[Federal Register Volume 68, Number 65 (Friday, April 4, 2003)]
[Rules and Regulations]
[Pages 16430-16432]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8312]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9048]
RIN 1545-BB95


Guidance Under Section 1502; Suspension of Losses on Certain 
Stock Dispositions; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Corrections to final and temporary regulations.

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SUMMARY: This document corrects final and temporary regulations 
published in the Federal Register on March 14, 2003 (68 FR 12287). The 
final and temporary regulations redetermine the basis of stock of a 
subsidiary member of a consolidated group immediately prior to certain 
transfers of such stock and certain deconsolidations of a subsidiary 
member and also suspend certain losses recognized on the disposition of 
stock of a subsidiary member.

DATES: This document is effective on March 14, 2003.

FOR FURTHER INFORMATION CONTACT: Aimee K. Meacham, (202) 622-7530 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The final and temporary regulations that are the subject of these 
corrections are under section 1502 of the Internal Revenue Code.

Need for Correction

    As published, the final and temporary regulations contain errors 
that may prove to be misleading and are in need of clarification. In 
particular, this document supplies text omitted from Sec.  1.1502-
35T(b)(3)(i)(C) and (b)(3)(ii)(C), and clarifies Sec.  1.1502-
35T(f)(1). In addition, the final and temporary regulations 
inadvertently removed the text for Sec. Sec.  1.1502-21T(b)(3)(ii)(C) 
and 1.1502-32T(b)(4)(v). The missing text is supplied.

Correction of Publication

    Accordingly, the publication of the final and temporary regulations 
(TD 9048) that were the subject of FR Doc. 03-6119, is corrected as 
follows:

0
1. On page 12288, column 3, second full paragraph, in the preamble 
under the paragraph heading ``Basis Reduction Rule for Worthless Stock 
and Stock of a Subsidiary With No Separate Return Year'', second full 
paragraph, lines 17 and 18 from the bottom of the paragraph, the 
language ``as expired, but not as absorbed by the group, as of the 
beginning of the group's'' is corrected to read ``as expired, but not 
as a noncapital, nondeductible expense for purposes of Sec.  1.1502-
32,''.

0
2. On page 12291, column 2, Sec.  1.1502-21T, paragraphs (b)(2) through 
(b)(3)(iv) is corrected to read as follows:


Sec.  1.1502-21T  Net operating losses (temporary).

* * * * *
    (b)(2) through (b)(3)(ii)(B) [Reserved]. For further guidance, see 
Sec.  1.1502-21(b)(2) through (b)(3)(ii)(B).
    (b)(3)(ii)(C) Partial waiver of carryback period for 2001 and 2002 
losses--(1) Application. The acquiring group may make the elections 
described in paragraphs (b)(3)(ii)(C)(2) and (3) of this section with 
respect to an acquired member or members only if it did not file a 
valid election described in Sec.  1.1502-21(b)(3)(ii)(B) with respect 
to such acquired member or members on or before May 31, 2002.
    (2) Partial waiver of entire pre-acquisition carryback period. If 
one or more members of a consolidated group become members of another 
consolidated group after June 25, 1999, then, with respect to all 
consolidated net operating losses attributable to the member for the 
taxable year ending during either 2001 or 2002, or both, the acquiring 
group may make an irrevocable election to relinquish the portion of the 
carryback period for such losses 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 and that 
the conditions of this paragraph are satisfied. The acquiring group 
cannot make the election described in this paragraph with respect to 
any consolidated net operating losses arising in a particular taxable 
year if any carryback is claimed, as provided in paragraph 
(b)(3)(ii)(C)(4) of this section, with respect to any such losses on a 
return or other filing by a group of which the acquired member was 
previously a member and such claim is filed on or before the date the 
election described in this paragraph is filed. The election must be 
made in a separate statement entitled ``THIS IS AN ELECTION UNDER 
SECTION 1.1502-21T (b)(3)(ii)(C)(2) TO WAIVE THE PRE-[insert first day 
of the first taxable year for which the member (or members) 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].'' Such 
statement must be filed as provided in paragraph (b)(3)(ii)(C)(5) of 
this section.
    (3) Partial waiver of pre-acquisition extended carryback period. If 
one or more members of a consolidated group become members of another 
consolidated group, then, with respect to all consolidated net 
operating losses attributable to the member for the taxable year ending 
during either 2001 or 2002, or both, the acquiring group may make an 
irrevocable election to relinquish the portion of the carryback period 
for such losses for which the corporation was a member of another group 
to the extent that such carryback period includes one or more taxable

[[Page 16431]]

years that are prior to the taxable year that is 2 taxable years 
preceding the taxable year of the loss, 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 and that the conditions of this paragraph are 
satisfied. The acquiring group cannot make the election described in 
this paragraph with respect to any consolidated net operating losses 
arising in a particular taxable year if a carryback to one or more 
taxable years that are prior to the taxable year that is 2 taxable 
years preceding the taxable year of the loss is claimed, as provided in 
paragraph (b)(3)(ii)(C)(4) of this section, with respect to any such 
losses on a return or other filing by a group of which the acquired 
member was previously a member and such claim is filed on or before the 
date the election described in this paragraph is filed. The election 
must be made in a separate statement entitled ``THIS IS AN ELECTION 
UNDER SECTION 1.1502-21T (b)(3)(ii)(C)(3) TO WAIVE THE PRE-[insert 
first day of the first taxable year for which the member (or members) 
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].'' Such statement must be filed as provided in paragraph 
(b)(3)(ii)(C)(5) of this section.
    (4) Claim for a carryback. For purposes of paragraphs 
(b)(3)(ii)(C)(2) and (3) of this section, a carryback is claimed with 
respect to a consolidated net operating loss 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 net 
operating loss in a taxable year prior to the taxable year of the loss, 
whether or not subsequently revoked in favor of a claim based on a 5-
year carryback period.
    (5) Time and manner for filing statement. A statement described in 
paragraph (b)(3)(ii)(C)(2) or (3) of this section that relates to 
consolidated net operating losses attributable to a taxable year ending 
during 2001 must be filed with the acquiring consolidated group's 
timely filed (including extensions) original or amended return for the 
taxable year ending during 2001, provided that such original or amended 
return is filed on or before October 31, 2002. A statement described in 
paragraph (b)(3)(ii)(C)(2) or (3) of this section that relates to 
consolidated net operating losses attributable to a taxable year ending 
during 2002 must be filed with the acquiring consolidated group's 
timely filed (including extensions) original or amended return for the 
taxable year ending during 2001 or 2002, provided that such original or 
amended return is filed on or before September 15, 2003.
    (b)(3)(iii) and (b)(3)(iv) [Reserved]. For further guidance, see 
Sec.  1.1502-21(b)(3)(iii) and (b)(3)(iv).
* * * * *

0
3. On page 12292, column 1, Sec.  1.1502-32T, paragraphs (b)(4) through 
(b)(4)(v) is corrected to read as follows:


Sec.  1.1502-32T  Investment adjustments (temporary).

* * * * *
    (b)(4) through (b)(4)(iv) [Reserved]. For further guidance, see 
Sec.  1.1502-32(b)(4) through (b)(4)(iv).
    (b)(4)(v) Special rule for loss carryovers of a subsidiary acquired 
in a trasaction for which an election under Sec.  1.1502-20T(i)(2) is 
made--(A) Expired losses. Notwithstanding Sec.  1.1502-32(b)(4)(iv), to 
the extent that S's loss carryovers are increased by reason of an 
election under Sec.  1.1502-20T(i)(2) and such loss carryovers expire 
or would have been properly used to offset income in a taxable year for 
which the refund of an overpayment is prevented by any law or rule of 
law as of the date the group files its original return for the taxable 
year in which S receives the notification described in Sec.  1.1502-
20T(i)(3)(iv) and at all times thereafter, the group will be deemed to 
have made an election under Sec.  1.1502-32(b)(4) to treat all of such 
expired loss carryovers as expiring for all Federal income tax purposes 
immediately before S became a member of the consolidated group.
    (B) Available losses. Notwithstanding Sec.  1.1502-32(b)(4)(iv), to 
the extent that S's loss carryovers are increased by reason of an 
election under Sec.  1.1502-20T(i)(2) and such loss carryovers have not 
expired and would not have been properly used to offset income in a 
taxable year for which the refund of an overpayment is prevented by any 
law or rule of law as of the date the group files its original return 
for the taxable year in which S receives the notification described in 
Sec.  1.1502-20T(i)(3)(iv) and at all times thereafter, the group may 
make an election under Sec.  1.1502-32(b)(4) to treat all or a portion 
of such loss carryovers as expiring for all Federal income tax purposes 
immediately before S became a member of the consolidated group. Such 
election must be filed with the group's original return for the taxable 
year in which S receives the notification described in Sec.  1.1502-
20T(i)(3)(iv).
    (C) Effective date. This paragraph (b)(4)(v) is applicable on and 
after March 7, 2002.
* * * * *


Sec.  1.1502-35T  [Corrected]

0
4. On page 12293, column 1, Sec.  1.1502-35T, paragraph (b)(3)(i)(C), 
line 2 from the bottom of the paragraph, the language ``distributee), 
section 351, or section 361'' is corrected to read ``distributee), 
section 351, section 354, or section 361''.

0
5. On page 12293, column 1, Sec.  1.1502-35T, paragraph (b)(3)(ii)(B), 
line 3 from the bottom of the paragraph, the language ``of subsidiary 
member stock that they'' is corrected to read ``of the subsidiary 
member stock that they''.

0
6. On page 12293, column 1, Sec.  1.1502-35T, paragraph (b)(3)(ii)(C) 
is correctly designated paragraph (b)(3)(ii)(D).

0
7. On page 12293, column 1, Sec.  1.1502-35T, new paragraph 
(b)(3)(ii)(C) is added to read as follows.

0
8. On page 12293, column 2, Sec.  1.1502-35T, paragraph (b)(6)(ii), 
line 2 from the bottom of the paragraph, the language ``and paragraph 
(c) of this section are'' is corrected to read ``and paragraphs (c) and 
(f) of this section are''.

0
9. On page 12295, column 2, Sec.  1.1502-35T, paragraph (e), the first 
sentence is revised to read as follows.

0
10. On page 12297, column 2, Sec.  1.1502-35T, paragraph (f)(1), lines 
4 and 5 from the bottom of the paragraph, the language ``as expired, 
but not as absorbed by the group, as of the beginning of the group's'' 
is corrected to read ``as expired, but shall not be treated as a 
noncapital, nondeductible expense for purposes of Sec.  1.1502-
32(b)(3)(iii), as of the beginning of the group's''.


Sec.  1.1502-35T  Transfers of subsidiary member stock and 
deconsolidations of subsidiary members (temporary).

* * * * *
    (b) * * *
    (3) * * *
    (ii) * * *
    (C) The members of the group are allowed a worthless stock loss 
under section 165(g) with respect to all of the shares of the 
subsidiary member stock that they own immediately before the 
deconsolidation; or
* * * * *
    (e) Examples. For purposes of the examples in this section, unless 
otherwise stated, all groups file consolidated returns on a calendar-
year basis, the facts set forth the only corporate activity, all 
transactions are

[[Page 16432]]

between unrelated persons, and tax liabilities are disregarded. * * *
* * * * *

Cynthia E. Grigsby,
Chief, Regulations Unit, Associate Chief Counsel, (Procedure and 
Administration).
[FR Doc. 03-8312 Filed 4-3-03; 8:45 am]
BILLING CODE 4830-01-P