Consolidated Returns--Limitations on the Use of Certain Credits
DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [TD 8884] RIN 1545-AV88
TITLE: Consolidated Returns--Limitations on the Use of Certain
Credits
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final regulations regarding certain
credits of corporations that become members of a consolidated group.
The regulations provide rules for computing the limitation with
respect to certain credits earned in a separate return limitation
year (SRLY) and the carryover and carryback of those credits to
consolidated and separate return years. The regulations also
eliminate the application of the SRLY rules in certain circumstances
in which the rules of section 383 also apply.
DATES: Effective Date: These regulations are effective May 25, 2000.
Applicability Dates: For dates of applicability, see the "Dates of
Applicability" portion of this preamble.
FOR FURTHER INFORMATION CONTACT: Marie C. Milnes-Vasquez, (202)
622-7770 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
A. In General
On January 12, 1998, the IRS and Treasury published in the Federal
Register a Treasury decision (TD 8751, 63 FR 1740) containing
temporary regulations concerning the use of certain tax attributes
by a consolidated group. In part, these regulations provided rules
governing the absorption of general business credits and minimum tax
credits carried from separate return limitation years (SRLYs), and
eliminated SRLY restrictions with respect to recapture of overall
foreign losses (OFLs) and on the use of foreign tax credits of
corporations joining a group.
Further, this Treasury decision contained a final regulation
eliminating the limitation on credit carryovers following a
consolidated return change of ownership (CRCO).
A notice of proposed rulemaking cross-referencing the temporary
regulations was published in the Federal Register on the same day
(63 FR 1803). On March 16, 1998, the IRS and Treasury published
temporary amendments to those consolidated return regulations (TD
8766, 63 FR 12641) and the corresponding notice of proposed
rulemaking (63 FR 12717) modifying the general date of applicability
contained in the January 12, 1998 temporary regulations. Per the
amendment, the January 12, 1998 temporary regulations, as amended,
are generally applicable for consolidated return years for which the
due date of the return is after March 13, 1998. The amendments
provided further guidance with respect to consolidated return years
beginning on or after January 1, 1997, for which the income tax
return is due on or before March 13, 1998.
On August 11, 1999, the IRS and Treasury issued final regulations
relating to the recapture of OFLs (including elimination of any SRLY
limitation on such recapture). (TD 8833, 64 FR 43613).
This Treasury decision adopts without substantive change the
portions of the temporary regulations that were issued in 1998,
relating to general business credits and minimum tax credits, with
the addition of the "overlap rule", discussed in Extension of 1999
Principles of this preamble. This Treasury decision also makes final
the rules eliminating SRLY restrictions on the use of foreign tax
credits, and the rules repealing the consolidated return change of
ownership provisions pertaining to those credits.
B. Extension of 1999 Principles
On July 2, 1999, the IRS and Treasury published in the Federal
Register a Treasury decision (TD 8823, 64 FR 36092) containing final
regulations providing rules governing the absorption of certain tax
attribute carryovers and carrybacks from separate return limitation
years (SRLYs). These tax.4 attributes included net operating losses
and net capital losses. The rules also governed the absorption of
recognized built-in losses. These regulations, in part, eliminated
the application of the SRLY rules in certain circumstances in which
the rules of section 382 also apply (overlap rule).
The IRS and Treasury believe that it is appropriate to apply a
single set of SRLY principles to all attributes that are subject to
SRLY limitations. Unnecessary complexity would result from applying
different principles to different attributes. Accordingly, this
document extends the principles of the overlap rule of the 1999
final regulations to the general business credit and the minimum tax
credit. These final regulations adopt the mechanism of subgrouping
and the overlap rule set forth in §1.1502-21 (including the
requirements of coextensive subgroups and contemporaneity).
C. Dates of Applicability
The final regulations generally are applicable to consolidated
return years for which the due date of the income tax return
(without extensions) is after March 13, 1998. However, there are
some special effective dates. The rules contained in these final
regulations (except the overlap rule) may be applied optionally to
years beginning on or after January 1, 1997. Application of the
overlap principles of §1.1502-21(g).5 is generally effective for
consolidated return years for which the return (without extensions)
is due after May 25, 2000.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 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 principally affect
persons filing consolidated federal income tax returns that have
carryover or carryback of credits from separate return limitation
years. Available data indicates that many consolidated return filers
are large companies (not small businesses). In addition, the data
indicates that an insubstantial number of consolidated return filers
that are smaller companies have credit carryovers or carrybacks, and
thus even fewer of these filers have credit carryovers or carrybacks
that are subject to the separate return limitation year rules.
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 accompanying these regulations was sent to the Small
Business Administration for comment on their impact on small
businesses.
Drafting Information
The principal author of these regulations is Marie C. Milnes-Vasquez
of the Office of Assistant Chief Counsel (Corporate). Other
personnel from the IRS and Treasury participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements. Adoption of
Amendments to the Regulations Accordingly, 26 CFR part 1 is amended
as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by
removing the entries for sections 1.1502-3T and 1.1502-55T and
adding entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502-3 also issued under 26 U.S.C. 1502.
Section 1.1502-4 also issued under 26 U.S.C. 1502. * * *
Section 1.1502-55 also issued under 26 U.S.C. 1502. * * *
Par. 2. Section 1.1502-3 is amended as follows:
1. The section heading is revised.
2. Paragraph (b)(3) is added.
3. Paragraphs (c), (d), and (e)(3) are revised. The addition and
revisions read as follows: §1.1502-3 Consolidated tax credits.
* * * * *
(b) * * *
(3) Example. The provisions of paragraphs (a) and (b) of this
section may be illustrated by the following example: Example. (i)
Corporation P is incorporated on January 1, 1966. On that same day P
incorporates corporation S, a wholly owned subsidiary. P and S file
consolidated returns for calendar years 1966 and 1967. P's and S's
credit earned, the consolidated credit earned, and the consolidated
limitation based on amount of tax for 1966 and 1967 are as follows:
Credit Consolidated Consolidated earned credit earned limitation
based on amount of tax
Credit Consolidated Consolidated
Earned Credit Earned Limitation Based
on Amount of Tax
1966:
P $60,000
S $30,000 $90,000 $100,000
1967:
P $40,000
S $25,000 $65,000 $50,000
(ii) P's and S's credit earned for 1966 are aggregated, and the
group's consolidated credit earned, $90,000, is allowable in full to
the group as a credit under section 38 for 1966 since such amount is
less than the consolidated limitation based on amount of tax for
1966, $100,000.
(iii) Since the consolidated limitation based on amount of tax for
1967 is $50,000, only $50,000 of the $65,000 consolidated credit
earned for such year is allowable to the group under section 38 as a
credit for 1967. The consolidated unused credit for 1967 of $15,000
($65,000 less $50,000) is a consolidated investment credit carryback
and carryover to the years prescribed in section 46(b). In this case
the consolidated unused credit is a consolidated investment credit
carryback to 1966 (since P and S were not in existence in 1964 and
1965) and a consolidated investment credit carryover to 1968 and
subsequent years. The portion of the consolidated unused credit for
1967 which is allowable as a credit for 1966 is $10,000. This amount
shall be added to the amount allowable as a credit to the group for
1966.
The balance of the consolidated unused credit for 1967 to be carried
to 1968 is $5,000. These amounts are computed as follows:
Consolidated carryback to 1966 $15,000
1966 consolidated limitation based on tax $100,000
Less: Consolidated credit earned for 1966 $90,000
Consolidated unused credits attributable
to years preceding 1967 0 $90,000
------- --------
Limit on amount of 1967 consolidated unused
credit which may be added as a credit for 1966 $10,000
-------
Balance of 1967 consolidated unused credit to
be carried to 1968 $5,000
(c) Limitation on investment credit carryovers and carrybacks from
separate return limitation years applicable for consolidated return
years for which the due date of the return is on or before March 13,
1998--(1) General rule. In the case of an unused credit of a member
of the group arising in a separate return limitation year (as
defined in §1.1502-1(f)) of such member (and in a separate return
limitation year of any predecessor of such member), the amount which
may be included under paragraph (b) of this section (computed
without regard to the limitation contained in paragraph (e) of this
section) shall not exceed the amount determined under paragraph (c)
(2) of this section.
(2) Computation of limitation. The amount referred to in paragraph
(c)(1) of this section with respect to a member of the group is the
excess, if any, of-
(i) The limitation based on amount of tax of the group, minus such
limitation recomputed by excluding the items of income, deduction,
and foreign tax credit of such member; over
(ii) The sum of the investment credit earned by such member for such
consolidated return year, and the unused credits attributable to
such member which may be carried to such consolidated return year
arising in unused credit years ending prior to the particular
separate return limitation year.
(3) Special effective date. This paragraph (c) applies to
consolidated return years for which the due date of the income tax
return (without extensions) is on or before March 13, 1998.
See paragraph (d) of this section for the rule that limits the
group's use of a section 38 credit carryover or carryback from a
SRLY for a consolidated return year for which the due date of the
income tax return (without extensions) is after March 13, 1998. See
also paragraph (d)(4) of this section for an optional effective date
rule (generally making the rules of this paragraph (c) inapplicable
to a consolidated return year beginning after December 31, 1996, if
the due date of the income tax return (without extensions) for such
year is on or before March 13, 1998).
(4) Examples. The provisions of this paragraph (c) may be
illustrated by the following examples:
Example 1. (i) Assume the same facts as in the example contained in
paragraph (b)(3) of this section, except that all the stock of
corporation T, also a calendar year taxpayer, is acquired by P on
January 1, 1968, and that P, S, and T file a consolidated return for
1968. In 1966, T had an unused credit of $10,000 which has not been
absorbed and is available as an investment credit carryover to 1968.
Such carryover is from a separate return limitation year. P's and
S's credit earned for 1968 is $10,000 each, and T's credit earned is
$8,000; the consolidated credit earned is therefore $28,000. The
group's consolidated limitation based on amount of tax for 1968 is
$50,000. Such limitation recomputed by excluding the items of
income, deduction, and foreign tax credit of T is $30,000.
Thus, the amount determined under paragraph (c)(2)(i) of this
section is $20,000 ($50,000 minus $30,000). Accordingly, the
limitation on the carryover of T's unused credit is $12,000, the
excess of $20,000 over $8,000 (the sum of T's credit earned for the
taxable year and any carryovers from prior unused credit years (none
in this case)). Therefore T's $10,000 unused credit from 1966 may be
carried over to the consolidated return year without limitation.
(ii) The group's consolidated credit earned for 1968, $28,000, is
allowable in full as a credit under section 38 since such amount is
less than the consolidated limitation based on amount of tax,
$50,000.
(iii) The group's consolidated investment credit carryover to 1968
is $15,000, consisting of the consolidated unused credits of the
group ($5,000) plus T's separate return year unused credit
($10,000). The entire $15,000 consolidated carryover shall be added
to the amount allowable to the group as a credit under section 38
for 1968, since such amount is less than $22,000 (the excess of the
consolidated limitation based on tax, $50,000, over the sum of the
consolidated credit earned for 1968, $28,000, and unused credits
arising in prior unused credit years, zero).
Example 2. Assume the same facts as in Example 1, except that the
amount determined under paragraph (c)(2)(i) of this section is
$12,000. Therefore, the limitation on the carryover of T's unused
credit is $4,000. Accordingly, the consolidated investment credit
carryover is only $9,000 since the amount of T's separate return
year unused credit which may be added to the group's $ 5,000
consolidated unused credit is $4,000. These amounts are computed as
follows:
T's carryover to 1968 $10,000
Consolidated limitation based on amount of
tax minus recomputed limitation $12,000
Less: T's credit earned for 1968 $8,000
Unused credits attributable to T arising in
unused credit years preceding 1966 0 $8,000
------- -------
Limit on amount of 1966 unused credit of T
which may be added to consolidated
investment credit carryover $4,000
------
Balance of 1966 unused credit of T to be
carried to 1969 (subject to the limitation
contained in paragraph (c) of this section) $6,000
(d) Limitation on tax credit carryovers and carrybacks from separate
return limitation years applicable for consolidated return years for
which the due date of the return is after March 13, 1998--(1)
General rule. The aggregate of a member's unused section 38 credits
arising in SRLYs that are included in the consolidated section 38
credits for all consolidated return years of the group may not
exceed--
(i) The aggregate for all consolidated return years of the member's
contributions to the consolidated section 38(c) limitation for each
consolidated return year; reduced by
(ii) The aggregate of the member's section 38 credits arising and
absorbed in all consolidated return years (whether or not absorbed
by the member).
(2) Computational rules--(i) Member's contribution to the
consolidated section 38(c) limitation. If the consolidated section
38(c) limitation for a consolidated return year is determined by
reference to the consolidated tentative minimum tax (see section
38(c)(1)(A)), then a member's contribution to the consolidated
section 38(c) limitation for such year equals the member's share of
the consolidated net income tax minus the member's share of the
consolidated tentative minimum tax. If the consolidated section
38(c) limitation for a consolidated return year is determined by
reference to the consolidated net regular tax liability (see section
38(c)(1)(B)), then a member's contribution to the consolidated
section 38(c) limitation for such year equals the member's share of
the consolidated net income tax minus 25 percent of the quantity
which is equal to so much of the member's share of the consolidated
net regular tax liability less its portion of the $25,000 amount
specified in section 38(c)(1)(B). The group computes the member's
shares by applying to the respective consolidated amounts the
principles of section 1552 and the percentage method under
§1.1502-33(d)(3), assuming a 100% allocation of any decreased tax
liability. The group must make proper adjustments so that taxes and
credits not taken into account in computing the limitation under
section 38(c) are not taken into account in computing the member's
share of the consolidated net income tax, etc. (See, for example,
the taxes described in section 26(b) that are disregarded in
computing regular tax liability.) Also, the group may apportion all
or a part of the $25,000 amount (or lesser amount if reduced by
section 38(c)(3)) for any year to one or more members.
(ii) Years included in computation. For purposes of computing the
limitation under this paragraph (d), the consolidated return years
of the group include only those years, including the year to which a
credit is carried, that the member has been continuously included in
the group's consolidated return, but exclude--
(A) For carryovers, any years ending after the year to which the
credit is carried; and
(B) For carrybacks, any years ending after the year in which the
credit arose.
(iii) Subgroups and successors. The SRLY subgroup principles under
§1.1502-21(c)(2) apply for purposes of this paragraph (d). The
predecessor and successor principles under §1.1502-21(f) also apply
for purposes of this paragraph (d).
(iv) Overlap with section 383. The principles under §1.1502-21(g)
apply for purposes of this paragraph (d). For example, an overlap of
paragraph (d) of this section and the application of section 383
with respect to a credit carryover occurs if a corporation becomes a
member of a consolidated group (the SRLY event) within six months of
the change date of an ownership change giving rise to a section 383
credit limitation with respect to that carryover (the section 383
event), with the result that the limitation of this paragraph
(d) does not apply. See §§1.1502-21(g)(2)(ii)(A) and 1.383-1; see
also §1.1502-21(g)(4) (subgroup rules).
(3) Effective date--(i) In general. This paragraph (d) generally
applies to consolidated return years for which the due date of the
income tax return (without extensions) is after March 13, 1998.
(A) Contribution years. Except as provided in paragraph (d)(4)(ii)
of this section, a group does not take into account a consolidated
taxable year for which the due date of the income tax return
(without extensions) is on or before March 13, 1998, in determining
a member's (or subgroup's) contributions to the consolidated section
38(c) limitation under this paragraph (d).
(B) Special subgroup rule. In the event that the principles of
§1.1502-21(g)(1) do not apply to a particular credit carryover in
the current group, then solely for purposes of applying paragraph
(d) of this section to determine the limitation with respect to that
carryover and with respect to which the SRLY register (the aggregate
of the member's or subgroup's contribution to consolidated section
38(c) limitation reduced by the aggregate of the member's or
subgroup's section 38 credits arising and absorbed in all
consolidated return years) began in a taxable year for which the due
date of the return is on or before May 25, 2000, the principles of
§1.1502-21(c)(2) shall be applied without regard to the phrase "or
for a carryover that was subject to the overlap rule described in
paragraph (g) of this section or §1.1502-15(g) with respect to
another group (the former group)."
(ii) Overlap rule. Paragraph (d)(2)(iv) of this section (relating to
overlap with section 383) applies to taxable years for which the due
date (without extensions) of the consolidated return is after May
25, 2000. For purposes of paragraph (d)(2)(iv) of this section, only
an ownership change to which section 383, as amended by the Tax
Reform Act of 1986 (100 Stat. 2085), applies and which results in a
section 383 credit limitation shall constitute a section 383 event.
(4) Optional effective date of January 1, 1997. (i) For consolidated
taxable years beginning on or after January 1, 1997, for which the
due date of the income tax return (without extensions) is on or
before March 13, 1998, in lieu of paragraphs (c) and (e)(3) of this
section (relating to the general business credit), §1.1502-4(f)(3)
and (g)(3) (relating to the foreign tax credit), the next to last
sentence of §1.1502-9A(a)(2), §1.1502-9A(b)(1)(v) (relating to
overall foreign losses), and §1.1502-55(h)(4)(iii) (relating to the
alternative minimum tax credit), a consolidated group may apply the
corresponding provisions as they appear in 1998-1 C.B. 655.16
through 661 (see §601.601(d)(2) of this chapter) (treating
references in such corresponding provisions to §§1.1502- 9(b)(1)
(ii), (iii), and (iv) as references to §§1.1502- 9A(b)(1)(ii),
(iii), and (iv)). Also, in the case of a consolidated return change
of ownership that occurs on or after January 1, 1997, in a taxable
year for which the due date of the income tax return (without
extensions) is on or before March 13, 1998, a consolidated group may
choose not to apply paragraph (e) of this section and §1.1502-4(g)
to taxable years ending after December 31, 1996. A consolidated
group making the choices described in the two preceding sentences
generally must apply all such corresponding provisions (including
not applying paragraph (e) of this section and §1.1502-4(g)) for all
relevant years. However, a consolidated group making the election
provided in §1.1502-9A(b)(1)(vi) (electing not to apply
§1.1502-9A(b)(1)(v) to years beginning before January 1, 1998) may
nevertheless choose to apply all such corresponding provisions
referred to in this paragraph (d)(4)(i) other than the provision
corresponding to §1.1502-9A(b)(1)(v) for all relevant years.
(ii) If a consolidated group chooses to apply the corresponding
provisions referred to in paragraph (d)(4)(i) of this section, the
consolidated group shall not take into account a consolidated
taxable year beginning before January 1, 1997, in determining a
member's (or subgroup's) contributions to the consolidated section
38(c) limitation under this paragraph (d).
(5) Example. The following example illustrates the provisions of
this paragraph (d): Example. (i) Individual A owns all of the stock
of P and T. P is the common parent of the P group. P acquires all
the stock of T at the beginning of Year 2. T carries over an unused
section 38 general business credit from Year 1 of $100,000. The
table in paragraph (i) of this Example shows the group's net
consolidated income tax, consolidated tentative minimum tax, and
consolidated net regular tax liabilities, and T's share of such
taxes computed under the principles of section 1552 and the
percentage method under §1.1502-33(d)(3), assuming a 100% allocation
of any decreased tax liability, for Year 2. (The effects of the
lower section 11 brackets are ignored, there are no other tax
credits affecting a group amount or member's share, and $1,000s are
omitted.)
Year 2 Group P’s T’s
share share of
of col 1 col 1
consolidated $2,000 $1,200 $800
taxable income
consolidated $700 $420 $280
net regular tax
consolidated $4,000 $3,200 $800
alternative minimum
taxable income
consolidated $800 $640 $160
tentative minimum
tax
consolidated $800 $520 $280
net income tax
greater of line 4 $800
or 25% of
(line 2 minus $25,000)
the group
consolidated $0
§38(c) limitation
(line 5 minus line 6)
(ii) T's Year 1 is a SRLY with respect to the P group. See
§1.1502-1(f)(2)(ii). T did not undergo an ownership change giving
rise to a section 383 credit limitation within 6 months of joining
the P group. Thus, T's $100,000 general business credit arising in
Year 1 is subject to a SRLY limitation in the P group. The amount of
T's unused section 38 credits from Year 1 that are included in the
consolidated section 38 credits for Year 2 may not exceed T's
contribution to the consolidated section 38(c) limitation. For Year
2, the group determines the consolidated section 38(c) limitation by
reference to consolidated tentative minimum tax for Year 2.
Therefore, T's contribution to the consolidated section 38(c)
limitation for Year 2 equals its share of consolidated net income
tax minus its share of consolidated tentative minimum tax. T's
contribution is $280,000 minus $160,000, or $120,000. However,
because the group has a consolidated section 38 limitation of zero,
it may not include any of T's unused section 38 credits in the
consolidated section 38 credits for Year 2.
(iii) The following table shows similar information for the group
for Year 3:
Year 3 Group P’s T’s
share share of
of col 1 col 1
consolidated $1,200 $1,500 $(300)
taxable income
consolidated $420 $525 $(105)
net regular tax
consolidated $1,500 $1700 $(200)
alternative minimum
taxable income
consolidated $300 $340 $(40)
tentative minimum
tax
consolidated $420 $525 $(105)
net income tax
greater of line 4 $300
or 25% of
(line 2 minus $25,000)
the group
consolidated $120
§38(c) limitation
(line 5 minus line 6)
(iv) The amount of T's unused section 38 credits from Year 1 that
are included in the consolidated section 38 credits for Year 3 may
not exceed T's aggregate contribution to the consolidated section
38(c) limitation for Years 2 and 3. For Year 3, the group determines
the consolidated section 38(c) limitation by reference to the
consolidated tentative minimum tax for Year 3. Therefore, T's
contribution to the consolidated section 38(c) limitation for Year 3
equals its share of consolidated net income tax minus its share of
consolidated tentative minimum tax. Applying the principles of
section 1552 and §1.1502-33(d) (taking into account, for example,
that T's positive earnings and profits adjustment under
§1.1502-33(d) reflects its losses actually absorbed by the group),
T's contribution is $(105,000) minus $(40,000), or $(65,000). T's
aggregate contributions to the consolidated section 38(c) limitation
for Years 2 and 3 is $120,000 + $(65,000), or $55,000. The group may
include $55,000 of T's Year 1 unused section 38 credits in its
consolidated section 38 tax credit in Year 3.
(e) * * *
(3) Special effective date. This paragraph (e) applies only to a
consolidated return change of ownership that occurred during a
consolidated return year for which the due date of the income tax
return (without extensions) is on or before March 13, 1998. See
paragraph (d)(4) of this section for an optional effective date rule
(generally making the rules of this paragraph (e) also inapplicable
if the consolidated return change of ownership occurred on or after
January 1, 1997, and during a consolidated return year for which the
due date of the income tax return (without extensions) is on or
before March 13, 1998).
* * * * *
§1.1502-3T [Removed]
Par. 3. Section 1.1502-3T is removed.
Par. 4. Section 1.1502-4 is amended by revising paragraphs
(f)(3) and (g)(3) to read as follows:
§1.1502-4 Consolidated foreign tax credit.
* * * * *
(f)* * *
(3) Limitation on unused foreign tax credit carryover or carryback
from separate return limitation years. Paragraphs (f)(1) and (2) of
this section do not apply for consolidated return years for which
the due date of the income tax return (without extensions) is after
March 13, 1998. For consolidated return years for which the due date
of the income tax return (without extensions) is after March 13,
1998, a group shall include an unused foreign tax of a member
arising in a SRLY without regard to the contribution of the member
to consolidated tax liability for the consolidated return year.
See also §1.1502-3(d)(4) for an optional effective date rule
(generally making the rules of paragraphs (f)(1) and (2) of this
section also inapplicable to a consolidated return year beginning on
or after January 1, 1997, if the due date of the income tax return
(without extensions) for such year is on or before March 13, 1998).
(g)* * *
(3) Special effective date for CRCO limitation. Paragraphs (g)(1)
and (2) of this section apply only to a consolidated return change
of ownership that occurred during a consolidated return year for
which the due date of the income tax return (without extensions) is
on or before March 13, 1998. See also §1.1502-3(d)(4) for an
optional effective date rule (generally making the rules of
paragraph (g)(1) and (2) of this section also inapplicable if the
consolidated return change of ownership occurred on or after January
1, 1997, and during a consolidated return year for which the due
date of the income tax return (without extensions) is on or before
March 13, 1998).
* * * * *
§1.1502-4T [Removed] Par. 5. Section 1.1502-4T is removed. Par. 6.
Section 1.1502-21 is amended by revising paragraph
(c)(2)(ix) to read as follows:
§1.1502-21 Net operating losses.
* * * * *
(c) * * *
(2) * * *
(ix) Application to other than loss carryovers. Paragraph (g) of
this section and the phrase "or for a carryover that was subject to
the overlap rule described in paragraph (g) of this section or
§1.1502-15(g) with respect to another group (the former group)" in
this paragraph (c)(2) apply only to carryovers of net operating
losses, net capital losses, and for taxable years for which the due
date (without extensions) of the consolidated return is after May
25, 2000, to carryovers of credits described in section 383(a)(2).
Accordingly, as the context may require, if another regulation
references this section and such other regulation does not concern a
carryover of net operating losses, net capital losses, or for
taxable years for which the due date (without extensions) of the
consolidated return is after May 25, 2000, carryovers of credits
described in section 383(a)(2), then such reference does not include
a reference to such paragraph or phrase.
* * * * *
Par. 7. Section 1.1502-55 is added to read as follows: §1.1502-55
Computation of alternative minimum tax of consolidated groups.
(a) through (h)(3) [Reserved].
(h)(4) Separate return year minimum tax credit.
(i) and (ii) [Reserved].
(iii)(A) Limitation on portion of separate return year minimum tax
credit arising in separate return limitation years. The aggregate of
a member's minimum tax credits arising in.25 SRLYs that are included
in the consolidated minimum tax credits for all consolidated return
years of the group may not exceed--
(1) The aggregate for all consolidated return years of the member's
contributions to the consolidated section 53(c) limitation for each
consolidated return year; reduced by
(2) The aggregate of the member's minimum tax credits arising and
absorbed in all consolidated return years (whether or not absorbed
by the member).
(B) Computational rules--(1) Member's contribution to the
consolidated section 53(c) limitation. Except as provided in the
special rule of paragraph (h)(4)(iii)(B)(2) of this section, a
member's contribution to the consolidated section 53(c) limitation
for a consolidated return year equals the member's share of the
consolidated net regular tax liability minus its share of
consolidated tentative minimum tax. The group computes the member's
shares by applying to the respective consolidated amounts the
principles of section 1552 and the percentage method under
§1.1502-33(d)(3), assuming a 100% allocation of any decreased tax
liability. The group makes proper adjustments so that taxes and
credits not taken into account in computing the limitation under
section 53(c) are not taken into account in computing the member's
share of the consolidated net regular tax, etc. (See, for example,
the taxes described in section 26(b) that are disregarded in
computing regular tax liability.)
(2) Adjustment for year in which alternative minimum tax is paid.
For a consolidated return year for which consolidated tentative
minimum tax is greater than consolidated regular tax liability, the
group reduces the member's share of the consolidated tentative
minimum tax by the member's share of the consolidated alternative
minimum tax for the year. The group determines the member's share of
consolidated alternative minimum tax for a year using the same
method it uses to determine the member's share of the consolidated
minimum tax credits for the year.
(3) Years included in computation. For purposes of computing the
limitation under this paragraph (h)(4)(iii), the consolidated return
years of the group include only those years, including the year to
which a credit is carried, that the member has been continuously
included in the group's consolidated return, but exclude any years
after the year to which the credit is carried.
(4) Subgroup principles. The SRLY subgroup principles under
§1.1502-21(c)(2) apply for purposes of this paragraph (h)(4)(iii).
The predecessor and successor principles under §1.1502-21(f) also
apply for purposes of this paragraph (h)(4)(iii).
(5) Overlap with section 383. The principles under §1.1502-21(g)
apply for purposes of this paragraph (h)(4)(iii). For example, an
overlap of this paragraph (h)(4)(iii) and the application of section
383 with respect to a credit carryover occurs if a corporation
becomes a member of a consolidated group (the SRLY event) within six
months of the change date of an ownership change giving rise to a
section 383 credit limitation with respect to that carryover (the
section 383 event), with the result that the limitation of this
paragraph (h)(4)(iii) does not apply. See §§1.1502-21(g)(2)(ii)(A)
and 1.383-1; see also §1.1502-21(g)(4) (subgroup rules).
(C) Effective date--(1) In general. This paragraph (h)(4)(iii)
generally applies to consolidated return years for which the due
date of the income tax return (without extensions) is after March
13, 1998. See §1.1502-3(d)(4) for an optional effective date rule
(generally making this paragraph (h)(4)(iii) also applicable to a
consolidated return year beginning on or after January 1, 1997, if
the due date of the income tax return (without extensions) was on or
before March 13, 1998).
(i) Contribution years. In general, a group does not take into
account a consolidated taxable year for which the due date of the
income tax return (without extensions) is on or before March 13,
1998, in determining a member's (or subgroup's) contributions to the
consolidated section 53(c) limitation under this paragraph (h)(4)
(iii). However, if a consolidated group chooses to apply the
optional effective date rule, the consolidated group shall not take
into account a consolidated taxable year beginning before January 1,
1997 in determining a member's (or subgroup's) contributions to the
consolidated section 53(c) limitation under this paragraph (h)(4)
(iii).
(ii) Special subgroup rule. In the event that the principles of
§1.1502-21(g)(1) do not apply to a particular credit carryover in
the current group, then solely for purposes of applying this
paragraph (h)(4)(iii) to determine the limitation with respect to
that carryover and with respect to which the SRLY register (the
aggregate of the member's or subgroup's contribution to consolidated
section 53(c) limitation reduced by the aggregate of the member's or
subgroup's minimum tax credits arising and absorbed in all
consolidated return years) began in a taxable year for which the due
date of the return is on or before May 25, 2000, the principles of
§1.1502-21(c)(2) shall be applied without regard to the phrase "or
for a carryover that was subject to the overlap rule described in
paragraph (g) of this section or §1.1502-15(g) with respect to
another group (the former group)."
(2) Overlap rule. Paragraph (h)(4)(iii)(B)(5) of this section
(relating to overlap with section 383) applies to taxable years for
which the due date (without extensions) of the consolidated return
is after May 25, 2000. For purposes of paragraph (h)(4)(iii)(B)(5)
of this section, only an ownership change to which section 383, as
amended by the Tax Reform Act of 1986 (100 Stat. 2095), applies and
which results in a section 383 credit limitation shall constitute a
section 383 event. The optional effective date rule of §1.1502-3(d)
(4) (generally making this paragraph (h)(4)(iii) also applicable to
a consolidated return year beginning on or after January 1, 1997, if
the due date of the income tax return (without extensions) was on or
before March 13, 1998) does not apply with respect to paragraph (h)
(4)(iii)(B)(5) of this section (relating to the overlap rule).
§1.1502-55T [Removed] Par. 8. Section 1.1502-55T is removed. Par. 9.
Section 1.1502-98 is amended by adding a sentence immediately
following the first sentence to read as follows:
§1.1502-98 Coordination with section 383.
* * * For example, subgroups with respect to the carryover of
general business credits, minimum tax credits, unused foreign tax,
and net capital loss are determined by applying the principles of
§1.1502-91(d)(1). * * *
§1.1502-9A [Amended] Par. 10. Section 1.1502-9A is amended as
follows:
1. In paragraph (a)(2), the last sentence is amended by removing the
language "1.1502-3T(c)(4)" and adding "1.1502- 3(d)(4)" in its
place.
2. In paragraph (b)(1)(v), the last sentence is amended by removing
the language "1.1502-3T(c)(4)" and adding "1.1502- 3(d)(4)" in its
place.
Commissioner of Internal Revenue
Approved:
Assistant Secretary of the Treasury
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