[Federal Register Volume 88, Number 150 (Monday, August 7, 2023)]
[Proposed Rules]
[Pages 52057-52082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14098]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 5, 301, and 602

[REG-134420-10]
RIN 1545-BJ87


Revising Consolidated Return Regulations To Reflect Statutory 
Changes, Modernize Language, and Enhance Clarity

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking; withdrawal of notices of 
proposed rulemaking; partial withdrawal of notices of proposed 
rulemaking; and proposed withdrawal of temporary regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed amendments to regulations 
applicable to affiliated groups of corporations that file consolidated 
Federal income tax returns. The proposed regulations would modify those 
regulations to reflect statutory changes, update language to remove 
antiquated or regressive terminology, and enhance clarity. 
Additionally, this document partially or completely withdraws certain 
notices of proposed rulemaking and proposes to withdraw certain 
temporary regulations. The proposed regulations would affect 
corporations filing consolidated returns.

DATES: As of August 7, 2023, the notices of proposed rulemaking 
published on November 14, 2001 (66 FR 57021), March 12, 2002 (67 FR 
11070), May 31, 2002 (67 FR 38039), May 31, 2002 (67 FR 38040), March 
14, 2003 (68 FR 12324), May 7, 2003 (68 FR 24404), March 18, 2004 (69 
FR 12811), August 18, 2004 (69 FR 51209), August 26, 2004 (69 FR 
52462), April 10, 2007 (72 FR 17814), and June 23, 2010 (75 FR 35710) 
are withdrawn. As of August 7, 2023, the notices of proposed rulemaking 
published on December 30, 1992 (57 FR 62251-01), March 18, 2004 (69 FR 
12281), and June 11, 2015 (80 FR 33211) are partially withdrawn (see 
SUPPLEMENTARY INFORMATION for specific details). Written or electronic 
comments as well as requests for a public hearing must be received by 
November 6, 2023. Requests for a public hearing must be submitted as 
prescribed in the ``Comments and Requests for a Public Hearing'' 
section.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at https://www.regulations.gov (indicate IRS and 
REG-134420-10). Once submitted to the Federal eRulemaking Portal, 
comments cannot be edited or withdrawn. The Department of the Treasury 
(Treasury Department) and the IRS will publish for public availability 
any comment submitted to its public docket.
    Send paper submissions to: CC:PA:LPD:PR (REG-134420-10), Room 5203, 
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
William W. Burhop at (202) 317-5363 or Kelton P. Frye at (202) 317-5135 
(not toll-free numbers); concerning the submission of comments and/or 
requests for a public hearing, Vivian Hayes by email at 
[email protected] or by phone at (202) 317-5306 (not a toll-free 
number).

SUPPLEMENTARY INFORMATION: 

Background

    This notice of proposed rulemaking (NPRM) contains proposed 
regulations under sections 1502, 1503, 1552, and 1563 of the Internal 
Revenue Code of 1986 (Code). These proposed regulations primarily would 
revise the Income Tax Regulations (26 CFR part 1) under section 1502 
(consolidated return regulations). Section 1502 authorizes the 
Secretary of the Treasury or the Secretary's delegate (Secretary) to 
prescribe consolidated return regulations for an affiliated group of 
corporations that join in filing (or that are required to join in 
filing) a consolidated return (consolidated group) to clearly reflect 
the Federal income tax liability of the consolidated group and to 
prevent avoidance of such tax liability. See Sec.  1.1502-1(h) 
(defining the term ``consolidated group''). For purposes of carrying 
out those objectives, section 1502 also permits the

[[Page 52058]]

Secretary to prescribe rules that may be different from the provisions 
of chapter 1 of the Code (chapter 1) 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.
    The proposed regulations also would revise or propose to remove 
other regulations under the Code. These regulations are set forth in 
(i) the Income Tax Regulations (26 CFR part 1), (ii) the Temporary 
Income Tax Regulations under the Revenue Act of 1978 (26 CFR part 5), 
(iii) the Regulations on Procedure and Administration (26 CFR part 
301), and (iv) the OMB Control Numbers under the Paperwork Reduction 
Act Regulations (26 CFR part 602).

Explanation of Provisions

I. Overview

    In this NPRM, the Treasury Department and the IRS have proposed 
revisions to the consolidated return regulations to (i) eliminate 
obsolete or otherwise outdated provisions, (ii) modernize the language 
and improve the clarity of the regulations, and (iii) facilitate 
taxpayer compliance. As an initial matter, the proposed regulations 
would update the consolidated return regulations to reflect statutory 
changes made by legislation enacted during the last 50-plus years and 
remove consolidated return regulations that have no practical 
applicability to taxpayers. The proposed regulations also would revise 
the consolidated return regulations to eliminate obsolete or otherwise 
incorrect terms and cross-references. Lastly, the proposed regulations 
generally would remove transition rules for transactions occurring in 
or before 2009 because the taxable years affected by such transition 
rules generally are closed and the rules have no practical 
applicability to taxpayers.
    The proposed regulations also would update the consolidated return 
regulations and the regulations under section 1563 to eliminate 
antiquated or regressive terminology. For example, the proposed 
regulations would replace all gender-specific pronouns and other 
identifiers in the consolidated return regulations with gender-neutral 
pronouns and identifiers. The proposed regulations also would revise 
the consolidated regulations to identify (i) American Samoa, (ii) the 
Commonwealth of the Northern Mariana Islands, (iii) the Commonwealth of 
Puerto Rico, (iv) Guam, and (v) the U.S. Virgin Islands as 
``territories'' of the United States rather than ``possessions.'' Each 
of those jurisdictions has its own government and its own tax system. 
These revisions are consistent with, and in furtherance of, the 
Treasury Department's Equity Action Plan, as well as Executive Order 
13985 of January 20, 2021, Advancing Racial Equity and Support for 
Underserved Communities Through the Federal Government, 86 FR 7009 
(January 25, 2021).
    The proposed regulations also withdraw or partially withdraw 
numerous NPRMs. These NPRMs include: (i) NPRMs that are incorporated, 
in revised form, into these proposed regulations or that were 
incorporated into final regulations in revised form; (ii) a NPRM that 
became obsolete when proposed regulations provided in a subsequent, 
discrete NPRM were adopted as final regulations; and (iii) NPRMs that 
cross-referenced temporary regulations (the text of which served as the 
text for those proposals) that were removed, have expired, or otherwise 
have become obsolete. Additionally, the proposed regulations propose to 
withdraw temporary regulations that (i) no longer have practical 
applicability to taxpayers, or (ii) would be replaced by final 
regulations proposed by this document.
    With regard to each provision of the consolidated return 
regulations that these proposed regulations would remove, the Treasury 
Department and the IRS generally have proposed to reserve the affected 
provision. This approach is intended solely to avoid cascading changes 
to cross-references throughout the consolidated return regulations, 
thereby preserving historical citations and reducing potential 
confusion for taxpayers. Accordingly, the reserving of those provisions 
does not indicate in any manner that the Treasury Department and the 
IRS are studying, or intend to study, any of the one or more topics 
addressed by the reserved provision.
    Lastly, the proposed regulations would remove numerous provisions 
that cross-reference prior-law editions of the Code of Federal 
Regulations (CFR). Following adoption of the proposed regulations as 
final regulations, taxpayers may consult the CFR for a particular year 
to determine the rules applicable to that year.
    The Treasury Department and the IRS request comments on whether any 
aspect of the proposed regulations would effectuate a substantive 
revision of the consolidated return regulations, as opposed to a mere 
update or similar modification. Additionally, comments are requested on 
whether any provision proposed to be removed or revised by this 
document should be retained in its form as of August 4, 2023. Lastly, 
the Treasury Department and the IRS request comments identifying any 
other provision of the consolidated return regulations that should be 
revised consistent with the scope of the proposed regulations, such as 
additional provisions of the consolidated return regulations that are 
obsolete or otherwise outdated.

II. Summary of Proposed Changes

A. Removal of Regulations That Implement Repealed Statutory Provisions
    The proposed regulations would remove provisions of the 
consolidated return regulations that have been rendered obsolete by 
enacted legislation.
1. Section 1.1502-1 (Definitions)
    Sections 1.1502-1(f)(2) and (3) currently reference section 1562 of 
the Internal Revenue Code of 1954 (1954 Code), which allowed controlled 
groups of corporations (as defined in section 1563(a) of the 1954 Code) 
to elect multiple surtax exemptions. Section 1562 of the 1954 Code was 
repealed by section 401(a)(2) of the Tax Reform Act of 1969, Public Law 
91-172, 83 Stat. 487 (December 30, 1969). The proposed regulations 
would remove from Sec.  1.1502-1(f)(2) and (3) all references to 
section 1562 of the 1954 Code.
2. Section 1.1502-11 (Consolidated Taxable Income)
    The proposed regulations would remove Sec.  1.1502-11(a)(6), which 
provides that consolidated taxable income for a consolidated return 
year is determined by taking into account any ``consolidated section 
922 deduction.'' Section 922 of the 1954 Code (providing a deduction 
for Western Hemisphere trade corporations) was repealed for taxable 
years beginning after December 31, 1979, by section 1052(b) of the Tax 
Reform Act of 1976, Public Law 94-455, 90 Stat. 1520 (October 4, 1976). 
In 1984, a subsequent section 922 (relating to foreign sales 
corporations) was added to the 1954 Code by section 801(a) of the 
Deficit Reduction Act of 1984, Public Law 98-369, 98 Stat. 494 (July 
18, 1984), which defined the term ``FSC'' for purposes of statutory 
provisions regarding the taxation of foreign sales corporations. This 
subsequent section 922 of the 1954 Code was redesignated as section 922 
of the Code (by section 2(a) of the Tax Reform Act of 1986, Pub. L. 99-
514, 100 Stat. 2085 (October 22, 1986)) before its repeal by section 2 
of

[[Page 52059]]

the FSC Repeal and Extraterritorial Income Exclusion Act of 2000, 
Public Law 106-519, 114 Stat. 2423 (November 15, 2000). This repeal 
applies to transactions after September 30, 2000. See section 5(a) of 
the FSC Repeal and Extraterritorial Income Exclusion Act of 2000.
    The proposed regulations also would revise Sec.  1.1502-11 to make 
other minor updates. Specifically, the proposed regulations would 
remove references to rules applicable to taxable years beginning before 
January 1, 1977, because those rules no longer have practical 
applicability to taxpayers. In addition, the proposed regulations would 
remove references to prior law regulations proposed to be withdrawn by 
this document.
3. Section 1.1502-12 (Separate Taxable Income)
    The proposed regulations would remove Sec.  1.1502-12(m), which 
provides that no deduction under now-repealed section 922 of the 1954 
Code is taken into account in determining taxable income of separate 
corporations (that is, separate taxable income). See part II.A.2 of 
this Explanation of Provisions (describing the repeal of section 922 of 
the 1954 Code). The proposed regulations also would revise Sec.  
1.1502-12(n) to remove references to section 244 of the Code, which 
related to a special dividends-received deduction (DRD) for dividends 
received on certain preferred stock, and former section 247 of the 
Code, which related to a special DRD for dividends paid on certain 
preferred stock of public utilities. Sections 244 and 247 of the Code 
were repealed by section 221(a)(41)(A) of Division A of the Tax 
Increase Prevention Act of 2014, Public Law 113-295, 128 Stat. 4010 
(December 19, 2014). Although section 13821(b)(1) of Public Law 115-97, 
131 Stat. 2054 (December 22, 2017), commonly referred to as the ``Tax 
Cuts and Jobs Act'' (TCJA), added a new section 247 to the Code, that 
statutory provision allows deductions for certain contributions to 
Alaska Native Settlement Trusts and therefore is not applicable with 
regard to DRDs.
4. Section 1.1502-13 (Intercompany Transactions)
    The proposed regulations would revise Sec.  1.1502-13(c)(5) to 
remove a reference to section 595 of the Code, which provided 
nonrecognition treatment for foreclosure on property that secured the 
payment of indebtedness. Section 595 of the Code was repealed by 
section 1616(b)(8) of the Small Business Jobs Protection Act of 1996, 
Public Law 104-188, 110 Stat. 1755 (August 20, 1996).
5. Section 1.1502-24 (Consolidated Charitable Contributions Deduction)
    Section 1.1502-24(a) sets forth a rule to determine the amount of 
the consolidated charitable contributions deduction for a consolidated 
group. The proposed regulations would revise Sec.  1.1502-24(c) to 
remove the reference to section 242 of the 1954 Code, which allowed for 
a deduction for partially tax-exempt interest for C corporations. 
Section 242 of the 1954 Code was repealed by section 1901(a)(33) of the 
Tax Reform Act of 1976.
6. Section 1.1502-26 (Consolidated Dividends Received Deduction)
    The proposed regulations would revise Sec.  1.1502-26 by removing 
paragraphs (a)(2) through (6) of that section, which provide rules to 
calculate a consolidated DRD by taking into account thrift institution 
members of the group (including such members that compute a deduction 
based on the ``percentage of taxable income method'' under section 
593(b)(2) of the Code). Section 1616(a) of the Small Business Jobs 
Protection Act of 1996 added section 593(f) to the Code. Section 593(f) 
provides that sections 593(a) through (d) of the Code do not apply to 
any taxable year beginning after December 31, 1995.
7. Section 1.1502-27 (Consolidated Section 247 Deduction) and Related 
Provisions
    As discussed in part II.A.3 of this Explanation of Provisions, (i) 
section 247 of the Code was repealed by section 221(a)(41)(A) of 
Division A of the Tax Increase Prevention Act of 2014; and (ii) section 
13821(b)(1) of the TCJA added to the Code a new section 247, which 
allows deductions for certain contributions to Alaska Native Settlement 
Trusts. Accordingly, the proposed regulations would remove Sec.  
1.1502-27, which provides rules under the version of section 247 of the 
Code repealed by the Tax Increase Prevention Act of 2014. The proposed 
regulations also would (i) remove Sec.  1.1502-11(a)(8), which solely 
provides a reference to a consolidated section 247 deduction computed 
under Sec.  1.1502-27, and (ii) revise Sec. Sec.  1.1502-24(c) and 
1.1502-43(b)(2)(iii), to remove a cross-reference to Sec.  1.1502-27 in 
each respective section.
8. Section 1.1502-42 (Consolidated Returns Including Thrift 
Institutions) and Related Provisions
    The proposed regulations would remove Sec.  1.1502-42, which 
provides rules for members of a consolidated group that are thrift 
institutions (that is, any member that is described in section 593(a) 
of the Code). Section 1.1502-42 became obsolete as a result of the 
enactment of section 593(f) of the Code by section 1616(a) of the Small 
Business Jobs Protection Act of 1996, which provides that sections 
593(a) through (d) of the Code do not apply to any taxable year 
beginning after December 31, 1995. The proposed regulations also would 
remove Sec.  1.1502-12(q), which provides solely that a thrift 
institution's deduction under section 593(b)(2) of the Code is 
determined under Sec.  1.1502-42.
9. Section 5.1502-45 (At-Risk Limitation Temporary Regulations)
    The Treasury Department and the IRS published Sec.  5.1502-45 as 
temporary regulations relating to the application of the at-risk 
limitations under section 465 of the 1954 Code to corporations that 
join with their subsidiaries in filing a consolidated return. See TD 
7685, published in the Federal Register (45 FR 16484) on March 14, 1980 
(at-risk limitation temporary regulations). Prior to the publication of 
Sec.  5.1502-45, the Treasury Department determined that consolidated 
groups were actively considering transactions or plans to avoid the at-
risk limitations. See preamble to the at-risk limitation temporary 
regulations, 45 FR 16484. Under the temporary regulations, if a parent 
meets the stock ownership test for a personal holding company, a 
subsidiary's loss from an activity to which section 465 of the Code (as 
redesignated by section 2(a) of the Tax Reform Act of 1986) applies 
will be allowed as a deduction on a consolidated return only to the 
extent that the parent is at risk in the activity of a subsidiary, 
under the principles of section 465 of the Code, as of the close of the 
subsidiary's taxable year. See id.
    Section 5.1502-45(a)(4) refers to section 465(c)(3)(D) of the 1954 
Code, which was repealed by section 503(a) of the Tax Reform Act of 
1986. The Treasury Department and the IRS understand that no proposed 
regulations ever were published with regard to Sec.  5.1502-45. 
Therefore, in addition to addressing the reference to repealed section 
465(c)(3)(D) of the 1954 Code, this document proposes the entire text 
of Sec.  5.1502-45 as proposed Sec.  1.1502-45 and proposes to withdraw 
Sec.  5.1502-45. The Treasury Department and the IRS request comments 
on proposed Sec.  1.1502-45.

[[Page 52060]]

B. Updates To Reflect Amended Statutory Provisions
    The proposed regulations would remove or revise regulations under 
section 1502 and other provisions of the Code that implement statutory 
provisions that have been substantially revised since those regulations 
were promulgated.
1. Section 1.167(c)-1 (Limitations on Methods of Computing Depreciation 
Under Section 167(b)(2), (3), and (4))
    Section 1.167(c)-1(a)(5) provides a reference to certain provisions 
of the consolidated return regulations that address depreciation of 
property received by a member of an affiliated group from another 
member of the group during a consolidated return period. To implement 
amendments made by the TCJA to section 168(k) of the Code, the 
Department of the Treasury and the Internal Revenue Service published 
final regulations under Sec.  1.1502-68 that provide guidance regarding 
the additional first-year depreciation deduction under section 168(k). 
See TD 9916, published in the Federal Register (85 FR 71734) on 
November 10, 2020. See also sections 12001(b)(13), 13201, and 13204 of 
the TCJA. Accordingly, the proposed regulations would revise Sec.  
1.167(c)-1(a)(5) to include a reference to Sec.  1.1502-68.
2. Section 1.1502-1(g) (Definition of ``Consolidated Return Change of 
Ownership'')
    The proposed regulations would remove paragraph (g) of Sec.  
1.1502-1, which provides rules to determine the occurrence of a 
consolidated return change of ownership (CRCO). The CRCO rules 
generally paralleled the ownership change rules of section 382 of the 
1954 Code, as that section existed prior to enactment of the Tax Reform 
Act of 1986. See preamble to the NPRM published in the Federal Register 
(56 FR 4228, 4232) on February 4, 1991. Following the complete revision 
of section 382 of the 1954 Code by the Tax Reform Act of 1986, the 
Treasury Department and the IRS determined that the policies underlying 
the CRCO rules were subsumed by the single-entity approach to the 
application of section 382 of the Code to consolidated groups. See 
section 621(a) of the Tax Reform Act of 1986. See also 56 FR at 4232. 
Accordingly, the Treasury Department and the IRS replaced the CRCO 
rules with the consolidated section 382 rules set forth in Sec. Sec.  
1.1502-90 through 1.1502-99. See TD 8679, published in the Federal 
Register (61 FR 33313) on June 27, 1996.
3. Section 1.1502-3 (Consolidated Tax Credits)
    The proposed regulations would remove Sec.  1.1502-3(e), which 
applies only to a CRCO that occurred during a consolidated return year 
for which the due date of the Federal income tax return (without 
extensions) is on or before March 13, 1998. See Sec.  1.1502-3(e)(3).
4. Section 1.1502-5 (Consolidated Estimated Tax)
    The Treasury Department and the IRS published proposed regulations 
in the Federal Register (57 FR 62251) on December 30, 1992, regarding 
the computation of the former alternative minimum tax (Former AMT) by 
consolidated groups and the allocation of related items (consolidated 
Former AMT proposed regulations). The proposed regulations would 
incorporate in revised form part of the consolidated Former AMT 
proposed regulations that proposed to amend the consolidated estimated 
tax provisions in Sec.  1.1502-5. The Treasury Department and the IRS 
received no comments on Sec.  1.1502-5 as proposed in the consolidated 
Former AMT proposed regulations.
    The proposed regulations would revise Sec.  1.1502-5 to reflect the 
amendments to section 6655, which provides penalties for corporations 
failing to pay estimated income tax, made by section 10301(a) of the 
Omnibus Budget Reconciliation Act of 1987, Public Law 100-203, 101 
Stat. 1330 (December 22, 1987). The proposed regulations also would 
remove references to section 6154 of the Code, which provided special 
rules for installment payments of estimated tax by corporations prior 
to the repeal of section 6154 of the Code by section 10301(b)(1) of the 
Omnibus Budget Reconciliation Act of 1987, and would add a reference to 
section 59A, which was added to section 6655(g)(1) by section 
14401(d)(4)(A) of the TCJA.
    The consolidated Former AMT proposed regulations provided guidance 
on consolidated estimated taxes under the Former AMT in section 55 of 
the Code and the environmental tax under former section 59A of the 
Code. The Former AMT was made inapplicable to corporations by section 
12001(a) of the TCJA, and former section 59A of the Code was repealed 
by section 221(a)(12)(A), Division A, of the Tax Increase Prevention 
Act of 2014. Current section 59A of the Code (as added by section 
14401(a) of the TCJA) imposes the base erosion and anti-abuse tax, 
commonly referred to as the ``BEAT.''
    As a result of those amendments to the Code, the proposed 
regulations would make the following revisions to Sec.  1.1502-5. 
First, the proposed regulations would not incorporate provisions from 
the consolidated Former AMT proposed regulations that addressed these 
issues. However, section 10101 of Public Law 117-169, 136 Stat. 1818 
(August 16, 2022), commonly referred to as the Inflation Reduction Act 
of 2022, amended section 55 of the Code to impose a new corporate 
alternative minimum tax based on adjusted financial statement income. 
This new corporate alternative minimum tax is commonly referred to as 
the corporate alternative minimum tax, or CAMT. Therefore, the proposed 
regulations would modify the definition of the term ``tax'' in Sec.  
1.1502-5(b)(5) to add a reference to section 55(a). In addition, the 
proposed regulations would add a reference to section 59A (that is, the 
BEAT).
    The Treasury Department and the IRS are actively working on 
guidance to implement the CAMT, including guidance on the application 
of the CAMT to consolidated groups. Accordingly, issues regarding the 
substantive operation of the CAMT will be addressed in that guidance. 
However, these proposed regulations would provide guidance regarding 
the computation of consolidated estimated taxes to take into account 
the CAMT liability of the consolidated group.
5. Section 1.1502-9 (Consolidated Overall Foreign Losses, Separate 
Limitation Losses, and Overall Domestic Losses)
    The proposed regulations would revise Sec.  1.1502-9 to account for 
changes made by final foreign tax credit regulations (TD 9882) 
published in the Federal Register (84 FR 69022) on December 17, 2019. 
The final foreign tax credit regulations provide guidance relating to 
the determination of the foreign tax credit under the Code, 
implementing statutory changes made by the TCJA. In particular, the 
proposed regulations would revise Sec.  1.1502-9 to remove references 
to the fair market value method option for interest expense 
apportionment, which was repealed by section 14502 of the TCJA. 
Relatedly, the proposed regulations would (1) update citations set 
forth in Sec. Sec.  1.1502-9(a) and 1.1502-9(c)(2)(ii) and (iii), and 
(2) add a reference to Sec.  1.861-13. In addition, the proposed 
regulations would update an internal cross-reference in Sec.  1.1502-
9(b)(1).

[[Page 52061]]

6. Section 1.1502-12(g) (Deductions Under Section 167 of the 1954 Code) 
and Related Provisions
    Section 1.1502-12(g) was added to the consolidated return 
regulations by final regulations (TD 7246) published in the Federal 
Register (38 FR 758) on January 4, 1973. Section 1.1502-12(g) provides 
that, in the computation of the deduction under section 167 of the 1954 
Code, property does not lose its character as new property as a result 
of a transfer from one member to another member during a consolidated 
return year if certain conditions are satisfied. Since the date of 
those final regulations, extensive changes to the depreciation rules of 
the Code have made Sec.  1.1502-12(g) obsolete. See, for example, 
section 201 of the Economic Recovery Tax Act of 1981, Public Law 97-34, 
95 Stat. 172 (August 13, 1981) (enacting section 168 of the 1954 Code, 
which provided the accelerated cost recovery system); section 201(a) of 
the Tax Reform Act of 1986 (amending section 168 of the Code, as 
redesignated by section 2(a) of the Tax Reform Act of 1986, to replace 
generally the accelerated cost recovery system with the modified 
accelerated cost recovery system).
    As a result of the obsolescence of Sec.  1.1502-12(g) due to the 
above-described enacted legislation, the proposed regulations would 
remove that provision. Relatedly, the proposed regulations would revise 
Sec. Sec.  1.57-1(b)(4)(ii) and 1.167(c)-1(a)(5) to remove cross-
references to Sec.  1.1502-12(g). The proposed regulations also would 
remove the second sentence of Sec.  1.1502-17(a), which refers the 
reader to Sec.  1.1502-12(g) for the treatment of depreciable property 
after a transfer within the group.
7. Section 1.1502-24 (Consolidated Charitable Contributions Deduction)
    As noted in part II.A.5 of this Explanation of Provisions, Sec.  
1.1502-24(a) sets forth a rule to determine the amount of the 
consolidated charitable contributions deduction for a group. Section 
1.1502-24(a)(2) includes a reference to ``five percent'' of the 
adjusted consolidated taxable income of a group, which is based on 
section 170(b)(2) of the 1954 Code, as that section existed prior to 
enactment of the Economic Recovery Tax Act of 1981. Section 263(a) of 
the Economic Recovery Tax Act of 1981 amended section 170(b)(2) of the 
1954 Code to increase the deduction limitation for corporations from 5 
percent of the taxpayer's total income for a taxable year to 10 percent 
of that income.
    The proposed regulations would revise Sec.  1.1502-24(a)(2) to 
replace the reference to ``five percent'' with a reference to the 
``percentage limitation on the total charitable contribution deduction 
provided in section 170(b)(2)(A).'' The Treasury Department and the IRS 
have proposed this revision, as opposed to a reference to ``10 
percent'' (as currently set forth in section 170(b)(2)(A) of the Code), 
to reduce the need to provide future statutory updates to Sec.  1.1502-
24. See paragraph 9 of the Proposed Amendments to the Regulations, set 
forth in the NPRM (REG-101652-10) published in the Federal Register (80 
FR 33211) on June 11, 2015.
8. Section 1.1502-26 (Consolidated Dividends Received Deduction)
    Section 1.1502-26 provides rules for determining the consolidated 
DRD for the taxable year of a group. On several occasions since the 
publication of the original version of Sec.  1.1502-26 in 1966, 
Congress has enacted legislation that amended the corporate DRD 
sections of the 1954 Code and the Code--most recently by section 13002 
of the TCJA. To update Sec.  1.1502-26 to reflect the corporate DRD 
provisions of the Code, the proposed regulations would revise Sec.  
1.1502-26(a) to replace the reference to the 85-percent DRD (reflecting 
the rate set forth in section 246(b)(1) of the 1954 Code, prior to the 
enactment of section 611(a)(3) of the Tax Reform Act of 1986) with a 
reference to the limitation on the aggregate amount of dividends-
received deductions described in section 246(b) of the Code.
    In addition, the proposed regulations would strike the reference to 
section 244 of the Code in Sec.  1.1502-26(a), and the reference to 
section 247 of the Code in Sec.  1.1502-26(b), both of which were 
repealed by section 221(a)(41)(A) of Division A of the Tax Increase 
Prevention Act of 2014. The proposed regulations also would revise the 
examples in Sec.  1.1502-26(c) to reflect the updates made to Sec.  
1.1502-26.
9. Section 1.1502-34 (Special Aggregate Stock Ownership Rules)
    Section 1.1502-34 provides that, for purposes of Sec. Sec.  1.1502-
1 through 1.1502-80, in determining the stock ownership of a member of 
a group in another corporation (issuing corporation) for purposes of 
determining the application of now-repealed section 333(b) of the 1954 
Code, section 165(g)(3)(A) of the Code, section 332(b)(1) of the Code, 
section 351(a) of the Code, section 732(f) of the Code, or section 
904(f) of the Code, in a consolidated return year, there is included 
stock owned by all other members of the group in the issuing 
corporation. Section 1.1502-34 also provides that the special rule for 
minority shareholders in now-repealed section 337(d) of the 1954 Code 
does not apply with respect to amounts received by applicable member 
shareholders in a liquidation of the issuing member.
    Numerous statutory amendments have impacted the provisions 
described in Sec.  1.1502-34. First, section 333 of the 1954 Code was 
repealed by section 631(e)(3) of the Tax Reform Act of 1986. In 
addition, section 631(a) of the Tax Reform Act of 1986 struck section 
337 of the 1954 Code and replaced that provision with section 337 of 
the Code, which sets forth a subsection (d) that provides the Secretary 
with authority to prescribe regulations that are necessary or 
appropriate to carry out the purposes of General Utilities repeal. 
Lastly, section 337(c) of the Code was amended by section 10223(a) of 
title X of the Omnibus Budget Reconciliation Act of 1987 to clarify 
that, for purposes of section 337 of the Code, ``the determination of 
whether any corporation is an 80-percent distributee shall be made 
without regard to any consolidated return regulation.''
    The proposed regulations would revise Sec.  1.1502-34 to reflect 
those statutory amendments. Specifically, the proposed regulations 
would revise Sec.  1.1502-34 to remove references to sections 333 and 
337(d) of the 1954 Code. To reduce the need for future updates, the 
proposed regulations also would replace the reference to ``Sec. Sec.  
1.1502-1 through 1.1502-80'' with a reference to ``the consolidated 
return regulations,'' as defined in proposed Sec.  1.1502-1(g). See 
part II.D.1 of this Explanation of Provisions.
10. Section 1.1502-79(d) (Carryover and Carryback of Consolidated 
Unused Foreign Tax)
    Section 1.1502-79(d) provides rules addressing the apportionment of 
carryover and carryback of consolidated unused foreign tax to separate 
return years. The proposed regulations would update Sec.  1.1502-79 to 
reflect changes to the foreign tax credit rules enacted since the 
regulation was issued as part of the 1966 final consolidated return 
regulations (TD 6894), published in the Federal Register (31 FR 11794) 
on September 8, 1966.
    Specifically, the proposed regulations would revise Sec.  1.1502-
79(d) to remove references to the per-country foreign tax credit 
limitation that was repealed by section 1031(a) of the Tax Reform Act 
of 1976, update citations from section 904(d) to section 904(c) to 
reflect amendments to the 1954 Code made by section 1031(a) of the Tax 
Reform Act of

[[Page 52062]]

1976, and update a cross-reference from Sec.  1.1502-4(e) to Sec.  
1.1502-4(d) to reflect the revision of Sec.  1.1502-4 made by final 
regulations (TD 9922) published in the Federal Register (85 FR 71998) 
on November 12, 2020.
11. Section 1.1552-1 (Earnings and Profits of Members of Consolidated 
Groups)
    Section 1.1552-1 requires generally that, for purposes of 
determining the earnings and profits of each member of an affiliated 
group that is required to be included in a consolidated return for the 
group filed for a taxable year beginning after December 31, 1953, and 
ending after August 16, 1954, the tax liability of the group is 
allocated among the members of the group in accordance with certain 
elected methods under Sec.  1.1552-1(c). See Sec.  1.1552-1(a). 
Currently, Sec.  1.1552-1(a)(2)(ii)(i) contains references to a 
corporate surtax exemption.
    However, section 301(a) of the Revenue Act of 1978, Public Law 95-
600, 92 Stat. 2763 (November 6, 1978), struck section 11 of the 1954 
Code and replaced that section with a new section 11 of the 1954 Code, 
which set forth a corporate income tax rather than a corporate surtax. 
Accordingly, the proposed regulations would revise Sec.  1.1552-
1(a)(2)(ii)(i) to remove the reference to the repealed corporate 
surtax.
12. Section 1.1563-1 (Controlled Group of Corporations and Component 
Members)
    Section 1563(a) and 1.1563-1 define the term ``controlled group of 
corporations'' for purposes of sections 1561 through 1563 of the Code 
as including a ``parent-subsidiary controlled group.'' Section 
1563(a)(1) defines a parent-subsidiary controlled group. In this 
regard, section 1563(d)(1) provides rules for determining stock 
ownership for purposes of determining whether a corporation is a member 
of a parent-subsidiary controlled group of corporations within the 
meaning of section 1563(a)(1). Section 1.1563-1(a)(2) incorporates 
these rules in defining a parent-subsidiary controlled group.
    Prior to amendment by the Technical and Miscellaneous Revenue Act 
of 1988, Public Law 100-647, 102 Stat. 3342 (November 10, 1988), 
section 1563(d)(1) of the Code provided that for purposes of 
determining whether a corporation is a member of a parent-subsidiary 
controlled group of corporations, stock owned by a corporation means 
(A) stock owned directly by such corporation, and (B) stock owned with 
the application of section 1563(e)(1), which provides constructive 
ownership rules related to options to acquire stock. Similarly, Sec.  
1.1563-1(a)(2)(i)(A) and (B) provide that ownership of stock for 
purposes of determining a parent-subsidiary controlled group takes into 
account stock owned ``(directly and with the application of Sec.  
1.1563-3(b)(1), relating to options).''
    Section 1018(s)(3)(A) of the Technical and Miscellaneous Revenue 
Act of 1988 amended section 1563(d)(1)(B) to expand the application of 
the constructive ownership rules of section 1563(e) for purposes of 
section 1563(d)(1) to include the constructive ownership rules of 
section 1563(e)(2) relating to attribution from partnerships and 
section 1563(e)(3) relating to attribution from estates or trusts. 
Accordingly, the proposed regulations would revise Sec.  1.1563-
1(a)(2)(i)(A) and (B) to include references to the constructive stock 
ownership rules in Sec.  1.1563-3(b)(2) that attribute ownership of 
stock directly or indirectly owned by or for a partnership and the 
constructive stock ownership rules in Sec.  1.1563-3(b)(3) that 
attribute ownership of stock directly or indirectly owned by or for an 
estate or trust, to conform with the statutory amendment to section 
1563(d)(1)(B).
C. Removal of Non-Applicable Consolidated Return Regulations; Revisions 
To Remove Obsolete or Outdated References or Terms
    The proposed regulations would remove numerous Treasury regulations 
that are obsolete because they no longer are applicable under their 
stated effective or applicability dates. In addition, the proposed 
regulations would revise numerous Treasury regulations that contain 
references or terms that have no practical applicability to taxpayers 
because they are, for example, obsoleted or otherwise outdated. 
Further, the proposed regulations would replace all gender-specific 
pronouns and other identifiers in the consolidated return regulations 
with gender-neutral pronouns and identifiers.
1. The ``Cap A'' Consolidated Return Regulations
    Certain consolidated return regulations are designated with an 
``A'' in the citation (for example, Sec.  1.1502-9A). These regulations 
(Cap A regulations) generally are applicable only to taxable years 
ending in 1999 or earlier. The Cap A regulations provide rules 
regarding overall foreign loss recapture (Sec.  1.1502-9A), built-in 
deductions (Sec.  1.1502-15A), consolidated net operating losses (Sec.  
1.1502-21A), consolidated capital gain or loss (Sec. Sec.  1.1502-22A 
and 1.1502-41A), consolidated net ``section 1231'' gain or loss (Sec.  
1.1502-23A), the agent for the group (Sec.  1.1502-77A), separate 
return years (Sec.  1.1502-79A), and the application of section 382 of 
the Code (Sec. Sec.  1.1502-90A through 1.1502-99A).
    The Cap A regulations have been superseded, in their entirety, by 
Sec. Sec.  1.1502-9, 1.1502-15, 1.1502-21 through 1.1502-23, 1.1502-77, 
1.1502-79, and 1.1502-90 through 1.1502-99. Therefore, with one 
exception, the proposed regulations would remove the Cap A regulations.
    The proposed regulations would not remove Sec.  1.1502-77A because 
that section has continuing applicability with regard to IRS 
examination and audit functions. Specifically, the IRS examination 
function has ongoing audits in which the years at issue are subject to 
the agent for the group rules in Sec.  1.1502-77A. Because those rules 
address threshold issues including which entity may act on behalf of 
the group, and thus the validity of any filing by the group, Sec.  
1.1502-77A continues to have practical applicability for taxpayers.
    The proposed regulations also would make conforming revisions to 
the consolidated return regulations due to the near-total removal of 
the Cap A regulations. For example, the proposed regulations would 
revise Sec. Sec.  1.1502-11, 1.1502-43, and 1.1502-44 to remove all 
cross-references to the Cap A regulations. The proposed regulations 
also would revise Sec.  1.382-8 (relating to controlled groups) to 
remove Sec.  1.382-8(i), which provides references to the Cap A 
regulations.
2. Section 1.1502-13 (Intercompany Transactions)
    The proposed regulations would revise Sec.  1.1502-13 to remove 
outdated transition rules and references. Specifically, the proposed 
regulations would (i) revise Sec.  1.1502-13(a)(3)(i) to remove a 
transition rule for consolidated return years beginning on or after 
November 7, 2001; (ii) revise Sec.  1.1502-13(f)(5)(ii)(B)(2) to remove 
cross-references to obsolete temporary regulations that affected 
certain liquidations where the original Federal income tax return for 
the year of liquidation was filed on or before November 3, 2009; and 
(iii) revise Sec.  1.1502-13(f)(6)(v) to remove references to 
transactions occurring before July 12, 1995.

[[Page 52063]]

3. Section 1.1502-17 (Methods of Accounting)
    Section 1.1502-17 provides generally that the method of accounting 
to be used by each member of the group must be determined in accordance 
with the provisions of section 446 of the Code as if such member filed 
a separate return. See Sec.  1.1502-17(a). Section 1.1502-17(e) refers 
taxpayers to Sec.  1.1502-17 (as contained in the 26 CFR part 1 edition 
revised as of April 1, 1995) for changes in method of accounting 
effective for years beginning before July 12, 1995. The proposed 
regulations would revise Sec.  1.1502-17(e) to strike that language 
because it has no practical applicability to taxpayers.
4. Section 1.1502-18 (Inventory Adjustment)
    Section 1.1502-18 provides that, if a member of a group filing a 
consolidated return for the taxable year (i) was a member of the group 
for its immediately preceding taxable year, and (ii) filed a separate 
return for that preceding year, then the intercompany profit amount of 
that corporation for that separate return year (that is, the initial 
inventory amount) is added to the income of that corporation for the 
consolidated return year or years in which the goods to which the 
initial inventory amount is attributable are disposed of outside the 
group or that corporation becomes a non-member. See Sec.  1.1502-18(b). 
Section 1.1502-18(a) provides that, for purposes of Sec.  1.1502-18 and 
subject to certain exceptions, the term ``intercompany profit amount'' 
for a taxable year means an amount equal to the profits of a 
corporation arising in transactions with other members of the group 
with respect to goods that are, at the close of such corporation's 
taxable year, included in the inventories of any member of the group. 
See Sec.  1.1502-18(a).
    However, paragraphs (a) through (f) of Sec.  1.1502-18 do not apply 
for taxable years beginning on or after July 12, 1995. See Sec.  
1.1502-18(g). Therefore, the special rules set forth in Sec.  1.1502-18 
have no practical applicability to taxpayers.
    As a result, the proposed regulations would remove Sec.  1.1502-18 
and make conforming revisions to other Treasury regulations. With 
regard to such conforming revisions, the proposed regulations would 
remove Sec.  1.279-6(d)(4), which provides that members of an 
affiliated group that file a consolidated return must not apply the 
provisions of Sec.  1.1502-18 dealing with inventory adjustments in 
determining earnings and profits for purposes of Sec.  1.279-6. The 
proposed regulations also would remove Sec.  1.1502-12(e), which 
requires that, in computing the separate taxable income of a member, 
inventory adjustments must be made as provided in Sec.  1.1502-18.
5. Section 1.1502-21 (Net Operating Losses)
    Section 1.1502-21(b)(3)(i) and (ii) provide rules for consolidated 
groups to make irrevocable elections to relinquish certain carryback 
periods with regard to consolidated net operating losses. Elections 
under each of Sec.  1.1502-21(b)(3)(i) and (ii) must be made through 
statements filed pursuant to rules set forth in those provisions. Each 
provision provides that, 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. The proposed regulations 
would revise Sec.  1.1502-21(b)(3)(i) and (b)(3)(ii)(B) to remove those 
special instructions regarding elections for pre-2003 taxable years 
because those special rules no longer have practical applicability to 
taxpayers.
    The proposed regulations also would remove Sec.  1.1502-21(d), 
which provides coordination rules for CRCOs that occurred before 
January 1, 1997. See part II.B.2 of this Explanation of Provisions 
(describing the replacement of the CRCO rules with the consolidated 
section 382 rules set forth in Sec. Sec.  1.1502-90 through 1.1502-99).
6. Section 1.1502-22 (Consolidated Capital Gain and Loss)
    Section 1.1502-22 provides generally that determinations under 
section 1222 (including capital gain and loss) with respect to members 
during consolidated return years are not made separately; rather, 
consolidated amounts are determined for the group as a whole. See Sec.  
1.1502-22(a). The proposed regulations would remove Sec.  1.1502-22(d), 
which provides coordination rules for CRCOs that occurred before 
January 1, 1997. See part II.B.2 of this Explanation of Provisions.
7. Section 1.1502-24 (Consolidated Charitable Contributions Deduction)
    The proposed regulations would revise Sec.  1.1502-24(c) to remove 
the reference to Sec.  1.1502-25, which provided rules for groups to 
compute a ``consolidated section 922 deduction.'' See part II.A.2 of 
this Explanation of Provisions (describing the repeal of section 922 of 
the 1954 Code by the Tax Reform Act of 1976). Section 1.1502-25 was 
removed by final regulations (TD 8474) published in the Federal 
Register (58 FR 25556) on April 27, 1993, which removed final and 
temporary regulations relating primarily to provisions of prior law in 
accordance with the Regulatory Burden Reduction Initiative of the 
Treasury Department and the IRS.
8. Section 1.1502-75 (Filing of Consolidated Returns)
    Section 1.1502-75(h)(2) provides that, if a group wishes to file a 
consolidated return for a taxable year, then a Form 1122, Authorization 
and Consent of Subsidiary Corporation To Be Included in a Consolidated 
Income Tax Return, must be executed by each subsidiary. Section 1.1502-
75(h)(2) also provides that, (i) for taxable years beginning after 
December 31, 2002, the group must attach either executed Forms 1122 or 
unsigned copies of the completed Forms 1122 to the consolidated return; 
but (ii) for taxable years beginning before January 1, 2003, the 
executed Forms 1122 must be attached to the consolidated return for the 
taxable year. This transition rule for taxable years beginning before 
January 1, 2003, no longer has practical applicability to taxpayers. 
Therefore, the proposed regulations would revise Sec.  1.1502-75(h)(2) 
to provide simply that the group must attach either executed Forms 1122 
or unsigned copies of the completed Forms 1122 to the consolidated 
return.
9. Section 1.1502-76 (Taxable Year of Members of Group)
    Section 1.1502-76 sets forth rules for the taxable year of members 
of a group. The proposed regulations would revise Sec.  1.1502-
76(b)(1)(ii)(A)(2) and (b)(2)(v) to remove references to transactions 
occurring before November 10, 1999, because those references have no 
practical applicability to taxpayers.
10. Section 1.1502-80 (Applicability of Other Provisions of Law)
    Section 1.1502-80 provides generally that (i) the Code, or other 
law, is applicable to the group to the extent the consolidated return 
regulations do not exclude its application; and (ii) to the extent not 
excluded, other rules operate in addition to, and may be modified by, 
the regulations. See Sec.  1.1502-80(a)(1). Section 1.1502-80(c)(2) 
provides a cross-reference to Sec.  1.1502-36 for additional rules 
relating to worthlessness of subsidiary stock on or after September 17, 
2008. The proposed regulations would remove the reference to that date 
because it no longer has practical applicability to taxpayers.
    Section 1.1502-80 also sets forth a special rule that provides that 
section

[[Page 52064]]

357(c) of the Code does not apply to any transaction to which Sec.  
1.1502-13 and other specified sections of the consolidated return 
regulations apply. See Sec.  1.1502-80(d).
    A concern arose in response to this rule that, because Sec.  
1.1502-80(d) provides that section 357(c) of the Code does not apply to 
certain intragroup section 351 exchanges, no liabilities can 
technically be excluded under section 357(c)(3). See preamble to 
proposed regulations (REG-137519-01) published in the Federal Register 
(66 FR 57021, 57022) on November 14, 2001 (proposed consolidated 
section 357(c) regulations). Therefore, in such an intragroup section 
351 exchange, the transferor's basis in the stock of the transferee 
received in the transfer first would be reduced by liabilities assumed 
by the transferee, including those liabilities described in section 
357(c)(3) of the Code that would not have reduced basis had section 
357(c) applied. See id. Then, the transferor's basis in the stock of 
the transferee would be reduced a second time under the principles of 
Sec.  1.1502-32 at the time the liability does in fact give rise to a 
deduction on the part of the transferee and is taken into account on 
the consolidated return. See id. This result ultimately could cause the 
transferor to recognize an amount of gain on the sale of the stock of 
the transferee that does not clearly reflect income. See id.
    The Treasury Department and the IRS published the proposed 
consolidated section 357(c) regulations to eliminate potential 
duplicative stock basis reductions arising from such transactions. 
Specifically, those proposed regulations were published to clarify 
that, in certain transfers described in section 351 of the Code between 
members of a consolidated group, a transferee's assumption of 
liabilities described in section 357(c)(3)(A) of the Code, other than 
those also described in section 357(c)(3)(B) of the Code, will not 
reduce the transferor's basis in the transferee's stock received in the 
exchange. See Explanation of Provisions to the proposed consolidated 
section 357(c) regulations, 66 FR 57021.
    However, upon reflection, the proposed rule is unnecessary because 
Sec. Sec.  1.1502-32 and 1.1502-80 prevent any duplicative stock basis 
reduction. See Sec.  1.1502-32(a)(2) (providing that a member's basis 
in its subsidiary's stock ``must not be adjusted under this section and 
other rules of law in a manner that has the effect of duplicating an 
adjustment.''); Sec.  1.1502-80(a)(2) (``Nothing in these regulations 
shall be interpreted or applied to require an adjustment, inclusion, or 
other item to the extent it would have the effect of duplicating any 
other adjustment, inclusion, or other item required under the Code or 
other rule of law, including other provisions of these regulations.''). 
Accordingly, this document withdraws those proposed regulations.
11. Section 1.1502-81T (Alaska Native Corporations)
    In 1984, Congress enacted legislation to revise the affiliation 
requirements under section 1504(a) of the 1954 Code to incorporate an 
80-percent equity ownership test. See section 60(a) of the Deficit 
Reduction Act of 1984. However, the applicability of these statutory 
amendments was delayed until 1992 with respect to the affiliation of a 
corporation with an Alaska Native Corporation (ANC) established under 
the Alaska Native Claims Settlement Act, Public Law 92-203, 85 Stat. 
688 (December 18, 1971). See section 60(b)(5) of the Deficit Reduction 
Act of 1984. Moreover, section 1804(e)(4) of the Tax Reform Act of 1986 
struck section 60(b)(5) of the Deficit Reduction Act of 1984 and 
replaced that provision with a provision that, for any taxable year 
beginning after 1984 and before 1992, relaxed the requirements for 
affiliation with an ANC or with a wholly owned ANC subsidiary. 
Accordingly, until 1992, the pre-1984 affiliation requirements 
contained in section 1504(a) of the 1954 Code governed affiliation with 
an ANC or with a wholly owned ANC subsidiary, without regard to escrow 
arrangements, redemption rights, or similar provisions.
    The Treasury Department and the IRS published temporary regulations 
to implement those statutory provisions (ANC temporary regulations). 
See TD 8130, published in the Federal Register (52 FR 8447) on March 
18, 1987. Specifically, Sec.  1.1502-81T makes clear that the statutory 
ANC affiliation rules resulted in no tax saving, tax benefit, or tax 
loss to any person, other than the use of the losses and credits of an 
ANC and its wholly owned subsidiaries. See preamble to the ANC 
temporary regulations (52 FR 8447).
    In particular, the ANC temporary regulations provided that, except 
as approved by the Secretary, no positive adjustment under Sec.  
1.1502-32(b)(1) would be made with respect to the basis of stock of a 
corporation that is affiliated with an ANC through application of the 
ANC affiliation rules. Id. In general, such approval by the Secretary 
took into account the economic effect of the investment by the ANC in 
the corporation with which it is so affiliated. Id. The proposed 
regulations propose to withdraw Sec.  1.1502-81T because those special 
affiliation rules no longer have practical applicability to taxpayers.
12. Section 1.1502-99 (Effective/Applicability Dates Regarding 
Consolidated Return Regulations Addressing Sections 382 and 383 of the 
Code)
    The application of sections 382 and 383 of the Code in a 
consolidated return is addressed in Sec. Sec.  1.1502-90 through 
1.1502-99. In particular, Sec.  1.1502-99 provides effective and 
applicability dates and transition rules for Sec. Sec.  1.1502-90 
through 1.1502-99. The proposed regulations would revise Sec.  1.1502-
99 to remove transition rules for testing periods that include June 25, 
1999. Those transition rules have no practical applicability to 
taxpayers because taxable years subject to those transition rules 
generally are closed.
13. Section 1.1552-1 (Earnings and Profits)
    Section 1.1552-1(a)(1)(ii) provides that the taxable income of a 
member is the separate taxable income determined under Sec.  1.1502-12, 
adjusted for certain items taken into account in the computation of 
consolidated taxable income. One item, set forth in Sec.  1.1552-
1(a)(1)(ii)(B), is the ``member's capital gain net income (net capital 
gain for taxable years beginning before January 1, 1977) (determined 
without regard to any net capital loss carryover attributable to such 
member).'' The proposed regulations would revise Sec.  1.1552-
1(a)(1)(ii)(B) to remove the reference to net capital gain for taxable 
years beginning before January 1, 1977, because the reference to that 
date has no practical applicability to taxpayers.
14. Sections 1.1503-2 (Dual Consolidated Loss) and 1.1503(d)-8 
(Effective Dates)
    Section 1.1503-2 provides rules to address dual consolidated losses 
incurred in taxable years beginning on or after October 1, 1992, and 
before April 18, 2007 (or January 1, 2007, in limited instances). See 
Sec.  1.1503-2(h) (providing October 1, 1992, applicability date) Sec.  
1.1503(d)-8 (providing April 18, 2007, and January 1, 2007, 
applicability dates). Dual consolidated losses incurred on or after 
April 18, 2007, or January 1, 2007, are subject to the rules set forth 
in Sec. Sec.  1.1503(d)-1 through 1.1503(d)-7. See Sec.  1.1503(d)-8. 
Therefore, the proposed regulations would remove Sec.  1.1503-2 because 
that section has no practical applicability to taxpayers. For the same 
reason, the proposed regulations also

[[Page 52065]]

would make conforming changes to the effective date provisions set 
forth in Sec.  1.1503(d)-8 to reflect the removal of Sec.  1.1503-2.
15. Removal of Obsolete or Gendered Terminology
    The proposed regulations would make nonsubstantive changes to the 
consolidated return regulations to removed obsolete or gendered 
terminology the proposed regulations would replace all gender-specific 
pronouns and other identifiers in the consolidated return regulations 
with gender-neutral pronouns and identifiers. See part I of this 
Explanation of Provisions. The proposed regulations would replace the 
term ``possession'' with the defined term ``U.S. territory'' in 
Sec. Sec.  1.1502-4(d)(1) and 1.1503(d)-1(b)(7). See proposed Sec.  
1.1502-1(l). The proposed regulations also would replace all gender-
specific pronouns and other identifiers in the consolidated return 
regulations and the regulations under section 1563 of the Code with 
gender-neutral pronouns and identifiers.
D. Changes To Improve Clarity
    The proposed regulations would make various revisions to the 
consolidated return regulations that are intended to increase their 
clarity and usability. These proposed revisions are limited to creating 
defined terms, updating cross-references, correcting numbering, and 
other minor, non-substantive edits.
1. Section 1.1502-1 (Definitions)
    Currently, the regulations under section 1502 of the Code reference 
the term ``consolidated return regulations'' in several provisions, 
although that term is not defined in those regulations. In addition, 
certain provisions in the regulations published under section 1502 of 
the Code refer to multiple sections of the regulations. At the time of 
publication, those provisions were intended to refer to all regulations 
under section 1502. However, due to the publication of additional 
regulations under section 1502 of the Code, those references are no 
longer accurate. To avoid taxpayer confusion, the proposed regulations 
would add a defined term ``consolidated return regulations'' to Sec.  
1.1502-1 that would not need to be updated to account for future 
additions to the regulations under section 1502 of the Code. See 
proposed Sec.  1.1502-1(g).
2. Section 1.1502-13(f)(7) (Examples Regarding Intercompany 
Transactions With Respect to Stock of Members)
    As part of final regulations (TD 9475) addressing corporate 
reorganizations and distributions under sections 368(a)(1)(D) and 
354(b)(1)(B) of the Code, published in the Federal Register (74 FR 
67053) on December 18, 2009, the Treasury Department and the IRS 
inserted a new Example 4 into the intercompany transaction examples set 
forth in Sec.  1.1502-13(f)(7). However, those final regulations did 
not update internal cross-references to certain existing examples in 
Sec.  1.1502-13(f)(7), which were redesignated as a result of new 
Example 4. Accordingly, the proposed regulations would revise Sec.  
1.1502-13(f)(7) to update those internal cross-references. More 
generally, the proposed regulations would add paragraph designations to 
undesignated examples throughout Sec.  1.1502-13.
3. Section 1.1502-32(b)(4) and (5) (Waiver of Loss Carryovers From 
Separate Return Limitation Years and Examples)
    The proposed regulations would revise Sec.  1.1502-32(b)(4) to 
remove paragraphs that cross-reference provisions of the loss 
disallowance regulations under Sec.  1.1502-20 that were removed by 
final regulations (TD 9424) published in the Federal Register (73 FR 
53934) on September 17, 2008 (final unified loss regulations). Section 
1.1502-20 provided loss-disallowance rules with regard to the 
disposition or deconsolidation of subsidiary stock. As provided in the 
preamble to the final unified loss regulations, the Treasury Department 
and the IRS do not expect that Sec.  1.1502-20 would affect any 
transactions occurring on or after September 17, 2008 (the 
applicability date of those final regulations). See 73 FR 53944. The 
proposed regulations would replace the removed paragraphs with cross-
references to provisions set forth in Sec.  1.1502-32(b)(4), as 
contained in 26 CFR part 1, revised as of April 1, 2005.
    Additionally, the proposed regulations would correct an error in 
Example 6 of Sec.  1.1502-32(b)(5)(ii), which (1) addressed an 
intercompany reorganization described in section 368(a)(1)(A) of the 
Code (and in section 368(a)(1)(D) of the Code), and (2) treats a 
receipt of $10 of boot as a dividend under section 356(a)(2) of the 
Code. This treatment of intercompany boot conflicts with Sec.  1.1502-
13(f)(3)(ii), which expressly provides that nonqualifying property 
(that is, money or other property) received as part of such 
intercompany reorganization (that is, a transaction to which section 
354 of the Code would apply but for the fact that nonqualifying 
property is received) is treated as received by the member shareholder 
in a separate transaction occurring immediately after the transaction.
4. Section 1.1502-47 (Consolidated Returns by Life-Nonlife Groups)
    The proposed regulations would revise Sec.  1.1502-47(b), (h), and 
(j) to correct certain typographical errors and update certain cross-
references.
5. Section 1.1502-75 (Filing of Consolidated Returns)
    The proposed regulations would revise Sec.  1.1502-75(c)(1) to set 
forth the current procedures for a group to request to discontinue 
filing consolidated returns. The proposed regulations would remove 
Sec.  1.1502-75(d)(5), which applies to consolidated return years in 
which an existing consolidated group obtains a new common parent solely 
by reason of the enactment of section 833 of the Code as part of the 
Tax Reform Act of 1986. This provision no longer has practical 
applicability to taxpayers. In addition, the proposed regulations would 
update Sec.  1.1502-75(h)(1) to reflect final regulations (TD 9715) 
that revise rules regarding agency for consolidated groups under Sec.  
1.1502-77, which were published in the Federal Register (80 FR 17314) 
on April 1, 2015. The proposed regulations also would update Sec.  
1.1502-75(h)(1) to reflect the elimination of the district director 
positions by the Commissioner pursuant to section 1001 of the Internal 
Revenue Service Restructuring and Reform Act of 1998, Public Law 105-
206, 112 Stat. 685 (July 22, 1998).
6. Section 1.1502-76 (Taxable Year of Members of Group)
    The proposed regulations would revise Sec.  1.1502-76(a) to set 
forth the current procedures for taxpayers requesting consent of the 
Commissioner if at least one member of the group is on a 52-53-week 
taxable year and all members of the group have taxable years ending 
within the same 7-day period. The proposed regulations also would 
revise several examples in Sec. Sec.  1.1502-76(c)(3) and 1.1502-77(g) 
to reflect changes to the due date for Federal corporate income tax 
returns set forth in section 6072(a) of the Code, as made by section 
2006(a)(2) of the Surface Transportation and Veterans Health Care 
Choice Improvement Act of 2015, Public Law 114-41, 129 Stat. 443 (July 
31, 2015).
7. Section 1.1502-79 (Separate Return Years)
    Section 1.1502-79(e)(2) provides a rule to determine the portion of 
the consolidated excess charitable

[[Page 52066]]

contributions attributable to a member of a consolidated group. The 
proposed regulations would make non-substantive changes to enhance the 
clarity of that provision. In particular, the proposed regulations 
would separate the current one-sentence rule into three sentences, the 
first of which provides that the portion of the consolidated excess 
charitable contributions for any year attributable to a member is an 
amount equal to the consolidated excess contributions multiplied by a 
fraction. The second and third sentences set forth the numerator and 
denominator of that fraction, respectively.
8. Section 1.1502-100 (Corporations Exempt From Tax)
    Section 1.1502-100 provides rules to compute the tax liability for 
a consolidated return year of a group of exempt corporations that files 
or is required to file a consolidated return for the taxable year. The 
proposed regulations would revise Sec.  1.1502-100(a)(2) to replace the 
reference to ``Sec. Sec.  1.1502-1 through 1.1502-80'' with a reference 
to ``the consolidated return regulations'' (see the discussion in parts 
II.B.9 and II.D.1 of this Explanation of Provisions.) The proposed 
regulations also would revise Sec.  1.1502-100(d) to reflect the 
changes proposed by this document to Sec.  1.1502-12.
9. Removal of Cross-References to Prior-Law Versions of the CFR
    In general, the proposed regulations would revise numerous 
provisions in the consolidated return regulations to remove cross-
references to prior-law versions of the CFR. However, the proposed 
regulations would retain cross-references in the consolidated return 
regulations to prior-law CFRs with continuing relevance. In particular, 
the proposed regulations would retain cross-references relating to 
intercompany transactions and certain separate return limitation year 
issues.
E. Provisions Affected by Legislation That the Proposed Regulations Do 
Not Change
    The proposed regulations would not modify certain provisions in the 
consolidated return regulations that have been affected by subsequent 
legislation. Principally, aside from the nonsubstantive change 
discussed in part II.B.3 of this Explanation of Provisions, the 
proposed regulations would not revise Sec.  1.1502-3 (relating to 
consolidated credits). Section 1.1502-3 provides rules for the former 
investment tax credit that existed prior to its replacement by the 
general business credit in section 211 of the Tax Reform Act of 1986. 
The proposed regulations also would not revise Sec.  1.1502-79(c), 
which provides rules for the carryover and carryback of unused 
investment credits to separate return years. Because of extensive 
changes to the relevant statutory provisions, substantive revisions of 
Sec. Sec.  1.1502-3 and 1.1502-79(c) are beyond the scope of these 
proposed regulations. However, the Treasury Department and the IRS are 
considering updating Sec. Sec.  1.1502-3 and 1.1502-79(c) to reflect 
current law, and the Treasury Department and the IRS request comments 
on potential revisions to these regulatory provisions.
F. Withdrawal of Proposed Regulations; Proposed Withdrawal of Temporary 
Regulations
1. Notices of Proposed Rulemaking Incorporated Into the Proposed 
Regulations or Into Final Regulations
    This document withdraws the portions of two NPRMs that, in revised 
form, (i) have been incorporated into final regulations, or (ii) are 
incorporated into these proposed regulations in revised form.
a. Consolidated Former Alternative Minimum Tax Proposed Regulations
    As discussed in part II.B.4 of this Explanation of Provisions, the 
Treasury Department and the IRS published the consolidated Former AMT 
proposed regulations on December 30, 1992, regarding the computation of 
the Former AMT by consolidated groups and the allocation of related 
items. This document withdraws proposed amendments to Sec.  1.1502-2, 
regarding the computation of a consolidated group's tax liability, set 
forth in the consolidated Former AMT proposed regulations. These 
proposed amendments were incorporated, in revised form, into the base 
erosion and anti-abuse tax final regulations (TD 9885), published in 
the Federal Register (84 FR 66968) on December 6, 2019 (BEAT final 
regulations). However, the proposed amendments to Sec.  1.1502-2 set 
forth in the consolidated Former AMT proposed regulations were not 
withdrawn by the BEAT final regulations. Accordingly, this document 
withdraws the revisions to Sec.  1.1502-2 proposed by the consolidated 
Former AMT proposed regulations.
    The consolidated Former AMT proposed regulations also would provide 
rules under Sec.  1.1552-1(h) governing the allocation of the 
environmental tax imposed by section 59A of the Code (as in effect at 
the time) to members for purposes of computing earnings and profits. 
Section 59A of the Code was repealed by section 221(a)(12)(A), Division 
A, of the Tax Increase Prevention Act of 2014. As a result, this 
document withdraws proposed Sec.  1.1552-1(h), as contained in the 
consolidated Former AMT proposed regulations.
b. Proposed Regulations Regarding Absorption of Members' Losses and To 
Eliminate Circular Basis Adjustments
    The Treasury Department and the IRS published a NPRM (REG-101652-
10) in the Federal Register (80 FR 33211) on June 11, 2015 (circular 
basis proposed regulations). The circular basis proposed regulations 
would provide guidance regarding the absorption of members' losses in a 
consolidated return year, and provide guidance to eliminate circular 
adjustments to the basis of a group member. These circular basis 
proposed regulations would have (i) revised Sec. Sec.  1.1502-11(a) and 
1.1502-24 to remove references to repealed statutes or obsolete 
regulations, and (ii) removed Sec. Sec.  1.1502-21A, 1.1502-22A, and 
1.1502-23A. Because this document would (i) make the same revisions to 
Sec. Sec.  1.1502-11(a) and 1.1502-24, and (ii) remove Sec. Sec.  
1.1502-21A, 1.1502-22A, and 1.1502-23A, this document withdraws the 
proposed revisions to Sec. Sec.  1.1502-11(a), 1.1502-21A, 1.1502-22A, 
1.1502-23A, and 1.1502-24 set forth in the circular basis proposed 
regulations.
2. NPRM That Became Obsolete as a Result of Incorporation of Subsequent 
NPRM Into Final Regulations
    On March 18, 2004, the Treasury Department and the IRS published in 
the Federal Register (69 FR 12811) a NPRM (REG-153172-03) under Sec.  
1.1502-80(c) (proposed loss limitation rules). The proposed loss 
limitation rules set forth guidance regarding (i) the deductibility of 
losses recognized on dispositions of subsidiary stock by members of a 
consolidated group, (ii) the consequences of treating subsidiary stock 
as worthless, and (iii) when stock of a member of a consolidated group 
may be treated as worthless. The proposed loss limitation rules cross-
referenced temporary regulations (TD 9118) published in the Federal 
Register (69 FR 12799) on the same day, the text of which served as the 
text for those proposals.
    On July 18, 2007, the Treasury Department and the IRS published in 
the Federal Register (72 FR 39313) final regulations (TD 9341), which 
finalized a version of Sec.  1.1502-80(c) that had been proposed by an 
NPRM (REG-157711-02) published in the Federal Register (72 FR 2964) on 
January 23, 2007. Those

[[Page 52067]]

final regulations removed Sec.  1.1502-80T(c) but did not withdraw the 
proposed loss limitation rules. Accordingly, this document withdraws 
the proposed loss limitation rules.
3. NPRMs That Cross-Reference Temporary Regulations That Have Been 
Removed, Have Expired, or Otherwise Have Become Obsolete
a. NPRMs Under Sec.  1.1502-20
    The Treasury Department and the IRS published four NPRMs under 
Sec.  1.1502-20, which cross-referenced temporary regulations under 
Sec.  1.1502-20T published in the Federal Register on the same day, the 
text of which served as the text for those proposals. On September 17, 
2008, the Treasury Department and the IRS published final regulations 
(TD 9424) in the Federal Register (73 FR 53934) that included the final 
unified loss rule under Sec.  1.1502-36. As a result of these final 
regulations, the Treasury Department and the IRS removed Sec. Sec.  
1.1502-20 and 1.1502-20T. However, the four NPRMs under Sec.  1.1502-20 
were not withdrawn by those final regulations.
    Accordingly, this document withdraws the four NPRMs under Sec.  
1.1502-20, which consist of the following:
    (1) An NPRM (REG-102740-02) published in the Federal Register (67 
FR 11070) on March 12, 2002, which cross-referenced the text of 
temporary regulations (TD 8984) published in the Federal Register (67 
FR 11034) on the same day (March 12 unified loss proposed regulations).
    (2) An NPRM (REG-102305-02) published in the Federal Register (67 
FR 38040) on May 31, 2002, which clarified and revised aspects of the 
March 12 unified loss proposed regulations and cross-referenced the 
text of temporary regulations (TD 8998) published in the Federal 
Register (67 FR 37998) on the same day.
    (3) An NPRM (REG-152524-02) published in the Federal Register (68 
FR 24404) on May 7, 2003, which cross-referenced the text of temporary 
regulations (TD 9057) published in the Federal Register (68 FR 24351) 
on the same day.
    (4) An NPRM (REG-135898-04) published in the Federal Register (69 
FR 52462) on August 26, 2004, which cross-referenced the text of 
temporary regulations (TD 9154) published in the Federal Register (69 
FR 52419) on the same day.
b. NPRMs Under Sec.  1.1502-21
    The Treasury Department and the IRS published three NPRMs under 
Sec.  1.1502-21, which cross-referenced temporary regulations under 
Sec.  1.1502-21T published in the Federal Register on the same day, the 
text of which served as the text for those proposals. These NPRMs also 
contained proposed regulations under Sec.  1.1502-32 (see part II.F.3.c 
of this Explanation of Provisions).
    Each of these temporary regulations under Sec.  1.1502-21T has 
expired or has been removed. However, the Treasury Department and the 
IRS have not yet withdrawn the three NPRMs under Sec.  1.1502-21.
    Accordingly, this document withdraws three NPRMs under Sec.  
1.1502-21, which consist of the following:
    (1) An NPRM (REG-122564-02) published in the Federal Register (67 
FR 38039) on May 31, 2002, which addressed elections for consolidated 
groups to waive the carryback of certain losses arising in 2001 or 2002 
and cross-referenced the text of temporary regulations (TD 8997) 
published in the Federal Register (67 FR 38000) on the same day.
    (2) An NPRM (REG-131478-02) published in the Federal Register (68 
FR 12324) on March 14, 2003, which addressed losses treated as expired 
under Sec.  1.1502-35T(f)(1) on and after March 7, 2002, and on or 
before March 11, 2006 (including corresponding basis adjustments), and 
cross-referenced the text of temporary regulations (TD 9048) published 
in the Federal Register (68 FR 12287) on the same day.
    (3) An NPRM (REG-151605-09) published in the Federal Register (75 
FR 35710) on June 23, 2010, which addressed elections by consolidated 
groups to elect to extend a net operating loss carryback period arising 
in a single taxable year ending after December 31, 2007, and beginning 
before January 1, 2010, and cross-referenced the text of now-expired 
temporary regulations (TD 9490) published in the Federal Register (75 
FR 35643) on the same day.
c. NPRMs Under Sec.  1.1502-32
    The Treasury Department and the IRS published five NPRMs under 
Sec.  1.1502-32 that cross-referenced temporary regulations under Sec.  
1.1502-32T published in the Federal Register on the same day, the text 
of which served as the text for those proposals. Each of these 
temporary regulations under Sec.  1.1502-32T has expired or have been 
removed. However, the Treasury Department and the IRS have not yet 
withdrawn the corresponding five NPRMs under Sec.  1.1502-32.
    Accordingly, this document withdraws the five NPRMs under Sec.  
1.1502-32, which consist of the following:
    (1) An NPRM (REG-129274-04) published in the Federal Register (69 
FR 51208) on August 18, 2004, which addressed elections for 
consolidated groups to waive the carryback of certain losses arising in 
2001 or 2002 and cross-referenced the text of temporary regulations (TD 
9155) published in the Federal Register (69 FR 51175) on the same day.
    (2) An NPRM (REG-156420-06) published in the Federal Register (72 
FR 17814) on April 10, 2007 (proposed anti-avoidance and anti-loss 
reimportation regulations), which proposed an anti-avoidance rule and 
revised an anti-loss reimportation rule, and cross-referenced the text 
of temporary regulations (TD 9322) published in the Federal Register 
(72 FR 17804) on the same day. The proposed anti-avoidance and anti-
loss importation regulations also contained proposed regulations under 
Sec.  1.1502-35 (see part II.F.3.d of this Explanation of Provisions).
    (3) Each NPRM described in part II.F.3.b of this Explanation of 
Provisions.
d. NPRM Under Sec.  1.1502-35
    The Treasury Department and the IRS published two NPRMs under Sec.  
1.1502-35, which cross-referenced temporary regulations under Sec.  
1.1502-35T published in the Federal Register on the same day, the text 
of which served as the text for those proposals. The temporary 
regulations under Sec.  1.1502-35T have expired or have been removed. 
However, the Treasury Department and the IRS have not yet withdrawn the 
corresponding two NPRMs under Sec.  1.1502-35.
    Accordingly, this document withdraws the two NPRMs under Sec.  
1.1502-35, which consist of the following:
    (1) An NPRM (REG 153172-03) published in the Federal Register (69 
FR 12811) on March 18, 2004, which proposed guidance regarding 
worthless subsidiary stock, and cross-referenced the text of temporary 
regulations (TD 9118) published in the Federal Register (69 FR 12799) 
on the same day.
    (2) The proposed anti-avoidance and anti-loss reimportation 
regulations, described in part II.F.3.c of this Explanation of 
Provisions.

Proposed Applicability Date

    Pursuant to section 1503(a) of the Code, these proposed regulations 
would apply to consolidated return years for which the due date of the 
return (without regard to extensions) is after

[[Page 52068]]

the date of publication of the Treasury decision adopting these rules 
as final regulations in the Federal Register.

Special Analyses

I. Regulatory Planning and Review

    Executive Orders 13563 and 12866 direct agencies to assess costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, 
reducing costs, harmonizing rules, and promoting flexibility.
    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 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

II. Paperwork Reduction Act

    These regulations update the regulations under section 1502 of the 
Code (that is, the consolidated return regulations) by revising and 
removing outdated and obsolete provisions, such as cross-references to 
temporary regulations, regulations, and statutes that have been 
repealed, removed, expired, renumbered, or otherwise have become 
obsolete. Therefore, the proposed regulations would not impose 
additional reporting burden beyond what is otherwise required by 
existing statutes, regulations, and forms. The total burden associated 
with the proposed regulations, if finalized in their current form, 
would be $0.

III. Regulatory Flexibility Act

    The proposed regulations would not impose a collection of 
information on small entities. Further, pursuant to the Regulatory 
Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that the 
proposed regulations would not have a significant economic impact on a 
substantial number of small entities. This certification is based on 
the fact that the proposed regulations would apply only to corporations 
that file consolidated Federal income tax returns, and that such 
corporations tend to be larger businesses. Therefore, the proposed 
regulations would not create additional obligations for, or impose an 
economic impact on, small entities.
    Pursuant to section 7805(f) of the Code, the proposed regulations 
have been submitted to the Chief Counsel for the Office of Advocacy of 
the Small Business Administration for comment on its impact on small 
business.

IV. 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. In 2022, that threshold is approximately $190 million. The 
proposed regulations do not propose any rule that would 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.

V. 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. The proposed regulations do not 
propose rules that would have federalism implications, impose 
substantial direct compliance costs on State and local governments, or 
preempt State law within the meaning of the Executive order.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ADDRESSES heading. 
The Treasury Department and the IRS request comments on all aspects of 
the proposed regulations, including comments on any consolidated return 
rules not addressed in these proposed regulations that require revision 
or removal as a result of amendments to the Code or regulations made 
after such rules were promulgated. All commenters are strongly 
encouraged to submit comments electronically. The Treasury Department 
and the IRS will publish for public availability any comment submitted 
electronically or on paper to its public docket on https://www.regulations.gov.
    A public hearing will be scheduled if requested in writing by any 
person who timely submits electronic or written comments. Requests for 
a public hearing are encouraged to be made electronically. If a public 
hearing is scheduled, a notice of the date and time for the public 
hearing will be published in the Federal Register. Announcement 2023-
16, 2023-20 IRB 854, provides that, following the end of the national 
emergency concerning the Coronavirus Disease 2019 (COVID-19) pandemic, 
the IRS no longer will conduct public hearings on notices of proposed 
rulemaking solely by telephone for proposed regulations published in 
the Federal Register after May 11, 2023. A telephonic option will 
remain available for those who prefer to attend or testify at a public 
hearing by telephone. Any telephonic hearing will be made accessible to 
people with disabilities.

Statement of Availability of IRS Documents

    Announcement 2023-16, 2023-20 IRB 854, is published in the Internal 
Revenue Bulletin and is available from the Superintendent of Documents, 
U.S. Government Publishing Office, Washington, DC 20402, or by visiting 
the IRS website at https://www.irs.gov.

Drafting Information

    The principal authors of this document are Kelton P. Frye and 
William W. Burhop of the Office of Associate Chief Counsel (Corporate). 
Other personnel from the Treasury Department and the IRS participated 
in its development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 5

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR parts 1, 5, 301, and 602 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by removing 
the

[[Page 52069]]

entries for Sec. Sec.  1.1503-2, 1.1502-9A, 1.1502-15A, 1.1502-21A, 
1.1502-22A, 1.1502-23A, 1.1502-41A, 1.1502-79A, 1.1502-91A, 1.1502-92A, 
1.1502-93A, 1.1502-94A, 1.1502-95A, 1.1502-96A, 1.1502-98A, and 1.1502-
99A to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *


Sec.  1.57-1  [Amended]

0
Par. 2. Section 1.57-1 is amended by removing the text ``and Sec.  
1.1502-12(g)'' from paragraph (b)(4)(ii).
0
Par. 3. Section 1.167(c)-1 is amended by revising paragraph (a)(5) to 
read as follows:


Sec.  1.167(c)-1  Limitations on methods of computing depreciation 
under section 167(b)(2), (3), and (4).

    (a) * * *
    (5) See Sec. Sec.  1.1502-13 and 1.1502-68 for provisions dealing 
with depreciation of property received by a member of an affiliated 
group from another member of the group during a consolidated return 
period.
* * * * *


Sec.  1.279-6  [Amended]

0
Par. 4. Section 1.279-6 is amended by:
0
1. Removing the text ``and'' from the end of paragraph (d)(1).
0
2. Adding the text ``and'' to the end of paragraph (d)(2).
0
3. Removing the text ``, and'' from the end of paragraph (d)(3) and 
adding the text ``.'' in its place.
0
4. Removing paragraph (d)(4).


Sec.  1.382-8  [Amended]

0
Par. 5. Section 1.382-8 is amended by removing and reserving paragraph 
(i).
0
Par. 6. Section 1.1502-0 is revised to read as follows:


Sec.  1.1502-0  Effective/Applicability dates.

    (a) In general. Except as provided in paragraph (b) of this 
section, the consolidated return regulations (as defined in Sec.  
1.1502-1(g)) are applicable to taxable years beginning after December 
31, 1965.
    (b) Exceptions. The applicability date described in paragraph (a) 
of this section does not apply to any provision of the consolidated 
return regulations with an applicability or effective date different 
than the date provided by paragraph (a) of this section.
0
Par. 7. Section 1.1502-1 is amended by:
0
1. Adding introductory text.
0
2. Removing the text ``,'' from the end of paragraph (f)(2)(iii) and 
adding the text ``.'' in its place.
0
3. Removing the undesignated paragraph after paragraph (f)(2)(iii).
0
4. Removing the text ``and for which section 1562 was not effective'' 
from the last sentence of paragraph (f)(3).
0
5. Revising paragraph (g).
0
6. Redesignating paragraph (l) as paragraph (m).
0
7. Adding a new paragraph (l).
    The revision and addition read as follows:


Sec.  1.1502-1  Definitions.

    For purposes of the consolidated return regulations:
* * * * *
    (g) Consolidated return regulations. The term consolidated return 
regulations means the regulations under section 1502.
* * * * *
    (l) U.S. territory. The term U.S. territory means--
    (1) American Samoa;
    (2) The Commonwealth of the Northern Mariana Islands;
    (3) The Commonwealth of Puerto Rico;
    (4) Guam; and
    (5) The Virgin Islands of the United States.
* * * * *


Sec.  1.1502-3  [Amended]

0
Par. 8. Section 1.1502-3 is amended by removing and reserving paragraph 
(e).


Sec.  1.1502-4  [Amended]

0
Par. 9. Section 1.1502-4 is amended by removing the text ``possession'' 
from paragraph (d)(1) and adding the text ``U.S. territory'' in its 
place.
0
Par. 10. Section 1.1502-5 is revised to read as follows:


Sec.  1.1502-5  Estimated tax.

    (a) General rule--(1) Consolidated estimated tax. If a group files 
a consolidated return for two consecutive taxable years, it must make 
payments of estimated tax on a consolidated basis for each subsequent 
taxable year until separate returns are filed. When filing on a 
consolidated basis, the group is generally treated as a single 
corporation for purposes of section 6655 (relating to payment of 
estimated tax by corporations). If separate returns are filed by the 
members for a taxable year, the amount of any estimated tax payments 
made with respect to a consolidated estimated tax for the year is 
credited against the separate tax liabilities of the members in any 
reasonable manner designated by the common parent.
    (2) First two consolidated return years. For its first two 
consolidated return years, a group may make payments of estimated tax 
on either a consolidated or a separate member basis. The amount of any 
separate estimated tax payments is credited against the consolidated 
tax liability of the group.
    (b) Addition to tax for failure to pay estimated tax under section 
6655--(1) Consolidated return filed. For its first two consolidated 
return years, a group may compute the amount of the penalty (if any) 
under section 6655 on a consolidated basis or a separate member basis, 
regardless of the method of payment. Thereafter, the group must compute 
the penalty for any consolidated return year on a consolidated basis.
    (2) Computation of penalty on consolidated basis. (i) This 
paragraph (b)(2) provides rules for computing the penalty under section 
6655 on a consolidated basis.
    (ii) The tax shown on the return for the preceding taxable year 
referred to in section 6655(d)(1)(B)(ii) is, if a consolidated return 
was filed for that preceding year, the tax shown on the consolidated 
return for that preceding year or, if a consolidated return was not 
filed for that preceding year, the aggregate of the taxes shown on the 
separate returns of the common parent and any other corporation that 
was a member of the same affiliated group as the common parent for that 
preceding year.
    (iii) If estimated tax was not paid on a consolidated basis, the 
amount of the group's payments of estimated tax for the taxable year is 
the aggregate of the payments made by all members for the year.
    (iv) If the common parent is otherwise eligible to use the section 
6655(d)(1)(B)(ii) required annual payment rule, that rule applies only 
if the group's consolidated return, or each member's separate return if 
the group did not file a consolidated return, for the preceding taxable 
year was a taxable year of 12 months.
    (3) Computation of penalty on separate member basis. To compute any 
penalty under section 6655 on a separate member basis, for purposes of 
section 6655(d)(1)(B)(i), the ``tax shown on the return'' for the 
taxable year is the portion of the tax shown on the consolidated return 
allocable to the member under paragraph (b)(6) of this section. If the 
member was included in the consolidated return filed by the group for 
the preceding taxable year, for purposes of section 6655(d)(1)(B)(ii), 
the ``tax shown on the return'' for the preceding taxable year for any 
member is the portion of the tax shown on the consolidated return for 
the preceding

[[Page 52070]]

year allocable to the member under paragraph (b)(6) of this section.
    (4) Consolidated payments if separate returns filed. If the group 
does not file a consolidated return for the taxable year but makes 
payments of estimated tax on a consolidated basis, for purposes of 
section 6655(b)(1)(B), the ``amount (if any) of the installment paid'' 
by any member is an amount apportioned to the member in any reasonable 
manner designated by the common parent. If a member was included in the 
consolidated return filed by the group for the preceding taxable year, 
the amount of the member's penalty under section 6655 is computed on 
the separate member basis described in paragraph (b)(3) of this 
section.
    (5) Tax defined. For purposes of this section, the term ``tax'' 
means the excess of--
    (i) The sum of--
    (A) The consolidated tax imposed by section 11 or subchapter L of 
chapter 1, whichever applies;
    (B) The tax imposed by section 55(a); plus
    (C) The tax imposed by section 59A; over
    (ii) The credits against tax provided by part IV of subchapter A of 
chapter 1 of the Internal Revenue Code.
    (6) Allocation of consolidated tax liability for determining 
earnings and profits. For purposes of this section, the tax shown on a 
consolidated return is allocated to the members of the group by 
allocating any tax described in paragraph (b)(5)(i) of this section, 
net of allowable credits under paragraph (b)(5)(ii) of this section, 
under the method that the group has elected pursuant to section 1552 
and Sec.  1.1502-33(d).
    (c) Examples. The provisions of this section are illustrated by the 
following examples.
    (1) Example 1. Corporations P and S1 file a consolidated return for 
the first time for calendar year 2021. P and S1 also file consolidated 
returns for calendar year 2022 and calendar year 2023. Under paragraph 
(a)(2) of this section, for the 2021 and 2022 taxable years, P and S1 
may pay estimated tax on either a separate or consolidated basis. Under 
paragraph (a)(1) of this section, for the 2023 taxable year, the group 
must pay its estimated tax on a consolidated basis. In determining 
whether P and S1 come within the exception provided in section 
6655(d)(1)(B)(ii) for 2023, the ``tax shown on the return'' is the tax 
shown on the consolidated return for the 2022 taxable year.
    (2) Example 2. Corporations P, S1, and S2 file a consolidated 
return for the first time for calendar year 2021 and file their second 
consolidated return for calendar year 2022. S2 ceases to be a member of 
the group on September 15, 2023. Under paragraph (b)(2) of this 
section, in determining whether the group (which no longer includes S2) 
comes within the exception provided in section 6655(d)(1)(B)(ii) for 
2023, the ``tax shown on the return'' is the tax shown on the 
consolidated return for calendar year 2022.
    (3) Example 3. Corporations P and S1 file a consolidated return for 
the first time for calendar year 2021 and file their second 
consolidated return for calendar year 2022. Corporation S2 becomes a 
member of the group on July 1, 2023, and joins in the filing of the 
consolidated return for calendar year 2023. Under paragraph (b)(2) of 
this section, in determining whether the group (which now includes S2) 
comes within the exception provided in section 6655(d)(1)(B)(ii) for 
2023, the ``tax shown on the return'' is the tax shown on the 
consolidated return for calendar year 2022. Any tax of S2 for any 
separate return year is not included as a part of the ``tax shown on 
the return'' for purposes of applying section 6655(d)(1)(B)(ii).
    (4) Example 4. Corporations X and Y file consolidated returns for 
the calendar years 2021 and 2022 and separate returns for calendar year 
2023. Under paragraph (b)(3) of this section, in determining whether X 
or Y comes within the exception provided in section 6655(d)(1)(B)(ii) 
for 2023, the ``tax shown on the return'' is the amount of tax shown on 
the consolidated return for 2022 allocable to X and to Y in accordance 
with paragraph (b)(6) of this section.
    (d) Cross-references--(1) For provisions relating to quick refunds 
of corporate estimated tax payments, see Sec. Sec.  1.1502-78 and 
1.6425-1 through 1.6425-3.
    (2) For provisions relating to depositing estimated taxes, see 
Sec.  1.6302-1(b).
    (e) Applicability date. This section applies to any taxable year 
for which the due date of the income tax return (without regard to 
extensions) is on or after [the date final regulations are published in 
the Federal Register]. For prior years, see Sec.  1.1502-5 (as 
contained in the 26 CFR edition revised as of April 1, 2023).


Sec.  1.1502-6  [Amended]

0
Par. 11. Section 1.1502-6 is amended by removing the text ``he'' from 
paragraph (b) and adding the text ``the Commissioner'' in its place.
0
Par. 12. Section 1.1502-9 is amended by:
0
1. Removing the text ``Sec.  1.904-4(m)'' from paragraph (a) and adding 
the text ``Sec.  1.904-5(a)(4)(v)'' in its place.
0
2. Removing the text ``(a)(8)'' from the first sentence of paragraph 
(b)(1) and adding the text ``(a)(6)'' in its place.
0
3. Removing the text ``Sec. Sec.  1.861-9T(g)(3) and 1.861-12T'' from 
the second sentence of paragraph (c)(2)(ii) and adding the text 
``Sec. Sec.  1.861-9T(g)(3), 1.861-12, and 1.861-13'' in its place.
0
4. Removing the text ``Sec.  1.861-9T(g)(1)'' from paragraph (c)(2)(ii) 
wherever it appears and adding the text ``Sec.  1.861-9(g)(1)'' in its 
place.
0
5. Removing the text ``, fair market value,'' from the sixth sentence 
of paragraph (c)(2)(ii).
0
6. Removing the text ``Sec.  1.861-9T(g)(2))'' from paragraph 
(c)(2)(ii) wherever it appears and adding the text ``Sec.  1.861-
9(g)(2))'' in its place.
0
7. Removing the text ``If the group uses the tax book value method, 
the'' from the eighth sentence of paragraph (c)(2)(ii) and adding the 
text ``The'' in its place.
0
8. Revising the heading of paragraph (c)(2)(iii).
0
9. Removing the text ``a group uses the tax book value method of 
valuing assets for purposes of paragraph (c)(2)(ii) of this section 
and'' from the first sentence of paragraph (c)(2)(iii).


Sec.  1.1502-9  Consolidated overall foreign losses, separate 
limitation losses, and overall domestic losses.

* * * * *
    (c) * * *
    (2) * * *
    (iii) Limitation on member's portion. * * *
* * * * *
0
Par. 13. Section 1.1502-11 is amended by:
0
1. Revising the introductory text in paragraph (a).
0
2. Revising paragraphs (a)(2) through (4).
0
3. Adding the text ``and'' at the end of paragraph (a)(5).
0
4. Removing paragraph (a)(6).
0
5. Redesignating paragraph (a)(7) as paragraph (a)(6).
0
6. In newly redesignated paragraph (a)(6), removing the text ``; and'', 
and adding the text ``.'' in its place.
0
7. Removing paragraph (a)(8).
0
8. In paragraph (b)(2)(iii), designating Examples 1 through 3 as 
paragraphs (b)(2)(iii)(A) through (C), respectively.
0
9. In newly redesignated paragraphs (b)(2)(iii)(A) through (C), further 
redesignating the paragraphs in the first column as the paragraphs in 
the second column:

[[Page 52071]]



------------------------------------------------------------------------
             Old paragraphs                       New paragraphs
------------------------------------------------------------------------
(b)(2)(iii)(A)(a), (b), and (c)........  (b)(2)(iii)(A)(1), (2), and
                                          (3).
(b)(2)(iii)(B)(a), (b), (c), and (d)...  (b)(2)(iii)(B)(1), (2), (3),
                                          and (4).
(b)(2)(iii)(C)(a), (b), (c), (d), and    (b)(2)(iii)(C)(1), (2), (3),
 (e).                                     (4), and (5).
------------------------------------------------------------------------

0
10. Removing the text ``(or 1.1502-79A, as appropriate)'' from newly 
redesignated paragraphs (b)(2)(iii)(A)(3) and (b)(2)(iii)(B)(4).
0
11. Removing the last sentence of paragraph (c)(7).
    The revisions read as follows:


Sec.  1.1502-11  Consolidated taxable income.

    (a) In general. The consolidated taxable income (CTI) for a 
consolidated return year is determined by taking into account:
* * * * *
    (2) Any consolidated net operating loss (CNOL) deduction (see Sec.  
1.1502-21 for the computation of the CNOL deduction);
    (3) Any consolidated capital gain net income (see Sec.  1.1502-22 
for the computation of consolidated capital gain net income);
    (4) Any consolidated section 1231 net loss (see Sec.  1.1502-23 for 
the computation of consolidated section 1231 net loss);
* * * * *
0
Par. 14. Section 1.1502-12 is amended by:
0
1. Revising paragraph (b).
0
2. Removing and reserving paragraphs (e), (g), and (m).
0
3. Revising paragraph (n).
0
4. Removing and reserving paragraph (q).
    The revisions read as follows:


Sec.  1.1502-12  Separate taxable income.

* * * * *
    (b) Any deduction that is disallowed under Sec.  1.1502-15 must be 
taken into account as provided in that section.
* * * * *
    (n) No deduction under section 243(a)(1) or section 245 (relating 
to deductions with respect to dividends received) is taken into 
account;
* * * * *
0
Par. 15. Section 1.1502-13 is amended by:
0
1. Revising the second sentence of paragraph (a)(3)(i).
0
2. Revising paragraph (a)(6)(ii).
0
3. Adding the text ``of this section'' after the text ``paragraph 
(c)(4)(i)(A)'' in the first sentence of paragraph (c)(4)(i)(B).
0
4. Revising the last sentence of paragraph (c)(5).
0
5. In paragraph (d)(3), designating Examples 1 through 5 as paragraphs 
(d)(3)(i) through (v), respectively.
0
6. In newly redesignated paragraphs (d)(3)(i) through (v), further 
redesignating paragraphs in the first column as paragraphs in the 
second column:

------------------------------------------------------------------------
             Old paragraphs                       New paragraphs
------------------------------------------------------------------------
(d)(3)(i)(a), (b), (c), (d), (e), (f),   (d)(3)(i)(A), (B), (C), (D),
 and (g).                                 (E), (F), and (G).
(d)(3)(ii)(a), (b), and (c)............  (d)(3)(ii)(A), (B), and (C).
(d)(3)(iii)(a) and (b).................  (d)(3)(iii)(A) and (B).
(d)(3)(iv)(a), (b), and (c)............  (d)(3)(iv)(A), (B), and (C).
(d)(3)(v)(a) and (b)...................  (d)(3)(v)(A) and (B).
------------------------------------------------------------------------

0
7. In paragraph (d)(3), for each newly redesignated paragraph listed in 
the ``Paragraph'' column, removing the text indicated in the ``Remove'' 
column and adding in its place the text indicated in the ``Add'' 
column:

----------------------------------------------------------------------------------------------------------------
                Paragraph                              Remove                                Add
----------------------------------------------------------------------------------------------------------------
(d)(3)(i)(E)............................  paragraph (a) of this Example 1.  paragraph (d)(3)(i)(A) of this
                                                                             section (Example 1).
(d)(3)(i)(F)............................  paragraph (a) of this Example 1.  paragraph (d)(3)(i)(A) of this
                                                                             section (Example 1).
(d)(3)(i)(G)............................  paragraph (a) of this Example 1.  paragraph (d)(3)(i)(A) of this
                                                                             section (Example 1).
(d)(3)(ii)(C)...........................  paragraph (a) of this Example 2.  paragraph (d)(3)(ii)(A) of this
                                                                             section (Example 2).
----------------------------------------------------------------------------------------------------------------

0
8. In paragraph (e)(1)(v), designating Examples 1 through 3 as 
paragraphs (e)(1)(v)(A) through (C), respectively.
0
9. In newly redesignated paragraphs (e)(1)(v)(A) through (C), further 
redesignating paragraphs in the first column as paragraphs in the 
second column:

------------------------------------------------------------------------
             Old paragraphs                       New paragraphs
------------------------------------------------------------------------
(e)(1)(v)(A)(a), (b), (c)(i), (c)(ii),   (e)(1)(v)(A)(1), (2), (3)(i),
 (d), and (e).                            (3)(ii), (4), and (5).
(e)(1)(v)(B)(a), (b)(i), (b)(ii), and    (e)(1)(v)(B)(1), (2)(i),
 (c).                                     (2)(ii), and (3).
(e)(1)(v)(C)(a) and (b)................  (e)(1)(v)(C)(1) and (2).
------------------------------------------------------------------------

0
10. In paragraph (e)(1)(v), for each newly redesignated paragraph 
listed in the ``Paragraph'' column, removing the text indicated in the 
``Remove'' column and adding in its place the text indicated in the 
``Add'' column:

----------------------------------------------------------------------------------------------------------------
                Paragraph                              Remove                                Add
----------------------------------------------------------------------------------------------------------------
(e)(1)(v)(A)(4).........................  paragraph (a) of this Example 1.  paragraph (e)(1)(v)(A)(1) of this
                                                                             section (Example 1).
(e)(1)(v)(A)(5).........................  paragraph (a) of this Example 1.  paragraph (e)(1)(v)(A)(1) of this
                                                                             section (Example 1).
(e)(1)(v)(B)(1).........................  Example 1.......................  paragraph (e)(1)(v)(A)(1) of this
                                                                             section (Example 1).

[[Page 52072]]

 
(e)(1)(v)(B)(3).........................  paragraph (a) of this Example 2.  paragraph (e)(1)(v)(B)(1) of this
                                                                             section (Example 2).
----------------------------------------------------------------------------------------------------------------

0
11. Removing the second sentence from paragraph (f)(5)(ii)(B)(2).
0
12. Removing the text ``In either case, the'' from the third sentence 
of paragraph (f)(5)(ii)(B)(2) and adding the text ``The'' in its place.
0
13. Revising paragraph (f)(5)(ii)(F).
0
14. Revising paragraphs (f)(6)(ii) and (v).
0
15. In paragraph (f)(7), designating Examples 1 through 7 as paragraphs 
(f)(7)(i) through (vii), respectively.
0
16. In newly redesignated paragraphs (f)(7)(i) through (vii), further 
redesignating paragraphs in the first column as paragraphs in the 
second column:

------------------------------------------------------------------------
             Old paragraphs                       New paragraphs
------------------------------------------------------------------------
(f)(7)(i)(a), (b), (c), (d), and (e)...  (f)(7)(i)(A), (B),(C), (D), and
                                          (E).
(f)(7)(ii)(a), (b), (c), (d), (e), (f),  (f)(7)(ii)(A), (B), (C), (D),
 and (g).                                 (E), (F), and (G).
(f)(7)(iii)(a), (b), (c), and (d)......  (f)(7)(iii)(A), (B), (C), and
                                          (D).
(f)(7)(iv)(a) and (b)..................  (f)(7)(iv)(A) and (B).
(f)(7)(v)(a), (b), (c), and (d)........  (f)(7)(v)(A), (B), (C), and
                                          (D).
(f)(7)(vi)(a), (b), and (c)............  (f)(7)(vi)(A), (B), and (C).
(f)(7)(vii)(a), (b), (c), and (d)......  (f)(7)(vii)(A), (B), (C), and
                                          (D).
------------------------------------------------------------------------

0
17. In paragraph (f)(7), for each newly redesignated paragraph listed 
in the ``Paragraph'' column, removing the text indicated in the 
``Remove'' column and adding in its place the text indicated in the 
``Add'' column:

----------------------------------------------------------------------------------------------------------------
                Paragraph                              Remove                                Add
----------------------------------------------------------------------------------------------------------------
(f)(7)(i)(D)............................  paragraph (a) of this Example 1.  paragraph (f)(7)(i)(A) of this
                                                                             section (Example 1).
(f)(7)(i)(E)............................  paragraph (a) of this Example 1.  paragraph (f)(7)(i)(A) of this
                                                                             section (Example 1).
(f)(7)(ii)(D)...........................  paragraph (a) of this Example 2.  paragraph (f)(7)(ii)(A) of this
                                                                             section (Example 2).
(f)(7)(ii)(D)...........................  paragraph (c) of this Example 2.  paragraph (f)(7)(ii)(C) of this
                                                                             section (Example 2).
(f)(7)(ii)(E)...........................  paragraph (a) of this Example 2.  paragraph (f)(7)(ii)(A) of this
                                                                             section (Example 2).
(f)(7)(ii)(F)...........................  paragraph (a) of this Example 2.  paragraph (f)(7)(ii)(A) of this
                                                                             section (Example 2).
(f)(7)(ii)(F)...........................  paragraph (c) of this Example 2.  paragraph (f)(7)(ii)(C) of this
                                                                             section (Example 2).
(f)(7)(ii)(F)...........................  paragraph (d) of this Example 2.  paragraph (f)(7)(ii)(D) of this
                                                                             section (Example 2).
(f)(7)(ii)(G)...........................  paragraph (a) of this Example 2.  paragraph (f)(7)(ii)(A) of this
                                                                             section (Example 2).
(f)(7)(ii)(G)...........................  paragraph (c) of this Example 2.  paragraph (f)(7)(ii)(C) of this
                                                                             section (Example 2).
(f)(7)(iii)(C)..........................  paragraph (a) of this Example 3.  paragraph (f)(7)(iii)(A) of this
                                                                             section (Example 3).
(f)(7)(iii)(C)..........................  paragraph (b) of this Example 3.  paragraph (f)(7)(iii)(B) of this
                                                                             section (Example 3).
(f)(7)(v)(C)............................  paragraph (a) of this Example 4.  paragraph (f)(7)(v)(A) of this
                                                                             section (Example 5).
(f)(7)(v)(C)............................  paragraph (b) of this Example 4.  paragraph (f)(7)(v)(B) of this
                                                                             section (Example 5).
(f)(7)(v)(D)............................  paragraph (a) of this Example 4.  paragraph (f)(7)(v)(A) of this
                                                                             section (Example 5).
(f)(7)(vi)(C)...........................  paragraph (a) of this Example 5.  paragraph (f)(7)(vi)(A) of this
                                                                             section (Example 6).
(f)(7)(vii)(C)..........................  paragraph (a) of this Example 6.  paragraph (f)(7)(vii)(A) of this
                                                                             section (Example 7).
(f)(7)(vii)(C)..........................  paragraph (b) of this Example 6.  paragraph (f)(7)(vii)(B) of this
                                                                             section (Example 7).
(f)(7)(vii)(D)..........................  paragraph (c) of this Example 6.  paragraph (f)(7)(vii)(C) of this
                                                                             section (Example 7).
----------------------------------------------------------------------------------------------------------------

0
18. In paragraph (g)(7)(ii), designating Examples 1 through 11 as 
paragraphs (g)(7)(ii)(A) through (K), respectively.
0
19. In newly redesignated paragraphs (g)(7)(ii)(A) through (K), further 
redesignating paragraphs in the first column as paragraphs in the 
second column:

------------------------------------------------------------------------
             Old paragraphs                       New paragraphs
------------------------------------------------------------------------
(g)(7)(ii)(A)(i), (ii), (iii), and (iv)  (g)(7)(ii)(A)(1), (2), (3), and
                                          (4).
(g)(7)(ii)(B)(i), (ii), (iii), (iv),     (g)(7)(ii)(B)(1), (2), (3),
 (v), (vi), (vii), and (viii).            (4), (5), (6), (7), and (8).
(g)(7)(ii)(C)(i), (ii), (iii), and (iv)  (g)(7)(ii)(C)(1), (2), (3), and
                                          (4).
(g)(7)(ii)(D)(i), (ii), (iii), (iv),     (g)(7)(ii)(D)(1), (2), (3),
 and (v).                                 (4), and (5).
(g)(7)(ii)(E)(i) and (ii)..............  (g)(7)(ii)(E)(1) and (2).
(g)(7)(ii)(F)(i) and (ii)..............  (g)(7)(ii)(F)(1) and (2).
(g)(7)(ii)(G)(i) and (ii)..............  (g)(7)(ii)(G)(1) and (2).
(g)(7)(ii)(H)(i) and (ii)..............  (g)(7)(ii)(H)(1) and (2).
(g)(7)(ii)(I)(i) and (ii)..............  (g)(7)(ii)(I)(1) and (2).
(g)(7)(ii)(J)(i), (ii), (iii), and (iv)  (g)(7)(ii)(J)(1), (2), (3), and
                                          (4).
(g)(7)(ii)(K)(i), (ii), and (iii)......  (g)(7)(ii)(K)(1), (2), and (3).
------------------------------------------------------------------------

0
20. In paragraph (g)(7)(ii), for each newly redesignated paragraph 
listed in the ``Paragraph'' column, removing the text indicated in the 
``Remove'' column and adding in its place the text indicated in the 
``Add'' column:

[[Page 52073]]



----------------------------------------------------------------------------------------------------------------
                Paragraph                              Remove                                Add
----------------------------------------------------------------------------------------------------------------
(g)(7)(ii)(A)(3)........................  paragraph (i) of this Example 1.  paragraph (g)(7)(ii)(A)(1) of this
                                                                             section (Example 1).
(g)(7)(ii)(A)(3)........................  paragraph (ii) of this Example 1  paragraph (g)(7)(ii)(A)(2) of this
                                                                             section (Example 1).
(g)(7)(ii)(A)(4)........................  paragraph (i) of this Example 1.  paragraph (g)(7)(ii)(A)(1) of this
                                                                             section (Example 1).
(g)(7)(ii)(A)(4)........................  paragraph (ii) of this Example 1  paragraph (g)(7)(ii)(A)(2) of this
                                                                             section (Example 1).
(g)(7)(ii)(B)(3)........................  paragraph (i) of this Example 2.  paragraph (g)(7)(ii)(B)(1) of this
                                                                             section (Example 2).
(g)(7)(ii)(B)(3)........................  paragraph (ii) of this Example 2  paragraph (g)(7)(ii)(B)(2) of this
                                                                             section (Example 2).
(g)(7)(ii)(B)(4)........................  paragraph (i) of this Example 2.  paragraph (g)(7)(ii)(B)(1) of this
                                                                             section (Example 2).
(g)(7)(ii)(B)(4)........................  paragraph (iii) of this Example   paragraph (g)(7)(ii)(B)(3) of this
                                           2.                                section (Example 2).
(g)(7)(ii)(B)(5)........................  paragraph (i) of this Example 2.  paragraph (g)(7)(ii)(B)(1) of this
                                                                             section (Example 2).
(g)(7)(ii)(B)(6)........................  same as paragraph (i) of this     same as in paragraph
                                           Example 2.                        (g)(7)(ii)(B)(1) of this section
                                                                             (Example 2).
(g)(7)(ii)(B)(6)........................  paragraph (ii) of this Example 2  paragraph (g)(7)(ii)(B)(2) of this
                                                                             section (Example 2).
(g)(7)(ii)(B)(7)........................  paragraph (i) of this Example 2.  paragraph (g)(7)(ii)(B)(1) of this
                                                                             section (Example 2).
(g)(7)(ii)(B)(8)........................  paragraph (i) of this Example 2.  paragraph (g)(7)(ii)(B)(1) of this
                                                                             section (Example 2).
(g)(7)(ii)(C)(3)........................  paragraph (i) of this Example 3.  paragraph (g)(7)(ii)(C)(1) of this
                                                                             section (Example 3).
(g)(7)(ii)(C)(3)........................  paragraph (ii) of this Example 3  paragraph (g)(7)(ii)(C)(2) of this
                                                                             section (Example 3).
(g)(7)(ii)(C)(4)........................  paragraph (i) of this Example 3.  paragraph (g)(7)(ii)(C)(1) of this
                                                                             section (Example 3).
(g)(7)(ii)(C)(4)........................  paragraph (ii) of this Example 3  paragraph (g)(7)(ii)(C)(2) of this
                                                                             section (Example 3).
(g)(7)(ii)(C)(4)........................  paragraph (ii) of this Example 3  paragraph (g)(7)(ii)(C)(2) of this
                                                                             section (Example 3).
(g)(7)(ii)(D)(3)........................  paragraph (i) of this Example 4.  paragraph (g)(7)(ii)(D)(1) of this
                                                                             section (Example 4).
(g)(7)(ii)(D)(4)........................  paragraph (i) of this Example 4.  paragraph (g)(7)(ii)(D)(1) of this
                                                                             section (Example 4).
(g)(7)(ii)(D)(5)........................  paragraph (i) of this Example 4.  paragraph (g)(7)(ii)(D)(1) of this
                                                                             section (Example 4).
(g)(7)(ii)(J)(2)........................  paragraph (iii) of Example 1 of   paragraph (g)(7)(ii)(A)(3) of this
                                           this paragraph (g)(7).            section (Example 1).
(g)(7)(ii)(J)(3)........................  paragraph (i) of this Example 10  paragraph (g)(7)(ii)(J)(1) of this
                                                                             section (Example 10).
(g)(7)(ii)(K)(3)........................  paragraph (i) of this Example 11  paragraph (g)(7)(ii)(K)(1) of this
                                                                             section (Example 11).
----------------------------------------------------------------------------------------------------------------

0
21. Redesignating paragraphs (h)(2)(v)(a) and (b) as paragraphs 
(h)(2)(v)(A) and (B).
0
22. In paragraph (j)(9), designating Examples 1 through 7 as paragraphs 
(j)(9)(i) through (vii), respectively.
0
23. In newly redesignated paragraphs (j)(9)(i) through (vii), further 
redesignating paragraphs in the first column as paragraphs in the 
second column:

------------------------------------------------------------------------
             Old paragraphs                       New paragraphs
------------------------------------------------------------------------
(j)(9)(i)(a), (b), (c), (d), and (e)...  (j)(9)(i)(A), (B), (C), (D),
                                          and (E).
(j)(9)(ii)(a) and (b)..................  (j)(9)(ii)(A) and (B).
(j)(9)(iii)(a), (b), and (c)...........  (j)(9)(iii)(A), (B), and (C).
(j)(9)(iv)(a), (b), (c), (d), and (e)..  (j)(9)(iv)(A), (B), (C), (D),
                                          and (E).
(j)(9)(v)(a) and (b)...................  (j)(9)(v)(A) and (B).
(j)(9)(vi)(a) and (b)..................  (j)(9)(vi)(A) and (B).
(j)(9)(vii)(a) and (b).................  (j)(9)(vii)(A) and (B).
------------------------------------------------------------------------

0
24. In paragraph (j)(9), for each newly redesignated paragraph listed 
in the ``Paragraph'' column, removing the text indicated in the 
``Remove'' column and adding in its place the text indicated in the 
``Add'' column:

----------------------------------------------------------------------------------------------------------------
                Paragraph                              Remove                                Add
----------------------------------------------------------------------------------------------------------------
(j)(9)(i)(E)............................  paragraph (a) of this Example 1.  paragraph (j)(9)(i)(A) of this
                                                                             section (Example 1).
(j)(9)(iv)(D)...........................  paragraph (a) of this Example 4.  paragraph (j)(9)(iv)(A) of this
                                                                             section (Example 1).
(j)(9)(iv)(E)...........................  paragraph (a) of this Example 4.  paragraph (j)(9)(iv)(A) of this
                                                                             section (Example 1).
----------------------------------------------------------------------------------------------------------------

0
25. Revising paragraph (l)(6).
0
26. Redesignating paragraph (m) as paragraph (l)(7).
0
27. Revising newly redesignated paragraph (l)(7).
0
28. Adding paragraphs (l)(8) and (9).
    The revisions and additions read as follows:


Sec.  1.1502-13  Intercompany transactions.

    (a) * * *
    (3) * * *
    (i) * * * See Sec. Sec.  1.1502-17 and 1.446-1(c)(2)(iii). * * *
* * * * *
    (6) * * *
    (ii) Table of examples. This section contains the following 
examples:

----------------------------------------------------------------------------------------------------------------
                Rule                     General location           Paragraph                  Example
----------------------------------------------------------------------------------------------------------------
(A) Matching rule...................  Sec.   1.1502-          (A)..................  Example 1. Intercompany
                                       13(c)(7)(ii).                                  sale of land followed by
                                                                                      sale to a nonmember.
                                                              (B)..................  Example 2. Dealer
                                                                                      activities.
                                                              (C)..................  Example 3. Intercompany
                                                                                      section 351 transfer.
                                                              (D)..................  Example 4. Depreciable
                                                                                      property.
                                                              (E)..................  Example 5. Intercompany
                                                                                      sale followed by
                                                                                      installment sale.

[[Page 52074]]

 
                                                              (F)..................  Example 6. Intercompany
                                                                                      sale of installment
                                                                                      obligation.
                                                              (G)..................  Example 7. Performance of
                                                                                      services.
                                                              (H)..................  Example 8. Rental of
                                                                                      property.
                                                              (I)..................  Example 9. Intercompany
                                                                                      sale of a partnership
                                                                                      interest.
                                                              (J)..................  Example 10. Net operating
                                                                                      losses subject to section
                                                                                      382 or the SRLY rules.
                                                              (K)..................  Example 11. Section 475.
                                                              (L)..................  Example 12. Section 1092.
                                                              (M)..................  Example 13. [Reserved].
                                                              (N)..................  Example 14. Source of
                                                                                      income under section 863.
                                                              (O)..................  Example 15. Section 1248.
                                                              (P)..................  Example 16. Intercompany
                                                                                      stock distribution
                                                                                      followed by section 332
                                                                                      liquidation.
                                                              (Q)..................  Example 17. Intercompany
                                                                                      stock sale followed by
                                                                                      section 355 distribution.
                                                              (R)..................  Example 18. Redetermination
                                                                                      of attributes for section
                                                                                      250 purposes.
(B) Acceleration rule...............  Sec.   1.1502-13(d)(3)  (i)..................  Example 1. Becoming a
                                                                                      nonmember--timing.
                                                              (ii).................  Example 2. Becoming a
                                                                                      nonmember--attributes.
                                                              (iii)................  Example 3. Selling member's
                                                                                      disposition of installment
                                                                                      note.
                                                              (iv).................  Example 4. Cancellation of
                                                                                      debt and attribute
                                                                                      reduction under section
                                                                                      108(b).
                                                              (v)..................  Example 5. Section 481.
(C) Simplifying rules--inventory....  Sec.   1.1502-          (A)..................  Example 1. Increment
                                       13(e)(1)(v).                                   averaging method.
                                                              (B)..................  Example 2. Increment
                                                                                      valuation method.
                                                              (C)..................  Example 3. Other reasonable
                                                                                      inventory methods.
(D) Stock of members................  Sec.   1.1502-13(f)(7)  (i)..................  Example 1. Dividend
                                                                                      exclusion and property
                                                                                      distribution.
                                                              (ii).................  Example 2. Excess loss
                                                                                      accounts.
                                                              (iii)................  Example 3. Intercompany
                                                                                      reorganization.
                                                              (iv).................  Example 4. All cash
                                                                                      intercompany
                                                                                      reorganization under
                                                                                      section 368(a)(1)(D).
                                                              (v)..................  Example 5. Stock
                                                                                      redemptions and
                                                                                      distributions.
                                                              (vi).................  Example 6. Intercompany
                                                                                      stock sale followed by
                                                                                      section 332 liquidation.
                                                              (vii)................  Example 7. Intercompany
                                                                                      stock sale followed by
                                                                                      section 355 distribution.
(E) Obligations of members..........  Sec.   1.1502-          (A)..................  Example 1. Interest on
                                       13(g)(7)(ii).                                  intercompany obligation.
                                                              (B)..................  Example 2. Intercompany
                                                                                      obligation becomes
                                                                                      nonintercompany
                                                                                      obligation.
                                                              (C)..................  Example 3. Loss or bad debt
                                                                                      deduction with respect to
                                                                                      intercompany obligation.
                                                              (D)..................  Example 4. Intercompany
                                                                                      nonrecognition
                                                                                      transactions.
                                                              (E)..................  Example 5. Assumption of
                                                                                      intercompany obligation.
                                                              (F)..................  Example 6. Extinguishment
                                                                                      of intercompany
                                                                                      obligation.
                                                              (G)..................  Example 7. Exchange of
                                                                                      intercompany obligations.
                                                              (H)..................  Example 8. Tax benefit
                                                                                      rule.
                                                              (I)..................  Example 9. Issuance at off-
                                                                                      market rate of interest.
                                                              (J)..................  Example 10. Nonintercompany
                                                                                      obligation becomes
                                                                                      intercompany obligation.
                                                              (K)..................  Example 11. Notional
                                                                                      principal contracts.
(F) Anti-avoidance rules............  Sec.   1.1502-13(h)(2)  (i)..................  Example 1. Sale of a
                                                                                      partnership interest.
                                                              (ii).................  Example 2. Transitory
                                                                                      status as an intercompany
                                                                                      obligation.
                                                              (iii)................  Example 3. Corporate mixing
                                                                                      bowl.
                                                              (iv).................  Example 4. Partnership
                                                                                      mixing bowl.
                                                              (v)..................  Example 5. Sale and
                                                                                      leaseback.
                                                              (vi).................  Example 6. Section 163(j)
                                                                                      interest limitation.
(G) Miscellaneous operating rules...  Sec.   1.1502-13(j)(9)  (i)..................  Example 1. Intercompany
                                                                                      sale followed by section
                                                                                      351 transfer to member.
                                                              (ii).................  Example 2. Intercompany
                                                                                      sale of member stock
                                                                                      followed by
                                                                                      recapitalization.
                                                              (iii)................  Example 3. Back-to-back
                                                                                      intercompany transactions--
                                                                                      matching.
                                                              (iv).................  Example 4. Back-to-back
                                                                                      intercompany transactions--
                                                                                      acceleration.
                                                              (v)..................  Example 5. Successor group.
                                                              (vi).................  Example 6. Liquidation--80%
                                                                                      distributee.
                                                              (vii)................  Example 7. Liquidation--no
                                                                                      80% distributee.
----------------------------------------------------------------------------------------------------------------

* * * * *
    (c) * * *
    (5) * * * For other special status issues, see, for example, 
sections 818(b) (life insurance company treatment of capital gains and 
losses) and 1503(c) (limitation on absorption of certain losses).
* * * * *
    (f) * * *
    (5) * * *
    (ii) * * *
    (F) Applicability date. Paragraphs (f)(5)(ii)(B)(1) and (2) of this 
section apply to transactions in which old T's

[[Page 52075]]

liquidation into B occurs on or after October 25, 2007.
    (6) * * *
    (ii) Gain stock. For dispositions of P stock, see Sec.  1.1032-3.
* * * * *
    (v) Applicability date. This paragraph (f)(6) applies to gain or 
loss taken into account on or after July 12, 1995, and to transactions 
occurring on or after July 12, 1995.
* * * * *
    (l) * * *
    (6) Applicability date regarding paragraph (f)(7)(iv) of this 
section (Example 4). Paragraph (f)(7)(iv) of this section (Example 4) 
applies to transactions occurring on or after December 18, 2009.
    (7) Election to apply paragraph (f)(5)(ii) of this section to an 
intercompany transaction. Paragraph (f)(5)(ii)(E) of this section 
applies to any original consolidated Federal income tax return due 
(without extensions) after June 14, 2007.
    (8) Election to reduce basis of parent stock under paragraph (f)(6) 
of this section. Paragraph (f)(6)(i)(C)(2) of this section applies to 
any original consolidated Federal income tax return due (without 
extensions) after June 14, 2007.
    (9) Certain qualified stock dispositions. Paragraph (f)(5)(ii)(C) 
of this section applies to any qualified stock disposition (as defined 
in Sec.  1.336-1(b)(6)) for which the disposition date (as defined in 
Sec.  1.336-1(b)(8)) is on or after May 15, 2013.


Sec.  1.1502-17  [Amended]

0
Par. 16. Section 1.1502-17 is amended by removing the last sentence of 
paragraph (a) and the second sentence of paragraph (e).


Sec.  1.1502-18  [Removed]

0
Par. 17. Section 1.1502-18 is removed.
0
Par. 18. Section 1.1502-21 is amended by:
0
1. In paragraph (b)(3)(i), removing the fourth sentence and revising 
the last sentence.
0
2. In paragraph (b)(4), removing the fifth sentence and revising the 
last sentence.
0
3. Removing and reserving paragraph (d).
0
4. Removing the last three sentences of paragraph (h)(6).
0
5. Removing the second sentence of paragraph (h)(8).
    The revisions read as follows:


Sec.  1.1502-21  Net operating losses.

* * * * *
    (b) * * *
    (3) * * *
    (i) * * * The election may be made in an unsigned statement.
    (ii) * * *
    (B) * * * The election may be made in an unsigned statement.
* * * * *


Sec.  1.1502-22  [Amended]

0
Par. 19. Section 1.1502-22 is amended by removing and reserving 
paragraph (d).
0
Par. 20. Section 1.1502-24 is amended by:
0
1. Revising paragraph (a)(2).
0
2. Removing the text ``section 242, section 243(a)(2) and (3), Sec.  
1.1502-25, Sec.  1.1502-26, and Sec.  1.1502-27,'' from paragraph (c) 
and adding the text ``section 243(a)(2) and (3) and Sec.  1.1502-26,'' 
in its place.
    The revision reads as follows:


Sec.  1.1502-24  Consolidated charitable contributions deduction.

    (a) * * *
    (2) The percentage limitation on the total charitable contribution 
deduction provided in section 170(b)(2)(A) applied to adjusted 
consolidated income as determined under paragraph (c) of this section.
* * * * *
0
Par. 21. Section 1.1502-26 is amended by:
0
1. Revising paragraph (a).
0
2. Designating Examples 1 and 2 in paragraph (c) as paragraphs (c)(1) 
and (2), respectively.
0
3. Revising newly designated paragraphs (c)(1) and (2).
    The revisions read as follows:


Sec.  1.1502-26  Consolidated dividends received deduction.

    (a) In general. The consolidated dividends received deduction for 
the taxable year is the lesser of--
    (1) The aggregate of the deduction of the members of the group 
allowable under sections 243(a)(1), 245(a) and (b), and 250 (computed 
without regard to the limitations provided in section 246(b)), or
    (2) The aggregate amount described in section 246(b), determined by 
substituting, wherever it appears--
    (i) The term consolidated taxable income for taxable income,
    (ii) The term consolidated net operating loss for net operating 
loss, and
    (iii) The term consolidated net capital loss for capital loss.
* * * * *
    (c) * * *
    (1) Example 1. Corporations P, S, and S-1 filed a consolidated 
return for the calendar year 2023 showing consolidated taxable income 
of $100,000 (determined without regard to the consolidated net 
operating loss deduction, and the consolidated dividends received 
deduction). These corporations received dividends during such year from 
less than 20-percent owned domestic corporations as follows:

                       Table 1 to Paragraph (c)(1)
------------------------------------------------------------------------
                       Corporation                           Dividends
------------------------------------------------------------------------
P.......................................................          $6,000
S.......................................................          10,000
S-1.....................................................          34,000
                                                         ---------------
  Total.................................................          50,000
------------------------------------------------------------------------
The dividends received deduction allowable to each member under section
  243(a)(1) (computed without regard to the limitation in section
  246(b)) is as follows: P has $3,000 (50 percent of $6,000), S has
  $5,000 (50 percent of $10,000), and S-1 has $17,000 (50 percent of
  $34,000), or a total of $25,000. Since $25,000 is less than $50,000
  (50 percent of $100,000), the consolidated dividends received
  deduction is $25,000.

    (2) Example 2. Assume the same facts as in paragraph (c)(1) of this 
section (Example 1), except that consolidated taxable income (computed 
without regard to the consolidated net operating loss deduction and the 
consolidated dividends received deduction) was $40,000. The aggregate 
of the dividends received deductions, $42,500, computed without regard 
to section 246(b), results in a consolidated net operating loss of 
$2,500. See section 172(d)(5). Therefore, paragraph (a)(2) of this 
section does not apply and the consolidated dividends received 
deduction is $42,500.


Sec.  1.1502-27  [Removed]

0
Par. 22. Section 1.1502-27 is removed.
0
Par. 23. Section 1.1502-32 is amended by:
0
1. Revising paragraphs (b)(4)(v) and (vii).
0
2. In paragraph (b)(5)(ii), designating Examples 1 through 10 as 
paragraphs (b)(5)(ii)(A) through (J), respectively.
0
3. In newly redesignated paragraphs (b)(5)(ii)(A) through (J), further 
redesignating paragraphs in the first column as paragraphs in the 
second column:

[[Page 52076]]



------------------------------------------------------------------------
             Old paragraphs                       New paragraphs
------------------------------------------------------------------------
(b)(5)(ii)(A)(a), (b), and (c).........  (b)(5)(ii)(A)(1), (2), and (3).
(b)(5)(ii)(B)(a), (b), (c), and (d)....  (b)(5)(ii)(B)(1), (2), (3), and
                                          (4).
(b)(5)(ii)(C)(a) and (b)...............  (b)(5)(ii)(C)(1) and (2).
(b)(5)(ii)(D)(a), (b), (c), and (d)....  (b)(5)(ii)(D)(1), (2), (3), and
                                          (4).
(b)(5)(ii)(E)(a), (b), and (c).........  (b)(5)(ii)(E)(1), (2), and (3).
(b)(5)(ii)(F)(i) and (ii)..............  (b)(5)(ii)(F)(1) and (2).
(b)(5)(ii)(H)(a), (b), and (c).........  (b)(5)(ii)(H)(1), (2), and (3).
(b)(5)(ii)(I)(a), (b), and (c).........  (b)(5)(ii)(I)(1), (2), and (3).
(b)(5)(ii)(J)(a), (b), and (c).........  (b)(5)(ii)(J)(1), (2), and (3).
------------------------------------------------------------------------

0
4. Removing the text ``is treated as a dividend under section 
356(a)(2)'' from the last sentence of newly designated paragraph 
(b)(5)(ii)(F)(1) and adding the text ``is treated as received by M in a 
separate transaction occurring immediately after the merger of T into 
S'' in its place.
0
5. In paragraph (b)(5), for each newly redesignated paragraph listed in 
the ``Paragraph'' column, removing the text indicated in the ``Remove'' 
column and adding in its place the text indicated in the ``Add'' 
column:

----------------------------------------------------------------------------------------------------------------
                Paragraph                              Remove                                Add
----------------------------------------------------------------------------------------------------------------
(b)(5)(ii)(A)(2)........................  paragraph (a) of this Example 1.  paragraph (b)(5)(ii)(A)(1) of this
                                                                             section (Example 1).
(b)(5)(ii)(A)(3)........................  paragraph (b) of this Example 1.  paragraph (b)(5)(ii)(A)(2) of this
                                                                             section (Example 1).
(b)(5)(ii)(B)(2)........................  paragraph (a) of this Example 2.  paragraph (b)(5)(ii)(B)(1) of this
                                                                             section (Example 2).
(b)(5)(ii)(B)(3)........................  paragraph (a) of this Example 2.  paragraph (b)(5)(ii)(B)(1) of this
                                                                             section (Example 2).
(b)(5)(ii)(B)(4)........................  paragraph (a) of this Example 2.  paragraph (b)(5)(ii)(B)(1) of this
                                                                             section (Example 2).
(b)(5)(ii)(D)(3)........................  paragraph (a) of this Example 4.  paragraph (b)(5)(ii)(D)(1) of this
                                                                             section (Example 4).
(b)(5)(ii)(E)(2)........................  paragraph (a) of this Example 5.  paragraph (b)(5)(ii)(E)(1) of this
                                                                             section (Example 5).
(b)(5)(ii)(E)(3)........................  paragraph (a) of this Example 5.  paragraph (b)(5)(ii)(E)(1) of this
                                                                             section (Example 5).
(b)(5)(ii)(H)(2)........................  paragraph (a) of this Example 8.  paragraph (b)(5)(ii)(H)(1) of this
                                                                             section (Example 8
(b)(5)(ii)(I)(3)........................  paragraph (a) of this Example 9.  paragraph (b)(5)(ii)(I)(1) of this
                                                                             section (Example 9).
----------------------------------------------------------------------------------------------------------------

0
6. Removing the last sentence of paragraph (h)(2)(i).
0
7. Removing paragraph (h)(5)(i).
0
8. Redesignating paragraph (h)(5)(ii) as paragraph (h)(5).
0
9. Removing the last sentence of paragraphs (h)(6), (h)(7), and (h)(8).
0
10. Removing the text ``(b)(5)(ii) Example 6 of this section'' from 
paragraph (h)(8) and adding the text ``(b)(5)(ii)(F) of this section 
(Example 6)'' in its place.
0
11. Redesignating paragraph (j) as paragraph (h)(10).
0
12. Revising the heading of newly designated paragraph (h)(10).
0
13. Removing the last sentence of newly designated paragraph (h)(10).
0
14. Removing paragraph (k).
    The revisions read as follows:


Sec.  1.1502-32  Investment adjustments.

* * * * *
    (b) * * *
    (4) * * *
    (v) Special rule for loss carryovers of a subsidiary acquired in a 
transaction for which an election under Sec.  1.1502-20(i)(2) is made. 
See paragraph (b)(4)(v) of this section as contained in 26 CFR part 1 
revised as of April 1, 2005.
* * * * *
    (vii) Special rules for amending waiver of loss carryovers from 
separate return limitation year relating to the acquisition of a 
subsidiary in a transaction subject to Sec.  1.1502-20. See paragraph 
(b)(4)(vii) of this section as contained in 26 CFR part 1 revised as of 
April 1, 2005.
* * * * *
    (h) * * *
    (10) Election to treat loss carryover as expiring. * * *
* * * * *
0
Par. 24. Section 1.1502-34 is revised to read as follows:


Sec.  1.1502-34  Special aggregate stock ownership rules.

    (a) Determination of stock ownership--(1) Aggregation rule. For 
purposes of the consolidated return regulations, in determining the 
stock ownership of a member of a group in another corporation (issuing 
corporation) for purposes of determining the application of section 
165(g)(3)(A), section 332(b)(1), section 351(a), section 732(f), or 
section 904(f) in a consolidated return year, stock in the issuing 
corporation owned by all other members of the group is included. For 
the determination of whether a member of the group is an 80-percent 
distributee, see section 337(c) (providing that, for purposes of 
section 337, the determination of whether any corporation is an 80-
percent distributee is made without regard to any consolidated return 
regulation).
    (2) Example regarding liquidation of member. The following example 
illustrates the stock ownership aggregation rule set forth in paragraph 
(a)(1) of this section.
    (i) Facts. P wholly owns A, B, and C, each of which is a member of 
the P group. A, B, and C each owns 33\1/3\ percent of the stock of D. D 
liquidates in a transaction purported to qualify under section 332.
    (ii) Analysis. For purposes of determining satisfaction of the 80-
percent stock ownership requirement under section 332(b)(1), under the 
stock ownership aggregation rule set forth in paragraph (a)(1) of this 
section: A is treated as owning all of the D stock owned by B and C; B 
is treated as owning all of the D stock owned by A and C; and C is 
treated as owning all of the D stock owned by A and B. Therefore, each 
of A, B, and C is treated as owning 100 percent of the stock of D and 
thus meeting the 80-percent stock ownership requirement for purposes of 
section 332. However, none of A, B, or C is treated as an 80-percent 
distributee for purposes of section 337. See section 337(c). Therefore, 
section 337(a) does not apply.
    (b) [Reserved]


Sec.  1.1502-42  [Removed]

0
Par. 25. Section 1.1502-42 is removed.
0
Par. 26. Section 1.1502-43 is amended by:
0
1. Revising paragraphs (b)(2)(iii) through (vi), the last sentence of

[[Page 52077]]

paragraph (b)(2)(vii), and paragraph (b)(2)(viii).
0
2. Removing the last two sentences of paragraph (e).
    The revisions read as follows:


Sec.  1.1502-43  Consolidated accumulated earnings tax.

* * * * *
    (b) * * *
    (2) * * *
    (iii) Under section 535(b)(3), the deduction determined under Sec.  
1.1502-26 is not allowed.
    (iv) Under section 535(b)(4), the consolidated net operating loss 
deduction described in Sec.  1.1502-21(a) is not allowed.
    (v) Under section 535(b)(5), there is allowed as a deduction the 
consolidated net capital loss, determined under Sec.  1.1502-22(a).
    (vi) Under section 535(b)(6), there is allowed as a deduction an 
amount equal to--
    (A) The consolidated capital gain net income for the taxable year 
(determined under Sec.  1.1502-22(a) and without the consolidated net 
capital loss carryovers and carrybacks to the taxable year), minus
    (B) The taxes attributable to such gain.
    (vii) * * * See Sec.  1.1502-22(b).
    (viii) Section 1.1502-15 does not apply.
* * * * *
0
Par. 27. Section 1.1502-44 is amended by:
0
1. Removing the text ``.'' from the end of paragraph (b)(1) and adding 
the text ``;'' in its place.
0
2. Revising paragraphs (b)(2) and (3).
    The revisions read as follows:


Sec.  1.1502-44  Percentage depletion for independent producers and 
royalty owners.

* * * * *
    (b) * * *
    (2) Any consolidated net operating loss carryback to the 
consolidated return year under Sec.  1.1502-21; and
    (3) Any consolidated net capital loss carryback to the consolidated 
return year under Sec.  1.1502-22.
* * * * *
0
Par. 28. Section 1.1502-45 is added to read as follows:


Sec.  1.1502-45  Limitation on losses to amount at risk.

    (a) In general--(1) Scope. This section applies to a loss of any 
subsidiary if the common parent's stock meets the stock ownership 
requirement described in section 465(a)(1)(B.
    (2) Limitation on use of losses. Except as provided in paragraph 
(a)(4) of this section, a loss from an activity of a subsidiary during 
a consolidated return year is includible in the computation of 
consolidated taxable income (or consolidated net operating loss) and 
consolidated capital gain net income (or consolidated net capital loss) 
only to the extent the loss does not exceed the amount that the parent 
is at risk in the activity at the close of that subsidiary's taxable 
year. In addition, the sum of a subsidiary's losses from all its 
activities is includible only to the extent that the parent is at risk 
in the subsidiary at the close of that year. Any excess may not be 
taken into account for the consolidated return year but will be treated 
as a deduction allocable to that activity of the subsidiary in the 
first succeeding taxable year.
    (3) Amount parent is at risk in subsidiary's activity. The amount 
the parent is at risk in an activity of a subsidiary is the lesser of 
the amount the parent is at risk in the subsidiary, or the amount the 
subsidiary is at risk in the activity. These amounts are determined 
under paragraph (b) of this section and the principles of section 465. 
See section 465 and the regulations thereunder and the examples in 
paragraph (e) of this section.
    (4) Excluded activities. The limitation on the use of losses in 
paragraph (a)(2) of this section does not apply to a loss attributable 
to an activity described in section 465(c)(4).
    (5) Substance over form. Any transaction or arrangement between 
members (or between a member and a person that is not a member) which 
does not cause the parent to be economically at risk in an activity of 
a subsidiary will be treated in accordance with the substance of the 
transaction or arrangement notwithstanding any other provision of this 
section.
    (b) Rules for determining amount at risk--(1) Excluded amounts. The 
amount a parent is at risk in an activity of a subsidiary at the close 
of the subsidiary's taxable year does not include any amount that would 
not be taken into account under section 465 were the subsidiary not a 
separate corporation. Thus, for example, if the amount a parent is at 
risk in the activity of a subsidiary is attributable to nonrecourse 
financing, the amount at risk is not more than the fair market value of 
the property (other than the subsidiary's stock or debt or assets) 
pledged as security.
    (2) Guarantees. If a parent guarantees a loan by a person other 
than a member to a subsidiary, the loan increases the amount the parent 
is at risk in the activity of the subsidiary.
    (c) Application of section 465. This section applies in a manner 
consistent with the provisions of section 465. Thus, for example, the 
recapture of losses provided in section 465(e) applies if the amount 
the parent is at risk in the activity of a subsidiary is reduced below 
zero.
    (d) Other consolidated return provisions unaffected. This section 
limits only the extent to which losses of a subsidiary may be used in a 
consolidated return year. This section does not apply for other 
purposes, such as Sec. Sec.  1.1502-32 and 1.1502-19, relating to 
investment in stock of a subsidiary and excess loss accounts, 
respectively. Thus, a loss which reduces a subsidiary's earnings and 
profits in a consolidated return year, but is disallowed as a deduction 
for the year by reason of this section, may nonetheless result in a 
negative adjustment to the basis of an owning member's stock in the 
subsidiary or create (or increase) an excess loss account.
    (e) Examples. The provisions of this section may be illustrated by 
the examples in this paragraph (e). In each example, the stock 
ownership requirement of section 465(a)(1)(B) is met for the stock of 
the parent (P), and each affiliated group files a consolidated return 
on a calendar year basis and comprises only the members described.
    (1) Example 1. In 2022, P forms S with a contribution of $200 in 
exchange for all of S's stock. During the year, S borrows $400 from a 
commercial lender and P guarantees $100 of the loan. S uses $500 of its 
funds to acquire a motion picture film. S incurs a loss of $120 for the 
year with respect to the film. At the close of 2022, the amount P is at 
risk in S's activity is $300 ($200 contribution plus $100 guarantee). 
If S has no gain or loss in 2023, and there are no contributions from 
or distributions to P, at the close of 2023 P's amount at risk in S's 
activity will be $180.
    (2) Example 2. P forms S-1 with a capital contribution of $1 on 
January 1, 2023. On February 1, 2023. S-1 borrows $100 with full 
recourse and contributes all $101 to its newly formed subsidiary S-2. 
S-2 uses the proceeds to explore for natural oil and gas resources. S-2 
incurs neither gain nor loss from its explorations during the taxable 
year. As of December 31, 2023, P is at risk in the exploration activity 
of S-2 only to the extent of $1.
    (f) Applicability date. This section applies to consolidated return 
years ending on or after [the date of publication of the Treasury 
decision adopting these rules as final regulations in the Federal 
Register].
0
Par. 29. Section 1.1502-47 is amended by:

[[Page 52078]]

0
1. Italicizing the text ``Nonlife insurance company'' in the heading of 
paragraph (b)(2).
0
2. Italicizing the text ``separate return limitation year'' wherever it 
appears in paragraph (b)(11).
0
3. Adding the text ``,'' after the text ``base period'' in paragraph 
(b)(12)(i).
0
4. Removing the extra space between the text ``paragraphs (b)(12)'' and 
the text ``(iii) through (vi)'' in paragraph (b)(12)(i)(A).
0
5. Removing the extra space between the text ``paragraphs (b)(12)'' and 
the text ``(v) and (vi)'' in the first sentence of paragraphs 
(b)(12)(iii) and (iv).
0
6. Removing the text ``subdivision (iv)'' from the last sentence of 
paragraph (b)(12)(iv) and adding the text ``paragraph (b)(12)(iv)'' in 
its place.
0
7. Removing the extra space between the text ``1.1502-75'' and the text 
``(d)(2) or (d)(3)'' in paragraph (b)(12)(vi).
0
8. Removing the extra space between the text ``paragraph (b)(12)'' and 
the text ``(ii) through (iv)'' in paragraph (b)(12)(vi).
0
9. Adding a period after the heading in paragraph (b)(14).
0
10. Removing the text ``subparagraph (b)(12)(v)(B) and (E)'' from 
paragraph (b)(14)(iii) and adding the text ``paragraphs (b)(12)(v)(B) 
and (D)'' in its place.
0
11. Removing the extra space between the text ``351'' and the text 
``(a)'' in paragraph (b)(14)(iii).
0
12. Removing the text ``the result'' from paragraph (b)(14)(vi) and 
adding the text ``The result'' in its place.
0
13. Revising paragraph (c)(2)(ii).
0
14. Removing the text ``subdivision (ix) of this paragraph (h)(3)'' 
from paragraph (h)(3)(i) and adding the text ``paragraph (h)(3)(ix) of 
this section'' in its place.
0
15. Removing the text ``paragraph (g)(4)'' from paragraph (h)(3)(ii) 
and adding the text ``paragraph (g)(3)'' in its place.
0
16. Designating the first and second sentences of the undesignated 
paragraph after paragraph (h)(3)(x) as paragraphs (h)(3)(x)(A) and (B), 
respectively.
0
17. Removing the text ``(as defined in paragraph (j) of this section)'' 
from newly designated paragraph (h)(3)(x)(B).
0
18. Removing the text ``paragraph (f)'' from paragraph (h)(4) and 
adding the text ``paragraph (h)'' in its place.
0
19. Removing the text ``paragraph (f)(4)(i)'' from the first sentence 
of paragraph (h)(4)(ii)(A) and adding the text ``paragraph (h)(4)(i)'' 
in its place.
0
20. Removing the text ``paragraph (f)(3)(vi)'' from the third sentence 
of paragraph (h)(4)(ii)(A) and adding the text ``paragraph (h)(3)(vi)'' 
in its place.
0
21. Removing the text ``paragraph (f)(3)(x)'' from the fifth sentence 
of paragraph (h)(4)(ii)(A) and adding the text ``paragraph (h)(3)(x)'' 
in its place.
0
22. Removing the text ``paragraph (f)(2)(ii)'' from the seventh 
sentence of paragraph (h)(4)(ii)(A) and adding the text ``paragraph 
(h)(2)(ii)'' in its place.
0
23. Removing the text ``paragraph (f)(4)(ii)'' from the first sentence 
of paragraph (h)(4)(iii) and adding the text ``paragraph (h)(4)(ii)'' 
in its place.
0
24. Removing the text ``paragraph (f)(3)(vi)'' from the fourth sentence 
of paragraph (h)(4)(iii) and adding the text ``paragraph (h)(3)(vi)'' 
in its place.
0
25. Removing the text ``paragraph (f)(3)(ii)'' from the fifth sentence 
of paragraph (h)(4)(iii) and adding the text ``paragraph (h)(3)(ii)'' 
in its place.
0
26. Italicizing the text ``In'' in the heading of paragraph (j)(1).
0
27. In paragraph (m)(1)(i), removing the text ``or'', and adding the 
text ``or any successor form'' at the end of the paragraph.
0
28. Adding the text ``or any successor form,'' before the text 
``whether filed'' in paragraphs (m)(1)(iv) and (m)(1)(v).
    The revision reads as follows:


Sec.  1.1502-47  Consolidated returns by life-nonlife groups.

* * * * *
    (c) * * *
    (2) * * *
    (ii) Special rule. Notwithstanding the general rule, however, if 
the nonlife members in the group filed a consolidated return for the 
immediately preceding taxable year and had executed and filed a Form 
1122 (or successor form) that is effective for the preceding year, then 
such members will be treated as if they filed a Form 1122 (or successor 
form) when they join in the filing of a consolidated return under 
section 1504(c)(2) and they will be deemed to consent to the 
regulations under this section. However, an affiliation schedule (Form 
851, or any successor form) must be filed by the group and the life 
members must execute a Form 1122 (or successor form) in the manner 
prescribed in Sec.  1.1502-75(h)(2).
* * * * *
0
Par. 30. Section 1.1502-75 is amended by:
0
1. Adding the text ``(or successor form)'' after the text ``Form 1122'' 
wherever it appears in paragraph (b)(1).
0
2. Adding the text ``(or successor form'') after the text ``Form 851'' 
in paragraph (b)(2)(iii).
0
3. Adding the text ``(or successor form)'' after the text ``Form 1122'' 
wherever it appears in paragraph (b)(3)
0
4. Revising the second sentence of paragraph (c)(1)(i).
0
5. Removing the text ``his'' from paragraphs (c)(2)(i) and (ii) and 
adding the text ``the Commissioner's'' in its place.
0
6. Removing paragraph (d)(5).
0
7. Revising paragraph (h)(1).
0
8. Adding the text ``, or any successor form,'' before the text ``must 
be executed'' in the first sentence of paragraph (h)(2), removing the 
second sentence and revising the third sentence.
0
9. Adding the text ``(or successor forms)'' after the text ``Forms 
1122'' in the fourth sentence of paragraph (h)(2).
0
10. Adding the text ``(or any successor form)'' after the text ``Form 
1122'' in the last sentence of paragraph (h)(2).
    The revisions read as follows:


Sec.  1.1502-75  Filing of consolidated returns.

* * * * *
    (c) * * *
    (1) * * *
    (i) * * * Any such application must be made through a letter ruling 
request filed not later than the 90th day before the due date of the 
consolidated return for the taxable year (including extensions). * * *
* * * * *
    (h) Method of filing returns and forms--(1) Consolidated return 
made by common parent or agent. The consolidated return must be made on 
Form 1120, U.S. Corporation Income Tax Return (or any successor form), 
for the group by the common parent or the agent for the group as 
provided in Sec.  1.1502-77(c). The consolidated return, with Form 851, 
Affiliations Schedule (or any successor form), attached, must be filed 
with the service center with which the common parent would have filed a 
separate return.
    (2) * * * The group must attach either executed Forms 1122 (or 
successor forms) or unsigned copies of the completed Forms 1122 (or 
successor forms) to the consolidated return. * * *
* * * * *
0
Par. 31. Section 1.1502-76 is amended by:
0
1. Revising the last sentence of paragraph (a).
0
2. Removing the last sentence from paragraphs (b)(1)(ii)(A)(2) and 
(b)(2)(v).
0
3. Revising paragraph (b)(6).
0
4. Designating Example 1 and 2 in paragraph (c)(3) as paragraphs 
(c)(3)(i) and (ii), respectively.
0
5. In newly designated paragraph (c)(3)(i), removing the text ``June 
15'' wherever it appears and adding the text ``July 15'' in its place, 
and removing the text ``March 15'' wherever it appears and adding the 
text ``April 15'' in its place.
0
6. In newly redesignated paragraph (c)(3)(i), removing the text 
``1966''

[[Page 52079]]

wherever it appears and adding the text ``2022'' in its place.
0
7. In newly redesignated paragraphs (c)(3)(i), removing the text 
``1967'' wherever it appears and adding the text ``2023'' in its place.
0
8. In newly redesignated paragraphs (c)(3)(i), removing the text 
``1968'' wherever it appears and adding the text ``2024'' in its place.
0
9. In newly redesignated paragraph (c)(3)(ii), removing the text ``June 
15'' wherever it appears and adding the text ``July 15'' in its place, 
and removing the text ``March 15'' wherever it appears and adding the 
text ``April 15'' in its place.
0
10. In newly redesignated paragraph (c)(3)(ii), removing the text 
``1967'' wherever it appears and adding the text ``2023'' in its place.
0
11. In newly redesignated paragraph (c)(3)(ii), removing the text 
``1968'' wherever it appears and adding the text ``2024'' in its place.
0
12. Revising paragraph (d).
    The revisions read as follows:


Sec.  1.1502-76  Taxable year of members of group.

    (a) * * * Any request for such consent must be requested at the 
time and in the manner that the Commissioner of Internal Revenue may 
prescribe by Internal Revenue Service forms and instructions or by 
publication in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2)(ii) of this chapter).
    (b) * * *
    (6) Applicability date. Except as provided in paragraphs 
(b)(1)(ii)(A)(2) and (b)(2)(v) of this section, this paragraph (b) 
applies to corporations becoming or ceasing to be members of 
consolidated groups on or after January 1, 1995.
* * * * *
    (d) Applicability date--(1) Taxable years of members of group 
applicability date. Paragraph (a) of this section applies to any 
original consolidated Federal income tax return due (without 
extensions) after July 20, 2007.
    (2) Election to ratably allocate items applicability date. 
Paragraph (b)(2)(ii)(D) of this section applies to any original 
consolidated Federal income tax return due (without extensions) after 
July 20, 2007.


Sec.  1.1502-77  [Amended]

0
Par. 32. Section 1.1502-77 is amended by:
0
1. Designating Examples 1 through 15 in paragraph (g) as paragraphs 
(g)(1) through (15), respectively.
0
2. In paragraph (g), for each newly redesignated paragraph listed in 
the ``Paragraph'' column, removing the text indicated in the ``Remove'' 
column and adding in its place the text indicated in the ``Add'' 
column:

------------------------------------------------------------------------
          Paragraph                  Remove                  Add
------------------------------------------------------------------------
(g)(2)(i)...................  Example 1...........  paragraph (g)(1)(i)
                                                     of this section
                                                     (Example 1).
(g)(4)(i)...................  Example 3...........  paragraph (g)(3)(i)
                                                     of this section
                                                     (Example 3).
(g)(5)(i)...................  Example 4...........  paragraph (g)(4) of
                                                     this section
                                                     (Example 4).
(g)(11)(i)(B)(1)............  his.................  the Commissioner's.
(g)(11)(ii)(A)..............  paragraph (i)(A) of   paragraph
                               this Example 11.      (g)(11)(i)(A) of
                                                     this section.
(g)(12)(i)..................  paragraph (ii)(A) of  paragraph
                               Example 11.           (g)(11)(ii)(A) of
                                                     this section
                                                     (Example 11).
(g)(13)(i)..................  March 15............  April 15.
------------------------------------------------------------------------

Sec.  1.1502-77A  [Amended]

0
Par. 33. Section 1.1502-77A is amended by removing the text ``he may, 
if he deems it advisable,'' from the last sentence of paragraph (d) and 
adding the text ``the Commissioner may'' in its place.


Sec.  1.1502-77B  [Amended]

0
Par. 34. Section 1.1502-77B is amended by:
0
1. Removing the text ``he may, if he deems it advisable,'' from the 
last sentence of paragraph (a)(6)(i) and adding the text ``the 
Commissioner may'' in its place.
0
2. Removing the text ``he'' from paragraph (a)(6)(ii) and adding the 
text ``the Commissioner'' in its place.
0
Par. 35. Section 1.1502-78 is amended by revising paragraph (f) to read 
as follows:


Sec.  1.1502-78  Tentative carryback adjustments.

* * * * *
    (f) Applicability date. This section applies to taxable years to 
which a loss or credit may be carried back and for which the due date 
(without extensions) of the original return is after June 28, 2002, 
except that the provisions of paragraph (e)(2) of this section apply 
for applications by new members of consolidated groups for tentative 
carryback adjustments resulting from net operating losses, net capital 
losses, or unused business credits arising in separate return years of 
new members that begin on or after January 1, 2001.
0
Par. 36. Section 1.1502-79 is amended by:
0
1. Revising paragraphs (a), (b), and (d).
0
2. Removing the text ``(or Sec. Sec.  1.1502-79A(a)(1) and (2), as 
appropriate)'' from paragraph (e)(1).
0
3. Revising paragraph (e)(2).
    The revisions read as follows:


Sec.  1.1502-79  Separate return years.

    (a) Carryover and carryback of consolidated net operating losses to 
separate return years. For rules regarding the carryover and carryback 
of consolidated net operating losses to separate return years, see 
Sec.  1.1502-21(b).
    (b) Carryover and carryback of consolidated net capital loss to 
separate return years. For rules regarding the carryover and carryback 
of consolidated net capital losses to separate return years, see Sec.  
1.1502-22(b).
* * * * *
    (d) Carryover and carryback of consolidated unused foreign tax--(1) 
In general. If a consolidated unused foreign tax can be carried under 
the principles of section 904(c) and Sec.  1.1502-4(d) to a separate 
return year of a corporation (or could have been so carried if such 
corporation were in existence) that was a member of the group in the 
year in which the unused foreign tax arose, then the portion of the 
consolidated unused foreign tax attributable to the corporation (as 
determined under paragraph (d)(2) of this section) is apportioned to 
the corporation (and any successor to that corporation in a transaction 
to which section 381(a) applies) under the principles of Sec.  1.1502-
21(b) and is deemed paid or accrued in such separate return year to the 
extent provided in section 904(c).
    (2) Portion of consolidated unused foreign tax attributable to a 
member. The portion of a consolidated unused foreign tax for any year 
attributable to a member is an amount equal to the consolidated unused 
foreign tax multiplied by a fraction. The numerator of the fraction is 
the foreign taxes paid or accrued by the member for the year (including 
those taxes deemed paid or accrued, other than by reason of section 
904(c)). The denominator of the fraction

[[Page 52080]]

is the aggregate of all such taxes paid or accrued for the year 
(including those taxes deemed paid or accrued, other than by reason of 
section 904(c)) by all members of the group.
    (e) * * *
    (2) Portion of consolidated excess charitable contributions 
attributable to a member. The portion of the consolidated excess 
charitable contributions for any year attributable to a member is an 
amount equal to the consolidated excess contributions multiplied by a 
fraction. The numerator of the fraction is the charitable contributions 
paid by the member for the year. The denominator of the fraction is the 
aggregate of all charitable contributions paid for the year by all 
members of the group.
* * * * *


Sec.  1.1502-80  [Amended]

0
Par. 37. Section 1.1502-80 is amended by removing the text ``on or 
after September 17, 2008'' from paragraph (c)(2).


Sec.  1.1502-81T  [Removed]

0
Par. 38. Section 1.1502-81T is removed.
0
Par. 39. Section 1.1502-90 is amended by revising the entry in the 
table of contents for Sec.  1.1502-99, in numerical order, to read as 
follows:


Sec.  1.1502-90  Table of contents.

* * * * *


Sec.  1.1502-99  Effective/applicability dates.

    (a) In general.
    (b) Reattribution of losses under Sec.  1.1502-36(d)(6).
    (c) Application to section 163(j).
    (1) Sections 1.382-2 and 1.382-5.
    (2) Sections 1.382-6 and 1.383-1.


Sec.  1.1502-91  [Amended]

0
Par. 40. Section 1.1502-91 is amended by removing paragraph (b)(3).


Sec.  1.1502-92  [Amended]

0
Par. 41. Section 1.1502-92 is amended by:
0
1. Designating Examples 1 through 3 in paragraph (b)(3)(iii) as 
paragraphs (b)(3)(iii)(A) through (C), respectively.
0
2. In newly redesignated paragraphs (b)(3)(iii)(A) through (C), further 
redesignating paragraphs in the first column as paragraphs in the 
second column:

------------------------------------------------------------------------
             Old paragraphs                       New paragraphs
------------------------------------------------------------------------
(b)(3)(iii)(A)(i) and (ii).............  (b)(3)(iii)(A)(1) and (2).
(b)(3)(iii)(B)(i), (ii), (iii), and      (b)(3)(iii)(B)(1), (2), (3),
 (iv).                                    and (4).
(b)(3)(iii)(C)(i) and (ii).............  (b)(3)(iii)(C)(1) and (2).
------------------------------------------------------------------------

0
3. Removing the text ``his'' from newly redesignated paragraph 
(b)(3)(iii)(B)(2) and adding the text ``its'' in its place.
0
Par. 42. Section 1.1502-99 is amended by:
0
1. Revising paragraphs (a) and (b).
0
2. Removing paragraph (c).
0
3. Redesignating paragraph (d) as paragraph (c).
    The revisions read as follows:


Sec.  1.1502-99  Effective/applicability dates.

    (a) In general. Sections 1.1502-91 through 1.1502-96 and Sec.  
1.1502-98 apply to any testing date that is on or after June 25, 1999. 
Sections 1.1502-94 through 1.1502-96 also apply to a corporation that 
becomes a member of a group or ceases to be a member of a group (or 
loss subgroup) on or after June 25, 1999.
    (b) Reattribution of losses under Sec.  1.1502-36(d)(6). Section 
1.1502-96(d) applies to reattributions of net operating loss 
carryovers, capital loss carryovers, and deferred deductions in 
connection with a transfer of stock to which Sec.  1.1502-36 applies, 
and the election under Sec.  1.1502-96(d)(5) (relating to an election 
to reattribute section 382 limitation) can be made with an election 
under Sec.  1.1502-36(d)(6) to reattribute a loss to the common parent 
that is filed at the time and in the manner provided in Sec.  1.1502-
36(e)(5)(x).
* * * * *
0
Par. 43. Section 1.1502-100 is amended by:
0
1. Removing the text ``Sec.  1.1502-1 through Sec.  1.1502-80'' from 
paragraph (a)(2) wherever it appears and adding the text ``the 
consolidated return regulations'' in its place.
0
2. Removing the text ``1.1502-21A or'' and the text ``(as 
appropriate)'' from paragraph (c)(2).
0
3. Revising paragraph (d).
    The revision reads as follows:


Sec.  1.1502-100  Corporations exempt from tax.

* * * * *
    (d) Separate unrelated business taxable income--(1) In general. The 
separate unrelated business taxable income of a member of an exempt 
group must be computed in accordance with the provisions of section 512 
covering the determination of unrelated business taxable income of 
separate corporations, except that:
    (i) The provisions of paragraphs (a) through (d), (f) through (k), 
and (o) of Sec.  1.1502-12 apply; and
    (ii) No charitable contributions deduction is taken into account 
under section 512(b)(10).
    (2) Section 501(c)(2) organizations. See sections 511(c) and 
512(a)(3)(C) for special rules applicable to organizations described in 
section 501(c)(2).


Sec.  Sec.  1.1502-9A, 1.1502-15A, 1.1502-21A, 1.1502-22A, 1.1502-23A, 
1.1502-41A, 1.1502-79A, 1.1502-90A, 1.1502-91A, 1.1502-92A, 1.1502-93A, 
1.1502-94A, 1.1502-95A, 1.1502-96A, 1.1502-97A, 1.1502-98A, 1.1502-99A, 
and 1.1503-2  [Removed]

0
Par. 44. Sections 1.1502-9A, 1.1502-15A, 1.1502-21A, 1.1502-22A, 
1.1502-23A, 1.1502-41A, 1.1502-79A, 1.1502-90A, 1.1502-91A, 1.1502-92A, 
1.1502-93A, 1.1502-94A, 1.1502-95A, 1.1502-96A, 1.1502-97A, 1.1502-98A, 
1.1502-99A, and 1.1503-2 are removed.


Sec.  1.1503-2  [Removed]

0
Par. 45. Section 1.1503-2 is removed.


Sec.  1.1503(d)-1  [Amended]

0
Par. 46. Section 1.1503(d)-1 is amended by removing the text 
``possession of the United States'' from paragraph (b)(7) and adding 
the text ``U.S. territory (as defined in Sec.  1.1502-1(l))'' in its 
place.
0
Par. 47. Section 1.1503(d)-8 is amended by:
0
1. Revising the last sentence of paragraph (a).
0
2. Removing and reserving paragraphs (b)(1), (b)(2), (b)(3)(ii), 
(b)(3)(iii), and (b)(4).
    The revision reads as follows:


Sec.  1.1503(d)-8  Effective dates.

    (a) * * * Section 1.1503-2, as contained in 26 CFR part 1, revised 
as of April 1, 2023, applies for dual consolidated losses incurred in 
taxable

[[Page 52081]]

years beginning on or after October 1, 1992, and before the application 
date.
* * * * *
0
Par. 48. Section 1.1552-1 is amended by:
0
1. Redesignating paragraphs (a)(1)(ii)(a) through (d) as paragraphs 
(a)(1)(ii)(A) through (D), respectively.
0
2. Revising newly redesignated paragraph (a)(1)(ii)(B).
0
3. Redesignating paragraphs (a)(2)(ii)(a) through (i) as paragraphs 
(a)(2)(ii)(A) through (I), respectively.
0
4. Removing and reserving newly redesignated paragraph (a)(2)(ii)(B).
0
5. Revising paragraph (a)(2)(ii)(I).
    The revisions read as follows:


Sec.  1.1552-1  Earnings and Profits.

    (a) * * *
    (1) * * *
    (ii) * * *
    (B) Such member's capital gain net income (determined without 
regard to any net capital loss carryover attributable to such member);
* * * * *
    (2) * * *
    (ii) * * *
    (I) For purposes of subtitle A of the Code, if two or more taxable 
income brackets are set forth in section 11(b) of the Code, the amount 
in each taxable income bracket is divided by the number of members (or 
such portion of each bracket which is apportioned to the member 
pursuant to a schedule attached to the consolidated return for the 
consolidated return year). However, if for the taxable year some or all 
of the members are component members of a controlled group of 
corporations (within the meaning of section 1563) and if there are 
other such component members which do not join in filing the 
consolidated return for such year, the amount to be divided among the 
members filing the consolidated return is (in lieu of the taxable 
income brackets) the sum of the amounts apportioned to the component 
members which join in filing the consolidated return.
* * * * *


Sec.  1.1563-1  [Amended]

0
Par. 49. Section 1.1563-1 is amended by:
0
1. Removing the text ``(directly and with the application of Sec.  
1.1563-3(b)(1), relating to options)'' from paragraph (a)(2) wherever 
it appears and adding the text ``(directly and with the application of 
Sec.  1.1563-3(b)(1), (2), and (3))'' in its place.
0
2. Removing the text ``his'' from paragraph (a)(6) wherever it appears 
and adding the text ``the shareholder's'' in its place.
0
3. In paragraph (b)(4), designating Examples 1 through 4 as paragraphs 
(b)(4)(i) through (iv), respectively.
0
4. Removing the text ``he'' from the third sentence of newly designated 
paragraph (b)(4)(i) and adding the text ``B'' in its place.


Sec.  1.1563-2  [Amended]

0
Par. 50. Section 1.1563-2 is amended by:
0
1. Removing the text ``his'' from each of paragraphs (b)(2)(iii) and 
(b)(4)(ii), and adding the text ``the employee's'' in its place.
0
2. In paragraph (b)(7), designating Examples 1 through 3 as paragraphs 
(b)(7)(i) through (iii), respectively.
0
3. In newly designated paragraph (b)(7)(iii), removing the text ``he'' 
wherever it appears and adding the text ``Davis'' in its place; 
removing the text ``his'' wherever it appears and adding the text 
``Davis's'' in its place; and removing the text ``wife'' from the last 
sentence and adding the text ``spouse'' in its place.


Sec.  1.1563-3  [Amended]

0
Par. 51. Section 1.1563-3 is amended by:
0
1. Removing the text ``his'' from paragraph (b)(2)(i) and adding the 
text ``the partner's'' in its place.
0
2. Removing the text ``The provisions of this subparagraph may be 
illustrated by the following example:'' from paragraph (b)(2)(ii).
0
3. Removing the text ``his'' from the fourth sentence of paragraph 
(b)(2)(ii) and adding the text ``Green's'' in its place.
0
4. In the sixth sentence of paragraph (b)(2)(ii), removing the text 
``he'' and adding the text ``Jones'' in its place, and removing the 
text ``his'' and adding the text ``Jones's'' in its place.
0
5. Removing the text ``he'' from the last sentence of paragraph 
(b)(2)(ii) and adding the text ``White'' in its place.
0
6. In paragraph (b)(3)(i), removing the text ``his'' from the second 
sentence and adding the text ``the beneficiary's'' in its place, and 
removing the text ``he'' and ``him'' from the second-to-last sentence 
and adding the text ``that beneficiary'' in its place.
0
7. In paragraph (b)(3)(ii), removing the text ``his'' and adding the 
text ``the decedent's'' in its place, and removing the text ``he'' and 
``him'' wherever it appears and adding the text ``the person'' in its 
place.
0
8. Removing the text ``The provisions of this subparagraph may be 
illustrated by the following example:'' from paragraph (b)(4)(ii).
0
9. In paragraph (b)(4)(ii), removing the text ``he'' from the fifth 
sentence and adding the text ``Smith'' in its place, and removing the 
text ``Smith's wife'' and ``his wife'' from the last sentence wherever 
it appears and adding the text ``Smith's spouse'' in its place.
0
10. Removing the text ``his'' from paragraphs (b)(5)(i) and (ii) and 
(b)(6)(i) and (ii) wherever it appears and adding the text ``the 
individual's'' in its place.
0
11. Removing the text ``The provisions of this subparagraph may be 
illustrated by the following example:'' from paragraph (b)(6)(iv).
0
12. Redesignating paragraphs (b)(6)(iv)(a) through (d) as paragraphs 
(b)(6)(iv)(A) through (D).
0
13. In newly redesignated paragraph (b)(6)(iv)(A), removing the text 
``F'' and adding the text ``B'' in its place, and removing the text 
``His son'' and ``his son'' and adding the text ``B's child'' in its 
place.
0
14. In newly redesignated paragraph (b)(6)(iv)(B), removing the text 
``F'' wherever it appears and adding the text ``B'' in its place, 
removing the text ``subdivision (ii) of this subparagraph'' and adding 
the text ``paragraph (b)(6)(ii) of this section'' in its place, 
removing the text ``he'' and adding the text ``B'' in its place, and 
removing the text ``his adult son'' and adding the text ``B's adult 
child'' in its place.
0
15. In the first sentence of newly redesignated paragraph 
(b)(6)(iv)(C), removing the text ``son'' and adding the text ``child'' 
in its place, and removing the text ``by his father, F'' and adding the 
text ``by B'' in its place.
0
16. In the second sentence of newly redesignated paragraph 
(b)(6)(iv)(C), removing the text ``his brother'' and adding the text 
``M's sibling'' in its place, removing the text ``F'' wherever it 
appears and adding the text ``B'' in its place, removing the text 
``him'' and adding the text ``B'' in its place, and removing the text 
``his'' and adding the text ``B's'' in its place.
0
17. In newly redesignated paragraph (b)(6)(iv)(D), removing the text 
``son'' and adding the text ``child'' in its place, removing the text 
``he'' wherever it appears and adding the text ``A'' in its place, and 
removing the text ``his father'' and adding the text ``B'' in its 
place.
0
18. Removing the text ``him'' from paragraph (c)(2) and adding the text 
``the individual'' in its place.
0
19. In paragraph (c)(4), designating Examples 1 through 3 as paragraphs 
(c)(4)(i) through (iii), respectively.
0
20. In newly designated paragraph (c)(4)(ii), removing the text 
``brother'' from the second sentence and adding the text ``sibling'' in 
its place, and removing the text ``father'' from the

[[Page 52082]]

third sentence and adding the text ``parent'' in its place.
0
21. Removing the text ``his son,'' from the first sentence of newly 
designated paragraph (c)(4)(iii).
0
22. In paragraph (d)(3), designating Examples 1 through 3 as paragraphs 
(d)(3)(i) through (iii), respectively.
0
23. In newly designated paragraph (d)(3)(i), removing the text ``he'' 
from the third sentence and adding the text ``Smith'' in its place, and 
removing the text ``his stock in corporation Z'' from the fifth 
sentence and adding the text ``the corporation Z stock'' in its place.
0
24. In newly designated paragraph (d)(3)(ii), removing the text ``H'' 
wherever it appears and adding the text ``A'' in its place, and 
removing the text ``W'' wherever it appears and adding the text ``B'' 
in its place.
0
25. Removing the text ``wife'' from the first sentence of newly 
designated paragraph (d)(3)(ii) and adding the text ``spouse'' in its 
place.
0
26. Removing the text ``subparagraph (2)(iii) of this paragraph'' from 
the fifth sentence of newly designated paragraph (d)(3)(ii) and adding 
the text ``paragraph (d)(2)(iii) of this section'' in its place.

PART 5--TEMPORARY INCOME TAX REGULATIONS UNDER THE REVENUE ACT OF 
1978

0
Par. 52. The authority citation for part 5 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


Sec.  5.1502-45  [Removed]

0
Par. 53. Section 5.1502-45 is removed.

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 54. The authority citation for part 301 continues to read in part 
as follows:

    Authority: 26 U.S.C. 7805. * * *


Sec.  301.6402-7  [Amended]

0
Par. 55. Section 301.6402-7 is amended by removing the text 
``Sec. Sec.  1.1502-21(b) or 1.1502-21A(b) (as appropriate)'' from 
paragraph (g)(2)(iii) and adding the text ``Sec.  1.1502-21(b)'' in its 
place.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 56. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


Sec.  602.101  [Amended]

0
Par. 57. Section 602.101(b) is amended by removing the entries for 
Sec. Sec.  1.1502-9A, 1.1502-18, 1.1502-76T, 1.1502-95A, 1.1503-2, and 
1.1503-2A from the table.

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-14098 Filed 8-4-23; 8:45 am]
BILLING CODE 4830-01-P