Consolidated ReturnsLimitations on the Use of Certain Losses and Deductions

DEPARTMENT OF THE TREASURY

26 CFR Part 1

[CO-24-96]

RIN 1545-AU31

Consolidated Returns--Limitations on the Use of Certain Losses

and Deductions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of prior proposed rule, notice of proposed

rulemaking by cross-reference to temporary regulations, and notice of

public hearing.

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

filed with the Office of the Federal Register (CO-78-90; see 56 FR

4228; 1991-1 C.B. 757). A public hearing was held on April 8, 1991. The

IRS and Treasury published Notice 91-27 (1991-2 C.B. 629) to advise of

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

proposed rules are withdrawn, and these proposed rules are issued in

their place.

In the Rules and Regulations section of this issue of the Federal

Register, the IRS is issuing temporary regulations relating to the

carryover and carryback of losses to consolidated and separate return

years. The text of those temporary regulations also serves as the text

of these proposed regulations. This document also provides a notice of

public hearing on these proposed regulations.

DATES: Written comments must be received by September 25, 1996.

Outlines of topics to be discussed at the public hearing scheduled for

Thursday, October 17, 1996, at 10 a.m. must be received by Thursday,

September 26, 1996.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (CO-24-96), room 5228,

Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,

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

the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (CO-24-96), Courier's

Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,

Washington, DC. The public hearing will be held in the NYU Classroom,

Room 2615, Internal Revenue Building, 1111 Constitution Avenue NW.,

Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, David B.

Friedel, (202) 622-7550; concerning submissions and the hearing,

Evangelista Lee, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed

rulemaking has been reviewed and approved by the Office of Management

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

3507) under the control number 1545-1237. Section 1.1502-21(b)(3)

requires a response from certain consolidated groups. The IRS requires

the information to assure that an election to relinquish a carryback

period is properly documented.

Comments concerning the collection of information should be sent to

the Office of Management and Budget, Attn: Desk Officer for the

Department of Treasury, Office of Information and Regulatory Affairs,

Washington, DC, 20503, with copies to the Internal Revenue Service,

Attn: IRS Reports Clearance Officer, T:FP. Washington, DC, 20224.

Comments on the collection of information should be received by August

26, 1996.

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

to respond to, a collection of information unless the collection of

information displays a valid control number.

The collection of information is in Proposed Sec. 1.1502-21(b)(3).

That section permits an election to relinquish a carryback period with

respect to a consolidated net operating loss. The common parent of the

group files the statement evidencing the election with the income tax

return of the group. This information is required by the IRS to assure

that an election to relinquish a carryback period is properly

documented. The likely respondents

[[Page 33394]]

and/or recordkeepers are certain consolidated groups of corporations.

Responses to this collection of information are required to obtain a

benefit (relating to the carryover of losses which would otherwise be

carried back).

Books or records relating to this collection of information must be

retained as long as their contents may become material in the

administration of any Internal Revenue law. Generally, tax returns and

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

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

annual burden per respondent varies from five to thirty minutes,

depending on individual circumstances, with an estimated average of ten

minutes. Estimated number of respondents: 6,000. Estimated annual

frequency of responses: 1.

Background

Temporary regulations in the Rules and Regulations section of this

issue of the Federal Register amend the Income Tax Regulations (26 CFR

par. 1) relating to deductions and losses of members. The temporary

amendments concern the method for computing the limitations with

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

concern the rules relating to carryover and carryback of losses to

consolidated and separate return years and to the built-in deductions

rules. The final regulations that are proposed to be based on these

proposed regulations would be added to part 1 of title 26 of the Code

of Federal Regulations. Those final regulations would provide rules for

computing the limitations with respect to separate return limitation

year (SRLY) losses. They also concern the rules relating to carryover

and carryback of losses to consolidated and separate return years and

to the built-in deductions rules.

For the text of these new temporary regulations, see TD 8677. The

preamble to the temporary regulations explains the regulations.

Proposed Effective Date

For dates of application and special transition rules, see the

discussion of Effective Dates under SUPPLEMENTARY INFORMATION relating

to the temporary regulations, published elsewhere in this issue of the

Federal Register.

Special Analyses

It has been determined that this notice of proposed rulemaking is

not a significant regulatory action as defined in EO 12866. Therefore,

a regulatory assessment is not required. It is hereby certified that

these regulations do not have a significant economic impact on a

substantial number of small entities. This certification is based on

the fact that these regulations will primarily affect affiliated groups

of corporations that have elected to file consolidated returns, which

tend to be larger businesses. Therefore, a Regulatory Flexibility

Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is

not required. Pursuant to section 7805(f) of the Internal Revenue Code,

this notice of proposed rulemaking will be submitted to the Chief

Counsel for Advocacy of the Small Business Administration for comment

on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,

consideration will be given to any written comments (a signed original

and eight (8) copies) that are submitted timely to the IRS. All

comments will be available for public inspection and copying.

A public hearing has been scheduled for Monday, September 16, 1996,

at 10 a.m. in the NYU Classroom, Room 2615, Internal Revenue Building,

1111 Constitution Avenue NW., Washington, DC. Because of access

restrictions, visitors will not be admitted beyond the building lobby

more than 15 minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons that wish to present oral comments at the hearing must

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

the topics to be discussed and the time to be devoted to each topic

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

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

comments.

An agenda showing the scheduling of the speakers will be prepared

after the deadline for receiving outlines has passed. Copies of the

agenda will be available free of charge at the hearing.

Drafting Information

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

Office of Assistant Chief Counsel (Corporate), IRS. However, other

personnel from the IRS and Treasury Department participated in their

development.

Withdrawal of Notice of Proposed Rulemaking

Accordingly, under the authority of 26 U.S.C. 7805, the notice of

proposed rulemaking that was published on January 29, 1991 (56 FR 4228)

is withdrawn.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

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

PART 1--INCOME TAXES

Paragraph 1. The authority citation for Part 1 is amended in part

by adding citations in numerical order to read as follows:

Authority: 26 U.S.C. 7805

* * * * *

Section 1.1502-15 also issued under 26 U.S.C. 1502.

* * * * *

Section 1.1502-21 also issued under 26 U.S.C. 1502.

Section 1.1502-22 also issued under 26 U.S.C. 1502.

Section 1.1502-23 also issued under 26 U.S.C. 1502.

Section 1.1502-79 also issued under 26 U.S.C. 1502.

Section 1.1502-15A also issued under 26 U.S.C. 1502.

Section 1.1502-21A also issued under 26 U.S.C. 1502.

Section 1.1502-22A also issued under 26 U.S.C. 1502.

Section 1.1502-23A also issued under 26 U.S.C. 1502.

Section 1.1502-41A also issued under 26 U.S.C. 1502.

Section 1.1502-79A also issued under 26 U.S.C. 1502.

* * * * *

Par. 2. Section 1.1502-15 is added to read as follows:

Sec. 1.1502-15 SRLY limitation on built-in losses.

[The text of this proposed section is the same as the text of

Sec. 1.1502-15T published elsewhere in this issue of the Federal

Register.]

Par. 3. Section 1.1502-21 is added to read as follows:

Sec. 1.1502-21 Net operating losses.

[The text of this proposed section is the same as the text of

Sec. 1.1502-21T published elsewhere in this issue of the Federal

Register.]

Par. 4. Section 1.1502-22 is added to read as follows:

Sec. 1.1502-22 Consolidated capital gain and loss.

[The text of this proposed section is the same as the text of

Sec. 1.1502-22T published elsewhere in this issue of the Federal

Register.]

[[Page 33395]]

Par. 5. Section 1.1502-23 is added to read as follows:

Sec. 1.1502-23 Consolidated net section 1231 gain or loss.

[The text of this proposed section is the same as the text of

Sec. 1.1502-23T published elsewhere in this issue of the Federal

Register.]

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 96-15826 Filed 6-26-96; 8:45 am]

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