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

DEPARTMENT OF THE TREASURY

26 CFR Part 1

[CO-25-96]

RIN 1545-AU32

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: 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 February 4, 1991, proposed rules under section 1502 were

published in the Federal Register (CO-132-87; see 56 FR 4194; 1991-1

C.B. 728). 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 February, 1991, proposed

rules are withdrawn and these proposed regulations are issued in their

place.

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

Register, the IRS is issuing 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 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-25-96), 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-25-96), 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 1545-1218. The collection requires a

response from certain consolidated groups. The IRS requires the

information described in Proposed Sec. 1.1502-95(e) to assure that a

section 382 limitation is properly determined in cases of corporations

that cease to be members of a group.

Comments concerning the collection of information should be sent to

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

Department of the 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. 1.1502-95(e).

That section permits an election with respect to the apportionment of a

group section 382 limitation to a departing member. A statement

evidencing the apportionment must be filed by the group and the

departing member indicating relevant information regarding the

apportionment. The likely respondents and/or recordkeepers are

corporations that are members of certain consolidated groups. Responses

to this collection of information are required to obtain a benefit

(relating to the section 382 limitation applicable to the departing

member(s)).

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: 380 hours. The estimated

annual burden per respondent varies from ten to thirty minutes,

depending on individual circumstances, with an estimated average of

fifteen minutes. Estimated number of respondents: 9,125. Estimated

frequency of responses: once every six years.

Background

Temporary regulations in the Rules and Regulations section of this

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

Part 1) under section 1502, 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 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 relating to

limitations on net operating loss carryforwards and certain built-in

losses following an ownership change.

For the text of these new temporary regulations, see TD 8678. The

preamble to the temporary regulations explains the regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is

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

a regulatory assessment is not required. It 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

[[Page 33396]]

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 Thursday, October 17, 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 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.

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 February 4, 1991 (56 FR 4194)

is withdrawn.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602 are proposed to be 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 1.1502-91 also issued under 26 U.S.C. 382(m) and 26

U.S.C. 1502.

Section 1.1502-92 also issued under 26 U.S.C. 382(m) and 26

U.S.C. 1502.

Section 1.1502-93 also issued under 26 U.S.C. 382(m) and 26

U.S.C. 1502.

Section 1.1502-94 also issued under 26 U.S.C. 382(m) and 26

U.S.C. 1502.

Section 1.1502-95 also issued under 26 U.S.C. 382(m) and 26

U.S.C. 1502.

Section 1.1502-96 also issued under 26 U.S.C. 382(m) and 26

U.S.C. 1502.

Section 1.1502-98 also issued under 26 U.S.C. 382(m) and 26

U.S.C. 1502.

Section 1.1502-99 also issued under 26 U.S.C. 382(m) and 26

U.S.C. 1502. * * *

Par. 2. Sections 1.1502-90 through 1.1502-99 are added to read as

follows:

Sec. 1.1502-90 Table of contents.

Sec. 1.1502-91 Application of section 382 with respect to a

consolidated group.

Sec. 1.1502-92 Ownership change of a loan group of a loss subgroup.

Sec. 1.1502-93 Consolidated section 382 limitation (or subgroup

section 382 limitation).

Sec. 1.1502-94 Coordination with section 382 and the regulations

thereunder when a corporation becomes a member of a consolidated

group.

Sec. 1.1502-95 Rules on ceasing to be a member of a consolidated

group (or loss subgroup).

Sec. 1.1502-96 Miscellaneous rules.

Sec. 1.1502-97 Special rules under section 382 for members under

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

[Reserved]

Sec. 1.1502-98 Coordination with section 383.

Sec. 1.1502-99 Effective dates.

[The text of the above proposed sections is the same as the text of

Secs. 1.1502-90T through 1.1502-99T published elsewhere in this issue

of the Federal Register.]

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 96-15827 Filed 6-26-96; 8:45 am]

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