Limitations on Corporate Net Operating Loss Carryforwards

DEPARTMENT OF THE TREASURY

26 CFR Parts 1 and 602

[TD 8529]

RIN 1545-AR91

Limitations on Corporate Net Operating Loss Carryforwards

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final income tax regulations relating

to the determination of whether stock of a loss corporation is owned as

a result of being a qualified creditor for purposes of section

382(l)(5)(E) of the Internal Revenue Code of 1986, as amended. These

rules will help a loss corporation determine whether it is eligible for

the special rules of section 382(l)(5).

DATES: These regulations are effective as of March 18, 1994.

For dates of applicability of these regulations, see the

``Effective date'' paragraph in the SUPPLEMENTARY INFORMATION portion

of the preamble.

FOR FURTHER INFORMATION CONTACT: Diana MacKeen Fulton of the Office of

Assistant Chief Counsel (Corporate), Office of Chief Counsel, Internal

Revenue Service, 1111 Constitution Avenue NW., Washington, DC 20224

(Attention: CC:DOM:CORP:5) or telephone 202-622-7550 (not a toll-free

number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in these final regulations

have been reviewed and approved by the Office of Management and Budget

in accordance with the Paperwork Reduction Act (44 U.S.C. 3504(h))

under control number 1545-1275. The estimated annual burden per

respondent with respect to the Secs. 1.382-9(d)(2)(iii) and (d)(4)(iv)

statements varies from 10 minutes to 1 hour, depending on individual

circumstances, with an estimated average of 15 minutes. The estimated

annual burden per respondent with respect to the Sec. 1.382-9(d)(6)(ii)

elections varies from 10 minutes to 2 hours, depending on individual

circumstances, with an estimated average of 1 hour.

These estimates are approximations of the average time expected to

be necessary for a collection of information. They are based on such

information as is available to the Internal Revenue Service. Individual

respondents or recordkeepers may require more or less time, depending

on their particular circumstances.

Comments concerning the accuracy of these burden estimates and

suggestions for reducing these burdens should be directed to the

Internal Revenue Service, Attn: IRS Reports Clearance Officer, PC:FP,

Washington, DC 20224, and to the Office of Management and Budget,

Attention: Desk Officer for the Department of the Treasury, Office of

Information and Regulatory Affairs, Washington, DC 20503.

This document also amends the table of control numbers in

Sec. 602.101 by restoring a control number (1545-1281) for Sec. 1.382-3

that was removed by T.D. 8490 (58 FR 51571 (1993)).

Background

This document contains final regulations to be added to the Income

Tax Regulations (26 CFR part 1) under section 382 of the Internal

Revenue Code (Code). The final regulations provide rules relating to

the determination of whether stock of a loss corporation is owned as a

result of being a qualified creditor for purposes of section

382(l)(5)(E) of the Code.

Proposed regulations on this subject were set forth in a notice of

proposed rulemaking published in the Federal Register on May 10, 1993.

See 58 FR 27498 (1993). (That document also withdrew earlier proposed

regulations on this subject that had been published in the Federal

Register on September 23, 1991 (56 FR 47921 (1991))). The IRS received

comments on the proposed regulations and held a public hearing on July

16, 1993. Having considered the comments and the statements made at the

hearing, the IRS and the Treasury Department adopt the proposed

regulations as revised by this Treasury decision.

Explanation of Provisions

Section 382(l)(5) of the Code provides special rules for ownership

changes resulting from bankruptcy proceedings. A loss corporation that

qualifies for the special rules can use its loss carryforwards, after

certain reductions, against its post-change income without limitation

by section 382(a). A loss corporation qualifies only if its pre-change

shareholders and creditors own at least 50 percent of its stock after

the ownership change. Section 382(l)(5)(E) provides that stock issued

in exchange for indebtedness counts toward the 50 percent threshold of

section 382(l)(5) only if the indebtedness (1) was held by the creditor

at least 18 months before the bankruptcy filing, or (2) arose in the

ordinary course of the trade or business of the loss corporation and

was held at all times by the same beneficial owner. The proposed

regulations published in the Federal Register on May 10, 1993, contain

rules for determining if stock received by creditors counts toward the

50 percent threshold of section 382(l)(5).

The final regulations adopt the proposed regulations with several

changes to respond to comments. The changes, as well as certain

comments that were not adopted in the final regulations, are discussed

below.

A. Treatment of Certain Indebtedness As Continuously Owned by the Same

Owner

The proposed regulations include a de minimis rule that allows a

loss corporation to treat indebtedness as always having been owned by

the beneficial owner of the indebtedness immediately before the

ownership change if the beneficial owner is not, immediately after the

ownership change, either a 5-percent shareholder or an entity through

which a 5-percent shareholder owns an indirect ownership interest in

the loss corporation (a 5-percent entity). The de minimis rule does not

apply to indebtedness owned by a person whose participation in

formulating a plan of reorganization makes evident to the loss

corporation that the person has not owned the indebtedness for the

requisite period. This exception applies regardless of whether the

participant exchanges the indebtedness for stock pursuant to the plan

or transfers the indebtedness to other persons prior to the effective

date of the plan.

One commentator recommended that the exception to the de minimis

rule be deleted because it is unclear and unlikely to work well in

practice. The commentator suggested that the speculative investors who

are the target of the rule are likely to sell their debt prior to the

effective date of the plan. Unless the loss corporation could identify

the purchasers of the debt, it would have difficulty applying the

exception.

The final regulations retain the exception to the de minimis rule.

The loss corporation should not be able to disregard the fact that a

creditor has not held its debt for the period required by section

382(l)(5)(E) if that fact is made evident by the creditor's

participation in the formulation of the plan of reorganization. The

need for the requirement that the loss corporation take these facts

into account outweighs any potential difficulty the loss corporation

may have in applying the requirement if the creditor that participates

in formulating the plan transfers its debt prior to the effective date

of the plan.

B. Tacking Rules

The proposed regulations allow the tacking of the ownership periods

of a transferee and transferor of debt in certain circumstances for the

purpose of determining whether the debt meets the continuous ownership

requirement of section 382(l)(5)(E).

The proposed regulations include a rule which permits tacking for a

transfer pursuant to a subrogation in which a bank or insurance company

acquires a claim against a loss corporation by reason of a payment to

the claimant under a letter of credit or insurance policy. Commentators

recommended that the rule be expanded to cover transfers pursuant to

security arrangements regardless of whether the transferee is a bank or

the arrangement is evidenced by a letter of credit. The final

regulations adopt this recommendation.

Commentators also recommended that a tacking rule be added to cover

factoring transactions. Corporations in certain industries customarily

sell (or ``factor'') their accounts receivable as a means of financing

their operations. In response to this recommendation, an additional

tacking rule has been added to the final regulations. This rule applies

to a transfer of an account receivable in a customary commercial

factoring transaction made within 30 days after the account arose to a

transferee that regularly engages in such transactions.

C. Treatment of Accrued Interest on Qualified Indebtedness

The proposed (and final) regulations generally provide that stock

received by a creditor counts toward the 50 percent threshold of

section 382(l)(5) only to the extent that the creditor receives the

stock in full or partial satisfaction of qualifying indebtedness held

for the requisite period. In response to a comment, the final

regulations clarify that such indebtedness held by a creditor includes

interest accrued thereon.

D. Effective Date

The proposed regulations were to apply to ownership changes

occurring on or after the date the Treasury decision adopting the

regulations was filed with the Federal Register. The preamble to the

proposed regulations expressed an intent that taxpayers not be

disadvantaged by the withdrawal of the earlier proposed regulations and

requested comments on ways to achieve that result.

The final regulations apply to ownership changes occurring on or

after the date the Treasury decision adopting the proposed regulations

is filed with the Federal Register. As commentators recommended,

however, the final regulations allow elective retroactive application

of the rules of the regulations to ownership changes that occurred on

or after January 1, 1987. If the loss corporation elects retroactive

application, it may also revoke any prior election made under section

382(l)(5)(H) to not have section 382(l)(5) apply.

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in Executive Order 12866. It

has also been determined that section 553(b) of the Administrative

Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act

(5 U.S.C. chapter 6) do not apply to these regulations, and therefore,

a Regulatory Flexibility Analysis is not required. Pursuant to section

7805(f) of the Code, the notice of proposed rulemaking was submitted to

the Chief Counsel for Advocacy of the Small Business Administration for

comment on its impact on small business.

Drafting Information

The principal author of these regulations is Diana MacKeen Fulton,

Office of Assistant Chief Counsel (Corporate), Internal Revenue

Service. However, other personnel from the IRS and Treasury Department

participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in

part as follows:

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

Section 1.382-9 also issued under 26 U.S.C. 382(l)(1)(B),

(l)(3), and (m).

* * * * *

Par. 2. In Sec. 1.382-1, the table of contents is amended by:

1. Continuing to reserve the entry for 1.382-9, paragraph (c).

2. Adding entries for paragraphs (d) through (d)(6)(ii)(C).

3. The additions read as follows:

Sec. 1.382-1 Table of contents.

* * * * *

Sec. 1.382-9 Special rules under section 382 for corporations

under the jurisdiction of a court in a title 11 or similar case.

* * * * *

(c) [Reserved]

(d) Rules for determining whether stock of the loss corporation

is owned as a result of being a qualified creditor.

(1) Qualified creditor.

(2) General rules for determining whether indebtedness is

qualified indebtedness.

(i) Definition.

(ii) Determination of beneficial ownership.

(iii) Duty of inquiry.

(iv) Ordinary course indebtedness.

(3) Treatment of certain indebtedness as continuously owned by

the same owner.

(i) In general.

(ii) Operating rules.

(iii) Indebtedness owned by beneficial owner who becomes a 5-

percent shareholder or 5-percent entity.

(iv) Example.

(4) Special rule if indebtedness is a large portion of

creditor's assets.

(i) In general.

(ii) Applicable period.

(iii) Determination of ownership change.

(iv) Reliance on statement.

(5) Tacking of ownership periods.

(i) Transferee treated as owning indebtedness for period owned

by transferor.

(ii) Qualified transfer.

(iii) Exception.

(iv) Debt-for-debt exchanges.

(6) Effective date.

(i) In general.

(ii) Elections and amended returns.

(A) Election to apply this paragraph (d) retroactively.

(B) Election to revoke section 382(l)(5)(H) election.

(C) Amended returns.

* * * * *

Par. 3. Section 1.382-9 is amended by:

1. Revising the last sentence of paragraph (a).

2. Adding paragraph (d).

3. Revising the second sentence of paragraph (e)(1).

4. The revisions and additions read as follows:

Sec. 1.382-9 Special rules under section 382 for corporations under

the jurisdiction of a court in a title 11 or similar case.

(a) * * * Terms and nomenclature used in this section, and not

otherwise defined herein (including the nomenclature and assumptions in

Sec. 1.382-2T(b) relating to the examples) have the same respective

meanings as in section 382 and the regulations thereunder.

* * * * *

(d) Rules for determining whether stock of the loss corporation is

owned as a result of being a qualified creditor--(1) Qualified

creditor. A qualified creditor is the beneficial owner, immediately

before the ownership change, of qualified indebtedness of the loss

corporation. A qualified creditor owns stock of the new loss

corporation (or a controlling corporation) as a result of being a

qualified creditor only to the extent that the qualified creditor

receives stock in full or partial satisfaction of qualified

indebtedness (including interest accrued on such indebtedness) in a

transaction that is ordered by the court or is pursuant to a plan

approved by the court in a title 11 or similar case. For purposes of

this paragraph (d)(1), ownership of stock after the ownership change is

determined without applying the attribution rules generally applicable

under section 382(l)(3)(A) or Sec. 1.382-2T(h).

(2) General rules for determining whether indebtedness is qualified

indebtedness--(i) Definition. Indebtedness of the loss corporation is

qualified indebtedness if it--

(A) Has been owned by the same beneficial owner since the date that

is 18 months before the date of the filing of the title 11 or similar

case; or

(B) Arose in the ordinary course of the trade or business of the

loss corporation and has been owned at all times by the same beneficial

owner.

(ii) Determination of beneficial ownership. For purposes of

paragraph (d)(2)(i) of this section, beneficial ownership of

indebtedness is determined without applying attribution rules.

(iii) Duty of inquiry. The loss corporation must determine that

indebtedness that the loss corporation treats as qualified

indebtedness, other than indebtedness to which paragraph (d)(3)(i) of

this section applies, has been owned for the requisite period by the

beneficial owner who owns the indebtedness immediately before the

ownership change. The loss corporation may rely on a statement, signed

under penalties of perjury, by a beneficial owner regarding the amount

of indebtedness the beneficial owner owns and the length of time that

the beneficial owner has owned the indebtedness.

(iv) Ordinary course indebtedness. For purposes of this paragraph

(d)(2), indebtedness arises in the ordinary course of the loss

corporation's trade or business only if the indebtedness is incurred by

the loss corporation in connection with the normal, usual, or customary

conduct of business, determined without regard to whether the

indebtedness funds ordinary or capital expenditures of the loss

corporation. For example, indebtedness (other than indebtedness

acquired for a principal purpose of being exchanged for stock) arises

in the ordinary course of the loss corporation's trade or business if

it is trade debt; a tax liability; a liability arising from a past or

present employment relationship, a past or present business

relationship with a supplier, customer, or competitor of the loss

corporation, a tort, a breach of warranty, or a breach of statutory

duty; or indebtedness incurred to pay an expense deductible under

section 162 or included in the cost of goods sold. A claim that arises

upon the rejection of a burdensome contract or lease pursuant to the

title 11 or similar case is treated as arising in the ordinary course

of the loss corporation's trade or business if the contract or lease so

arose.

(3) Treatment of certain indebtedness as continuously owned by the

same owner--(i) In general. For purposes of paragraph (d)(2) of this

section, a loss corporation may treat indebtedness as always having

been owned by the beneficial owner of the indebtedness immediately

before the ownership change if the beneficial owner is not, immediately

after the ownership change, either a 5-percent shareholder or an entity

through which a 5-percent shareholder owns an indirect ownership

interest in the loss corporation (a 5-percent entity). This paragraph

(d)(3)(i) does not apply to indebtedness beneficially owned by a person

whose participation in formulating a plan of reorganization makes

evident to the loss corporation (whether or not the loss corporation

had previous knowledge) that the person has not owned the indebtedness

for the requisite period.

(ii) Operating rules. For purposes of paragraph (d)(3)(i) of this

section: (A) If a loss corporation has actual knowledge of a

coordinated acquisition of its indebtedness by a group of persons,

through a formal or informal understanding among themselves, for a

principal purpose of exchanging the indebtedness for stock, the

indebtedness (and any stock received in exchange therefor) is treated

as owned by an entity. A principal element in determining if an

understanding exists among members of a group is whether the investment

decision of each member is based upon the investment decision of one or

more other members.

(B) If the loss corporation has actual knowledge regarding stock

ownership described in Sec. 1.382-2T(k)(2), the loss corporation must

take that ownership into account in determining which beneficial owners

of indebtedness are, immediately after the ownership change, 5-percent

shareholders or 5-percent entities. The loss corporation is not

required to take into account an ownership interest described in

Sec. 1.382-2T(k)(4) unless the loss corporation has actual knowledge of

the ownership interest.

(C) The term 5-percent shareholder includes any person who is a 5-

percent shareholder of the loss corporation within the meaning of

Sec. 1.382-2T(g), without regard to the option attribution rules of

section 382(l)(3)(A) or Sec. 1.382-4(d) (or, if applicable, Sec. 1.382-

2T(h)(4)).

(D) Paragraph (d)(3)(i) of this section does not apply to

indebtedness if the loss corporation has actual knowledge immediately

after the ownership change that the exercise of an option to acquire or

dispose of stock of the loss corporation would cause the beneficial

owner of the indebtedness immediately before the ownership change to

be, after the ownership change, either a 5-percent shareholder or a 5-

percent entity. An interest that is treated as an option under

Sec. 1.382-4(d)(9) (or Sec. 1.382-2T(h)(4)(v) if applicable) is treated

as an option for purposes of this paragraph (d)(3)(ii)(D).

(iii) Indebtedness owned by beneficial owner who becomes a 5-

percent shareholder or 5-percent entity. If the beneficial owner of

indebtedness immediately before the ownership change is a 5-percent

shareholder or 5-percent entity immediately after the ownership change,

the general rules of paragraph (d)(2) of this section apply to

determine whether the indebtedness has been owned for the requisite

period by the beneficial owner.

(iv) Example. The following example illustrates paragraph (d)(3) of

this section.

(A)(1) L is a loss corporation in a title 11 case. The plan of

reorganization of L approved by the bankruptcy court provides for

the satisfaction of claims by the issuance of new L common stock to

its creditors as follows:

A--2 percent

B--7.5 percent

C--2.5 percent

P1--3 percent

P2--10 percent

P3--4.9 percent

P4--4.9 percent

P5--4.9 percent

(2) P2 is owned by Public P2. B owns 10 percent of the stock of

P1 and L has no actual knowledge of this ownership. L has actual

knowledge that D owns P3, P4 and P5. In addition, L has actual

knowledge, immediately after the ownership change, that C owns an

option to acquire newly-issued stock of L that, if exercised, would

increase C's percentage ownership of L stock from 2.5 percent to 8

percent. An ownership change of L occurs on the date the plan

becomes effective.

(B) Under paragraph (d)(3)(i) of this section, L may treat the

indebtedness owned by A and P1 immediately before the ownership

change as always having been owned by A and P1. Neither A nor P1 is

a 5-percent shareholder immediately after the ownership change.

Further, because P1 owns less than 5 percent of the L stock (and L

has no actual knowledge of B's ownership interest in P1), P1 is

treated as an individual, and the L stock owned by P1 is not

attributed to any other person, including B. See Sec. 1.382-

2T(h)(2)(iii). Therefore, P1 is not a 5-percent entity.

(C) Paragraph (d)(3)(i) of this section does not apply to the

indebtedness owned by B, C, P2, P3, P4, or P5. B is a 5-percent

shareholder immediately after the ownership change. L has actual

knowledge immediately after the ownership change that the exercise

of C's option would cause C to be a 5-percent shareholder

immediately after the ownership change. (L does not take into

account the effect of the exercise of the option, however, in

determining the percentage stock ownership of any person other than

C because the deemed exercise would not cause any other person to be

a 5-percent shareholder or a 5-percent entity after the ownership

change.) P2 is a 5-percent entity, because Public P2, a 5-percent

shareholder, owns an indirect ownership interest in L through P2.

P3, P4, and P5 are 5-percent entities because D, a 5-percent

shareholder, owns an indirect ownership interest in L through P3,

P4, and P5. Because L has actual knowledge that D would be a 5-

percent shareholder but for the application of Sec. 1.382-

2T(h)(2)(iii), that section does not apply to P3, P4, or P5. See

Sec. 1.382-2T(k)(2). Thus, under Sec. 1.382-2T(h)(2)(i), the L stock

owned by P3, P4, and P5 is attributed to D, and D is a 5-percent

shareholder. Because paragraph (d)(3)(i) of this section does not

apply to the indebtedness owned by B, C, P2, P3, P4, and P5, L may

treat as qualified indebtedness only indebtedness that it determines

had been owned by such persons for the requisite period. See

paragraph (d)(2)(iii) of this section.

(4) Special rule if indebtedness is a large portion of creditor's

assets--(i) In general. Indebtedness is not qualified indebtedness if--

(A) The beneficial owner of the indebtedness is a corporation or

other entity that had an ownership change on any day during the

applicable period;

(B) The indebtedness represents more than 25 percent of the fair

market value of the total gross assets (excluding cash or cash

equivalents) of the beneficial owner on its change date; and

(C) The beneficial owner is a 5-percent entity immediately after

the ownership change of the loss corporation (determined by applying

the rules of paragraph (d)(3) of this section).

(ii) Applicable period. For purposes of paragraph (d)(4)(i) of this

section, the term applicable period means the period beginning on the

day 18 months before the filing of the title 11 or similar case (or the

day on which the beneficial owner acquired the indebtedness, if later)

and ending with the change date of the loss corporation.

(iii) Determination of ownership change. For purposes of paragraph

(d)(4)(i) of this section, the determination whether a beneficial owner

of indebtedness has an ownership change is made under the principles of

section 382 and the regulations thereunder, without regard to whether

the beneficial owner is a loss corporation and by beginning the testing

period no earlier than the latest of the day three years before the

change date, the day 18 months before the filing of the title 11 or

similar case, or the day on which the beneficial owner acquired the

indebtedness.

(iv) Reliance on statement. Paragraph (d)(4)(i) of this section

does not apply to indebtedness if the loss corporation obtains a

statement, signed under penalties of perjury, by the beneficial owner

of the indebtedness that states that paragraph (d)(4)(i) of this

section does not apply to the indebtedness.

(5) Tacking of ownership periods--(i) Transferee treated as owning

indebtedness for period owned by transferor. To determine whether

indebtedness transferred in a qualified transfer is qualified

indebtedness, the transferee is treated as having owned the

indebtedness for the period that it was owned by the transferor.

(ii) Qualified transfer. For purposes of paragraph (d)(5)(i) of

this section, a transfer of indebtedness is a qualified transfer if--

(A) The transfer is between parties who bear a relationship to each

other described in section 267(b) or 707(b) (substituting at least 80

percent for more than 50 percent each place it appears in section

267(b) (and section 267(f)(1)) or 707(b));

(B) The transfer is a transfer of a loan within 90 days after its

origination, pursuant to a customary syndication transaction;

(C) The transfer is a transfer of newly incurred indebtedness by an

underwriter that owned the indebtedness for a transitory period

pursuant to an underwriting;

(D) The transferee's basis in the indebtedness is determined under

section 1014 or 1015 or with reference to the transferor's basis in the

indebtedness;

(E) The transfer is in satisfaction of a right to receive a

pecuniary bequest;

(F) The transfer is pursuant to any divorce or separation

instrument (within the meaning of section 71(b)(2));

(G) The transfer is pursuant to a subrogation in which the

transferee acquires a claim against the loss corporation by reason of a

payment to the claimant pursuant to an insurance policy or a guarantee,

letter of credit or similar security arrangement; or

(H) The transfer is a transfer of an account receivable in a

customary commercial factoring transaction made within 30 days after

the account arose to a transferee that regularly engages in such

transactions.

(iii) Exception. A transfer of indebtedness is not a qualified

transfer for purposes of paragraph (d)(5)(i) of this section if the

transferee acquired the indebtedness for a principal purpose of

benefiting from the losses of the loss corporation by--

(A) Exchanging the indebtedness for stock of the loss corporation

pursuant to the title 11 or similar case; or

(B) Selling the indebtedness at a profit that reflects the

expectation that, by reason of section 382(l)(5), section 382(a) will

not apply to any ownership change resulting from the title 11 or

similar case.

(iv) Debt-for-debt exchanges. If the loss corporation satisfies its

indebtedness with new indebtedness, either through an exchange of new

indebtedness for old indebtedness or a change in the terms of

indebtedness that results in an exchange under section 1001--

(A) The owner of the new indebtedness is treated as having owned

that indebtedness for the period that it owned the old indebtedness;

and

(B) The new indebtedness is treated as having arisen in the

ordinary course of the trade or business of the loss corporation if the

old indebtedness so arose.

(6) Effective date--(i) In general. This paragraph (d) applies to

ownership changes occurring on or after March 17, 1994.

(ii) Elections and amended returns--(A) Election to apply this

paragraph (d) retroactively. A loss corporation may elect to apply this

paragraph (d) to an ownership change occurring prior to March 17, 1994.

This election must be made by the later of the due date (including any

extensions of time) of the loss corporation's tax return for the

taxable year which includes the change date or the date that the loss

corporation files its first tax return after May 16, 1994. The election

is made by attaching the following statement to the return: ``This is

an Election to Apply Sec. 1.382-9(d) Retroactively with Respect to the

Ownership Change on [Insert Date of Ownership Change] That Occurred in

Connection with the Title 11 or Similar Case filed on [Insert Date of

Filing].'' This statement must be accompanied by the amended returns

described in paragraph (d)(6)(ii)(C) of this section. An election under

this paragraph (d)(6) is irrevocable.

(B) Election to revoke section 382(l)(5)(H) election. A loss

corporation may elect to revoke a prior election made under section

382(l)(5)(H) with respect to an ownership change occurring before March

17, 1994 by including the following statement with its election to

apply Sec. 1.382-9(d) retroactively: ``This is an Election to Revoke a

Prior Election Made Under Section 382(l)(5)(H) With Respect to the

Ownership Change on [Insert Date of Ownership Change] That Occurred in

Connection With the Title 11 or Similar Case Filed on [Insert Date of

Filing].''

(C) Amended returns. If the retroactive application of this

paragraph (d) affects the amount of taxable income or loss for a prior

taxable year, then, except as precluded by the applicable statute of

limitations, the loss corporation (or the common parent of any

consolidated group of which the loss corporation was a member for the

year) must file an amended return for the year that reflects the

effects of the retroactive application of the rules of this paragraph

(d). If the statute of limitations precludes the filing of an amended

return for one or more such prior taxable years, the loss corporation

(or the common parent) must make appropriate adjustments under the

principles of section 382(l)(2)(A) in subsequent taxable years to

reflect the difference between the losses and credits actually used in

such prior taxable years and the amount that would have been used in

those years applying the rules of this paragraph (d).

(e) Option attribution for purposes of determining stock ownership

under section 382(l)(5)(A)(ii)--(1) In general. * * * An option that is

owned as a result of being a pre-change shareholder or qualified

creditor and that, if exercised, would result in the ownership of stock

by a pre-change shareholder or qualified creditor is not treated as

exercised under this paragraph (e). * * *

* * * * *

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 4. The authority citation for part 602 continues to read as

follows:

Authority: 26 U.S.C. 7805.

Par. 5. Section 602.101(c) is amended by revising the entries for

1.382-3 and 1.382-9 to read as follows:

Sec. 602.101 OMB Control numbers.

* * * * *

(c) * * *

------------------------------------------------------------------------

Current OMB

CFR part or section where identified and described control No.

------------------------------------------------------------------------

*****

1.382-3.................................................... 1545-1281

1545-1345

*****

1.382-9.................................................... 1545-1260

1545-1120

1545-1275

1545-1324

*****

------------------------------------------------------------------------

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: February 24, 1994.

Leslie Samuels,

Assistant Secretary of the Treasury (Tax Policy).

[FR Doc. 94-6085 Filed 3-17-94; 8:45 am]

BILLING CODE 4830-01-U