--- kind: "range" citation: "26 C.F.R. §§ 1.1502-91–1.1502-98" title: "26" from: "1.1502-91" to: "1.1502-98" count: 8 url: "https://uscodex.org/cfr/26/1.1502-91..1.1502-98" --- # §1.1502-91. Application of section 382 with respect to a consolidated group. - (a) **Determination and effect of an ownership change—** - (1) **In general.** This section and §§ [1.1502-92](/cfr/26/1.1502-92.md) and [1.1502-93](/cfr/26/1.1502-93.md) set forth the rules for determining an ownership change under [section 382](/cfr/26/382.md) for members of consolidated groups and the [section 382](/cfr/26/382.md) limitations with respect to attributes described in paragraphs [(e)](#e) and [(f)](#f) of this section. These rules generally provide that an ownership change and the [section 382](/cfr/26/382.md) limitation are determined with respect to these attributes for the group (or loss subgroup) on a single entity basis and not for its members separately. Following an ownership change of a loss group (or a loss subgroup) under [§ 1.1502-92](/cfr/26/1.1502-92.md), the amount of consolidated taxable income for any post-change year which may be offset by pre-change consolidated attributes (or pre-change subgroup attributes) shall not exceed the consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) for such year as determined under [§ 1.1502-93](/cfr/26/1.1502-93.md). - (2) **Special rule for post-change year that includes the change date.** If the post-change year includes the change date, [section 382(b)(3)(A)](/cfr/26/382.md?p=b-3-A) is applied so that the consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) does not apply to the portion of consolidated taxable income that is allocable to the period in the year on or before the change date. See generally [§ 1.382-6](/cfr/26/1.382-6.md) (relating to the allocation of income and loss). The allocation of consolidated taxable income for the post-change year that includes the change date must be made before taking into account any consolidated net operating loss deduction (as defined in [§ 1.1502-21(a)](/cfr/26/1.1502-21.md?p=a)). - (3) **Cross-reference.** See §§ [1.1502-94](/cfr/26/1.1502-94.md) and [1.1502-95](/cfr/26/1.1502-95.md) for rules that apply [section 382](/cfr/26/382.md) to a corporation that becomes or ceases to be a member of a group or loss subgroup. - (b) **Definitions and nomenclature.** For purposes of this section and [§§ 1.1502-92 through 1.1502-99](/cfr/26/1.1502-92..1.1502-99.md), unless otherwise stated: - (1) The definitions and nomenclature contained in [section 382](/cfr/26/382.md) and the regulations thereunder (including the nomenclature and assumptions relating to the examples in [§ 1.382-2T(b)](/cfr/26/1.382-2T.md?p=b)) and this section and [§§ 1.1502-92 through 1.1502-99](/cfr/26/1.1502-92..1.1502-99.md) apply. - (2) In all examples, all groups file consolidated returns, all corporations file their income tax returns on a calendar year basis, the only 5-percent shareholder of a corporation is a public group, the facts set forth the only owner shifts during the testing period, no election is made under [paragraph (d)(4)](#d-4) of this section, and each asset of a corporation has a value equal to its adjusted basis. - (c) **Loss group—** - (1) **Defined.** A loss group is a consolidated group that— - (i) Is entitled to use a net operating loss carryover to the taxable year that did not arise (and is not treated under [§ 1.1502-21(c)](/cfr/26/1.1502-21.md?p=c) as arising) in a SRLY; - (ii) Has a consolidated net operating loss for the taxable year in which a testing date of the common parent occurs (determined by treating the common parent as a loss corporation); or - (iii) Has a net unrealized built-in loss (determined under [paragraph (g)](#g) of this section by treating the date on which the determination is made as though it were a change date). - (2) **Coordination with rule that ends separate tracking.** A consolidated group may be a loss group because a member's losses that arose in (or are treated as arising in) a SRLY are treated as described in [paragraph (c)(1)(i)](#c-1-i) of this section. See [§ 1.1502-96(a)](/cfr/26/1.1502-96.md?p=a). - (3) **Example.** The following example illustrates the principles of this [paragraph (c)](#c): - (d) **Loss subgroup—** - (1) **Net operating loss carryovers.** Two or more corporations that become members of a consolidated group (the current group) compose a loss subgroup if— - (i) They were affiliated with each other in another group (the former group), whether or not the group was a consolidated group; - (ii) They bear the relationship described in [section 1504(a)(1)](/cfr/26/1504.md?p=a-1) to each other through a loss subgroup parent immediately after they become members of the current group (or are deemed to bear that relationship as a result of an election described in [paragraph (d)(4)](#d-4) of this section); and - (iii) At least one of the members carries over a net operating loss that did not arise (and is not treated under [§ 1.1502-21(c)](/cfr/26/1.1502-21.md?p=c) as arising) in a SRLY with respect to the former group. - (2) **Net unrealized built-in loss.** Two or more corporations that become members of a consolidated group compose a loss subgroup if they— - (i) Have been continuously affiliated with each other for the 5 consecutive year period ending immediately before they become members of the group; - (ii) Bear the relationship described in [section 1504(a)(1)](/cfr/26/1504.md?p=a-1) to each other through a loss subgroup parent immediately after they become members of the current group (or are deemed to bear that relationship as a result of an election described in [paragraph (d)(4)](#d-4) of this section); and - (iii) Have a net unrealized built-in loss (determined under [paragraph (g)](#g) of this section on the day they become members of the group by treating that day as though it were a change date). - (3) **Loss subgroup parent.** A loss subgroup parent is the corporation that bears the same relationship to the other members of the loss subgroup as a common parent bears to the members of a group. - (4) **Election to treat loss subgroup parent requirement as satisfied—** - (i) **In general.** Solely for purposes of paragraphs [(d)(1)(i)](#d-1-i) and [(2)(ii)](#d-2-ii) of this section, two or more corporations that become members of a consolidated group at the same time and that were affiliated with each other immediately before becoming members of the group are deemed to bear a [section 1504(a)(1)](/cfr/26/1504.md?p=a-1) relationship to each other immediately after they become members of the group if the common parent of that group makes an election under this [paragraph (d)(4)](#d-4) with respect to those members. See [§ 1.1502-96(e)](/cfr/26/1.1502-96.md?p=e) for the time and manner of making the election. - (ii) **Members included.** An election under this [paragraph (d)(4)](#d-4) includes all corporations that become members of the current group at the same time and that were affiliated with each other immediately before they become members of the current group. - (iii) **Each member included treated as loss subgroup parent.** If the members to which this election applies are a loss subgroup described in paragraph [(d)(1)](#d-1) or [(2)](#d-2) of this section, then each member is treated as a loss subgroup parent. See [§ 1.1502-92(b)(1)(iii)](/cfr/26/1.1502-92.md?p=b-1-iii) for special rules relating to an ownership change of a loss subgroup if the election under this [paragraph (d)(4)](#d-4) is made. - (5) **Principal purpose of avoiding a limitation.** The corporations described in paragraphs [(d)(1)](#d-1) or [(2)](#d-2) of this section do not compose a loss subgroup if any one of them is formed, acquired, or availed of with a principal purpose of avoiding the application of, or increasing any limitation under, [section 382](/cfr/26/382.md). Instead, [§ 1.1502-94](/cfr/26/1.1502-94.md) applies with respect to the attributes of each such corporation. Any member excluded from a loss subgroup, if excluded with a principal purpose of so avoiding or increasing any [section 382](/cfr/26/382.md) limitation, is treated as included in the loss subgroup. This [paragraph (d)(5)](#d-5) does not apply solely because, in connection with becoming members of the group, the members of a group (or loss subgroup) are rearranged (or, in the case of the preceding sentence, are not rearranged) to bear a relationship to the other members described in [section 1504(a)(1)](/cfr/26/1504.md?p=a-1). - (6) **Special rules.** See [§ 1.1502-95(d)](/cfr/26/1.1502-95.md?p=d) for rules concerning when a corporation ceases to be a member of a loss subgroup, and for certain exceptions that may apply if a member does not continue to satisfy the loss subgroup parent requirement within the current group. See also [§ 1.1502-96(a)](/cfr/26/1.1502-96.md?p=a) for a special rule regarding the end of separate tracking of SRLY losses of a member that has an ownership change or that has been a member of a group for at least 5 consecutive years. - (7) **Examples.** The following examples illustrate the principles of this [paragraph (d)](#d): - (e) **Pre-change consolidated attribute—** - (1) **Defined.** A pre-change consolidated attribute of a loss group is— - (i) Any loss described in paragraph [(c)(1)(i)](#c-1-i) or [(ii)](#c-1-ii) of this section (relating to the definition of loss group) that is allocable to the period ending on or before the change date; and - (ii) **Any recognized built-in loss of the loss group.** - (2) **Example—** - (i) **Facts.** The L group has a consolidated net operating loss arising in Year 1 that is carried over to Year 2. The L loss group has an ownership change at the beginning of Year 2. - (ii) **Analysis.** The net operating loss carryover of the L loss group from Year 1 is a pre-change consolidated attribute because the L group was entitled to use the loss in Year 2 and therefore the loss was described in [paragraph (c)(1)(i)](#c-1-i) of this section. Under paragraph (a)(2)(i) of this section, the amount of consolidated taxable income of the L group for Year 2 that may be offset by this loss carryover may not exceed the consolidated [section 382](/cfr/26/382.md) limitation of the L group for that year. See [§ 1.1502-93](/cfr/26/1.1502-93.md) for rules relating to the computation of the consolidated [section 382](/cfr/26/382.md) limitation. - (iii) **Business interest expense.** The facts are the same as in the Example in [paragraph (e)(2)(i)](#e-2-i) of this section, except that, rather than a consolidated net operating loss, a member of the L group pays or accrues a business interest expense in Year 1 for which a deduction is disallowed in that year under [section 163(j)](/cfr/26/163.md?p=j) and [§ 1.163(j)-2(b)](/cfr/26/1.163..2.md). The disallowed business interest expense is carried over to Year 2 under [section 163(j)(2)](/cfr/26/163.md?p=j-2) and [§ 1.163(j)-2(c)](/cfr/26/1.163..2.md). Thus, the disallowed business interest expense carryforward is a pre-change loss. Under [section 163(j)](/cfr/26/163.md?p=j), the L loss group is entitled to deduct the carryforward in Year 2; however, the amount of consolidated taxable income of the L group for Year 2 that may be offset by this carryforward may not exceed the consolidated [section 382](/cfr/26/382.md) limitation of the L group for that year. See [§ 1.1502-98(b)](/cfr/26/1.1502-98.md?p=b) (providing that [§§ 1.1502-91 through 1.1502-96](/cfr/26/1.1502-91..1.1502-96.md) apply [section 382](/cfr/26/382.md) to business interest expense, with appropriate adjustments). - (f) **Pre-change subgroup attribute—** - (1) **Defined.** A pre-change subgroup attribute of a loss subgroup is— - (i) Any net operating loss carryover described in [paragraph (d)(1)(iii)](#d-1-iii) of this section (relating to the definition of loss subgroup); and - (ii) **Any recognized built-in loss of the loss subgroup.** - (2) **Example.** The following example illustrates the principle of this [paragraph (f)](#f): - (g) **Net unrealized built-in gain and loss—** - (1) **In general.** The determination whether a consolidated group (or loss subgroup) has a net unrealized built-in gain or loss under [section 382(h)(3)](/cfr/26/382.md?p=h-3) is based on the aggregate amount of the separately computed net unrealized built-in gains or losses of each member that is included in the group (or loss subgroup) under [paragraph (g)(2)](#g-2) of this section, including items of built-in income and deduction described in [section 382(h)(6)](/cfr/26/382.md?p=h-6). Thus, for example, amounts deferred under [section 267](/cfr/26/267.md), or under [§ 1.1502-13](/cfr/26/1.1502-13.md) (other than amounts deferred with respect to the stock of a member (or an intercompany obligation) included in the group (or loss subgroup) under [paragraph (g)(2)](#g-2) of this section) are built-in items. The threshold requirement under [section 382(h)(3)(B)](/cfr/26/382.md?p=h-3-B) applies on an aggregate basis and not on a member-by-member basis. The separately computed amount of a member included in a group or loss subgroup does not include any unrealized built-in gain or loss on stock (including stock described in [section 1504(a)(4)](/cfr/26/1504.md?p=a-4) and § [1.382-2T(f)(18)(ii)](/cfr/26/1.382-2T.md?p=f-18-ii) and [(iii)](/cfr/26/1.382-2T.md?p=f-18-iii)) of another member included in the group or loss subgroup (or an intercompany obligation). However, a member of a group or loss subgroup includes in its separately computed amount the unrealized built-in gain or loss on stock (but not on an intercompany obligation) of another member not included in the group or loss subgroup. If a member is not included in the determination whether a group (or subgroup) has a net unrealized built-in loss under paragraph [(g)(2)(ii)](#g-2-ii) or [(iv)](#g-2-iv) of this section, that member is not included in the loss group or loss subgroup. See [§ 1.1502-94(c)](/cfr/26/1.1502-94.md?p=c) (relating to built-in gain or loss of a new loss member) and [§ 1.1502-96(a)](/cfr/26/1.1502-96.md?p=a) (relating to the end of separate tracking of certain losses). - (2) **Members included—** - (i) **Consolidated group with a net operating loss.** The members included in the determination whether a consolidated group described in paragraph [(c)(1)(i)](#c-1-i) or [(ii)](#c-1-ii) of this section (relating to loss groups with net operating losses) has a net unrealized built-in gain are all members of the consolidated group on the day that the determination is made. - (ii) **Determination whether a consolidated group has a net unrealized built-in loss.** The members included in the determination whether a consolidated group is a loss group described in [paragraph (c)(1)(iii)](#c-1-iii) of this section are— - (A) The common parent and all other members that have been affiliated with the common parent for the 5 consecutive year period ending on the day that the determination is made; - (B) Any other member that has a net unrealized built-in loss determined under [paragraph (g)(1)](#g-1) of this section on the date that the determination is made, and that is neither a new loss member described in [§ 1.1502-94(a)(1)(ii)](/cfr/26/1.1502-94.md?p=a-1-ii) nor a member of a loss subgroup described in [paragraph (d)(2)](#d-2) of this section; - (C) Any new loss member described in [§ 1.1502-94(a)(1)(ii)](/cfr/26/1.1502-94.md?p=a-1-ii) that has a net unrealized built-in gain determined under [paragraph (g)(1)](#g-1) of this section on the day that the determination is made; and - (D) The members of a loss subgroup described in [paragraph (d)(2)](#d-2) of this section if the members of the subgroup have, in the aggregate, a net unrealized built-in gain on the day that the determination is made. - (iii) **Loss subgroup with net operating loss carryovers.** The members included in the determination whether a loss subgroup described in [paragraph (d)(1)](#d-1) of this section (relating to loss subgroups with net operating loss carryovers) has a net unrealized built-in gain are all members of the loss subgroup on the day that the determination is made. - (iv) **Determination whether subgroup has a net unrealized built-in loss.** The members included in the determination whether a subgroup has a net unrealized built-in loss are those members described in paragraphs [(d)(2)(i)](#d-2-i) and [(ii)](#d-2-ii) of this section. - (v) **Separate determination of section 382 limitation for recognized built-in losses and net operating losses.** In determining whether a loss group described in paragraph [(c)(1)(i)](#c-1-i) or [(ii)](#c-1-ii) of this section (relating to loss groups that have net operating loss carryovers) has a net unrealized built-in gain which, if recognized, increases the consolidated [section 382](/cfr/26/382.md) limitation, the group includes, under [paragraph (g)(2)(i)](#g-2-i) of this section, all of its members on the day the determination is made. Under [paragraph (g)(2)(ii)](#g-2-ii) of this section, however, for purposes of determining whether a group has a net unrealized built-in loss described in [paragraph (c)(1)(iii)](#c-1-iii) of this section, not all members of the consolidated group may be included. Thus, a consolidated group may have recognized built-in gains that increase the amount of consolidated taxable income that may be offset by its pre-change net operating loss carryovers that did not arise (and are not treated as arising) in a SRLY, and also may have recognized built-in losses the absorption of which is limited. Similar results may obtain for loss subgroups under paragraphs [(g)(2)(iii)](#g-2-iii) and [(iv)](#g-2-iv) of this section. See [§ 1.1502-93(c)(2)](/cfr/26/1.1502-93.md?p=c-2) for rules prohibiting the use of recognized built-in gains to increase the amount of consolidated taxable income that can be offset by recognized built-in losses. - (3) **Coordination with rule that ends separate tracking.** See [§ 1.1502-96(a)](/cfr/26/1.1502-96.md?p=a) for special rules relating to members (or loss subgroups) that have an ownership change within six months before, on, or after becoming a member of the group. - (4) **Acquisitions of built-in gain or loss assets.** A member of a consolidated group (or loss subgroup) may not, in determining its separately computed net unrealized built-in gain or loss, include any gain or loss with respect to assets acquired with a principal purpose to affect the amount of its net unrealized built-in gain or loss. A group (or loss subgroup) may not, in determining its net unrealized built-in gain or loss, include any gain or loss of a member acquired with a principal purpose to affect the amount of its net unrealized built-in gain or loss. - (5) **Indirect ownership.** A member's separately computed net unrealized built-in gain or loss is adjusted to the extent necessary to prevent any duplication of unrealized gain or loss attributable to the member's indirect ownership interest in another member through a nonmember if the member has a 5-percent or greater ownership interest in the nonmember. - (6) **Common parent not common parent for five years.** If the common parent has become the common parent of an existing group within the previous 5 year period in a transaction described in § [1.1502-75(d)(2)(ii)](/cfr/26/1.1502-75.md?p=d-2-ii) or [(3)](/cfr/26/1.1502-75.md?p=d-2-3), appropriate adjustments must be made in applying [paragraph (g)(2)(ii)(A)](#g-2-ii-A) of this section so that corporations that have not been members of the group for five years are not included. In such a case, references to the common parent in [paragraph (g)(2)(ii)(A)](#g-2-ii-A) of this section are to the former common parent. Thus, members of the group remaining in existence (including the new common parent) that have not been affiliated with the former common parent (or that have not been members of that group) for the five consecutive year period ending on the day that the determination is made are not included under [paragraph (g)(2)(ii)(A)](#g-2-ii-A) of this section. See, however, [§ 1.1502-96(a)(2)](/cfr/26/1.1502-96.md?p=a-2) for special rules relating to members (or loss subgroups) that have an ownership change within six months before, on, or after the time that the member becomes a member of the group. - (h) **Recognized built-in gain or loss—** - (1) **In general.** [Reserved] - (2) **Disposition of stock or an intercompany obligation of a member.** Gain or loss recognized by a member on the disposition of stock (including stock described in [section 1504(a)(4)](/cfr/26/1504.md?p=a-4) and § [1.382-2T(f)(18)(ii)](/cfr/26/1.382-2T.md?p=f-18-ii) and [(iii)](/cfr/26/1.382-2T.md?p=f-18-iii)) of another member is treated as a recognized gain or loss for purposes of [section 382(h)(2)](/cfr/26/382.md?p=h-2) (unless disallowed) even though gain or loss on such stock was not included in the determination of a net unrealized built-in gain or loss under [paragraph (g)(1)](#g-1) of this section. Gain or loss recognized by a member with respect to an intercompany obligation is treated as recognized gain or loss only to the extent (if any) the transaction gives rise to aggregate income or loss within the consolidated group. The first sentence of this [paragraph (h)(2)](#h-2) is applicable on or after September 17, 2008. - (3) **Intercompany transactions.** Gain or loss that is deferred under provisions such as [section 267](/cfr/26/267.md) and [§ 1.1502-13](/cfr/26/1.1502-13.md) is treated as recognized built-in gain or loss only to the extent taken into account by the group during the recognition period. See also [§ 1.1502-13(c)(7)](/cfr/26/1.1502-13.md?p=c-7) Example 10. - (4) **Exchanged basis property.** If the adjusted basis of any asset is determined, directly or indirectly, in whole or in part, by reference to the adjusted basis of another asset held by the member at the beginning of the recognition period, the asset is treated, with appropriate adjustments, as held by the member at the beginning of the recognition period. - (i) [Reserved] - (j) **Predecessor and successor corporations.** A reference in this section and [§§ 1.1502-92 through 1.1502-99](/cfr/26/1.1502-92..1.1502-99.md) to a corporation, member, common parent, loss subgroup parent, or subsidiary includes, as the context may require, a reference to a predecessor or successor corporation as defined in [§ 1.1502-1(f)(4)](/cfr/26/1.1502-1.md?p=f-4). For example, the determination whether a successor satisfies the continuous affiliation requirement of paragraph [(d)(2)(i)](#d-2-i) or [(g)(2)(ii)](#g-2-ii) of this section is made by reference to its predecessor. # §1.1502-92. Ownership change of a loss group or a loss subgroup. - (a) **Scope.** This section provides rules for determining if there is an ownership change for purposes of [section 382](/cfr/26/382.md) with respect to a loss group or a loss subgroup. See [§ 1.1502-94](/cfr/26/1.1502-94.md) for special rules for determining if there is an ownership change with respect to a new loss member and [§ 1.1502-96(b)](/cfr/26/1.1502-96.md?p=b) for special rules for determining if there is an ownership change of a subsidiary. - (b) **Determination of an ownership change—** - (1) **Parent change method—** - (i) **Loss group.** A loss group has an ownership change if the loss group's common parent has an ownership change under [section 382](/cfr/26/382.md) and the regulations thereunder. Solely for purposes of determining whether the common parent has an ownership change— - (A) The losses described in [§ 1.1502-91(c)](/cfr/26/1.1502-91.md?p=c) are treated as net operating losses (or a net unrealized built-in loss) of the common parent; and - (B) The common parent determines the earliest day that its testing period can begin by reference to only the attributes that make the group a loss group under [§ 1.1502-91(c)](/cfr/26/1.1502-91.md?p=c). - (ii) **Loss subgroup.** A loss subgroup has an ownership change if the loss subgroup parent has an ownership change under [section 382](/cfr/26/382.md) and the regulations thereunder. The principles of [§ 1.1502-95(b)](/cfr/26/1.1502-95.md?p=b) (relating to ceasing to be a member of a consolidated group) apply in determining whether the loss subgroup parent has an ownership change. Solely for purposes of determining whether the loss subgroup parent has an ownership change— - (A) The losses described in [§ 1.1502-91(d)](/cfr/26/1.1502-91.md?p=d) are treated as net operating losses (or a net unrealized built-in loss) of the loss subgroup parent; - (B) The day that the members of the loss subgroup become members of the group (or a loss subgroup) is treated as a testing date within the meaning of [§ 1.382-2(a)(4)](/cfr/26/1.382-2.md?p=a-4); and - (C) The loss subgroup parent determines the earliest day that its testing period can begin under [§ 1.382-2T(d)(3)](/cfr/26/1.382-2T.md?p=d-3) by reference to only the attributes that make the members a loss subgroup under [§ 1.1502-91(d)](/cfr/26/1.1502-91.md?p=d). - (iii) **Special rule if election regarding section 1504(a)(1) relationship is made—** - (A) **Ownership change of deemed loss subgroup parent is an ownership change of loss subgroup.** If the common parent makes an election under [§ 1.1502-91(d)(4)](/cfr/26/1.1502-91.md?p=d-4), each of the members in the loss subgroup is treated as the loss subgroup parent for purposes of determining whether the loss subgroup has an ownership change under [section 382](/cfr/26/382.md) and the regulations thereunder on or after the day the members become members of the group. - (B) **Exception.** [Paragraph (b)(1)(iii)(A)](#b-1-iii-A) of this section does not apply to cause an ownership change of a loss subgroup if a deemed loss subgroup parent has an ownership change upon (or after) ceasing to be a member of the current group. - (2) **Examples.** The following examples illustrate the principles of this [paragraph (b)](#b): - (3) **Special adjustments—** - (i) **Common parent succeeded by a new common parent.** For purposes of determining if a loss group has an ownership change, if the common parent of a loss group is succeeded or acquired by a new common parent and the loss group remains in existence, the new common parent is treated as a continuation of the former common parent with appropriate adjustments to take into account shifts in ownership of the former common parent during the testing period (including shifts that occur incident to the common parent's becoming the former common parent). A new common parent may be a continuation of the former common parent even if, under [§ 1.1502-91(g)(2)(ii)](/cfr/26/1.1502-91.md?p=g-2-ii), the new common parent is not included in determining whether the group has a net unrealized built-in loss. - (ii) **Newly created loss subgroup parent.** For purposes of determining if a loss subgroup has an ownership change, if the member that is the loss subgroup parent has not been the loss subgroup parent for at least 3 years as of a testing date, appropriate adjustments must be made to take into account owner shifts of members of the loss subgroup so that the structure of the loss subgroup does not have the effect of avoiding an ownership change under [section 382](/cfr/26/382.md). (See [paragraph (b)(3)(iii)](#b-3-iii), Example 3 of this section.) - (iii) **Examples.** The following examples illustrate the principles of this [paragraph (b)(3)](#b-3): - (A) **Example 1.** New common parent acquires old common parent. (1) A, who owns all the L stock, sells 30 percent of the L stock to B on August 26, Year 1. L owns all the L1 stock. The L group has a consolidated net operating loss arising in Year 1 that is carried over to Year 3. On July 16, Year 2, A and B transfer their L stock to a newly created holding company, HC, in exchange for 70 percent and 30 percent, respectively, of the HC stock. HC, L, and L1 thereafter file consolidated returns. Under the principles of [§ 1.1502-75(d)](/cfr/26/1.1502-75.md?p=d), the L loss group is treated as remaining in existence, with HC taking the place of L as the new common parent of the loss group. The following is a graphic illustration of these facts: (2) On November 11, Year 3, A sells 25 percent of the HC stock to B. For purposes of determining if the L loss group has an ownership change under [paragraph (b)(1)(i)](#b-1-i) of this section on November 11, Year 3, HC is treated as a continuation of L under paragraph (b)(4)(i) of this section because it acquired L and became the common parent without terminating the L loss group. Accordingly, HC's testing period commences on January 1, Year 1, the first day of the taxable year of the L loss group in which the consolidated net operating loss that is carried over to Year 3 arose (see [§ 1.382-2T(d)(3)(i)](/cfr/26/1.382-2T.md?p=d-3-i)). Immediately after the close of November 11, Year 3, B's percentage ownership interest in the common parent of the loss group (HC) has increased by 55 percentage points over its lowest percentage ownership during the testing period (zero percent). Accordingly, HC and the L loss group have an ownership change on that day. - (B) **Example 2.** New common parent in case in which common parent ceases to exist. (1) A, B, and C each own one-third of the L stock. L owns all the L1 stock. The L group has a consolidated net operating loss arising in Year 2 that is carried over to Year 3. On November 22, Year 3, L is merged into P, a corporation owned by D, and L1 thereafter files consolidated returns with P. A, B, and C, as a result of owning stock of L, own 90 percent of P's stock after the merger. D owns the remaining 10 percent of P's stock. The merger of L into P qualifies as a reverse acquisition of the L group under [§ 1.1502-75(d)(3)(i)](/cfr/26/1.1502-75.md?p=d-3-i), and the L loss group is treated as remaining in existence, with P taking the place of L as the new common parent of the L group. The following is a graphic illustration of these facts: (2) For purposes of determining if the L loss group has an ownership change on November 22, Year 3, the day of the merger, P is treated as a continuation of L so that the testing period for P begins on January 1, Year 2, the first day of the taxable year of the L loss group in which the consolidated net operating loss that is carried over to Year 3 arose. Immediately after the close of November 22, Year 3, D is the only 5-percent shareholder that has increased its ownership interest in P during the testing period (from zero to 10 percentage points). (3) The facts are the same as in paragraph (b)(3)(iii)(B)(1) of this section (Example 2), except that A has held 23 1/3 shares (23 1/3 percent) of L's stock for five years, and A purchased an additional 10 shares of L stock from E two years before the merger. Immediately after the close of the day of the merger (a testing date), A's ownership interest in P, the common parent of the L loss group, has increased by 6 2/3 percentage points over A's lowest percentage ownership during the testing period (23 1/3 percent to 30 percent). (4) The facts are the same as in paragraph (b)(3)(iii)(B)(1) of this section (Example 2), except that P has a net operating loss arising in Year 1 that is carried to the first consolidated return year ending after the day of the merger. Solely for purposes of determining whether the L loss group has an ownership change under [paragraph (b)(1)(i)](#b-1-i) of this section, the testing period for P commences on January 1, Year 2. P does not determine the earliest day for its testing period by reference to its net operating loss carryover from Year 1, which §§ [1.1502-1(f)(3)](/cfr/26/1.1502-1.md?p=f-3) and [1.1502-75(d)(3)(i)](/cfr/26/1.1502-75.md?p=d-3-i) treat as arising in a SRLY. See [§ 1.1502-94](/cfr/26/1.1502-94.md) to determine the application of [section 382](/cfr/26/382.md) with respect to P's net operating loss carryover. - (C) **Example 3.** Newly acquired loss subgroup parent. (1) P owns all the L stock and L owns all the L1 stock. The P group has a consolidated net operating loss arising in Year 1 that is carried over to Year 3. On January 19, Year 2, L issues a 20 percent stock interest to B. On February 5, Year 3, P contributes its L stock to a newly formed subsidiary, HC, in exchange for all the HC stock, and distributes the HC stock to its sole shareholder A. HC, L, and L1 thereafter file consolidated returns. A portion of the P group's Year 1 consolidated net operating loss is apportioned to L and L1 under [§ 1.1502-21(b)](/cfr/26/1.1502-21.md?p=b) and is carried over to the HC group's year ending after February 5, Year 3. HC, L, and L1 compose a loss subgroup within the meaning of [§ 1.1502-91(d)](/cfr/26/1.1502-91.md?p=d) with respect to the net operating loss carryovers from Year 1. The following is a graphic illustration of these facts: (2) February 5, Year 3, is a testing date for HC as the loss subgroup parent with respect to the net operating loss carryovers of L and L1 from Year 1. See [paragraph (b)(1)(ii)(B)](#b-1-ii-B) of this section. For purposes of determining whether HC has an ownership change on the testing date, appropriate adjustments must be made with respect to the changes in the percentage ownership of the stock of HC because HC was not the loss subgroup parent for at least 3 years prior to the day on which it became a member of the HC loss subgroup (a testing date). The appropriate adjustments include adjustments so that HC succeeds to the owner shifts of other members of the former group. Thus, HC succeeds to the owner shift of L that resulted from the sale of the 20 percent interest to B in determining whether the HC loss subgroup has an ownership change on February 5, Year 3, and on any subsequent testing date that includes January 19, Year 2. - (4) **End of separate tracking of certain losses.** If [§ 1.1502-96(a)](/cfr/26/1.1502-96.md?p=a) (relating to the end of separate tracking of attributes) applies to a loss subgroup, then, while one or more members that were included in the loss subgroup remain members of the consolidated group, there is an ownership change with respect to their attributes described in [§ 1.1502-96(a)(2)](/cfr/26/1.1502-96.md?p=a-2) only if the consolidated group is a loss group and has an ownership change under [paragraph (b)(1)(i)](#b-1-i) of this section (or such a member has an ownership change under [§ 1.1502-96(b)](/cfr/26/1.1502-96.md?p=b) (relating to ownership changes of subsidiaries)). If, however, the loss subgroup has had an ownership change before [§ 1.1502-96(a)](/cfr/26/1.1502-96.md?p=a) applies, see [§ 1.1502-96(c)](/cfr/26/1.1502-96.md?p=c) for the continuing application of the subgroup's [section 382](/cfr/26/382.md) limitation with respect to its pre-change subgroup attributes. - (c) **Supplemental rules for determining ownership change—** - (1) **Scope.** This [paragraph (c)](#c) contains a supplemental rule for determining whether there is an ownership change of a loss group (or loss subgroup). It applies in addition to, and not instead of, the rules of [paragraph (b)](#b) of this section. Thus, for example, if the common parent of the loss group has an ownership change under [paragraph (b)](#b) of this section, the loss group has an ownership change even if, by applying this [paragraph (c)](#c), the common parent would not have an ownership change. This [paragraph (c)](#c) does not apply in determining an ownership change of a loss subgroup for which an election under [§ 1.1502-91(d)(4)](/cfr/26/1.1502-91.md?p=d-4) is made. - (2) **Cause for applying supplemental rule.** This [paragraph (c)](#c) applies to a loss group (or loss subgroup) if— - (i) Any 5-percent shareholder of the common parent (or loss subgroup parent) increases its percentage ownership interest in the stock of both— - (A) A subsidiary of the loss group (or loss subgroup) other than by a direct or indirect acquisition of stock of the common parent (or loss subgroup parent); and - (B) The common parent (or loss subgroup parent); - (ii) Those increases occur within a 3 year period ending on any day of a consolidated return year or, if shorter, the period beginning on the first day following the most recent ownership change of the loss group (or loss subgroup); and - (iii) **Either—** - (A) The common parent (or loss subgroup parent) has actual knowledge of the increase in the 5-percent shareholder's ownership interest in the stock of the subsidiary (or has actual knowledge of the plan or arrangement described in [paragraph (c)(3)(i)](#c-3-i) of this section) before the date that the group's income tax return is filed for the taxable year that includes the date of that increase; or - (B) At any time during the period described in [paragraph (c)(2)(ii)](#c-2-ii) of this section, the 5-percent shareholder of the common parent is also a 5-percent shareholder of the subsidiary (determined without regard to [paragraph (c)(3)(i)](#c-3-i) of this section) whose percentage increase in the ownership of the stock of the subsidiary would be taken into account in determining if the subsidiary has an ownership change (determined as if the subsidiary was a loss corporation and applying the principles of [§ 1.382-2T(k)](/cfr/26/1.382-2T.md?p=k), including the principles relating to duty to inquire). - (3) **Operating rules.** Solely for purposes of this [paragraph (c)](#c)— - (i) A 5-percent shareholder of the common parent (or loss subgroup parent) is treated as increasing its ownership interest in the stock of a subsidiary to the extent, if any, that another person or persons increases its percentage ownership interest in the stock of a subsidiary pursuant to a plan or arrangement under which the 5-percent shareholder increases its percentage ownership interest in the common parent (or loss subgroup parent); - (ii) The rules in [section 382(l)(3)](/cfr/26/382.md?p=l-3) and §§ [1.382-2T(h)](/cfr/26/1.382-2T.md?p=h) and [1.382-4(d)](/cfr/26/1.382-4.md?p=d) (relating to constructive ownership) apply with respect to the stock of the subsidiary by treating such stock as stock of a loss corporation; and - (iii) In the case of a loss subgroup, a subsidiary includes any member of the loss subgroup other than the loss subgroup parent. (A loss subgroup parent is, however, a subsidiary of the loss group of which it is a member.) - (4) **Supplemental ownership change rules.** The determination whether the common parent (or loss subgroup parent) has an ownership change is made by applying [paragraph (b)(1)](#b-1) of this section as modified by the following additional rules: - (i) **Additional testing dates for the common parent (or loss subgroup parent).** A testing date for the common parent (or loss subgroup parent) also includes— - (A) Each day on which there is an increase in the percentage ownership of stock of a subsidiary as described in [paragraph (c)(2)](#c-2) of this section; and - (B) The first day of the first consolidated return year for which the group is a loss group (or the members compose a loss subgroup). - (ii) **Treatment of subsidiary stock as stock of the common parent (or loss subgroup parent).** The common parent (or loss subgroup parent) is treated as though it had issued to the person acquiring (or deemed to acquire) the subsidiary stock an amount of its own stock (by value) that equals the value of the subsidiary stock represented by the percentage increase in that person's ownership of the subsidiary (determined on a separate entity basis). Similar principles apply if the increase in percentage ownership interest is effected by a redemption or similar transaction. - (iii) **Different testing periods.** Stock treated as issued under [paragraph (c)(4)(ii)](#c-4-ii) of this section on a testing date is not treated as so issued for purposes of applying the ownership change rules of this [paragraph (c)](#c) and [paragraph (b)(1)](#b-1) of this section in a testing period that does not include that testing date. - (iv) **Disaffiliation of a subsidiary.** If a deemed issuance of stock under [paragraph (c)(4)(ii)](#c-4-ii) of this section would not cause the loss group (or loss subgroup) to have an ownership change before the day (if any) on which the subsidiary ceases to be a member of the loss group (or subgroup), then [paragraph (c)(4)](#c-4) of this section shall not apply. - (v) **Subsidiary stock acquired first.** If an increase of subsidiary stock described in [paragraph (c)(2)(i)(A)](#c-2-i-A) of this section occurs before the date that the 5-percent shareholder increases its percentage ownership interest in the stock of the common parent (or loss subgroup parent), then the deemed issuance of stock is treated as occurring on that later date, but in an amount equal to the value of the subsidiary stock on the date it was acquired. - (vi) **Anti-duplication rule.** If two or more 5-percent shareholders are treated as increasing their percentage ownership interests pursuant to the same plan or arrangement described in [paragraph (c)(3)(i)](#c-3-i) of this section, appropriate adjustments must be made so that the amount of stock treated as issued is not taken into account more than once. - (5) **Examples.** The following examples illustrate the principles of this [paragraph (c)](#c): - (d) **Testing period following ownership change under this section.** If a loss group (or a loss subgroup) has had an ownership change under this section, the testing period for determining a subsequent ownership change with respect to pre-change consolidated attributes (or pre-change subgroup attributes) begins no earlier than the first day following the loss group's (or loss subgroup's) most recent change date. - (e) **Information statements—** - (1) **Common parent of a loss group.** The common parent of a loss group must file the information statement required by [§ 1.382-11(a)](/cfr/26/1.382-11.md?p=a) for a consolidated return year because of any owner shift, equity structure shift, or other transaction described in [§ 1.382-2T(a)(2)(i)](/cfr/26/1.382-2T.md?p=a-2-i)— - (i) With respect to the common parent and with respect to any subsidiary stock subject to [paragraph (c)](#c) of this section; and - (ii) With respect to an ownership change described in [§ 1.1502-96(b)](/cfr/26/1.1502-96.md?p=b) (relating to ownership changes of subsidiaries). - (2) **Abbreviated statement with respect to loss subgroups.** The common parent of a consolidated group that has a loss subgroup during a consolidated return year must file the information statement required by [§ 1.382-11(a)](/cfr/26/1.382-11.md?p=a) because of any owner shift, equity structure shift, or other transaction described in [§ 1.382-2T(a)(2)(i)](/cfr/26/1.382-2T.md?p=a-2-i) with respect to the loss subgroup parent and with respect to any subsidiary stock subject to [paragraph (c)](#c) of this section. Instead of filing a separate statement for each loss subgroup parent, the common parent (which is treated as a loss corporation) may file the single statement described in [paragraph (e)(1)](#e-1) of this section. In addition to the information concerning stock ownership of the common parent, the single statement must identify each loss subgroup parent and state which loss subgroups, if any, have had ownership changes during the consolidated return year. The loss subgroup parent is, however, still required to maintain the records necessary to determine if the loss subgroup has an ownership change. This [paragraph (e)(2)](#e-2) applies with respect to the attributes of a loss subgroup until, under [§ 1.1502-96(a)](/cfr/26/1.1502-96.md?p=a), the attributes are no longer treated as described in [§ 1.1502-91(d)](/cfr/26/1.1502-91.md?p=d) (relating to the definition of loss subgroup). After that time, the information statement described in [paragraph (e)(1)](#e-1) of this section must be filed with respect to those attributes. # §1.1502-93. Consolidated section 382 limitation (or subgroup section 382 limitation). - (a) **Determination of the consolidated section 382 limitation (or subgroup section 382 limitation)—** - (1) **In general.** Following an ownership change, the consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) for any post-change year is an amount equal to the value of the loss group (or loss subgroup), as defined in [paragraph (b)](#b) of this section, multiplied by the long-term tax-exempt rate that applies with respect to the ownership change, and adjusted as required by [section 382](/cfr/26/382.md) and the regulations thereunder. See, for example, [section 382(b)(2)](/cfr/26/382.md?p=b-2) (relating to the carryforward of unused [section 382](/cfr/26/382.md) limitation), [section 382(b)(3)(B)](/cfr/26/382.md?p=b-3-B) (relating to the [section 382](/cfr/26/382.md) limitation for the post-change year that includes the change date), [section 382(h)](/cfr/26/382.md?p=h) (relating to recognized built-in gains and [section 338](/cfr/26/338.md) gains), and [section 382(m)(2)](/cfr/26/382.md?p=m-2) (relating to short taxable years). For special rules relating to the recognized built-in gains of a loss group (or loss subgroup), see [paragraph (c)(2)](#c-2) of this section. - (2) **Coordination with apportionment rule.** For special rules relating to apportionment of a consolidated [section 382](/cfr/26/382.md) limitation (or a subgroup [section 382](/cfr/26/382.md) limitation) or net unrealized built-in gain when one or more corporations cease to be members of a loss group (or a loss subgroup) and to aggregation of amounts so apportioned, see [§ 1.1502-95(c)](/cfr/26/1.1502-95.md?p=c). - (b) **Value of the loss group (or loss subgroup)—** - (1) **Stock value immediately before ownership change.** Subject to any adjustment under [paragraph (b)(2)](#b-2) of this section, the value of the loss group (or loss subgroup) is the value, immediately before the ownership change, of the stock of each member, other than stock that is owned directly or indirectly by another member. For this purpose— - (i) Ownership is determined under [§ 1.382-2T](/cfr/26/1.382-2T.md); - (ii) A member is considered to indirectly own stock of another member through a nonmember only if the member has a 5-percent or greater ownership interest in the nonmember; and - (iii) Stock includes stock described in [section 1504(a)(4)](/cfr/26/1504.md?p=a-4) and § [1.382-2T(f)(18)(ii)](/cfr/26/1.382-2T.md?p=f-18-ii) and [(iii)](/cfr/26/1.382-2T.md?p=f-18-iii). - (2) **Adjustment to value—** - (i) **In general.** The value of the loss group (or loss subgroup), as determined under [paragraph (b)(1)](#b-1) of this section, is adjusted under any rule in [section 382](/cfr/26/382.md) or the regulations thereunder requiring an adjustment to such value for purposes of computing the amount of the [section 382](/cfr/26/382.md) limitation. See, for example, [section 382(e)(2)](/cfr/26/382.md?p=e-2) (redemptions and corporate contractions), [section 382(l)(1)](/cfr/26/382.md?p=l-1) (certain capital contributions) and [section 382(l)(4)](/cfr/26/382.md?p=l-4) (ownership of substantial nonbusiness assets). For purposes of [section 382(e)(2)](/cfr/26/382.md?p=e-2), redemptions and corporate contractions that do not effect a transfer of value outside of the loss group (or loss subgroup) are disregarded. For purposes of [section 382(l)(1)](/cfr/26/382.md?p=l-1), capital contributions between members of the loss group (or loss subgroup) (or a contribution of stock to a member made solely to satisfy the loss subgroup parent requirement of paragraph (d)(1)(ii) or (2)(ii) of this section), are not taken into account. Also, the substantial nonbusiness asset test of [section 382(l)(4)](/cfr/26/382.md?p=l-4) is applied on a group (or subgroup) basis, and is not applied separately to its members. - (ii) **Anti-duplication.** Appropriate adjustments must be made to the extent necessary to prevent any duplication of the value of the stock of a member, even though corporations that do not file consolidated returns may not be required to make such an adjustment. In making these adjustments, the group (or loss subgroup) may apply the principles of [§ 1.382-8](/cfr/26/1.382-8.md) (relating to controlled groups of corporations) in determining the value of a loss group (or loss subgroup) even if that section would not apply if separate returns were filed. Also, the principles of [§ 1.382-5(d)](/cfr/26/1.382-5.md?p=d) (relating to successive ownership changes and absorption of a [section 382](/cfr/26/382.md) limitation) may apply to adjust the consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) of a loss group (or loss subgroup) to avoid a duplication of value if there are simultaneous (rather than successive) ownership changes. - (3) **Examples.** The following examples illustrate the principles of this [paragraph (b)](#b): - (c) **Recognized built-in gain of a loss group or loss subgroup—** - (1) **In general.** If a loss group (or loss subgroup) has a net unrealized built-in gain, any recognized built-in gain of the loss group (or loss subgroup) is taken into account under [section 382(h)](/cfr/26/382.md?p=h) in determining the consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation). - (2) **Adjustments.** Appropriate adjustments must be made so that any recognized built-in gain of a member that increases more than one [section 382](/cfr/26/382.md) limitation (whether consolidated, subgroup, or separate) does not effect a duplication in the amount of consolidated taxable income that can be offset by pre-change net operating losses. For example, a consolidated [section 382](/cfr/26/382.md) limitation that is increased by recognized built-in gains is reduced to the extent that pre-change net operating losses of a loss subgroup absorb additional consolidated taxable income because the same recognized built-in gains caused an increase in that loss subgroup's [section 382](/cfr/26/382.md) limitation. In addition, recognized built-in gain may not increase the amount of consolidated taxable income that can be offset by recognized built-in losses. - (d) **Continuity of business—** - (1) **In general.** A loss group (or a loss subgroup) is treated as a single entity for purposes of determining whether it satisfies the continuity of business enterprise requirement of [section 382(c)(1)](/cfr/26/382.md?p=c-1). - (2) **Example.** The following example illustrates the principle of this [paragraph (d)](#d): - (e) **Limitations of losses under other rules.** If a [section 382](/cfr/26/382.md) limitation for a post-change year exceeds the consolidated taxable income that may be offset by pre-change attributes for any reason, including the application of the limitation of [§ 1.1502-21(c)](/cfr/26/1.1502-21.md?p=c), the amount of the excess is carried forward under [section 382(b)(2)](/cfr/26/382.md?p=b-2) (relating to the carryforward of unused [section 382](/cfr/26/382.md) limitation). # §1.1502-94. Coordination with section 382 and the regulations thereunder when a corporation becomes a member of a consolidated group. - (a) **Scope—** - (1) **In general.** This section applies [section 382](/cfr/26/382.md) and the regulations thereunder to a corporation that is a new loss member of a consolidated group. A corporation is a new loss member if it— - (i) Carries over a net operating loss that arose (or is treated under [§ 1.1502-21(c)](/cfr/26/1.1502-21.md?p=c) as arising) in a SRLY with respect to the current group, and that is not described in [§ 1.1502-91(d)(1)](/cfr/26/1.1502-91.md?p=d-1); or - (ii) Has a net unrealized built-in loss (determined under [paragraph (c)](#c) of this section immediately before it becomes a member of the current group by treating that day as a change date) that is not taken into account under [§ 1.1502-91(d)(2)](/cfr/26/1.1502-91.md?p=d-2) in determining whether two or more corporations compose a loss subgroup. - (2) **Successor corporation as new loss member.** A new loss member also includes any successor to a corporation that has a net operating loss carryover arising in a SRLY and that is treated as remaining in existence under [§ 1.382-2(a)(1)(ii)](/cfr/26/1.382-2.md?p=a-1-ii) following a transaction described in [section 381(a)](/cfr/26/381.md?p=a). - (3) **Coordination in the case of a loss subgroup.** For rules regarding the determination of whether there is an ownership change of a loss subgroup with respect to a net operating loss or a net unrealized built-in loss described in [§ 1.1502-91(d)](/cfr/26/1.1502-91.md?p=d) (relating to the definition of loss subgroup) and the computation of a subgroup [section 382](/cfr/26/382.md) limitation following such an ownership change, see §§ [1.1502-92](/cfr/26/1.1502-92.md) and [1.1502-93](/cfr/26/1.1502-93.md). - (4) **End of separate tracking of certain losses.** If [§ 1.1502-96(a)](/cfr/26/1.1502-96.md?p=a) (relating to the end of separate tracking of attributes) applies to a new loss member, then, while that member remains a member of the consolidated group, there is an ownership change with respect to its attributes described in [§ 1.1502-96(a)(2)](/cfr/26/1.1502-96.md?p=a-2) only if the consolidated group is a loss group and has an ownership change under [§ 1.1502-92(b)(1)(i)](/cfr/26/1.1502-92.md?p=b-1-i) (or that member has an ownership change under [§ 1.1502-96(b)](/cfr/26/1.1502-96.md?p=b) (relating to ownership changes of subsidiaries)). If, however, the new loss member has had an ownership change before [§ 1.1502-96(a)](/cfr/26/1.1502-96.md?p=a) applies, see [§ 1.1502-96(c)](/cfr/26/1.1502-96.md?p=c) for the continuing application of the [section 382](/cfr/26/382.md) limitation with respect to the member's pre-change losses. - (5) **Cross-reference.** See [section 382(a)](/cfr/26/382.md?p=a) and [§ 1.1502-96(c)](/cfr/26/1.1502-96.md?p=c) for the continuing effect of an ownership change after a corporation becomes or ceases to be a member. - (b) **Application of section 382 to a new loss member—** - (1) **In general.** [Section 382](/cfr/26/382.md) and the regulations thereunder apply to a new loss member to determine, on a separate entity basis, whether and to what extent a [section 382](/cfr/26/382.md) limitation applies to limit the amount of consolidated taxable income that may be offset by the new loss member's pre-change separate attributes. For example, if an ownership change with respect to the new loss member occurs under [section 382](/cfr/26/382.md) and the regulations thereunder, the amount of consolidated taxable income for any post-change year that may be offset by the new loss member's pre-change separate attributes shall not exceed the [section 382](/cfr/26/382.md) limitation as determined separately under [section 382(b)](/cfr/26/382.md?p=b) with respect to that member for such year. If the post-change year includes the change date, [section 382(b)(3)(A)](/cfr/26/382.md?p=b-3-A) is applied so that the [section 382](/cfr/26/382.md) limitation of the new loss member does not apply to the portion of the taxable income for such year that is allocable to the period in such year on or before the change date. See generally [§ 1.382-6](/cfr/26/1.382-6.md) (relating to the allocation of income and loss). - (2) **Adjustment to value.** Appropriate adjustments must be made to the extent necessary to prevent any duplication of the value of the stock of a member, even though corporations that do not file consolidated returns may not be required to make such an adjustment. For example, the principles of [§ 1.1502-93(b)(2)(ii)](/cfr/26/1.1502-93.md?p=b-2-ii) (relating to adjustments to value) apply in determining the value of a new loss member. - (3) **Pre-change separate attribute defined.** A pre-change separate attribute of a new loss member is— - (i) Any net operating loss carryover of the new loss member described in [paragraph (a)(1)](#a-1) of this section; and - (ii) **Any recognized built-in loss of the new loss member.** - (4) **Examples.** The following examples illustrate the principles of this [paragraph (b)](#b): - (c) **Built-in gains and losses.** As the context may require, the principles of §§ [1.1502-91(g)](/cfr/26/1.1502-91.md?p=g) and [(h)](/cfr/26/1.1502-91.md?p=h) and [1.1502-93(c)](/cfr/26/1.1502-93.md?p=c) (relating to built-in gains and losses) apply to a new loss member on a separate entity basis. See [§ 1.1502-91(g)(4)](/cfr/26/1.1502-91.md?p=g-4). See [§ 1.1502-13](/cfr/26/1.1502-13.md) (including Example 10 of [§ 1.1502-13(c)(7)](/cfr/26/1.1502-13.md?p=c-7)) for rules relating to the treatment of intercompany transactions. - (d) **Information statements.** The common parent of a consolidated group that has a new loss member subject to [paragraph (b)(1)](#b-1) of this section during a consolidated return year must file the information statement required by [§ 1.382-11(a)](/cfr/26/1.382-11.md?p=a) because of any owner shift, equity structure shift, or other transaction described in [§ 1.382-2T(a)(2)(i)](/cfr/26/1.382-2T.md?p=a-2-i). Instead of filing a separate statement for each new loss member, the common parent may file a single statement described in [§ 1.382-11(a)](/cfr/26/1.382-11.md?p=a) with respect to the stock ownership of the common parent (which is treated as a loss corporation). In addition to the information concerning stock ownership of the common parent, the single statement must identify each new loss member and state which new loss members, if any, have had ownership changes during the consolidated return year. The new loss member is, however, required to maintain the records necessary to determine if it has an ownership change. This [paragraph (d)](#d) applies with respect to the attributes of a new loss member until an event occurs which ends separate tracking under [§ 1.1502-96(a)](/cfr/26/1.1502-96.md?p=a). After that time, the information statement described in [§ 1.1502-92(e)(1)](/cfr/26/1.1502-92.md?p=e-1) must be filed with respect to these attributes. # §1.1502-95. Rules on ceasing to be a member of a consolidated group (or loss subgroup). - (a) **In general—** - (1) **Consolidated group.** This section provides rules for applying [section 382](/cfr/26/382.md) on or after the day that a member ceases to be a member of a consolidated group (or loss subgroup). The rules concern how to determine whether an ownership change occurs with respect to losses of the member, and how a consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) and a loss group's (or loss subgroup's) net unrealized built-in gain or loss is apportioned to the member. As the context requires, a reference in this section to a loss group, a member, or a corporation also includes a reference to a loss subgroup, and a reference to a consolidated [section 382](/cfr/26/382.md) limitation also includes a reference to a subgroup [section 382](/cfr/26/382.md) limitation. - (2) **Election by common parent.** Only the common parent (not the loss subgroup parent) may make the election under [paragraph (c)](#c) of this section to apportion a consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) or a loss group's (or loss subgroup's) net unrealized built-in gain. - (3) **Coordination with §§ 1.1502-91 through 1.1502-93.** For rules regarding the determination of whether there is an ownership change of a loss subgroup and the computation of a subgroup [section 382](/cfr/26/382.md) limitation following such an ownership change, see [§§ 1.1502-91 through 1.1502-93](/cfr/26/1.1502-91..1.1502-93.md). - (b) **Separate application of section 382 when a member leaves a consolidated group—** - (1) **In general.** Except as provided in [§§ 1.1502-91 through 1.1502-93](/cfr/26/1.1502-91..1.1502-93.md) (relating to rules applicable to loss groups and loss subgroups), [section 382](/cfr/26/382.md) and the regulations thereunder apply to a corporation on a separate entity basis after it ceases to be a member of a consolidated group (or loss subgroup). Solely for purposes of determining whether a corporation has an ownership change— - (i) Any portion of a consolidated net operating loss that is apportioned to the corporation under [§ 1.1502-21(b)](/cfr/26/1.1502-21.md?p=b) is treated as a net operating loss of the corporation beginning on the first day of the taxable year in which the loss arose; - (ii) The testing period may include the period during which (or before which) the corporation was a member of the group (or loss subgroup); and - (iii) Except to the extent provided in [§ 1.1502-96(d)](/cfr/26/1.1502-96.md?p=d) (relating to reattributed losses), the day it ceases to be a member of a consolidated group is treated as a testing date of the corporation within the meaning of [§ 1.382-2(a)(4)](/cfr/26/1.382-2.md?p=a-4). - (2) **Effect of a prior ownership change of the group.** If a loss group has had an ownership change under [§ 1.1502-92](/cfr/26/1.1502-92.md) before a corporation ceases to be a member of a consolidated group (the former member)— - (i) Any pre-change consolidated attribute that is subject to a consolidated [section 382](/cfr/26/382.md) limitation continues to be treated as a pre-change loss with respect to the former member after it is apportioned to the former member and, if any net unrealized built-in loss is allocated to the former member under [paragraph (e)](#e) of this section, any recognized built-in loss of the former member is a pre-change loss of the member; - (ii) The [section 382](/cfr/26/382.md) limitation with respect to such pre-change attribute is zero unless the common parent, under [paragraph (c)](#c) of this section, apportions to the former member all or part of the consolidated [section 382](/cfr/26/382.md) limitation applicable to such attribute. The limitation applicable to a pre-change attribute other than a recognized built-in loss may be increased to the extent that the common parent has apportioned all or part of the loss group's net unrealized built-in gain to the former member, and the former member recognizes built-in gain during the recognition period; - (iii) The testing period for determining a subsequent ownership change with respect to such pre-change attribute (or such net unrealized built-in loss, if any) begins no earlier than the first day following the loss group's most recent change date; and - (iv) As generally provided under [section 382](/cfr/26/382.md), an ownership change of the former member that occurs on or after the day it ceases to be a member of a loss group may result in an additional, lesser limitation amount with respect to such losses. - (3) **Application in the case of a loss subgroup.** If two or more former members are included in the same loss subgroup immediately after they cease to be members of a consolidated group, the principles of paragraphs [(b)](#b), [(c)](#c) and [(e)](#e) of this section apply to the loss subgroup. Therefore, for example, an apportionment by the common parent under [paragraph (c)](#c) of this section is made to the loss subgroup rather than separately to its members. If the common parent of the consolidated group apportions all or part of a limitation (or net unrealized built-in gain) separately to one or more former members that are included in a loss subgroup because the common parent of the acquiring group makes an election under [§ 1.1502-91(d)(4)](/cfr/26/1.1502-91.md?p=d-4) with respect to those members, the aggregate of those separate amounts is treated as the amount apportioned to the loss subgroup. Such separate apportionment may occur, for example, because the election under [§ 1.1502-91(d)(4)](/cfr/26/1.1502-91.md?p=d-4) has not been filed at the time that the election of apportionment is made under [paragraph (f)](#f) of this section. - (4) **Examples.** The following examples illustrate the principles of this [paragraph (b)](#b): - (i) **Example 1: Treatment of departing member as a separate corporation throughout the testing period.** - (A) **A owns all the L stock.** L owns all the stock of L1 and L2. The L group has a consolidated net operating loss arising in Year 1 that is carried over to Year 3. On January 12, Year 2, A sells 30 percent of the L stock to B. On February 7, Year 3, L sells 40 percent of the L2 stock to C, and L2 ceases to be a member of the group. A portion of the Year 1 consolidated net operating loss is apportioned to L2 under [§ 1.1502-21(b)](/cfr/26/1.1502-21.md?p=b) and is carried to L2's first separate return year, which ends December 31, Year 3. The following is a graphic illustration of these facts: - (B) **Under paragraph (b)(1) of this section, L2 is a loss corporation on February 7, Year 3.** Under [paragraph (b)(1)(iii)](#b-1-iii) of this section, February 7, Year 3, is a testing date. Under [paragraph (b)(1)(ii)](#b-1-ii) of this section, the testing period for L2 with respect to this testing date commences on January 1, Year 1, the first day of the taxable year in which the portion of the consolidated net operating loss apportioned to L2 arose. Therefore, in determining whether L2 has an ownership change on February 7, Year 3, B's purchase of 30 percent of the L stock and C's purchase of 40 percent of the L2 stock are each owner shifts. L2 has an ownership change under [section 382(g)](/cfr/26/382.md?p=g) and [§ 1.382-2T](/cfr/26/1.382-2T.md) because B and C have increased their ownership interests in L2 by 18 and 40 percentage points, respectively, during the testing period. - (ii) **Example 2: Effect of prior ownership change of loss group.** - (A) **L owns all the L1 stock and L1 owns all the L2 stock.** The L loss group had an ownership change under [§ 1.1502-92](/cfr/26/1.1502-92.md) in Year 2 with respect to a consolidated net operating loss arising in Year 1 and carried over to Year 2 and Year 3. The consolidated [section 382](/cfr/26/382.md) limitation computed solely on the basis of the value of the stock of L is $100. On December 31, Year 2, L1 sells 25 percent of the stock of L2 to B. L2 is apportioned a portion of the Year 1 consolidated net operating loss which it carries over to its first separate return year ending after December 31, Year 2. L2's separate [section 382](/cfr/26/382.md) limitation with respect to this loss is zero unless L elects to apportion all or a part of the consolidated [section 382](/cfr/26/382.md) limitation to L2. (See [paragraph (c)](#c) of this section for rules regarding the apportionment of a consolidated [section 382](/cfr/26/382.md) limitation.) L apportions $50 of the consolidated [section 382](/cfr/26/382.md) limitation to L2, and the remaining $50 of the consolidated [section 382](/cfr/26/382.md) limitation stays with the loss group composed of L and L1. - (B) On December 31, Year 3, L1 sells its remaining 75 percent stock interest in L2 to C, resulting in an ownership change of L2. L2's [section 382](/cfr/26/382.md) limitation computed on the change date with respect to the value of its stock is $30. Accordingly, L2's [section 382](/cfr/26/382.md) limitation for post-change years ending after December 31, Year 3, with respect to its pre-change losses, including the consolidated net operating losses apportioned to it from the L group, is $30, adjusted for a short taxable year, carryforward of unused limitation, or any other adjustment required under [section 382](/cfr/26/382.md). The analysis would be similar if the L loss group had an ownership change under [§ 1.1502-92](/cfr/26/1.1502-92.md) in Year 2 with respect to disallowed business interest expense paid or accrued by L2 in Year 1 and carried forward under [section 163(j)(2)](/cfr/26/163.md?p=j-2) to Year 2 and Year 3. See [§ 1.1502-98(b)](/cfr/26/1.1502-98.md?p=b) (providing that [§§ 1.1502-91 through 1.1502-96](/cfr/26/1.1502-91..1.1502-96.md) apply [section 382](/cfr/26/382.md) to business interest expense, with appropriate adjustments). - (c) **Apportionment of a consolidated section 382 limitation—** - (1) **In general.** The common parent may elect to apportion all or any part of a consolidated [section 382](/cfr/26/382.md) limitation to a former member (or loss subgroup). The common parent also may elect to apportion all or any part of the loss group's net unrealized built-in gain to a former member (or loss subgroup). - (2) **Amount which may be apportioned—** - (i) **Consolidated section 382 limitation.** The common parent may apportion all or part of each element of the consolidated [section 382](/cfr/26/382.md) limitation determined under [§ 1.1502-93](/cfr/26/1.1502-93.md). For this purpose, the consolidated [section 382](/cfr/26/382.md) limitation consists of two elements— - (A) The value element, which is the element of the limitation determined under [section 382(b)(1)](/cfr/26/382.md?p=b-1) (relating to value multiplied by the long-term tax-exempt rate) without regard to such adjustments as those described in [section 382(b)(2)](/cfr/26/382.md?p=b-2) (relating to the carryforward of unused [section 382](/cfr/26/382.md) limitation), [section 382(b)(3)(B)](/cfr/26/382.md?p=b-3-B)(relating to the [section 382](/cfr/26/382.md) limitation for the post-change year that includes the change date), [section 382(h)](/cfr/26/382.md?p=h)(relating to built-in gains and [section 338](/cfr/26/338.md) gains), and [section 382(m)(2)](/cfr/26/382.md?p=m-2)(relating to short taxable years); and - (B) The adjustment element, which is so much (if any) of the limitation for the taxable year during which the former member ceases to be a member of the consolidated group that is attributable to a carryover of unused limitation under [section 382(b)(2)](/cfr/26/382.md?p=b-2) or to recognized built-in gains under 382(h). - (ii) **Net unrealized built-in gain.** The aggregate amount of the loss group's net unrealized built-in gain that may be apportioned to one or more former members that cease to be members during the same consolidated return year cannot exceed the loss group's excess, immediately after the close of that year, of net unrealized built-in gain over recognized built-in gain, determined under [section 382(h)(1)(A)(ii)](/cfr/26/382.md?p=h-1-A-ii) (relating to a limitation on recognized built-in gain). For this purpose, net unrealized built-in gain apportioned to former members in prior consolidated return years is treated as recognized built-in gain in those years. - (3) **Effect of apportionment on the consolidated group—** - (i) **Consolidated section 382 limitation.** The value element of the consolidated [section 382](/cfr/26/382.md) limitation for any post-change year ending after the day that a former member (or loss subgroup) ceases to be a member(s) is reduced to the extent that it is apportioned under this [paragraph (c)](#c). The consolidated [section 382](/cfr/26/382.md) limitation for the post-change year in which the former member (or loss subgroup) ceases to be a member(s) is also reduced to the extent that the adjustment element for that year is apportioned under this [paragraph (c)](#c). - (ii) **Net unrealized built-in gain.** The amount of the loss group's net unrealized built-in gain that is apportioned to the former member (or loss subgroup) is treated as recognized built-in gain for a prior taxable year ending in the recognition period for purposes of applying the limitation of [section 382(h)(1)(A)(ii)](/cfr/26/382.md?p=h-1-A-ii) to the loss group's recognition period taxable years beginning after the consolidated return year in which the former member (or loss subgroup) ceases to be a member. - (4) **Effect on corporations to which an apportionment is made—** - (i) **Consolidated section 382 limitation.** The amount of the value element that is apportioned to a former member (or loss subgroup) is treated as the amount determined under [section 382(b)(1)](/cfr/26/382.md?p=b-1) for purposes of determining the amount of that corporation's (or loss subgroup's) [section 382](/cfr/26/382.md) limitation for any taxable year ending after the former member (or loss subgroup) ceases to be a member(s). Appropriate adjustments must be made to the limitation based on the value element so apportioned for a short taxable year, carryforward of unused limitation, or any other adjustment required under [section 382](/cfr/26/382.md). The adjustment element apportioned to a former member (or loss subgroup) is treated as an adjustment under [section 382(b)(2)](/cfr/26/382.md?p=b-2) or [section 382(h)](/cfr/26/382.md?p=h), as appropriate, for the first taxable year after the member (or members) ceases to be a member (or members). - (ii) **Net unrealized built-in gain.** For purposes of determining the amount by which the former member's (or loss subgroup's) [section 382](/cfr/26/382.md) limitation for any taxable year beginning after the former member (or loss subgroup) ceases to be a member(s) is increased by its recognized built-in gain— - (A) The amount of net unrealized built-in gain apportioned to a former member (or loss subgroup) is treated as if it were an amount of net unrealized built-in gain determined under [section 382(h)(1)(A)(i)](/cfr/26/382.md?p=h-1-A-i)(without regard to the threshold of [section 382(h)(3)(B)](/cfr/26/382.md?p=h-3-B)) with respect to such member or loss subgroup, and that amount is not reduced under [section 382(h)(1)(A)(ii)](/cfr/26/382.md?p=h-1-A-ii) by the loss group's recognized built-in gain; - (B) The former member's (or loss subgroup's) 5 year recognition period begins on the loss group's change date; - (C) In applying [section 382(h)(1)(A)(ii)](/cfr/26/382.md?p=h-1-A-ii), the former member (or loss subgroup) takes into account only its prior taxable years that begin after it ceases to be a member of the loss group; and - (D) The former member's (or loss subgroup's) recognized built-in gain on the disposition of an asset is determined under [section 382(h)(2)(A)](/cfr/26/382.md?p=h-2-A), treating references to the change date in that section as references to the loss group's change date. - (5) **Deemed apportionment when loss group terminates.** If a loss group terminates, to the extent the consolidated [section 382](/cfr/26/382.md) limitation or net unrealized built-in gain is not apportioned under [paragraph (c)(1)](#c-1) of this section, the consolidated [section 382](/cfr/26/382.md) limitation or net unrealized built-in gain is deemed to be apportioned to the loss subgroup that includes the common parent, or, if there is no loss subgroup that includes the common parent immediately after the loss group terminates, to the common parent. A loss group terminates on the first day of the first taxable year that is a separate return year with respect to each member of the former loss group. - (6) **Appropriate adjustments when former member leaves during the year.** Appropriate adjustments are made to the consolidated [section 382](/cfr/26/382.md) limitation for the consolidated return year during which the former member (or loss subgroup) ceases to be a member(s) to reflect the inclusion of the former member in the loss group for a portion of that year. - (7) **Examples.** The following examples illustrate the principles of this [paragraph (c)](#c): - (d) **Rules pertaining to ceasing to be a member of a loss subgroup—** - (1) **In general.** A corporation ceases to be a member of a loss subgroup on the earlier of— - (i) The first day of the first taxable year for which it files a separate return; or - (ii) The first day that it ceases to bear a relationship described in [section 1504(a)(1)](/cfr/26/1504.md?p=a-1) to the loss subgroup parent (treating for this purpose the loss subgroup parent as the common parent described in [section 1504(a)(1)(A)](/cfr/26/1504.md?p=a-1-A)). - (2) **Exceptions.** [Paragraph (d)(1)(ii)](#d-1-ii) of this section does not apply to a member of a loss subgroup while that member remains a member of the current group— - (i) If an election under [§ 1.1502-91(d)(4)](/cfr/26/1.1502-91.md?p=d-4)(relating to treating the subgroup parent requirement as satisfied) applies to the members of the loss subgroup; - (ii) Starting on the day after the change date (but not earlier than the date the loss subgroup becomes a member of the group), if there is an ownership change of the loss subgroup within six months before, on, or after becoming members of the group; or - (iii) Starting the day after the period of 5 consecutive years following the day that the loss subgroup become members of the group during which the loss subgroup has not had an ownership change. - (3) **Examples.** The principles of this [paragraph (d)](#d) are illustrated by the following examples: - (e) **Allocation of net unrealized built-in loss—** - (1) **In general.** This [paragraph (e)](#e) provides rules for the allocation of a loss group's (or loss subgroup's) net unrealized built-in loss if a member ceases to be a member of a loss group (or loss subgroup). This [paragraph (e)](#e) applies if— - (i) A loss group (or loss subgroup) has a net unrealized built-in loss on a change date; and - (ii) Immediately after the close of the consolidated return year in which the departing member ceases to be a member, the amount of the loss group's (or loss subgroup's) excess of net unrealized built-in loss over recognized built-in loss, determined under [section 382(h)(1)(B)(ii)](/cfr/26/382.md?p=h-1-B-ii) (relating to a limitation on recognized built-in loss), is greater than zero. (The amount of such excess is referred to as the remaining NUBIL balance.) In applying [section 382(h)(1)(B)(ii)](/cfr/26/382.md?p=h-1-B-ii) for this purpose, net unrealized built-in loss allocated to departing members in prior consolidated return years is treated as recognized built-in loss in those years. - (2) **Amount of allocation—** - (i) **In general.** The amount of net unrealized built-in loss allocated to a departing member is equal to the remaining NUBIL balance, multiplied by a fraction. The numerator of the fraction is the amount of the built-in loss, taken into account on the change date under [§ 1.1502-91(g)](/cfr/26/1.1502-91.md?p=g), in the assets held by the departing member immediately after the member ceases to be a member of the loss group (or loss subgroup). The denominator of the fraction is the sum of the numerator, plus the amount of the built-in loss, taken into account under [§ 1.1502-91(g)](/cfr/26/1.1502-91.md?p=g) on the change date, in the assets held by the loss group (or loss subgroup) immediately after the close of the taxable year in which the departing member ceases to be a member. (Fluctuations in value of the assets between the change date and the date that the member ceases to be a member of the group (or loss subgroup), or the close of the taxable year in which the member ceases to be a member of the loss group, are disregarded.) Because the amount of built-in loss on the change date with respect to a departing member's assets is taken into account (rather than that member's separately computed net unrealized built-in loss on the change date), a departing member can be apportioned all or part of the loss group's net unrealized built-in loss, even if the departing member had a separately computed net unrealized built-in gain on the change date. Amounts taken into account under [section 382(h)(6)(C)](/cfr/26/382.md?p=h-6-C) (relating to certain deduction items) are treated as if they were assets in determining the numerator and denominator of the fraction. - (ii) **Transferred basis property and deferred gain or loss.** For purposes of [paragraph (b)(2)(i)](#b-2-i) of this section, assets held by the departing member immediately after it ceases to be a member of the group (or by other members immediately after the close of the taxable year) include— - (A) Assets held at that time that are transferred basis property that was held by any member of the group (or loss subgroup) on the change date; and - (B) Assets held at that time by any member of the consolidated group with respect to which gain or loss of the group member or loss subgroup member at issue has been deferred in an intercompany transaction and has not been taken into account. - (iii) **Assets for which gain or loss has been recognized.** For purposes of [paragraph (b)(2)(i)](#b-2-i) of this section, assets held by the departing member immediately after it ceases to be a member of the group (or by other members immediately after the close of the taxable year) do not include assets with respect to which gain or loss has previously been recognized and taken into account during the recognition period (including gain or loss recognized in an intercompany transaction and taken into account immediately before the member leaves the group). Appropriate adjustments must be made if gain or loss on an asset has been only partially recognized and taken into account. - (iv) **Exchanged basis property.** The rules of [§ 1.1502-91(h)](/cfr/26/1.1502-91.md?p=h) apply for purposes of this [paragraph (e)](#e) (disregarding stock received from the departing member or another member that is a member immediately after the close of the taxable year). - (v) **Two or more members depart during the same year.** If two or more members cease to be members during the same consolidated return year, appropriate adjustments must be made to the denominator of the fraction for each departing member by treating the other departing members as if they had not ceased to be members during that year and as if the assets held by those other departing members immediately after they cease to be members of the group (or loss subgroup) are assets held by the group immediately after the close of the taxable year. - (vi) **Anti-abuse rule.** If assets are transferred between members or a member ceases to be a member with a principal purpose of causing or affecting the allocation of amounts under this [paragraph (e)](#e), appropriate adjustments must be made to eliminate any benefit of such acquisition, disposition, or allocation. - (3) **Effect of allocation on the consolidated group.** The amount of the net unrealized built-in loss that is allocated to the former member is treated as recognized built-in loss for a prior taxable year ending in the recognition period for purposes applying the limitation of [section 382(h)(1)(B)(ii)](/cfr/26/382.md?p=h-1-B-ii) to a loss group's (or loss subgroup's) recognition period taxable years beginning after the consolidated return year in which the former member ceases to be a member. - (4) **Effect on corporations to which the allocation is made.** For purposes of determining the amount of the former member's recognized built-in losses in any taxable year beginning after the former member ceases to be a member— - (i) The amount of the loss group's (or loss subgroup's) net unrealized built-in loss that is allocated to the former member is treated as if it were an amount of net unrealized built-in loss determined under [section 382(h)(1)(B)(i)](/cfr/26/382.md?p=h-1-B-i)(without regard to the threshold of [section 382(h)(3)(B)](/cfr/26/382.md?p=h-3-B)) with respect to such member or loss subgroup, and that amount is not reduced under [section 382(h)(1)(B)(ii)](/cfr/26/382.md?p=h-1-B-ii) by the loss group's (or loss subgroup's) recognized built-in losses; - (ii) The former member's 5 year recognition period begins on the loss group's (or loss subgroup's) change date; - (iii) In applying [section 382(h)(1)(B)(ii)](/cfr/26/382.md?p=h-1-B-ii), the former member takes into account only its prior taxable years that begin after it ceases to be a member of the loss group (or loss subgroup); and - (iv) The former member's recognized built-in loss on the disposition of an asset is determined under [section 382(h)(2)(B)](/cfr/26/382.md?p=h-2-B), treating references to the change date in that section as references to the loss group's (or loss subgroup's) change date. - (5) **Subgroup principles.** If two or more former members are members of the same consolidated group (the second group) immediately after they cease to be members of the current group, the principles of paragraphs [(e)(1)](#e-1), [(2)](#e-2) and [(4)](#e-4) of this section apply to those former members on an aggregate basis. Thus, for example, the amount of net unrealized built-in loss allocated to those members is based on the assets held by those members immediately after they cease to be members of the current group and the limitation of [section 382(h)(1)(B)(ii)](/cfr/26/382.md?p=h-1-B-ii) on recognized built-in losses is applied by taking into account the aggregate amount of net unrealized built-in loss allocated to the former members and the aggregate recognized losses of those members in taxable years beginning after they cease to be members of the current group. If one or more of such members cease to be members of the second group, the principles of this [paragraph (e)](#e) are applied with respect to those members to allocate to them all or part of any remaining unrecognized amount of net unrealized built-in loss allocated to the members that became members of the second group. - (6) **Apportionment of consolidated section 382 limitation (or subgroup section 382 limitation)—** - (i) **In general.** For rules relating to the apportionment of a consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) to a former member, see [paragraph (c)](#c) of this section. - (ii) **Special rule for former members that become members of the same consolidated group.** If recognized built-in losses of one or more former members would be subject to a consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) if recognized immediately before the member (or members) cease to be members of the group, an apportionment of that limitation may be made, under [paragraph (c)](#c) of this section, to a loss subgroup that includes such member (or members), and the recognized built-in losses (if any) of that member (or members) will be subject to that apportioned limitation. If two or more of such former members are not included in a loss subgroup immediately after they cease to be members of the group (for example, because they do not have net operating loss carryovers or, in the aggregate, a net unrealized built-in loss), but are members of the same consolidated group, an apportionment of the consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) may be made to them as if they were a loss subgroup. - (7) **Examples.** The following examples illustrate the principles of this [paragraph (e)](#e): - (8) **Reporting requirements—** - (i) **Common Parent.** Except as provided in [paragraph (e)(8)(iii)](#e-8-iii) of this section, if a net unrealized built-in loss is allocated under [paragraph (e)](#e) of this section, the common parent must include a statement entitled, “STATEMENT OF NET UNREALIZED BUILT-IN LOSS ALLOCATION PURSUANT TO [§ 1.1502-95(e)](#e),” on or with its income tax return for the taxable year in which the former member(s) (or a new loss subgroup that includes that member) ceases to be a member. The statement must include— - (A) The name and employer identification number of the departing member; - (B) The amount of the remaining NUBIL balance for the taxable year in which the member departs; - (C) The amount of the net unrealized built-in loss allocated to the departing member; and - (D) A representation that the common parent has delivered a copy of the statement to the former member (or the common parent of the group of which the former member is a member) on or before the day the group files its income tax return for the consolidated return year that the former member ceases to be a member. - (ii) **Former member.** Except as provided in [paragraph (e)(8)(iii)](#e-8-iii) of this section, the former member must include a statement on or with its first income tax return (or the first return in which the former member joins) that is filed after the close of the consolidated return year of the group of which the former member (or a new loss subgroup that includes that member) ceases to be a member. The statement will be identical to the statement filed by the common parent under [paragraph (e)(8)(i)](#e-8-i) of this section except that instead of including the information described in [paragraph (e)(8)(i)(A)](#e-8-i-A) of this section the former member must provide the name, employer identification number and tax year of the former common parent, and instead of the representation described in [paragraph (e)(8)(i)(D)](#e-8-i-D) of this section the former member must represent that it has received and retained the copy of the statement delivered by the common parent as part of its records. See [§ 1.6001-1(e)](/cfr/26/1.6001-1.md?p=e). - (iii) **Exception.** This [paragraph (e)(8)](#e-8) does not apply if the required information (other than the amount of the remaining NUBIL balance) is included in a statement of election under [paragraph (f)](#f) of this section (relating to apportioning a [section 382](/cfr/26/382.md) limitation). - (f) **Filing the election to apportion the section 382 limitation and net unrealized built-in gain—** - (1) **Form of the election to apportion—** - (i) **Statement.** An election under [paragraph (c)](#c) of this section must be made in the form set forth in this [paragraph (f)(1)(i)](#f-1-i). The election must be made by the common parent and the party described in paragraph (f)(2) of this section. It must be filed in accordance with paragraph (f)(3) of this section and be entitled, “THIS IS AN ELECTION UNDER § 1.1502-95 TO APPORTION ALL OR PART OF THE [INSERT THE CONSOLIDATED [SECTION 382](/cfr/26/382.md) LIMITATION, THE SUBGROUP [SECTION 382](/cfr/26/382.md) LIMITATION, THE LOSS GROUP'S NET UNREALIZED BUILT-IN GAIN, OR THE LOSS SUBGROUP'S NET UNREALIZED BUILT-IN GAIN, AS APPROPRIATE] IN THE AMOUNT OF [INSERT THE AMOUNT OF THE LOSS LIMITATION OR NET UNREALIZED BUILT-IN GAIN] TO [INSERT NAME(S) AND EMPLOYER IDENTIFICATION NUMBER(S) OF THE CORPORATION (OR THE CORPORATIONS THAT COMPOSE A NEW LOSS SUBGROUP) TO WHICH ALLOCATION IS MADE].” The statement must also indicate that an agreement, as described in [paragraph (f)(1)(ii)](#f-1-ii) of this section, has been entered into. - (ii) **Agreement.** Both the common parent and the party described in paragraph (f)(2) of this section must sign and date the agreement. The agreement must include, as appropriate— - (A) The date of the ownership change that resulted in the consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) or the loss group's (or loss subgroup's) net unrealized built-in gain; - (B) The amount of the departing member's (or loss subgroup's) pre-change net operating loss carryovers and the taxable years in which they arose that will be subject to the limitation that is being apportioned to that member (or loss subgroup); - (C) The amount of any net unrealized built-in loss allocated to the departing member (or loss subgroup) under [paragraph (e)](#e) of this section, which, if recognized, can be a pre-change attribute subject to the limitation that is being apportioned; - (D) If a consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) is being apportioned, the amount of the consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) for the taxable year during which the former member (or new loss subgroup) ceases to be a member of the consolidated group (determined without regard to any apportionment under this section); - (E) If any net unrealized built-in gain is being apportioned, the amount of the loss group's (or loss subgroup's) net unrealized built-in gain (as determined under [paragraph (c)(2)(ii)](#c-2-ii) of this section) that may be apportioned to members that ceased to be members during the consolidated return year; - (F) The amount of the value element and adjustment element of the consolidated [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) that is apportioned to the former member (or new loss subgroup) pursuant to [paragraph (c)](#c) of this section; - (G) The amount of the loss group's (or loss subgroup's) net unrealized built-in gain that is apportioned to the former member (or new loss subgroup) pursuant to [paragraph (c)](#c) of this section; - (H) If the former member is allocated any net unrealized built-in loss under [paragraph (e)](#e) of this section, the amount of any adjustment element apportioned to the former member that is attributable to recognized built-in gains (determined in a manner that will enable both the group and the former member to apply the principles of [§ 1.1502-93(c)](/cfr/26/1.1502-93.md?p=c)); and - (1) **The name and employer identification number of the common parent making the apportionment.** - (2) **Signing the agreement.** The agreement must be signed by both the common parent and the former member (or, in the case of a loss subgroup, the common parent and the loss subgroup parent) by persons authorized to sign their respective income tax returns. If the allocation is made to a loss subgroup for which an election under [§ 1.1502-91(d)(4)](/cfr/26/1.1502-91.md?p=d-4) is made, and not separately to its members, the agreement under this [paragraph (f)](#f) must be signed by the common parent and any member of the new loss subgroup by persons authorized to sign their respective income tax returns. Each party signing the agreement must retain either the original or a copy of the agreement as part of its records. See [§ 1.6001-1(e)](/cfr/26/1.6001-1.md?p=e). - (3) **Filing of the election—** - (i) **Filing by the common parent.** The election must be filed by the common parent of the group that is apportioning the consolidated [section 382](/cfr/26/382.md) limitation (or the subgroup [section 382](/cfr/26/382.md) limitation) or the loss group's net unrealized built-in gain (or loss subgroup's net unrealized built-in gain) by including the statement on or with its income tax return for the taxable year in which the former member (or new loss subgroup) ceases to be a member. - (ii) **Filing by the former member.** An identical statement must be included on or with the first return of the former member (or the first return in which the former member, or the members of a new loss subgroup, join) that is filed after the close of the consolidated return year of the group of which the former member (or the members of a new loss subgroup) ceases to be a member. - (4) **Revocation of election.** An election statement made under [paragraph (c)](#c) of this section is revocable only with the consent of the Commissioner. - (g) **Effective/applicability date.** Paragraphs [(e)(8)](#e-8) and (f) of this section apply to any original consolidated Federal income tax return due (without extensions) after June 14, 2007. For original consolidated Federal income tax returns due (without extensions) after May 30, 2006, and on or before June 14, 2007, see [§ 1.1502-95T](/cfr/26/1.1502-95T.md) as contained in [26 CFR part 1](/cfr/26/part1.md) in effect on April 1, 2007. For original consolidated Federal income tax returns due (without extensions) on or before May 30, 2006, see § 1.1502-95 as contained in [26 CFR part 1](/cfr/26/part1.md) in effect on April 1, 2006. # §1.1502-96. Miscellaneous rules. - (a) **End of separate tracking of losses—** - (1) **Application.** This [paragraph (a)](#a) applies to a member (or a loss subgroup) with a net operating loss carryover that arose (or is treated under [§ 1.1502-21(c)](/cfr/26/1.1502-21.md?p=c) as arising) in a SRLY, or a member (or loss subgroup) with a net unrealized built-in loss determined at the time that the member (or loss subgroup) becomes a member of the consolidated group if there is— - (i) An ownership change of the member (or loss subgroup) within six months before, on, or after becoming a member of the group; or - (ii) A period of 5 consecutive years following the day that the member (or loss subgroup) becomes a member of a group during which the member (or loss subgroup) has not had an ownership change. - (2) **Effect of end of separate tracking—** - (i) **Net operating loss carryovers.** If this [paragraph (a)](#a) applies with respect to a member (or loss subgroup) with a net operating loss carryover, then, starting on the day after the earlier of the change date (but not earlier than the day the member (or loss subgroup) becomes a member of the consolidated group) or the last day of the 5 consecutive year period described in [paragraph (a)(1)(ii)](#a-1-ii) of this section, such loss carryover is treated as described in [§ 1.1502-91(c)(1)(i)](/cfr/26/1.1502-91.md?p=c-1-i). The preceding sentence also applies for purposes of determining whether there is an ownership change with respect to such loss carryover following such change date or 5 consecutive year period. Thus, for example, starting the day after the change date (but not earlier than the day the member (or loss subgroup) becomes a member of the consolidated group) or the end of the 5 consecutive year period— - (A) The consolidated group which includes the new loss member or loss subgroup is no longer required to separately track owner shifts of the stock of the new loss member or subgroup parent to determine if an ownership change occurs with respect to the loss carryover of the new loss member or members included in the loss subgroup; - (B) The group is a loss group because the member's loss carryover is treated as a loss described in [§ 1.1502-91(c)(1)(i)](/cfr/26/1.1502-91.md?p=c-1-i); - (C) There is an ownership change with respect to such loss carryover only if the group has an ownership change; and - (D) If the group has an ownership change, such loss carryover is a pre-change consolidated attribute subject to the loss group's consolidated [section 382](/cfr/26/382.md) limitation. - (ii) **Net unrealized built-in losses.** If this [paragraph (a)](#a) applies with respect to a new loss member described in [§ 1.1502-94(a)(1)(ii)](/cfr/26/1.1502-94.md?p=a-1-ii) (or a loss subgroup described in [§ 1.1502-91(d)(2)](/cfr/26/1.1502-91.md?p=d-2)) then, starting on the day after the earlier of the change date (but not earlier than the day the member (or loss subgroup) becomes a member of the group) or the last day of the 5 consecutive year period described in [paragraph (a)(1)(ii)](#a-1-ii) of this section, the member (or members of the loss subgroup) are treated, for purposes of applying [§ 1.1502-91(g)(2)(ii)](/cfr/26/1.1502-91.md?p=g-2-ii), as if they have been affiliated with the common parent for 5 consecutive years. Starting on that day, the member's (or the members of the loss subgroup's) separately computed net unrealized built-in loss is included in the determination whether the group has a net unrealized built-in loss, and there is an ownership change with respect to the member's separately computed net unrealized built-in loss only if the group (including the member) has a net unrealized built-in loss and has an ownership change. Thus, for example, starting the day after the change date (but not earlier than the day the member (or loss subgroup) becomes a member of the consolidated group), or the end of the 5 consecutive period - (A) The consolidated group which includes the new loss member or loss subgroup is no longer required to separately track owner shifts of the stock of the new loss member or subgroup parent to determine if an ownership change occurs with respect to the net unrealized built-in loss of the new loss member or members of the loss subgroup; - (B) The group includes the member's (or the loss subgroup members') separately computed net unrealized built-in loss in determining whether it is a loss group under [§ 1.1502-91(c)(1)(iii)](/cfr/26/1.1502-91.md?p=c-1-iii); - (C) There is an ownership change with respect to such net unrealized built-in loss only if the group is a loss group and has an ownership change; and - (D) If the group has an ownership change, the member's separately computed net unrealized built-in loss and its assets are taken into account in determining the group's pre-change consolidated attributes described in [§ 1.1502-91(e)(1)](/cfr/26/1.1502-91.md?p=e-1) (relating to recognized built-in losses) that are subject to the group's consolidated [section 382](/cfr/26/382.md) limitation. - (iii) **Common parent not common parent for five years.** If the common parent has become the common parent of an existing group within the previous 5-year period in a transaction described in § [1.1502-75(d)(2)(ii)](/cfr/26/1.1502-75.md?p=d-2-ii) or [(3)](/cfr/26/1.1502-75.md?p=d-2-3), appropriate adjustments must be made in applying paragraphs [(a)(2)(ii)](#a-2-ii) and (3) of this section. In such a case, as the context requires, references to the common parent are to the former common parent. - (3) **Continuing effect of end of separate tracking—** - (i) **In general.** As the context may require, a current group determines which of its members are included in a loss subgroup on any testing date by taking into account the application of this section in the former group. See the example in [§ 1.1502-91(f)(2)](/cfr/26/1.1502-91.md?p=f-2). For this purpose, corporations that are treated under [paragraph (a)(2)(ii)](#a-2-ii) of this section as having been affiliated with the common parent of the former group for 5 consecutive years are also treated as having been affiliated with any other members that have been (or are treated as having been) affiliated with the common parent. The corporations are treated as having been affiliated with such other members for the same period of time that those members have been (or are treated as having been) affiliated with the common parent. If two or more corporations become members of the group at the same time, but [paragraph (a)(1)](#a-1) of this section does not apply to every such corporation, then immediately after the corporations become members of the group, the corporations to which [paragraph (a)(1)](#a-1) of this section applied are treated as not having been previously affiliated, for purposes of applying this [paragraph (a)(3)](#a-3), with the corporations to which [paragraph (a)(2)(ii)](#a-2-ii) of this section did not apply. - (ii) **Example.** The following example illustrates the principles of this [paragraph (a)(3)](#a-3): - (4) **Special rule for testing period.** For purposes of determining the beginning of the testing period for a loss group, the member's (or loss subgroup's) net operating loss carryovers (or net unrealized built-in loss) described in [paragraph (a)(2)](#a-2) of this section are considered to arise— - (i) In a case described in [paragraph (a)(1)(i)](#a-1-i) of this section, in a taxable year that begins not earlier than the later of the day following the change date or the day that the member becomes a member of the group; and - (ii) In a case described in [paragraph (a)(1)(ii)](#a-1-ii) of this section, in a taxable year that begins 3 years before the end of the 5 consecutive year period. - (5) **Limits on effects of end of separate tracking.** The rule contained in this [paragraph (a)](#a) applies solely for purposes of [§§ 1.1502-91 through 1.1502-95](/cfr/26/1.1502-91..1.1502-95.md) and this section (other than [paragraph (b)(2)(ii)(B)](#b-2-ii-B) of this section (relating to the definition of pre-change attributes of a subsidiary)) and [§ 1.1502-98](/cfr/26/1.1502-98.md), and not for purposes of other provisions of the consolidated return regulations. However, the rule contained in this [paragraph (a)](#a) does apply in §§ [1.1502-15(g)](/cfr/26/1.1502-15.md?p=g), [1.1502-21(g)](/cfr/26/1.1502-21.md?p=g) and [1.1502-22(g)](/cfr/26/1.1502-22.md?p=g) for purposes of determining the composition of loss subgroups defined in [§ 1.1502-91(d)](/cfr/26/1.1502-91.md?p=d). See also [paragraph (c)](#c) of this section for the continuing effect of an ownership change with respect to pre-change attributes. - (b) **Ownership change of subsidiary—** - (1) **Ownership change of a subsidiary because of options or plan or arrangement.** Notwithstanding [§ 1.1502-92](/cfr/26/1.1502-92.md), a subsidiary may have an ownership change for purposes of [section 382](/cfr/26/382.md) with respect to its attributes which a group or loss subgroup includes in making a determination under [§ 1.1502-91(c)(1)](/cfr/26/1.1502-91.md?p=c-1) (relating to the definition of loss group) or [§ 1.1502-91(d)](/cfr/26/1.1502-91.md?p=d) (relating to the definition of loss subgroup). The subsidiary has such an ownership change if it has an ownership change under the principles of [§ 1.1502-95(b)](/cfr/26/1.1502-95.md?p=b) and [section 382](/cfr/26/382.md) and the regulations thereunder (determined on a separate entity basis by treating the subsidiary as not being a member of a consolidated group) in the event of— - (i) The deemed exercise under [§ 1.382-4(d)](/cfr/26/1.382-4.md?p=d) of an option or options (other than an option with respect to stock of the common parent) held by a person (or persons acting pursuant to a plan or arrangement) to acquire more than 20 percent of the stock of the subsidiary; or - (ii) An increase by 1 or more 5-percent shareholders, acting pursuant to a plan or arrangement to avoid an ownership change of a subsidiary, in their percentage ownership interest in the subsidiary by more than 50 percentage points during the testing period of the subsidiary through the acquisition (or deemed acquisition pursuant to [§ 1.382-4(d)](/cfr/26/1.382-4.md?p=d)) of ownership interests in the subsidiary and in higher-tier members with respect to the subsidiary. - (2) **Effect of the ownership change—** - (i) **In general.** If a subsidiary has an ownership change under [paragraph (b)(1)](#b-1) of this section, the amount of consolidated taxable income for any post-change year that may be offset by the pre-change losses of the subsidiary shall not exceed the [section 382](/cfr/26/382.md) limitation for the subsidiary. For purposes of this limitation, the value of the subsidiary is determined solely by reference to the value of the subsidiary's stock. - (ii) **Pre-change losses.** The pre-change losses of a subsidiary are— - (A) Its allocable part of any consolidated net operating loss which is attributable to it under [§ 1.1502-21(b)](/cfr/26/1.1502-21.md?p=b) (determined on the last day of the consolidated return year that includes the change date) that is not carried back and absorbed in a taxable year prior to the year including the change date; - (B) Its net operating loss carryovers that arose (or are treated under [§ 1.1502-21(c)](/cfr/26/1.1502-21.md?p=c) as having arisen) in a SRLY; and - (C) Its recognized built-in loss with respect to its separately computed net unrealized built-in loss, if any, determined on the change date. - (3) **Coordination with §§ 1.1502-91, 1.1502-92, and 1.1502-94.** If an increase in percentage ownership interest causes an ownership change with respect to an attribute under this [paragraph (b)](#b) and under [§ 1.1502-92](/cfr/26/1.1502-92.md) on the same day, the ownership change is considered to occur only under [§ 1.1502-92](/cfr/26/1.1502-92.md) and not under this [paragraph (b)](#b). See [§ 1.1502-94](/cfr/26/1.1502-94.md) for anti-duplication rules relating to value. - (4) **Example.** The following example illustrates [paragraph (b)(1)(ii)](#b-1-ii) of this section: - (c) **Continuing effect of an ownership change.** A loss corporation (or loss subgroup) that is subject to a limitation under [section 382](/cfr/26/382.md) with respect to its pre-change losses continues to be subject to the limitation regardless of whether it becomes a member or ceases to be a member of a consolidated group. See [§ 1.382-5(d)](/cfr/26/1.382-5.md?p=d) (relating to successive ownership changes and absorption of a [section 382](/cfr/26/382.md) limitation). - (d) **Losses reattributed under § 1.1502-36(d)(6)—** - (1) **In general.** This [paragraph (d)](#d) contains rules relating to net operating carryovers, capital loss carryovers, and deferred deductions (collectively, loss or losses) that are reattributed to the common parent under [§ 1.1502-36(d)(6)](/cfr/26/1.1502-36.md?p=d-6). References in this [paragraph (d)](#d) to a subsidiary are references to the subsidiary (or lower-tier subsidiary) whose loss is reattributed to the common parent. - (2) **Deemed section 381(a) transaction.** Under [§ 1.1502-36(d)(6)(iv)(A)](/cfr/26/1.1502-36.md?p=d-6-iv-A), the common parent succeeds to the reattributed losses as if the losses were succeeded to in a transaction to which [section 381(a)](/cfr/26/381.md?p=a) applies. In general, [§§ 1.1502-91 through 1.1502-95](/cfr/26/1.1502-91..1.1502-95.md), this section, and [§ 1.1502-98](/cfr/26/1.1502-98.md) are applied to the reattributed losses in accordance with that characterization. See generally, [§ 1.382-2(a)(1)(ii)](/cfr/26/1.382-2.md?p=a-1-ii) (relating to distributor or transferor loss corporations in transactions under [section 381](/cfr/26/381.md)), [§ 1.1502-1(f)(4)](/cfr/26/1.1502-1.md?p=f-4) (relating to the definition of predecessor and successor) and [§ 1.1502-91(j)](/cfr/26/1.1502-91.md?p=j) (relating to predecessor and successor corporations). For example, if the reattributed loss is a pre-change attribute subject to a [section 382](/cfr/26/382.md) limitation, it remains subject to that limitation following the reattribution. In certain cases, the limitation applicable to the reattributed loss is zero unless the common parent apportions all or part of the limitation to itself. (See [paragraph (d)(4)](#d-4) of this section.) - (3) **Rules relating to owner shifts—** - (i) **In general.** Any owner shift of the subsidiary (including any deemed owner shift resulting from section [382(g)(4)(D)](/cfr/26/382.md?p=g-4-D) or [382(l)(3)](/cfr/26/382.md?p=l-3)) in connection with the disposition of the stock of the subsidiary is not taken into account in determining whether there is an ownership change with respect to the reattributed loss. However, any owner shift with respect to the successor corporation that is treated as continuing in existence under [§ 1.382-2(a)(1)(ii)](/cfr/26/1.382-2.md?p=a-1-ii) must be taken into account for such purpose if such owner shift is effected by the reattribution and an owner shift of the stock of the subsidiary not held directly or indirectly by the common parent would have been taken into account if such shift had occurred immediately before the reattribution. See [paragraph (d)(3)(ii)](#d-3-ii) Example 2 of this section. - (ii) **Examples.** The following examples illustrate the principles of this [paragraph (d)(3)](#d-3): - (4) **Rules relating to the section 382 limitation—** - (i) **Reattributed loss is a pre-change separate attribute of a new loss member.** If the reattributed loss is a pre-change separate attribute of a new loss member that is subject to a separate [section 382](/cfr/26/382.md) limitation prior to the disposition of subsidiary stock, the common parent's limitation with respect to that loss is zero, except to the extent that the common parent apportions to itself, under [paragraph (d)(5)](#d-5) of this section, all or part of such limitation. A separate [section 382](/cfr/26/382.md) limitation is the limitation described in [§ 1.1502-94(b)](/cfr/26/1.1502-94.md?p=b) that applies to a pre-change separate attribute. - (ii) **Reattributed loss is a pre-change subgroup attribute.** If the reattributed loss is a pre-change subgroup attribute subject to a subgroup [section 382](/cfr/26/382.md) limitation prior to the disposition of subsidiary stock, and, immediately after the reattribution, the common parent is not a member of the loss subgroup, the [section 382](/cfr/26/382.md) limitation with respect to that loss is zero, except to the extent that the common parent apportions to itself, under [paragraph (d)(5)](#d-5) of this section, all or part of the subgroup [section 382](/cfr/26/382.md) limitation. See, however, [§ 1.1502-95(d)(3)](/cfr/26/1.1502-95.md?p=d-3) Example 6, for an illustration of a case where the common parent, as successor to the subsidiary, is a member of the loss subgroup immediately after the reattribution. - (iii) **Potential application of section 382(l)(1).** In general, the value of the stock of the common parent is used to determine the [section 382](/cfr/26/382.md) limitation for an ownership change with respect to the reattributed loss that occurs at the time of, or after, the reattribution. For example, if the loss is a pre-change consolidated attribute, the value of the stock of the common parent is used to determine the [section 382](/cfr/26/382.md) limitation, and no adjustment to that value is required because of the deemed [section 381(a)](/cfr/26/381.md?p=a) transaction. However, if the loss is a pre-change separate attribute of a new loss member (or is a pre-change attribute of a loss subgroup member and the common parent was not the loss subgroup parent immediately before the reattribution), the deemed [section 381(a)](/cfr/26/381.md?p=a) transaction is considered to constitute a capital contribution with respect to the new loss member (or loss subgroup member) for purposes of [section 382(l)(1)](/cfr/26/382.md?p=l-1). Accordingly, if that section applies because the deemed capital contribution is (or is considered under [section 382(l)(1)(B)](/cfr/26/382.md?p=l-1-B) to be) part of a plan described in [section 382(l)(1)(A)](/cfr/26/382.md?p=l-1-A), the value of the stock of the common parent after the deemed [section 381(a)](/cfr/26/381.md?p=a) transaction must be adjusted to reflect the capital contribution. Ordinarily, this will require the value of the stock of the common parent to be reduced to an amount that represents the value of the stock of the subsidiary (or loss subgroup of which the subsidiary was a member) when the reattribution occurred. - (iv) **Duplication or omission of value.** In determining any [section 382](/cfr/26/382.md) limitation with respect to the reattributed loss and with respect to other pre-change losses, appropriate adjustments must be made so that value is not improperly omitted or duplicated as a result of the reattribution. For example, if the subsidiary has an ownership change upon its departure, and the common parent (as successor) has an ownership change with respect to the reattributed pre-change separate attribute upon its reattribution under [paragraph (d)(3)(i)](#d-3-i) of this section, proper adjustments must be made so that the value of the subsidiary is not taken into account more than once in determining the [section 382](/cfr/26/382.md) limitation for the reattributed loss and the loss that is not reattributed. - (v) **Special rule for continuity of business requirement.** If the reattributed loss is a pre-change attribute of new loss member and the reattribution occurs within the two-year period beginning on the change date, then, starting immediately after the reattribution, the continuity of business requirement of [section 382(c)(1)](/cfr/26/382.md?p=c-1) is applied with respect to the business enterprise of the common parent. Similar principles apply if the reattributed loss is a pre-change subgroup attribute and, on the day after the reattribution, the common parent is not a member of the loss subgroup. - (5) **Election to reattribute section 382 limitation—** - (i) **Effect of election.** The common parent may elect to apportion to itself all or part of any separate [section 382](/cfr/26/382.md) limitation or subgroup [section 382](/cfr/26/382.md) limitation to which the loss is subject immediately before the reattribution. However, no net unrealized built-in gain of the member (or loss subgroup) whose loss is reattributed can be apportioned to the common parent. The principles of [§ 1.1502-95(c)](/cfr/26/1.1502-95.md?p=c) apply to the apportionment, treating, as the context requires, references to the former member as references to the common parent, and references to the consolidated [section 382](/cfr/26/382.md) limitation as references to the separate [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) that is being apportioned. Thus, for example, the common parent can reattribute to itself all or part of the value element or adjustment element of the limitation, and any part of such element that is apportioned requires a corresponding reduction in such element of the separate [section 382](/cfr/26/382.md) limitation of the subsidiary whose loss is reattributed (or in the subgroup [section 382](/cfr/26/382.md) limitation if the reattributed loss is a pre-change subgroup attribute). Appropriate adjustments must be made to the separate [section 382](/cfr/26/382.md) limitation (or subgroup [section 382](/cfr/26/382.md) limitation) for the consolidated return year in which the reattribution is made to reflect that the reattributed loss is an attribute acquired by the common parent during the year in a transaction to which [section 381(a)](/cfr/26/381.md?p=a) applies. The election is made by the common parent as part of the election to reattribute the loss. See [§ 1.1502-36(e)(5)(x)](/cfr/26/1.1502-36.md?p=e-5-x) for the time and manner of making the election. - (ii) **Examples.** The following examples illustrate the principles of this [paragraph (d)(5)](#d-5): - (e) **Time and manner of making election under § 1.1502-91(d)(4)—** - (1) **In general.** This [paragraph (e)](#e) prescribes the time and manner of making the election under [§ 1.1502-91(d)(4)](/cfr/26/1.1502-91.md?p=d-4), relating to treating two or more corporations as treating the [section 1504(a)(1)](/cfr/26/1504.md?p=a-1) requirement of § [1.1502-91(d)(1)(ii)](/cfr/26/1.1502-91.md?p=d-1-ii) and [(d)(2)(ii)](/cfr/26/1.1502-91.md?p=d-2-ii) as satisfied. - (2) **Election statement.** An election under [§ 1.1502-91(d)(4)](/cfr/26/1.1502-91.md?p=d-4) must be made by the common parent. The election must be made in the form of the following statement: “THIS IS AN ELECTION UNDER [§ 1.1502-91(d)(4)](/cfr/26/1.1502-91.md?p=d-4) TO TREAT THE FOLLOWING CORPORATIONS AS MEETING THE REQUIREMENTS OF § [1.1502-91 (d)(1)(ii)](/cfr/26/1.1502-91.md?p=d-1-ii) AND [(d)(2)(ii)](/cfr/26/1.1502-91.md?p=d-2-ii) IMMEDIATELY AFTER THEY BECAME MEMBERS OF THE GROUP.” [List separately the name of each corporation, its E.I.N., and the date that it became a member of the group]. If separate elections are being made for corporations that became members at different times or that were acquired from different affiliated groups, provide a separate statement and list for each election. - (3) The election statement must be filed by the common parent with its income tax return for the consolidated return year in which the members with respect to which the election is made become members of the group. Such election must be filed on or before the due date for such income tax return, including extensions. - (4) **An election made under this paragraph (e) is irrevocable.** # §1.1502-97. Special rules under section 382 for members under the jurisdiction of a court in a title 11 or similar case. [Reserved] # §1.1502-98. Coordination with sections 383 and 163(j). - (a) **Coordination with section 383.** The rules contained in [§§ 1.1502-91 through 1.1502-96](/cfr/26/1.1502-91..1.1502-96.md) also apply for purposes of [section 383](/cfr/26/383.md), with appropriate adjustments to reflect that [section 383](/cfr/26/383.md) applies to credits and net capital losses. For example, subgroups with respect to the carryover of general business credits, minimum tax credits, unused foreign tax, and net capital loss are determined by applying the principles of [§ 1.1502-91(d)(1)](/cfr/26/1.1502-91.md?p=d-1). Similarly, in the case of net capital losses, general business credits, and excess foreign taxes that are pre-change attributes, [§ 1.383-1](/cfr/26/1.383-1.md) applies the principles of [§§ 1.1502-91 through 1.1502-96](/cfr/26/1.1502-91..1.1502-96.md). For example, if a loss group has an ownership change under [§ 1.1502-92](/cfr/26/1.1502-92.md) and has a carryover of unused general business credits from a pre-change consolidated return year to a post-change consolidated return year, the amount of the group's regular tax liability for the post-change year that can be offset by the carryover cannot exceed the consolidated [section 383](/cfr/26/383.md) credit limitation for that post-change year, determined by applying the principles of §§ [1.383-1(c)(6)](/cfr/26/1.383-1.md?p=c-6) and [1.1502-93](/cfr/26/1.1502-93.md) (relating to the computation of the consolidated [section 382](/cfr/26/382.md) limitation). - (b) **Application to section 163(j)—** - (1) **In general.** The regulations in this part under sections 163(j), 382, and 383 of the Code contain rules governing the application of [section 382](/cfr/26/382.md) to interest expense governed by [section 163(j)](/cfr/26/163.md?p=j) and the regulations in this part under [section 163(j)](/cfr/26/163.md?p=j) of the Code. See, for example, §§ [1.163(j)-11(c)](/cfr/26/1.163..11.md), [1.382-2](/cfr/26/1.382-2.md), [1.382-6](/cfr/26/1.382-6.md), [1.382-7](/cfr/26/1.382-7.md), and [1.383-1](/cfr/26/1.383-1.md). The rules contained in [§§ 1.1502-91 through 1.1502-96](/cfr/26/1.1502-91..1.1502-96.md) apply these rules to members of a consolidated group, or corporations that join or leave a consolidated group, with appropriate adjustments. For example, for purposes of [§§ 1.1502-91 through 1.1502-96](/cfr/26/1.1502-91..1.1502-96.md), the term loss group includes a consolidated group in which any member is entitled to use a disallowed business interest expense carryforward, as defined in [§ 1.163(j)-1(b)(11)](/cfr/26/1.163..1.md), that did not arise, and is not treated as arising, in a SRLY with regard to that group. Additionally, a reference to net operating loss carryovers in [§§ 1.1502-91 through 1.1502-96](/cfr/26/1.1502-91..1.1502-96.md) generally includes a reference to disallowed business interest expense carryforwards. References to a loss or losses in [§§ 1.1502-91 through 1.1502-96](/cfr/26/1.1502-91..1.1502-96.md) include references to disallowed business interest expense carryforwards or [section 382](/cfr/26/382.md) disallowed business interest carryforwards, within the meaning of [§ 1.382-2(a)(7)](/cfr/26/1.382-2.md?p=a-7), as appropriate. - (2) **Appropriate adjustments.** For purposes of applying the rules in [§§ 1.1502-91 through 1.1502-96](/cfr/26/1.1502-91..1.1502-96.md) to current-year business interest expense (as defined in [§ 1.163(j)-1(b)(9)](/cfr/26/1.163..1.md)), disallowed business interest expense carryforwards, and [section 382](/cfr/26/382.md) disallowed business interest carryforwards, appropriate adjustments are required.