the excess is carried forward under
section 382(b)(2) (relating to the carryforward of unused section 382 limitation).
§ 1.1502–94T Coordination with section 382 and the regulations thereunder
when a corporation becomes a member
of a consolidated group (temporary).
(a) Scope—(1) In general. This section applies section 382 and the regulations thereunder to a corporation that is
a new loss member of a consolidated
group. A corporation is a new loss
member if it—
(i) Carries over a net operating loss
that arose (or is treated under § 1.1502–
21T(c) as arising) in a SRLY with
respect to the current group, and that is
not described in § 1.1502–91T(d)(1); or
(ii) Has a net unrealized built-in loss
(determined under paragraph (c) of this
section on the day it becomes a member
of the current group by treating that day
as a change date) that is not taken into
account under § 1.1502–91T(d)(2) in
determining whether two or more corporations compose a loss subgroup.
(2) Successor corporation as new
loss member. A new loss member also
includes any successor to a corporation
that has a net operating loss carryover
arising in a SRLY and that is treated as
remaining in existence under § 1.382–
2(a)(1)(ii) following a transaction described in section 381(a).
(3) Coordination in the case of a loss
subgroup. For rules regarding the determination of whether there is an ownership change of a loss subgroup with
respect to a net operating loss or a net
unrealized built-in loss described in
§ 1.1502–91T(d) (relating to the definition of loss subgroup) and the computation of a subgroup section 3

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A1f7431f29fd3984e. Public record. Not legal advice.