Rule2023-14644
Carryback of Consolidated Net Operating Losses
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 12, 2023
Effective
July 10, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations that affect corporations filing consolidated returns. These regulations permit consolidated groups that acquire new members that were members of another consolidated group to elect in a year subsequent to the year of acquisition to waive all or part of the pre-acquisition portion of the carryback period for certain losses attributable to the acquired members where there is a retroactive statutory extension of the net operating loss (NOL) carryback period. This document finalizes certain provisions in proposed regulations that were published on July 8, 2020, and removes temporary regulations published on the same date.
Full Text
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<title>Federal Register, Volume 88 Issue 132 (Wednesday, July 12, 2023)</title>
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[Federal Register Volume 88, Number 132 (Wednesday, July 12, 2023)]
[Rules and Regulations]
[Pages 44210-44216]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-14644]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9977]
RIN 1545-BP84
Carryback of Consolidated Net Operating Losses
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations; removal of temporary regulations.
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SUMMARY: This document contains final regulations that affect
corporations filing consolidated returns. These regulations permit
consolidated groups that acquire new members that were members of
another consolidated group to elect in a year subsequent to the year of
acquisition to waive all or part of the pre-acquisition portion of the
carryback period for certain losses attributable to the acquired
members where there is a retroactive statutory extension of the net
operating loss (NOL) carryback period. This document finalizes certain
provisions in proposed regulations that were published on July 8, 2020,
and removes temporary regulations published on the same date.
DATES:
Effective date: These final regulations are effective on July 10,
2023.
Applicability date: For the date of applicability, see Sec.
1.1502-21(h)(9).
FOR FURTHER INFORMATION CONTACT: Stephen R. Cleary at (202) 317-5353
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This Treasury decision amends the Income Tax Regulations (26 CFR
part 1) under section 1502 of the Internal Revenue Code (Code). Section
1502 authorizes the Secretary of the Treasury or her delegate
(Secretary) to prescribe regulations for an affiliated group of
corporations that join in filing (or that are required to join in
filing) a consolidated return (consolidated group, as defined in Sec.
1.1502-1(h)) to clearly reflect the Federal income tax liability of the
consolidated group and to prevent avoidance of such tax liability. For
purposes of carrying out those objectives, section 1502 also permits
the Secretary to prescribe rules that may be different from the
provisions of chapter 1 of the Code that would apply if the
corporations composing the consolidated group filed separate returns.
Terms used in the consolidated return regulations generally are defined
in Sec. 1.1502-1.
On July 8, 2020, the Department of the Treasury (Treasury
Department) and the IRS published a notice of proposed rulemaking (REG-
125716-18) in the Federal Register (85 FR 40927) under section 1502
(2020 proposed regulations). The 2020 proposed regulations provided
guidance that, in part, implemented amendments to section 172 under
Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017), commonly known as
the Tax Cuts and Jobs Act (TCJA), and the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act), Public Law 116-136, 134 Stat. 281
(Mar. 27, 2020). Specifically, the 2020 proposed regulations provided
guidance for consolidated groups regarding (i) the application of the
80-percent limitation in section 172(a)(2), as originally enacted as
part of the TCJA and subsequently amended by the CARES Act, and (ii)
the absorption of NOL carrybacks and carryovers.
In connection with the 2020 proposed regulations, the Treasury
Department and the IRS published on the same date temporary regulations
(TD 9900) in the Federal Register (85 FR 40892) under section 1502
(2020 temporary regulations). The Treasury Department and the IRS
issued the 2020 temporary regulations to provide guidance to
consolidated groups regarding the application of the NOL carryback
rules under section 172(b), as amended by (i) section 2303(b) of the
CARES Act, and (ii) any similar future statutory amendments to section
172. Specifically, if there is a retroactive statutory extension of the
NOL carryback period under section 172 (retroactive statutory
extension), the 2020 temporary regulations permit consolidated groups
that, before the enactment of the retroactive statutory extension,
acquired new members that were members of another consolidated group to
elect to waive, in a taxable year subsequent to the taxable year of the
acquisition, all or part of the pre-acquisition portion of the
carryback period for consolidated net operating losses (CNOLs)
attributable to the acquired members. The preamble to the 2020
temporary regulations includes a background discussion of the rules
[[Page 44211]]
regarding NOL carrybacks and carryovers under section 172 and the
related consolidated return regulations. Part II of this Background
describes the 2020 temporary regulations in greater detail.
A correction to the 2020 temporary regulations was published in the
Federal Register (85 FR 53162) on August 28, 2020. The text of the 2020
temporary regulations also serves as the text of Sec. 1.1502-
21(b)(3)(ii)(C) and (D) of the 2020 proposed regulations.
The 2020 proposed regulations, other than proposed Sec. 1.1502-
21(b)(3)(ii)(C) and (D), were adopted as final regulations on October
27, 2020. See TD 9927 (85 FR 67966).
The IRS received one comment in response to the 2020 temporary
regulations. A copy of the comment is available for public inspection
at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (type IRS-2020-0020 in the search field
on the <a href="https://www.regulations.gov">https://www.regulations.gov</a> homepage) or upon request. No public
hearing was requested or held.
As described in greater detail in the Summary of Comment and
Explanation of Revisions, the Treasury Department and the IRS have
considered the commenter's recommendations and concluded that their
adoption would necessitate conforming changes to the split-waiver
election provisions set forth in Sec. 1.1502-21(b)(3)(ii)(B) (general
split-waiver election), which are beyond the scope of this guidance.
Therefore, the Treasury Department and the IRS have determined that,
aside from non-substantive revisions to incorporate the rules regarding
retroactive statutory extensions into Sec. 1.1502-21(b), improve
readability, and make other perfecting edits, Sec. 1.1502-
21(b)(3)(ii)(C) and (D) of the 2020 proposed regulations should be
adopted as final regulations without change, and that the 2020
temporary regulations should be removed. The Treasury Department and
the IRS continue to study the commenter's recommendations for purposes
of potential future guidance.
II. 2020 Temporary Regulations
On prior occasions, enacted legislation has amended section 172 to
retroactively extend the carryback period for NOLs. See Worker,
Homeownership, and Business Assistance Act of 2009, Public Law 111-92,
123 Stat. 2984 (November 6, 2009); Job Creation and Worker Assistance
Act of 2002, Public Law 107-147, 116 Stat. 21 (March 9, 2002). Most
recently, section 2303(b) of the CARES Act added section 172(b)(1)(D)
to the Code. Section 172(b)(1)(D) requires (in the absence of a waiver
under section 172(b)(3)) a five-year carryback period for an NOL that
arises in a taxable year beginning after December 31, 2017, and before
January 1, 2021.
Such retroactive statutory extensions of NOL carryback periods
uniquely impact a consolidated group (acquiring group) that acquires
one or more corporations (acquired member) before the enactment of the
retroactive statutory extension of the carryback period. During the
past two decades, the Treasury Department and the IRS have provided an
acquiring group with certain additional elections for waiving
carrybacks of losses into another consolidated group of which an
acquired member previously was a member (former group). See 75 FR 35643
(June 23, 2010) (2010 split-waiver regulations); 67 FR 38000 (May 31,
2002) (2002 split-waiver regulations). These additional elections,
while responsive to particular retroactive statutory extensions, have
reflected common policy objectives of providing affected groups with
the ability to waive all or a portion of the NOL carryback period of
acquired members extended by retroactive statutory extensions
applicable before, but enacted after, the acquisition(s).
The Treasury Department and the IRS determined that it is
appropriate to provide similar rules with regard to the NOL carryback
rules retroactively amended by section 2303(b) of the CARES Act in
particular, or by future legislation enacting retroactive statutory
amendments to NOL carryback rules more generally. Therefore, the 2020
temporary regulations provided principle-based rules, referred to in
these regulations as ``amended carryback rules,'' applicable to CNOLs
arising in taxable years to which amended carryback rules become
applicable after the acquisition of a member. Under these rules, an
acquiring group possesses the opportunity to waive, on a taxable-year-
by-taxable-year basis, all or a portion of the carryback period with
regard to CNOLs attributable to acquired members for pre-acquisition
years during which the acquired members were members of a former group.
The 2020 temporary regulations provide two types of split-waiver
elections for consolidated groups that (i) include one or more acquired
members, and (ii) have CNOLs that, under amended carryback rules,
become eligible to be carried back for a greater number of years than
under statutory law in effect at the time of the acquisition (default
carryback period). One type of election (amended statute split-waiver
election) permits an acquiring group to relinquish that part of the
carryback period during which an acquired member was a member of a
former group (for the portion of a CNOL attributable to the acquired
member), even though the acquiring group did not file a split-waiver
election for the year in which the acquired member became a member of
the acquiring group (as required by Sec. 1.1502-21(b)(3)(ii)(B)). See
Sec. 1.1502-21T(b)(3)(ii)(C)(2)(v). The other type of election
(extended split-waiver election) applies solely to the extended
carryback period (that is, the additional carryback years provided
under amended carryback rules). Through an extended split-waiver
election, an acquiring group can ensure that amended carryback CNOLs
are carried back to taxable years of former groups only to the extent
those losses would have been carried back under prior law (that is,
limiting CNOL carrybacks to the default carryback period). See Sec.
1.1502-21T(b)(3)(ii)(C)(2)(ix). These two additional types of split-
waiver elections provide relief, and are subject to conditions and
procedures, consistent with the applicable split-waiver elections set
forth in the 2002 and 2010 split-waiver regulations.
Summary of Comment and Explanation of Revisions
The Treasury Department and the IRS received one comment that
recommended two changes to the split-waiver election provisions set
forth in the 2020 temporary regulations (2020 split-waiver elections).
As discussed in the preamble to the 2020 temporary regulations, a
general split-waiver election and the 2020 split-waiver elections may
be made only with respect to the portion of the carryback period for
which the acquired member was a member of a former group. Thus, such an
election would not be effective with respect to any portion of the
carryback period during which the acquired member was a stand-alone
corporation. The commenter recommended that split-waiver elections be
available whenever a portion of a CNOL attributable to an acquired
member would be carried back to a separate return year, regardless of
whether the acquired member was a member of a former group or a stand-
alone corporation in that carryback year.
The commenter also suggested that, although the rules governing
split-waiver elections are too narrow insofar as they exclude
acquisitions of stand-alone corporations, such rules also are too broad
insofar as they apply to situations in which the acquired member was
the common parent of a former group (whole-group
[[Page 44212]]
acquisitions). See Sec. 1.1502-21(b)(3)(ii)(B) (allowing the acquiring
group to make a general split-waiver election with respect to the
portion of the carryback period for which the acquired member was ``a
member of another group''); Sec. 1.1502-21T(b)(3)(ii)(C)(2)(v) and
(ix) (allowing the acquiring group to make a 2020 split-waiver election
with respect to the portion of the carryback period for which the
acquired member was ``a member of any former group''); Sec. 1.1502-
1(b) (defining the term ``member'' to include the common parent of the
group).
For example, assume that P is the common parent of Group 1 in Years
1 and 2. At the beginning of Year 3, Group 2 acquires all the stock of
P. In Year 6, Group 2 incurs a CNOL, a portion of which is attributable
to P. In Year 7, Congress amends section 172 by extending the carryback
period for NOLs arising in Year 6 to five years. Group 2 would be
eligible to make either a general split-waiver election (if it filed
the requisite statement with its Federal income tax return for Year 3)
or one of the 2020 split-waiver elections. The commenter contended that
a split-waiver election should not be available in such a situation
because disputes regarding NOL carrybacks should not arise between the
former group and the acquiring group (which controls the former group
after the acquisition).
The changes recommended by the commenter, if adopted, would
necessitate revisions not only to the 2020 split-waiver elections, but
also to the general split-waiver election provisions in Sec. 1.1502-
21(b)(3)(ii)(B). Both the general split-waiver election and the 2020
split-waiver elections may be made only with respect to the portion of
the carryback period for which the acquired member was a member of a
former group. Moreover, both the general split-waiver election and the
2020 split-waiver elections may apply to situations in which the
acquired member was the common parent of a former group (that is,
whole-group acquisitions). Consequently, after considering the comment,
the Treasury Department and the IRS have determined that the scope of
the changes suggested by the commenter exceed the scope of Sec.
1.1502-21(b)(3)(ii)(C) and (D) of the 2020 proposed regulations.
Thus, as noted in part I of the Background, the Treasury Department
and the IRS have concluded that the split-waiver election provisions
provided by the 2020 proposed regulations should be adopted without
substantive change. The Treasury Department and the IRS continue to
study the commenter's recommendations for purposes of potential future
guidance. Accordingly, the final regulations contained in this Treasury
decision adopt the provisions of Sec. 1.1502-21(b)(3)(ii)(C) and (D)
of the 2020 proposed regulations without substantive change.
Although no substantive changes are made to the rules of Sec.
1.1502-21(b)(3)(ii)(C) and (D) of the 2020 proposed regulations, the
final regulations make the following non-substantive changes to
incorporate those rules into Sec. 1.1502-21(b) and to improve
readability: (1) the provisions of Sec. 1.1502-21(b)(3)(ii)(A) have
been redesignated as Sec. 1.1502-21(b)(3)(ii); (2) the provisions of
Sec. 1.1502-21(b)(3)(ii)(B) have been redesignated as Sec. 1.1502-
21(b)(4); (3) the provisions of Sec. 1.1502-21(b)(3)(ii)(C) and (D) of
the 2020 proposed regulations have been redesignated as Sec. 1.1502-
21(b)(5) and (6); (4) the provisions of Sec. 1.1502-21(b)(3)(iii) have
been redesignated as Sec. 1.1502-21(b)(7); (5) the provisions of Sec.
1.1502-21(b)(3)(iv) and (v) have been removed; and (6) corresponding
perfecting edits have been made.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6(b) of Executive Order 12866, as amended. Therefore, a
regulatory impact assessment is not required.
II. Paperwork Reduction Act
The collections of information in these final regulations are in
Sec. 1.1502-21(b)(5)(v)(A) and (B). The information is required to
inform the IRS on whether, and to what extent, an acquiring group makes
either of the elections described in these final regulations.
The collection of information provided by these final regulations
has been approved by the Office of Management and Budget (OMB) under
control number 1545-0123. For purposes of the Paperwork Reduction Act,
44 U.S.C. 3501 et seq. (PRA), the reporting burden associated with the
collection of information in Form 1120, U.S. Corporation Income Tax
Return, will be reflected in the PRA Submission associated with OMB
control number 1545-0123.
In general, if the acquiring group makes an election under Sec.
1.1502-21(b)(5), the acquiring group is required to attach a separate
statement to its Form 1120 as provided in Sec. 1.1502-21(b)(5)(v)(A)
and (B), respectively. This statement must be filed as provided in
Sec. 1.1502-21(b)(5)(vi).
The following table displays the number of respondents estimated to
be required to report on Form 1120 with respect to the collections of
information required by these final regulations. Due to the absence of
historical tax data, direct estimates of the number of respondents
required to attach a statement to other types of tax returns, as
applicable, are not available.
------------------------------------------------------------------------
Number of
respondents
(estimated)
------------------------------------------------------------------------
Amended Statute Split-Waiver Election & Extended Split-Waiver Election
------------------------------------------------------------------------
Form 1120............................................... 17,500
------------------------------------------------------------------------
Source: RAAS:CDW.
The numbers of respondents in the table were estimated by the
Research, Applied Analytics, and Statistics Division (RAAS) of the IRS
from the Compliance Data Warehouse (CDW). Data for Form 1120 represents
estimates of the total number of taxpayers that may attach an election
statement to their Form 1120 to make the elections in Sec. 1.1502-
21(b)(5)(v)(A) and (B).
It is estimated that 17,500 consolidated entities will be required
to attach a statement under these final regulations. The burden
estimates associated with the information collections in these final
regulations are included in aggregated burden estimates for the OMB
control number 1545-0123. The burden estimates provided in the OMB
control numbers in the following table are aggregate amounts that
relate to the entire package of forms associated with the OMB control
number, and will in the future include, but not isolate, the estimated
burden of those information collections associated with these final
regulations. To guard against over-counting the burden that
consolidated tax provisions imposed prior to Sec. 1.1502-21, the
Treasury Department and the IRS urge readers to recognize that these
burden estimates have also been cited by regulations that rely on the
applicable OMB control numbers in order to collect information from the
applicable types of filers.
[[Page 44213]]
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Form Type of filer OMB No(s). Status
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Form 1120........................... Corporation.................. 1545-0123 Published in the Federal
Register on 12/22/2022.
Public Comment period
closed on 01/19/2023.
Approved by OMB through 12/
31/2023.
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Link:<a href="https://www.federalregister.gov/documents/2022/12/20/2022-27628/comment-request-us-business-">https://www.federalregister.gov/documents/2022/12/20/2022-27628/comment-request-us-business-</a> income-tax-returns.
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Source: RAAS:CDW.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that this rulemaking will not have a significant
economic impact on a substantial number of small entities within the
meaning of section 601(6) of the Regulatory Flexibility Act. This
certification is based on the fact that these final regulations apply
only to corporations that file consolidated Federal income tax returns,
and that such corporations almost exclusively consist of larger
businesses. Specifically, based on data available to the IRS,
corporations that file consolidated Federal income tax returns
represent only approximately two percent of all filers of Forms 1120,
U.S. Corporation Income Tax Return. However, these consolidated Federal
income tax returns account for approximately 95 percent of the
aggregate amount of receipts provided on all Forms 1120. Therefore,
these final regulations will not create additional obligations for, or
impose an economic impact on, small entities, and a regulatory
flexibility analysis under the Regulatory Flexibility Act is not
required.
IV. Section 7805(f)
Pursuant to section 7805(f) of the Code, the notice of proposed
rulemaking that preceded these final regulations was submitted to the
Chief Counsel for the Office of Advocacy of the Small Business
Administration for comment on its impact on small business. No comments
on that notice of proposed rulemaking were received from the Chief
Counsel for the Office of Advocacy of the Small Business
Administration.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. These final regulations do not include any Federal mandate
that may result in expenditures by State, local, or Tribal governments,
or by the private sector in excess of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These final regulations do not have
federalism implications, do not impose substantial direct compliance
costs on State and local governments, and do not preempt State law
within the meaning of the Executive order.
VII. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Management and Budget's Office of Information and
Regulatory Affairs has designated this rule as not a ``major rule,'' as
defined by 5 U.S.C. 804(2).
Drafting Information
The principal author of these final regulations is Stephen R.
Cleary of the Office of Associate Chief Counsel (Corporate). However,
other personnel from the Treasury Department and the IRS 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
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.1502-21 is amended by:
0
1. Removing the language ``paragraph (b)(3)(iii)'' in paragraph
(b)(2)(iii) and adding the language ``paragraph (b)(7)'' in its place.
0
2. Revising paragraph (b)(3).
0
3. Adding paragraphs (b)(4) through (7).
0
4. Removing the language ``(b)(3)(ii)(B)'' in paragraph (h)(5) and
adding the language ``(b)(4)'' in its place.
0
5. Revising paragraph (h)(9).
The additions and revisions read as follows:
Sec. 1.1502-21 Net operating losses.
* * * * *
(b) * * *
(3) Election to relinquish entire carryback period--(i) In general.
A group may make an irrevocable election under section 172(b)(3) to
relinquish the entire carryback period with respect to a CNOL for any
consolidated return year. Except as provided in paragraphs (b)(4) and
(5) of this section, the election may not be made separately for any
member (whether or not it remains a member), and must be made in a
separate statement titled ``THIS IS AN ELECTION UNDER Sec. 1.1502-
21(b)(3)(i) TO WAIVE THE ENTIRE CARRYBACK PERIOD PURSUANT TO SECTION
172(b)(3) FOR THE [insert consolidated return year] CNOLs OF THE
CONSOLIDATED GROUP OF WHICH [insert name and employer identification
number of common parent] IS THE COMMON PARENT.'' The statement must be
filed with the group's income tax return for the consolidated return
year in which the loss arises. If the consolidated return year in which
the loss arises begins before January 1, 2003, the statement making the
election must be signed by the common parent. If the consolidated
return year in which the loss arises begins after December 31, 2002,
the election may be made in an unsigned statement.
(ii) Groups that include insolvent financial institutions. For
rules applicable to relinquishing the entire carryback period with
respect to losses attributable to insolvent financial
[[Page 44214]]
institutions, see Sec. 301.6402-7 of this chapter.
(4) General split-waiver election. If one or more members of a
consolidated group becomes a member of another consolidated group, the
acquiring group may make an irrevocable election to relinquish, with
respect to all consolidated net operating losses attributable to the
member, the portion of the carryback period for which the corporation
was a member of another group, provided that any other corporation
joining the acquiring group that was affiliated with the member
immediately before it joined the acquiring group is also included in
the waiver. This election is not a yearly election and applies to all
losses that would otherwise be subject to a carryback to a former group
under section 172. The election must be made in a separate statement
titled ``THIS IS AN ELECTION UNDER Sec. 1.1502-21(b)(4) TO WAIVE THE
PRE-[insert first taxable year for which the member (or members) was
not a member of another group] CARRYBACK PERIOD FOR THE CNOLs
attributable to [insert names and employer identification number of
members].'' The statement must be filed with the acquiring consolidated
group's original income tax return for the year the corporation (or
corporations) became a member. If the year in which the corporation (or
corporations) became a member begins before January 1, 2003, the
statement must be signed by the common parent and each of the members
to which it applies. If the year in which the corporation (or
corporations) became a member begins after December 31, 2002, the
election may be made in an unsigned statement.
(5) Split-waiver elections to which amended carryback rules apply--
(i) In general. An acquiring group may make either (but not both) an
amended statute split-waiver election or an extended split-waiver
election with respect to a particular amended carryback CNOL. These
elections are available only if the statutory amendment to the
carryback period referred to in paragraph (b)(5)(ii)(D) of this section
occurs after the date of acquisition of an acquired member. A separate
election is available for each taxable year to which amended carryback
rules apply. An acquiring group may make an amended statute split-
waiver election or an extended split-waiver election only if the
acquiring group, with regard to that election--
(A) Satisfies the requirements in paragraph (b)(5)(iii) of this
section; and
(B) Follows the procedures in paragraphs (b)(5)(v) and (vi) of this
section, as relevant to that election.
(ii) Definitions. The definitions provided in this paragraph
(b)(5)(ii) apply for purposes of paragraphs (b)(5) and (6) of this
section.
(A) Acquired member. The term acquired member means a member of a
consolidated group that joins another consolidated group.
(B) Acquiring group. The term acquiring group means a consolidated
group that has acquired a former member of another consolidated group
(that is, an acquired member).
(C) Amended carryback CNOL. The term amended carryback CNOL means
the portion of a CNOL attributable to an acquired member (determined
pursuant to paragraph (b)(2)(iv)(B) of this section) arising in a
taxable year to which amended carryback rules apply.
(D) Amended carryback rules. The term amended carryback rules means
the rules of section 172 of the Code after amendment by statute to
extend the carryback period for NOLs attributable to an acquired member
(determined pursuant to paragraph (b)(2)(iv)(B) of this section).
(E) Amended statute split-waiver election. The term amended statute
split-waiver election means, with respect to any amended carryback
CNOL, an irrevocable election made by an acquiring group to relinquish
the portion of the carryback period (including the default carryback
period and the extended carryback period) for that loss during which an
acquired member was a member of any former group.
(F) Amended statute split-waiver election statement. The term
amended statute split-waiver election statement has the meaning
provided in paragraph (b)(5)(v)(A) of this section.
(G) Default carryback period. The term default carryback period
means the NOL carryback period existing at the time the acquiring group
acquired the acquired member, before the applicability of amended
carryback rules.
(H) Extended carryback period. The term extended carryback period
means the additional taxable years added to a default carryback period
by any amended carryback rules.
(I) Extended split-waiver election. The term extended split-waiver
election means, with respect to any amended carryback CNOL, an
irrevocable election made by an acquiring group to relinquish solely
the portion of the extended carryback period (and no part of the
default carryback period) for that loss during which an acquired member
was a member of any former group.
(J) Extended split-waiver election statement. The term extended
split-waiver election statement has the meaning provided in paragraph
(b)(5)(v)(B) of this section.
(K) Former group. The term former group means a consolidated group
of which an acquired member previously was a member.
(iii) Conditions for making an amended statute split-waiver
election or an extended split-waiver election. An acquiring group may
make an amended statute split-waiver election or an extended split-
waiver election (but not both) with respect to an amended carryback
CNOL only if--
(A) The acquiring group has not filed a valid election described in
paragraph (b)(4) of this section with respect to the acquired member on
or before the effective date of the amended carryback rules;
(B) The acquiring group has not filed a valid election described in
section 172(b)(3) and paragraph (b)(3)(i) of this section with respect
to a CNOL of the acquiring group from which the amended carryback CNOL
is attributed to the acquired member;
(C) Any other corporation joining the acquiring group that was
affiliated with the acquired member immediately before the acquired
member joined the acquiring group is included in the waiver; and
(D) A former group does not claim any carryback (as provided in
paragraph (b)(5)(iv) of this section) to any taxable year in the
carryback period (in the case of an amended statute split-waiver
election) or in the extended carryback period (in the case of an
extended split-waiver election) with respect to the amended carryback
CNOL on a return or other filing filed on or before the date the
acquiring group files the election.
(iv) Claim for a carryback. For purposes of paragraph
(b)(5)(iii)(D) of this section, a carryback is claimed with respect to
an amended carryback CNOL if there is a claim for refund, an amended
return, an application for a tentative carryback adjustment, or any
other filing that claims the benefit of the NOL in a taxable year prior
to the taxable year of the loss, whether or not subsequently revoked in
favor of a claim based on the period provided for in the amended
carryback rules.
(v) Procedures for making an amended statute split-waiver election
or an extended split-waiver election--(A) Amended statute split-waiver
election. An amended statute split-waiver election must be made in a
separate amended statute split-waiver election
[[Page 44215]]
statement titled ``THIS IS AN ELECTION UNDER SECTION 1.1502-21(b)(5)(i)
TO WAIVE THE PRE-[insert first day of the first taxable year for which
the acquired member was a member of the acquiring group] CARRYBACK
PERIOD FOR THE CNOLS ATTRIBUTABLE TO THE [insert taxable year of
losses] TAXABLE YEAR(S) OF [insert names and employer identification
numbers of members]''. The amended statute split-waiver election
statement must be filed as provided in paragraph (b)(5)(vi) of this
section.
(B) Extended split-waiver election. An extended split-waiver
election must be made in a separate extended split-waiver election
statement titled ``THIS IS AN ELECTION UNDER SECTION 1.1502-21(b)(5)(i)
TO WAIVE THE PRE-[insert first day of the first taxable year for which
the acquired member was a member of the acquiring group] EXTENDED
CARRYBACK PERIOD FOR THE CNOLS ATTRIBUTABLE TO THE [insert taxable year
of losses] TAXABLE YEAR(S) OF [insert names and employer identification
numbers of members]''. The extended split-waiver election statement
must be filed as provided in paragraph (b)(5)(vi) of this section.
(vi) Time and manner for filing statement--(A) In general. Except
as otherwise provided in paragraph (b)(5)(vi)(B) or (C) of this
section, an amended statute split-waiver election statement or extended
split-waiver election statement must be filed with the acquiring
group's timely filed consolidated return (including extensions) for the
year during which the amended carryback CNOL is incurred.
(B) Amended returns. This paragraph (b)(5)(vi)(B) applies if the
date of the filing required under paragraph (b)(5)(vi)(A) of this
section is not at least 150 days after the date of the statutory
amendment to the carryback period referred to in paragraph
(b)(5)(ii)(D) of this section. Under this paragraph (b)(5)(vi)(B), an
amended statute split-waiver election statement or extended split-
waiver election statement may be attached to an amended return filed by
the date that is 150 days after the date of the statutory amendment
referred to in paragraph (b)(5)(ii)(D) of this section.
(C) Certain taxable years beginning before January 1, 2021. This
paragraph (b)(5)(vi)(C) applies to taxable years beginning before
January 1, 2021, for which the date of the filing required under
paragraph (b)(5)(vi)(A) of this section precedes November 30, 2020.
Under this paragraph (b)(5)(vi)(C), an amended statute split-waiver
election statement or extended split-waiver election statement may be
attached to an amended return filed by November 30, 2020.
(6) Examples. The following examples illustrate the rules of
paragraph (b)(5) of this section. For purposes of these examples: All
affiliated groups file consolidated returns; all corporations are
includible corporations that have calendar taxable years; each of P, X,
and T is a corporation having one class of stock outstanding; each of P
and X is the common parent of a consolidated group (P Group and X
Group, respectively); neither the P Group nor the X Group includes an
insolvent financial institution or an insurance company; no NOL is a
farming loss; there are no other relevant NOL carrybacks to the X
Group's consolidated taxable years; except as otherwise stated, the X
Group has sufficient consolidated taxable income determined under Sec.
1.1502-11 (CTI) to absorb the stated NOL carryback by T; T has
sufficient SRLY register income within the X Group to absorb the stated
NOL carryback by T; all transactions occur between unrelated parties;
and the facts set forth the only relevant transactions.
(i) Example 1: Computation and absorption of amended carrybacks--
(A) Facts. In Year 1, T became a member of the X Group. On the last day
of Year 5, P acquired all the stock of T from X. At the time of P's
acquisition of T stock, the default carryback period was zero taxable
years. The P Group did not make an irrevocable split-waiver election
under paragraph (b)(4) of this section to relinquish, with respect to
all CNOLs attributable to T while a member of the P Group, the portion
of the carryback period for which T was a member of the X Group (that
is, a former group). In Year 7, the P Group sustained a $1,000 CNOL,
$600 of which was attributable to T pursuant to paragraph (b)(2)(iv)(B)
of this section. In that year, P did not make an irrevocable general
waiver election under section 172(b)(3) and paragraph (b)(3)(i) of this
section with respect to the $1,000 CNOL when the P Group filed its
consolidated return for Year 7. In Year 8, legislation was enacted that
amended section 172 to require a carryback period of five years for
NOLs arising in a taxable year beginning after Year 5 and before Year
9.
(B) Analysis. As a result of the amended carryback rules enacted in
Year 8, the P Group's $1,000 CNOL in Year 7 must be carried back to
Year 2. Therefore, T's $600 attributed portion of the P Group's Year 7
CNOL (that is, T's amended carryback CNOL) must be carried back to
taxable years of the X Group. See paragraphs (b)(1) and (b)(2)(i) of
this section. To the extent T's amended carryback CNOL is not absorbed
in the X Group's Year 2 taxable year, the remaining portion must be
carried to the X Group's Year 3, Year 4, and Year 5 taxable years, as
appropriate. See id. Any remaining portion of T's amended carryback
CNOL is carried to consolidated return years of the P Group. See
paragraph (b)(1) of this section.
(ii) Example 2: Amended statute split-waiver election--(A) Facts.
The facts are the same as in paragraph (b)(6)(i)(A) of this section
(Example 1), except that, following the change in statutory carryback
period in Year 8, the P Group made a valid amended statute split-waiver
election under paragraph (b)(5)(i) of this section to relinquish solely
the carryback of T's amended carryback CNOL.
(B) Analysis. Because the P Group made a valid amended statute
split-waiver election, T's amended carryback CNOL is not eligible to be
carried back to any taxable years of the X Group (that is, a former
group). However, the amended statute split-waiver election does not
prevent T's Year 7 amended carryback CNOL from being carried back to
years of the P group (that is, the acquiring group) during which T was
a member. See paragraph (b)(5)(ii)(E) of this section. As a result, the
entire amount of T's amended carryback CNOL is eligible to be carried
back to taxable Year 6 of the P Group. Any remaining CNOL may then be
carried over within the P Group. See paragraph (b)(1) of this section.
(iii) Example 3: Computation and absorption of extended
carrybacks--(A) Facts. The facts are the same as in paragraph
(b)(6)(i)(A) of this section (Example 1), except that the X Group had
$300 of CTI in Year 4 and $200 of CTI in Year 5 and, at the time of the
P Group's acquisition of T, the default carryback period was two years.
Therefore, T's $600 attributed portion of the P Group's Year 7 CNOL was
required to be carried back to the X Group's Year 5 taxable year, and
the X Group was able to offset $200 of CTI in Year 5.
(B) Analysis. As a result of the amended carryback rules, the X
Group must offset its $300 of CTI in Year 4 against T's amended
carryback CNOL. See paragraphs (b)(1) and (b)(2)(i) of this section.
The remaining $100 ($600-$300-$200) of T's amended carryback CNOL is
carried to taxable years of the P Group. See paragraph (b)(1) of this
section.
(iv) Example 4: Extended split-waiver election--(A) Facts. The
facts are the
[[Page 44216]]
same as in paragraph (b)(6)(iii)(A) of this section (Example 3), except
that, following the change in law in Year 8, the P Group made a valid
extended split-waiver election under paragraph (b)(5)(i) of this
section to relinquish the extended carryback period for T's amended
carryback CNOL for years in which T was a member of the X Group.
(B) Analysis. As a result of the P Group's extended split-waiver
election, T's amended carryback CNOL is not eligible to be carried back
to any portion of the extended carryback period (that is, any taxable
year prior to Year 5). See paragraph (b)(5)(ii)(I) of this section. As
a result, the X Group absorbs $200 of T's $600 loss in Year 5, and the
remaining $400 ($600-$200) is carried to taxable years of the P Group.
See paragraph (b)(1) of this section.
(7) Short years in connection with transactions to which section
381(a) applies. If a member distributes or transfers assets to a
corporation that is a member immediately after the distribution or
transfer in a transaction to which section 381(a) applies, the
transaction does not cause the distributor or transferor to have a
short year within the consolidated return year of the group in which
the transaction occurred that is counted as a separate year for
purposes of determining the years to which a net operating loss may be
carried.
* * * * *
(h) * * *
(9) Amended carryback rules. Paragraphs (b)(5) and (6) of this
section apply to any CNOLs arising in a taxable year ending after July
2, 2020. However, taxpayers may apply paragraphs (b)(5) and (6) of this
section to any CNOLs arising in a taxable year beginning after December
31, 2017.
* * * * *
Sec. 1.1502-21T [Removed]
0
Par. 3. Section 1.1502-21T is removed.
Sec. 1.1502-78 [Amended]
0
Par. 4. Section 1.1502-78 is amended by removing the language ``Sec.
1.1502-21(b)(3)(ii)(B)'' in paragraph (a) and adding the language
``Sec. 1.1502-21(b)(4)'' in its place.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 5. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 6. In Sec. 602.101, amend the table in paragraph (b) by:
0
a. Revising the entry for ``Sec. 1.1502-21''; and
0
b. Removing the entry for ``Sec. 1.1502.21T''.
The revision reads as follows:
Sec. 602.101 OMB Control Numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.1502-21............................................... 1545-0123
* * * * *
------------------------------------------------------------------------
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
Approved: June 21, 2023.
Lily Batchelder,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2023-14644 Filed 7-10-23; 4:15 pm]
BILLING CODE 4830-01-P
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</html>Indexed from Federal Register on July 12, 2023.
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