[Code of Federal Regulations]
[Title 26, Volume 12]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1502-20T]

[Page 341-347]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1502-20T  Disposition or deconsolidation of subsidiary stock (temporary).

    (a) through (h) [Reserved]. For further guidance, see Sec. 1.1502-
20(a) through (h).
    (i) Limitations on the applicability of Sec. 1.1502-20--(1) 
Dispositions and deconsolidations on or after March 7, 2002. Except to 
the extent specifically incorporated in Sec. 1.337(d)-2T, Sec. 1.1502-
20 does not apply to a disposition or deconsolidation of stock of a 
subsidiary on or after March 7, 2002, unless the disposition or 
deconsolidation was effected pursuant to a binding written contract 
entered into before March 7, 2002, that was in continuous effect until 
the disposition or deconsolidation.
    (2) Dispositions and deconsolidations prior to March 7, 2002. In the 
case of a disposition or deconsolidation of stock of a subsidiary by a 
member before March 7, 2002, or a disposition or deconsolidation on or 
after March 7, 2002, that was effected pursuant to a binding written 
contract entered into before March 7, 2002, that was in continuous 
effect until the disposition or deconsolidation, a consolidated group 
may determine the amount of the member's allowable loss or basis 
reduction by applying Sec. 1.1502-20 in its entirety, or, in lieu 
thereof, subject to the conditions set forth in this paragraph (i), by 
making an irrevocable election to apply the provisions of either--
    (i) Section 1.1502-20, except that in applying Sec. 1.1502-
20(c)(1), the amount of

[[Page 342]]

loss disallowed under Sec. 1.1502-20(a)(1) and the amount of basis 
reduction under Sec. 1.1502-20(b)(1) with respect to a share of stock 
will not exceed the sum of the amounts described in Sec. 1.1502-
20(c)(1)(i) and (ii); or
    (ii) Section 1.337(d)-2T.
    (3) Operating rules--(i) Reattribution of losses in the case of an 
election to determine allowable loss by applying the provisions 
described in paragraph (i)(2)(i) of this section. If a consolidated 
group elects to determine allowable loss by applying the provisions 
described in paragraph (i)(2)(i) of this section, an election described 
in Sec. 1.1502-20(g) to reattribute losses will be respected only if 
the requirements of Sec. 1.1502-20(g), including the requirement that 
the election be filed with the group's income tax return for the year of 
the disposition, have been or are satisfied. For example, if a 
consolidated group did not file a valid election described in Sec. 
1.1502-20(g) with its return for the year of the disposition, this 
section does not authorize the group that disposed of the stock to make 
such an election with its return for the year in which it elects to 
determine its allowable stock loss under the provisions described in 
paragraph (i)(2)(i) of this section. If a consolidated group that made a 
valid election described in Sec. 1.1502-20(g) with respect to the 
disposition of stock elects to determine allowable loss by applying the 
provisions described in paragraph (i)(2)(i) of this section, the 
election described in Sec. 1.1502-20(g) may not be revoked, and the 
amount of loss treated as reattributed as of the time of the disposition 
pursuant to the election described in Sec. 1.1502-20(g) is the amount 
of loss originally reattributed, reduced to the extent that it exceeds 
the greater of--
    (A) The amount of stock loss disallowed after applying the 
provisions described in paragraph (i)(2)(i) of this section; and
    (B) The amount of reattributed losses that the group that disposed 
of the stock absorbed in years for which the assessment of a deficiency 
is prevented by any law or rule of law as of the date the election to 
apply the provisions described in paragraph (i)(2)(i) of this section is 
filed and at all times thereafter.
    (ii) Reattribution of losses in the case of an election to determine 
allowable loss by applying the provisions described in paragraph 
(i)(2)(ii) of this section. If a consolidated group elects to determine 
allowable loss by applying the provisions described in paragraph 
(i)(2)(ii) of this section, the consolidated group may not make an 
election described in Sec. 1.1502-20(g) to reattribute any losses. If 
the consolidated group made an election described in Sec. 1.1502-20(g) 
with respect to the disposition of subsidiary stock, the amount of loss 
treated as reattributed pursuant to such election will be the greater 
of--
    (A) Zero; and
    (B) The amount of reattributed losses that the group that disposed 
of the stock absorbed in years for which the assessment of a deficiency 
is prevented by any law or rule of law as of the date the election to 
apply the provisions described in paragraph (i)(2)(ii) of this section 
is filed and at all times thereafter.
    (iii) Apportionment of section 382 limitation in the case of a 
reduction of reattributed losses--(A) Losses subject to a separate 
section 382 limitation. If, as a result of the application of paragraph 
(i)(3)(i) or (ii) and paragraph (i)(3)(vii) of this section, pre-change 
separate attributes that were subject to a separate section 382 
limitation are treated as losses of a subsidiary and the common parent 
previously elected to apportion all or a part of such limitation to 
itself under Sec. 1.1502-96(d), the common parent may reduce the amount 
of such limitation apportioned to itself.
    (B) Losses subject to a subgroup section 382 limitation. If, as a 
result of the application of paragraph (i)(3)(i) or (ii) and paragraph 
(i)(3)(vii) of this section, pre-change subgroup attributes that were 
subject to a subgroup section 382 limitation are treated as losses of a 
subsidiary and the common parent previously elected to apportion all or 
a part of such limitation to itself under Sec. 1.1502-96(d), the common 
parent may reduce the amount of such limitation apportioned to itself. 
In addition, if such subsidiary has ceased to be a member of the loss 
subgroup to which the pre-change subgroup attributes relate, the common 
parent may increase

[[Page 343]]

the total amount of such limitation apportioned to such subsidiary (or 
loss subgroup that includes such subsidiary) under Sec. 1.1502-95(c) by 
an amount not in excess of the amount by which such limitation that is 
apportioned to the common parent is reduced pursuant to the previous 
sentence.
    (C) Losses subject to a consolidated section 382 limitation. If, as 
a result of the application of paragraph (i)(3)(i) or (ii) and paragraph 
(i)(3)(vii) of this section, pre-change consolidated attributes (or pre-
change subgroup attributes) that were subject to a consolidated section 
382 limitation (or subgroup section 382 limitation where the common 
parent was a member of the loss subgroup) are treated as losses of a 
subsidiary, and the subsidiary has ceased to be a member of the loss 
group (or loss subgroup), the common parent may increase the amount of 
such limitation that is apportioned to such subsidiary (or loss subgroup 
that includes such subsidiary) under Sec. 1.1502-95(c). The amount of 
each element of such limitation that can be apportioned to a subsidiary 
(or loss subgroup that includes such subsidiary) pursuant to this 
paragraph (i)(3)(iii)(C), however, cannot exceed the product of (x) the 
element and (y) a fraction the numerator of which is the amount of pre-
change consolidated attributes (or subgroup attributes) subject to that 
limitation that are treated as losses of the subsidiary (or loss 
subgroup) as a result of the application of paragraph (i)(3)(i) or (ii) 
and paragraph (i)(3)(vii) of this section and the denominator of which 
is the total amount of pre-change attributes subject to that limitation 
determined as of the close of the taxable year in which the subsidiary 
ceases to be a member of the group (or loss subgroup).
    (D) Operating rules--(i) Limitations on apportionment. In making any 
adjustment to an apportionment of a subgroup section 382 limitation or a 
consolidated section 382 limitation pursuant to paragraph (i)(3)(iii)(B) 
or (C) of this section, the common parent must take into account the 
extent, if any, to which such limitation has previously been apportioned 
to another subsidiary or loss subgroup prior to the date the election to 
apply the provisions described in paragraph (i)(2)(i) or (ii) of this 
section is filed.
     (ii) Manner and effect of adjustment to previous apportionment of 
limitation to common parent. Any reduction in a previous apportionment 
of a separate section 382 limitation or a subgroup section 382 
limitation to the common parent made pursuant to paragraph 
(i)(3)(iii)(A) or (B) of this section is treated as effective when the 
previous apportionment was effective. Any such adjustment must be made 
in a manner consistent with the principles of Sec. 1.1502-95(c). For 
example, to the extent the apportionment of a separate section 382 
limitation or a subgroup section 382 limitation to a common parent is 
reduced pursuant to paragraph (i)(3)(iii)(A) or (B) of this section, the 
amount of such limitation available to the subsidiary or loss subgroup, 
as applicable, is increased.
     (iii) Manner and effect of adjustment to apportionment of 
limitation to departing subsidiary or loss subgroup. Any increase in an 
amount of a subgroup section 382 limitation or a consolidated section 
382 limitation apportioned to a departing subsidiary (or loss subgroup 
that includes such subsidiary) made pursuant to paragraph (i)(3)(iii)(B) 
or (C) of this section is treated as effective for taxable years ending 
after the date the subsidiary ceases to be a member of the group or loss 
subgroup. Any such adjustment may be made regardless of whether the 
common parent previously elected to apportion all or a part of such 
limitation to such subsidiary (or loss subgroup that includes such 
subsidiary) under Sec. 1.1502-95(c) or 1.1502-95A(c), but must be made 
in a manner consistent with the principles of Sec. 1.1502-95(c). For 
example, to the extent the apportionment of an element of a subgroup 
section 382 limitation or a consolidated section 382 limitation to a 
departing subsidiary is increased pursuant to paragraph (i)(3)(iii)(B) 
or (C) of this section, the amount of such element of such limitation 
that is available to the loss subgroup or loss group is reduced 
consistent with Sec. 1.1502-95(c)(3).
     (iv) Prohibition against other adjustments. This paragraph 
(i)(3)(iii) does not authorize the common parent to

[[Page 344]]

adjust the apportionment of any separate section 382 limitation, 
subgroup section 382 limitation, or consolidated section 382 limitation 
that it previously apportioned to a subsidiary, to a loss subgroup, or 
to itself under Sec. 1.1502-95(c), 1.1502-95A(c), or 1.1502-96(d), 
other than as provided in paragraphs (i)(3)(iii)(A), (B), and (C) of 
this section.
    (E) Time and manner of making apportionment adjustment. An 
adjustment to the apportionment of any separate section 382 limitation, 
subgroup section 382 limitation, or consolidated section 382 limitation 
pursuant to paragraph (i)(3)(iii)(A), (B), or (C) of this section must 
be made as part of the group's election to apply the provisions of 
paragraph (i)(2)(i) or (ii) of this section, as described in paragraph 
(i)(4) of this section.
    (iv) Notification of reduction of reattributed losses and adjustment 
of apportionment of section 382 limitation. If the application of 
paragraph (i)(3)(i) or (ii) of this section results in a reduction of 
the losses treated as reattributed pursuant to an election described in 
Sec. 1.1502-20(g), then, prior to the date that the group files its 
income tax return for the taxable year that includes March 7, 2002, the 
common parent must send the notification required by this paragraph to 
the subsidiary, at the subsidiary's last known address. In addition, if 
the acquirer of the subsidiary stock was a member of a consolidated 
group at the time of the disposition, the common parent must send a copy 
of such notification to the person that was the common parent of the 
acquirer's group at the time of the acquisition, at its last known 
address. The notification is to be in the form of a statement entitled 
``Recomputation of Losses Reattributed Pursuant to the Election 
Described in Sec. 1.1502-20(g),'' that is signed by the common parent 
and that includes the following information--
    (A) The name and employer identification number (E.I.N.) of the 
subsidiary;
    (B) The original and the recomputed amount of losses treated as 
reattributed pursuant to the election described in Sec. 1.1502-20(g); 
and
    (C) If the apportionment of a separate section 382 limitation, a 
subgroup section 382 limitation, or a consolidated section 382 
limitation is adjusted pursuant to paragraph (i)(3)(iii)(A), (B), or (C) 
of this section, the original and the adjusted apportionment of such 
limitation.
    (v) Items taken into account in open years--(A) General rule. An 
election under paragraph (i)(2) of this section affects a taxpayer's 
items of income, gain, deduction, or loss only to the extent that the 
election gives rise, directly or indirectly, to items or amounts that 
would properly be taken into account in a year for which an assessment 
of deficiency or a refund of overpayment, as the case may be, is not 
prevented by any law or rule of law. Under this paragraph, if the 
election increases the loss allowed with respect to a disposition of 
subsidiary stock, but the year of the disposition (or the year to which 
such loss would have been carried back or carried forward) is a year for 
which a refund of overpayment is prevented by law, to the extent that 
the absorption of such excess loss in such year would have affected the 
tax treatment of another item (e.g., another loss that was absorbed in 
such year) that has an effect in a year for which a refund of 
overpayment is not prevented by any law or rule of law, the election 
will affect the treatment of such other item. Therefore, if the 
absorption of the excess loss in the year of the disposition (which is a 
year for which a refund of overpayment is prevented by law) would have 
prevented the absorption of another loss (the second loss) in such year 
and such loss would have been carried to and used in a year for which a 
refund of overpayment is not prevented by any law or rule of law (the 
other year), the election makes the second loss available for use in the 
other year.
    (B) Special rule. If a member's basis in stock of a subsidiary was 
reduced pursuant to Sec. 1.1502-32 because a loss with respect to stock 
of a lower-tier subsidiary was treated as disallowed under Sec. 1.1502-
20, then, to the extent such disallowed loss is allowed as a result of 
an election under paragraph (i) of the section but would have been 
properly absorbed or expired in a year for which a

[[Page 345]]

refund of overpayment is prevented by law or rule of law, the member's 
basis in the subsidiary stock may be increased for purposes of 
determining the group's or the shareholder-member's Federal income tax 
liability in all years for which a refund of overpayment is not 
prevented by law or rule of law.
    (vi) Conforming amendments for items previously taken into account 
in open years. To the extent that, on any Federal income tax return, the 
common parent absorbed losses that were reattributed pursuant to an 
election described in Sec. 1.1502-20(g) and the amount of losses so 
absorbed is in excess of the amount of losses that are treated as 
reattributed after application of paragraph (i)(3)(i) or (ii) of this 
section, or that may be taken into account after any adjustment to an 
apportionment of a separate section 382 limitation, a subgroup section 
382 limitation, or a consolidated section 382 limitation pursuant to 
paragraph (i)(3)(iii) of this section, such returns must be amended to 
the greatest extent possible to reflect the reduction in the amount of 
losses treated as reattributed and any adjustment to the apportionment 
of such limitation.
    (vii) Availability of losses to subsidiary. To the extent that any 
losses of a subsidiary are reattributed to the common parent pursuant to 
an election described in Sec. 1.1502-20(g), such reattribution is 
binding on the subsidiary and any group of which the subsidiary is or 
becomes a member. Therefore, if the subsidiary ceases to be a member of 
the group, any reattributed losses are not thereafter available to the 
subsidiary and may not be utilized by the subsidiary or any other group 
of which such subsidiary is or becomes a member. To the extent that the 
application of paragraph (i)(3)(i) or (ii) of this section results in a 
reduction in the amount of losses treated as reattributed to the common 
parent pursuant to an election described in Sec. 1.1502-20(g), however, 
losses in the amount of such reduction are available to the subsidiary 
and may be utilized by the subsidiary or any group of which such 
subsidiary is a member, subject to applicable limitations (e.g., section 
382).
    (viii) Apportionment of section 382 limitation in the case of an 
amendment of an election made pursuant to Sec. 1.1502-32(b)(4). (A) In 
general. If, in connection with a disposition or deconsolidation of 
subsidiary stock, the subsidiary the stock of which was disposed of or 
deconsolidated became a member of another consolidated group (the 
acquiring group), and, pursuant to Sec. 1.1502-32T(b)(4)(vii), the 
acquiring group amends an election made pursuant to Sec. 1.1502-
32(b)(4) to treat all or a portion of the loss carryovers of such 
subsidiary (or a lower-tier corporation of such subsidiary) as expiring 
for all Federal income tax purposes, then the common parent may 
reapportion a separate, subgroup, or consolidated section 382 limitation 
with respect to such subsidiary or lower-tier corporation in a manner 
consistent with the principles of paragraph (i)(3)(iii)(A) through (D) 
of this section. Any reapportionment of a section 382 limitation made 
pursuant to the previous sentence shall have the effects described in 
paragraph (i)(3)(iii)(D)(ii) and (iii) of this section. For purposes of 
this section, a lower-tier corporation is a corporation that was a 
member of the group of which the subsidiary was a member immediately 
before becoming a member of the acquiring group and that became a member 
of the acquiring group as a result of the subsidiary becoming a member 
of the acquiring group.
    (B) Time and manner of adjustment of apportionment of section 382 
limitation. The common parent must include a statement entitled 
Adjustment of Apportionment of Section 382 Limitation in Connection with 
Amendment of Election under Sec. 1.1502-32(b)(4) with or as part of any 
timely filed (including any extensions) original return for a taxable 
year that includes any date on or before May 7, 2003 or with or as part 
of an amended return filed before the date the original return for the 
taxable year that includes May 7, 2003 is due (with regard to 
extensions). The statement must set forth the name and employer 
identification number (E.I.N.) of the subsidiary and both the original 
and the adjusted apportionment of a separate section 382 limitation, a 
subgroup

[[Page 346]]

section 382 limitation, and a consolidated section 382 limitation, as 
applicable. The requirements of this paragraph (i)(3)(viii)(B) will be 
treated as satisfied if the information required by this paragraph 
(i)(3)(viii)(B) is included in the statement required by paragraph 
(i)(4) of this section rather than in a separate statement.
    (C) Effective date. This paragraph (i)(3)(viii) is applicable on and 
after May 7, 2003.
    (4) Time and manner of making the election. An election to determine 
allowable loss or basis reduction by applying the provisions described 
in paragraph (i)(2)(i) or (ii) of this section is made by including the 
statement required by this paragraph with or as part of any timely filed 
(including any extensions) original return for a taxable year that 
includes any date on or before March 7, 2002, or, if the date of the 
disposition or deconsolidation of the stock of the subsidiary is after 
March 7, 2002, then such date, or with or as part of an amended return 
filed before the date the original return for the taxable year that 
includes March 7, 2002, is due (including any extensions). Filing a 
statement in accordance with the provisions of this paragraph satisfies 
the requirement to file a ``statement of allowed loss'' otherwise 
imposed under Sec. 1.1502-20(c)(3) or Sec. 1.337(d)-2T(c)(3). The 
statement required by this paragraph satisfies the requirement that a 
statement be filed in order to claim allowable loss or basis reduction 
by applying the provisions described in paragraph (i)(2)(i) or (ii). The 
statement filed under this paragraph shall be entitled ``Allowed Loss 
under Section [Specify Section under Which Allowed Loss Is Determined] 
Pursuant to Section 1.1502-20T(i)'' and must include the following 
information--
    (i) The name and employer identification number (E.I.N.) of the 
subsidiary and of the member(s) that disposed of the subsidiary stock;
    (ii) In the case of an election to determine allowable loss or basis 
reduction by applying the provisions described in paragraph (i)(2)(i) of 
this section, a statement that the taxpayer elects to determine 
allowable loss or basis reduction by applying such provisions;
    (iii) In the case of an election to determine allowable loss or 
basis reduction by applying the provisions described in paragraph 
(i)(2)(ii) of this section, a statement that the taxpayer elects to 
determine allowable loss or basis reduction by applying such provisions;
    (iv) If an election described in Sec. 1.1502-20(g) was made with 
respect to the disposition of the stock of the subsidiary, the amount of 
losses originally treated as reattributed pursuant to such election and 
the amount of losses treated as reattributed pursuant to paragraph 
(i)(3)(i) or (ii) of this section;
    (v) If an apportionment of a separate section 382 limitation, a 
subgroup section 382 limitation, or a consolidated section 382 
limitation is adjusted pursuant to paragraph (i)(3)(iii)(A), (B), or (C) 
of this section, the original and redetermined apportionment of such 
limitation; and
    (vi) If the application of paragraph (i)(3)(i) or (ii) of this 
section results in a reduction of the amount of losses treated as 
reattributed pursuant to an election described in Sec. 1.1502-20(g), a 
statement that the notification described in paragraph (i)(3)(iv) of 
this section was sent to the subsidiary and, if the acquirer was a 
member of a consolidated group at the time of the stock sale, to the 
person that was the common parent of such group at such time, as 
required by paragraph (i)(3)(iv) of this section.
    (5) Special time for filing election in the case of a waiver under 
Sec. 1.1502-32(b)(4). (i) In general. Notwithstanding the provisions of 
paragraph (i)(4) of this section, the election to determine allowable 
loss or basis reduction provided in this paragraph (i) may be made by 
including the statement required by paragraph (i)(4) of this section 
with or as part of an original or amended return that is filed on or 
before June 15, 2003, if--
    (A) The group that includes the acquirer of the subsidiary stock 
made an election pursuant to Sec. 1.1502-32(b)(4) to treat all or a 
portion of the loss carryovers of the subsidiary (or a lower-tier 
corporation of such subsidiary) as expiring for all Federal income tax 
purposes;

[[Page 347]]

    (B) The timely filing of an election to determine allowable loss or 
basis reduction by applying the provisions described in paragraph 
(i)(2)(i) or (ii) of this section would permit the acquiring group to 
amend its election under Sec. 1.1502-32(b)(4) pursuant to Sec. 1.1502-
32T(b)(4)(vii);
    (C) June 6, 2003 is after the date the original return of the 
consolidated group for the taxable year that includes March 7, 2002, is 
due (including extensions); and
    (D) The statement required by paragraph (i)(4) of this section 
specifies that the filing of the election is permitted under this 
paragraph (i)(5).
    (ii) Effective date. This paragraph (i)(5) is applicable on and 
after May 7, 2003.
    (6) Cross references. See Sec. 1.1502-32(b)(4)(v) for a special 
rule for filing a waiver of loss carryovers.

[T.D. 8984, 67 FR 11037, Mar. 12, 2002, as amended by T.D. 8998, 67 FR 
38000, May 31, 2002; T.D. 9057, 68 FR 24353, May 7, 2003]

                    Computation of Consolidated Items