[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: 26CFR1.1502-79A]

[Page 584-586]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1502-79A  Separate return years generally applicable for consolidated 
return years beginning before January 1, 1997.

    (a) Carryover and carryback of consolidated net operating losses to 
separate return years--(1) In general. (i) If a consolidated net 
operating loss can be carried under the principles of section 172(b) and 
paragraph (b) of Sec. 1.1502-21A to a separate return year of a 
corporation (or could have been so carried if such corporation were in 
existence) which was a member in the year in which such loss arose, then 
the portion of such consolidated net operating loss attributable to such 
corporation (as determined under subparagraph (3) of this paragraph) 
shall be apportioned to such corporation (and any successor to such 
corporation in a transaction to which section 381(a) applies) and shall 
be a net operating loss carryover or carryback to such separate return 
year; accordingly, such portion shall not be included in the 
consolidated net operating loss carryovers or carrybacks to the 
equivalent consolidated return year. Thus, for example, if a member 
filed a separate return for the third year preceding a consolidated 
return year in which a consolidated net operating loss was sustained and 
if any portion of such loss is apportioned to such member for such 
separate return year, such portion may not be carried back by the group 
to its third year preceding such consolidated return year.
    (ii) If a corporation ceases to be a member during a consolidated 
return year, any consolidated net operating loss carryover from a prior 
taxable year must first be carried to such consolidated return year, 
notwithstanding that all or a portion of the consolidated net operating 
loss giving rise to the carryover is attributable to the corporation 
which ceases to be a member. To the extent not absorbed in such 
consolidated return year, the portion of the consolidated net operating 
loss attributable to the corporation ceasing to be a member shall then 
be carried to such corporation's first separate return year.
    (iii) For rules permitting the reattribution of losses of a 
subsidiary to the common parent in the case of loss disallowance or 
basis reduction on the disposition or deconsolidation of stock of the 
subsidiary, see Sec. 1.1502-20.
    (2) Nonapportionment to certain members not in existence. 
Notwithstanding subparagraph (1) of this paragraph, the portion of a 
consolidated net operating loss attributable to a member shall not be 
apportioned to a prior separate return year for which such member was 
not in existence and shall be included in the consolidated net operating 
loss carrybacks to the equivalent consolidated return year of the group 
(or, if such equivalent year is a separate return year, then to such 
separate return year), provided that such member was a member of the 
group immediately after its organization.

[[Page 585]]

    (3) Portion of consolidated net operating loss attributable to a 
member. The portion of a consolidated net operating loss attributable to 
a member of a group is an amount equal to the consolidated net operating 
loss multiplied by a fraction, the numerator of which is the separate 
net operating loss of such corporation, and the denominator of which is 
the sum of the separate net operating losses of all members of the group 
in such year having such losses. For purposes of this subparagraph, the 
separate net operating loss of a member of the group shall be determined 
under Sec. 1.1502-12 (except that no deduction shall be allowed under 
section 242), adjusted for the following items taken into account in the 
computation of the consolidated net operating loss:
    (i) The portion of the consolidated dividends received deduction, 
the consolidated charitable contributions deductions, and the 
consolidated section 247 deduction, attributable to such member;
    (ii) Such member's capital gain net income (net capital gain for 
taxable years beginning before January 1, 1977) (determined without 
regard to any net capital loss carryover attributable to such member);
    (iii) Such member's net capital loss and section 1231 net loss, 
reduced by the portion of the consolidated net capital loss attributable 
to such member (as determined under paragraph (b)(2) of this section); 
and
    (iv) The portion of any consolidated net capital loss carryover 
attributable to such member which is absorbed in the taxable year.
    (4) Examples. The provisions of this paragraph may be illustrated by 
the following examples:

    Example (1). (i) Corporation P was formed on January 1, 1966. P 
filed a separate return for the calendar year 1966. On March 15, 1967, P 
formed corporation S. P and S filed a consolidated return for 1967. On 
January 1, 1968, P purchased all the stock of corporation T, which had 
been formed in 1967 and had filed a separate return for its taxable year 
ending December 31, 1967.
    (ii) P, S, and T join in the filing of a consolidated return for 
1968, which return reflects a consolidated net operating loss of 
$11,000. $2,000 of such consolidated net operating loss is attributable 
to P, $3,000 to S, and $6,000 to T. Such apportionment of the 
consolidated net operating loss was made on the basis of the separate 
net operating losses of each member as determined under subparagraph (3) 
of this paragraph.
    (iii) $5,000 of the 1968 consolidated net operating loss can be 
carried back to P's separate return for 1966. Such amount is the portion 
of the consolidated net operating loss attributable to P and S. Even 
though S was not in existence in 1966, the portion attributable to S can 
be carried back to P's separate return year, since S (unlike T) was a 
member of the group immediately after its organization. The 1968 
consolidated net operating loss can be carried back against the group's 
income in 1967 except to the extent (i.e., $6,000) that it is 
apportioned to T for its 1967 separate return year and to the extent 
that it was absorbed in P's 1966 separate return year. The portion of 
the 1968 consolidated net operating loss attributable to T ($6,000) is a 
net operating loss carryback to its 1967 separate return.
    Example (2). (i) Assume the same facts as in example (1). Assume 
further that on June 15, 1969, P sells all the stock of T to an 
outsider, that P and S file a consolidated return for 1969 (which 
includes the income of T for the period January 1 through June 15), and 
that T files a separate return for the period June 16 through December 
31, 1969.
    (ii) The 1968 consolidated net operating loss, to the extent not 
absorbed in prior years, must first be carried to the consolidated 
return year 1969. Any portion of the $6,000 amount attributable to T 
which is not absorbed in T's 1967 separate return year or in the 1969 
consolidated return year shall then be carried to T's separate return 
year ending December 31, 1969.

    (b) Carryover and carryback of consolidated net capital loss to 
separate return years--(1) In general. If a consolidated net capital 
loss can be carried under the principles of section 1212(a) and 
paragraph (b) of Sec. 1.1502-22A to a separate return year of a 
corporation (or could have been so carried if such corporation were in 
existence) which was a member of the group in the year in which such 
consolidated net capital loss arose, then the portion of such 
consolidated net capital loss attributable to such corporation (as 
determined under subparagraph (2) of this paragraph) shall be 
apportioned to such corporation (and any successor to such corporation 
in a transaction to which section 381(a) applies) under the principles 
of paragraph (a) (1), (2) and (3) of this section and shall be a net 
capital loss carryback or carryover to such separate return year.

[[Page 586]]

    (2) Portion of consolidated net capital loss attributable to a 
member. The portion of a consolidated net capital loss attributable to a 
member of a group is an amount equal to such consolidated net capital 
loss multiplied by a fraction, the numerator of which is the net capital 
loss of such member, and the denominator of which is the sum of the net 
capital losses of those members of the group having net capital losses. 
For purposes of this subparagraph, the net capital loss of a member of 
the group shall be determined by taking into account the following:
    (i) Such member's capital gain net income (net capital gain for 
taxable years beginning before January 1, 1977) or loss (determined 
without regard to any net capital loss carryover or carryback); and
    (ii) Such member's section 1231 net loss, reduced by the portion of 
the consolidated section 1231 net loss attributable to such member.
    (c)-(e) [Reserved]
    (f) Effective date. Paragraphs (a) and (b) of this section apply to 
losses arising in consolidated return years to which Sec. 1.1502-21T(g) 
does not apply. For this purpose net operating loss deductions, 
carryovers, and carrybacks arise in the year from which they are 
carried. See Sec. 1.1502-21T(g) for effective dates of that section.

[T.D. 8677, 61 FR 33334, June 27, 1996]

  Regulations Applying Section 382 With Respect to Testing Dates (and 
  Corporations Joining or Leaving Consolidated Groups) Before June 25, 
                                  1999