[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: 26CFR1.1502-96]

[Page 534-541]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1502-96  Miscellaneous rules.

    (a) End of separate tracking of losses--(1) Application. This 
paragraph (a) applies to a member (or a loss subgroup) with a net 
operating loss carryover that arose (or is treated under Sec. 1.1502-
21(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

[[Page 535]]

loss subgroup) has not had an ownership change.
    (2) Effect of end of separate tracking--(i) Net operating loss 
carryovers. If this paragraph (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) of this section, such loss carryover is treated as 
described in Sec. 1.1502-91(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 Sec. 1.1502-91(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 limitation.
    (ii) Net unrealized built-in losses. If this paragraph (a) applies 
with respect to a new loss member described in Sec. 1.1502-94(a)(1)(ii) 
(or a loss subgroup described in Sec. 1.1502-91(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) of this section, the member (or members of the loss subgroup) 
are treated, for purposes of applying Sec. 1.1502-91(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 Sec. 1.1502-91(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 Sec. 1.1502-91(e)(1) (relating to recognized built-in 
losses) that are subject to the group's consolidated section 382 
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 Sec. 1.1502-
75(d)(2)(ii) or (3), appropriate adjustments must be made in applying

[[Page 536]]

paragraphs (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 Sec. 1.1502-91(f)(2). For this purpose, corporations 
that are treated under paragraph (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) 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) 
of this section applied are treated as not having been previously 
affiliated, for purposes of applying this paragraph (a)(3), with the 
corporations to which paragraph (a)(2)(ii) of this section did not 
apply.
    (ii) Example. The following example illustrates the principles of 
this paragraph (a)(3):

    Example. (i) L has owned all the stock of L1 for three years. At the 
close of December 31, Year 1, the M group purchases all the L stock, and 
L and L1 become members of the M group. Other than the stock of L1, L 
has one asset (the L loss asset) with a net unrealized built-in loss of 
$200 on this date. L1 has one asset with a net unrealized built-in gain 
of $50 (the L1 gain asset). L and L1 do not compose a loss subgroup 
because they do not meet the five year affiliation requirement of Sec. 
1.1502-91(d)(2)(i). L is a new loss member, and M's purchase of L causes 
an ownership change of L. At the close of December 31, Year 4, at a time 
when L1 has been affiliated with the M group for three years and has 
been affiliated with L for six years, the S group purchases all the M 
stock. On this date, the L loss asset has a net unrealized built-in loss 
of $300, the L1 gain asset has a net unrealized built-in gain of $80, 
and M, the common parent of the M group, has one asset with a net 
unrealized built-in gain of $200.
    (ii) Paragraph (a)(1) of this section applies to L because L is a 
new loss member described in Sec. 1.1502-94(a)(1)(ii) that has an 
ownership change upon becoming a member of the M group on December 31, 
Year 1. Accordingly, L is treated as having been affiliated with M for 5 
consecutive years, and the L loss asset with a net unrealized built-in 
loss of $300 is included in the determination whether the M group has a 
net unrealized built-in loss.
    (iii) The S group determines which of its members are included in a 
loss subgroup by taking into account application of paragraph (a) of 
this section in the M group. For this purpose, application of paragraph 
(a) of this section causes L to be treated as having been affiliated 
with M (or as having been a member of the M group) for 5 consecutive 
years as of January 1, Year 2. Therefore, the S group includes L in the 
determination whether the M subgroup acquired by S on December 31, Year 
4, has a net unrealized built-in loss.
    (iv) Because paragraph (a)(1) of this section applied to L when L 
became a member of the M group, but did not apply to L1, L is treated as 
not having been affiliated with L1 before L and L1 joined the M group. 
Also, L1 is not included in the determination whether the M subgroup has 
a net unrealized built-in loss because L1 has not been continuously 
affiliated with members of the M group for the five consecutive year 
period ending immediately before they become members of the S group. See 
Sec. 1.1502-91(g)(2).

    (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) of this section are considered to 
arise--
    (i) In a case described in paragraph (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) 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) applies solely for purposes of 
Sec. Sec. 1.1502-91 through 1.1502-95 and this section (other than 
paragraph

[[Page 537]]

(b)(2)(ii)(B) of this section (relating to the definition of pre-change 
attributes of a subsidiary)) and Sec. 1.1502-98, and not for purposes 
of other provisions of the consolidated return regulations. However, the 
rule contained in this paragraph (a) does apply in Sec. Sec. 1.1502-
15(g), 1.1502-21(g) and 1.1502-22(g) for purposes of determining the 
composition of loss subgroups defined in Sec. 1.1502-91(d). See also 
paragraph (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 
Sec. 1.1502-92, a subsidiary may have an ownership change for purposes 
of section 382 with respect to its attributes which a group or loss 
subgroup includes in making a determination under Sec. 1.1502-91(c)(1) 
(relating to the definition of loss group) or Sec. 1.1502-91(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 Sec. 1.1502-95(b) and section 382 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 Sec. 1.382-4(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 
Sec. 1.382-4(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) 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 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 Sec. 1.1502-21(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 Sec. 1.1502-21(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 Sec. Sec. 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) and under 
Sec. 1.1502-92 on the same day, the ownership change is considered to 
occur only under Sec. 1.1502-92 and not under this paragraph (b). See 
Sec. 1.1502-94 for anti-duplication rules relating to value.
    (4) Example. The following example illustrates paragraph (b)(1)(ii) 
of this section:

    Example. Plan to avoid an ownership change of a subsidiary. (i) L 
owns all the stock of L1, L1 owns all the stock of L2, L2 owns all the 
stock of L3, and L3 owns all the stock of L4. The L group has a 
consolidated net operating loss arising in Year 1 that is carried over 
to Year 2. L has assets other than its L1 stock with a value of $900. 
L1, L2, and L3 own no assets other than their L2, L3, and L4 stock. L4 
has assets with a value of $100. During Year 2, A, B, C, and D, acting 
pursuant to a plan to avoid an ownership change of L4, acquire the 
following ownership interests in the members of the L loss group: (A) on 
September 11, Year 2, A acquires 20 percent of the L1 stock from L and B 
acquires 20 percent of the L2 stock from L1; and (B) on September 20, 
Year 2, C acquires 20 percent of the stock of L3 from L2 and D acquires 
20 percent of the stock of L4 from L3.

[[Page 538]]

    (ii) The acquisitions by A, B, C, and D pursuant to the plan have 
increased their respective percentage ownership interests in L4 by 
approximately 10, 13, 16, and 20 percentage points, for a total of 
approximately 59 percentage points during the testing period. This more 
than 50 percentage point increase in the percentage ownership interest 
in L4 causes an ownership change of L4 under paragraph (b)(2) 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 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 Sec. 1.382-5(d) (relating to 
successive ownership changes and absorption of a section 382 
limitation).
    (d) Losses reattributed under Sec. 1.1502-20(g)--(1) In general. 
This paragraph (d) contains rules relating to net operating carryovers 
that are reattributed to the common parent under Sec. 1.1502-20(g). 
References in this paragraph (d) to a subsidiary are references to the 
subsidiary (or lower tier subsidiary) whose net operating loss carryover 
is reattributed to the common parent.
    (2) Deemed section 381(a) transaction. Under Sec. 1.1502-20 (g)(1), 
the common parent succeeds to the reattributed losses as if the losses 
were succeeded to in a transaction described in section 381(a). In 
general, Sec. Sec. 1.1502-91 through 1.1502-95, this section, and Sec. 
1.1502-98 are applied to the reattributed net operating loss carryovers 
in accordance with that characterization. See generally, Sec. 1.382-
2(a)(1)(ii) (relating to distributor or transferor loss corporations in 
transactions under section 381), Sec. 1.1502-(1)(f)(4) (relating to the 
definition of predecessor and successor) and Sec. 1.1502-91(j) 
(relating to predecessor and successor corporations). For example, if 
the reattributed net operating loss carryover is a pre-change attribute 
subject to a section 382 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) 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) or 382(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 
net operating loss carryover. However, any owner shift with respect to 
the successor corporation that is treated as continuing in existence 
under Sec. 1.382-2(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) Example 2 of this section.
    (ii) Examples. The following examples illustrate the principles of 
this paragraph (d)(3):

    Example 1. No owner shift for reattributed loss. (i) P, the common 
parent of a consolidated group, owns 60% of the stock of L, and B owns 
the remaining 40%. L has a net operating loss carryover of $100 from 
year 1 that it carries over to Years 2, 3, and 4. At the beginning of 
Year 2, P purchases 40% of the L stock from B, which does not cause an 
ownership change of L. On December 31, Year 3, P sells all of the L 
stock to M. Pursuant to Sec. 1.1502-20(g), P reattributes $10 of L's 
$100 net operating loss carryover to itself, and L carries $90 of its 
net operating loss carryover to its Year 4.
    (ii) The sale of the L stock to M does not cause an owner shift that 
is taken into account in determining if there is an ownership change 
with respect to the $10 reattributed loss. Following the reattribution, 
Sec. 1.1502-94(b) continues to apply to determine if there is an 
ownership change with respect to the $10 reattributed loss, until, under 
paragraph (a) of this section, the loss is treated as described in Sec. 
1.1502-91(c)(1)(i). In applying Sec. 1.1502-94(b), the 40 percentage 
point increase by the P shareholders prior to the reattribution is taken 
into account. The sale of the L stock to M does cause an ownership 
change of L with respect to the $90 of its net operating loss that it 
carries over to Year 4.
    Example 2. Owner shift for reattributed loss. The facts are the same 
as in Example 1, except that P only purchases 20% of the L stock from B 
and sells 80% of the L stock to M. L is a new loss member, and, under 
Sec. 1.1502-94(b)(1), an owner shift of the stock of L not held 
directly or indirectly by the common parent (the 20% of L stock still 
held by B) would have been taken into account if

[[Page 539]]

such shift had occurred immediately before the reattribution. Following 
the reattribution, Sec. 1.1502-94(b) continues to apply to determine if 
there is an ownership change with respect to the $10 reattributed loss, 
until, under paragraph (a) of this section, the loss is treated as 
described in Sec. 1.1502-91(c)(1)(i). With respect to the $10 
reattributed loss, the P shareholders have increased their percentage 
ownership interest by 40 percentage points. The P shareholders have 
increased their ownership interests by 20 percentage points as a result 
of P's purchase of stock from B, and, under Sec. 1.382-2(a)(1)(ii), are 
treated as increasing their interests by an additional 20 percentage 
points as a result of the reattribution. (The acquisition of the L stock 
by M does not, however, effect an owner shift for the $10 of 
reattributed loss.) The sale of the L stock to M causes an ownership 
change of L with respect to the $90 of net operating loss that L carries 
over to Year 4.

    (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 net operating loss carryover is a pre-change separate 
attribute of a new loss member that is subject to a separate section 382 
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) of this section, all or part of such limitation. A separate 
section 382 limitation is the limitation described in Sec. 1.1502-94(b) 
that applies to a pre-change separate attribute.
    (ii) Reattributed loss is a pre-change subgroup attribute. If the 
reattributed net operating loss carryover is a pre-change subgroup 
attribute subject to a subgroup section 382 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 limitation with respect to that net operating loss 
carryover is zero, except to the extent that the common parent 
apportions to itself, under paragraph (d)(5) of this section, all or 
part of the subgroup section 382 limitation. See, however, Sec. 1.1502-
95(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 limitation for an ownership change with respect to the reattributed 
net operating loss carryover that occurs at the time of, or after, the 
reattribution. For example, if the net operating loss carryover is a 
pre-change consolidated attribute, the value of the stock of the common 
parent is used to determine the section 382 limitation, and no 
adjustment to that value is required because of the deemed section 
381(a) transaction. However, if the net operating loss carryover 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) 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). Accordingly, if that section 
applies because the deemed capital contribution is (or is considered 
under section 382(l)(1)(B) to be) part of a plan described in section 
382(l)(1)(A), the value of the stock of the common parent after the 
deemed section 381(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 limitation with respect to the reattributed net operating loss 
carryover 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) of this

[[Page 540]]

section, proper adjustments must be made so that the value of the 
subsidiary is not taken into account more than once in determinining the 
section 382 limitation for the reattributed loss and the loss that is 
not reattributed.
    (v) Special rule for continuity of business requirement. If the 
reattributed net operating loss carryover 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) is applied with respect to the business enterprise of the 
common parent. Similar principles apply if the reattributed net 
operating loss carryover 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 limitation or subgroup section 382 
limitation to which the net operating loss carryover is subject 
immediately before the reattribution. However, no net unrealized built-
in gain of the member (or loss subgroup) whose net operating loss 
carryover is reattributed can be apportioned to the common parent. The 
principles of Sec. 1.1502-95(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 
limitation as references to the separate section 382 limitation (or 
subgroup section 382 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 limitation of the subsidiary 
whose net operating loss carryover is reattributed (or in the subgroup 
section 382 limitation if the reattributed loss is a pre-change subgroup 
attribute). Appropriate adjustments must be made to the separate section 
382 limitation (or subgroup section 382 limitation) for the consolidated 
return year in which the reattribution is made to reflect that the 
reattributed net operating loss carryover is an attribute acquired by 
the common parent during the year in a transaction to which section 
381(a) applies. The election is made by the common parent as part of the 
election to reattribute the net operating loss carryover. See Sec. 
1.1502-20(g)(4) for the time and manner of making the election.
    (ii) Examples. The following examples illustrate the principles of 
this paragraph (d)(5):

    Example 1. Consequence of apportionment. (i) P, the common parent of 
a consolidated group, purchases all of the stock of L on December 31, 
Year 1. L carries over a net operating loss arising in Year 1 to each of 
the next 5 taxable years. The purchase of the L stock causes an 
ownership change of L, and results in a separate section 382 limitation 
of $10 for L's net operating loss carryover based on the value of the L 
stock. On July 2, Year 3, P sells 30 percent of the L stock to A. Under 
Sec. 1.1502-20(g), P elects to apportion to itself $110 of L's $200 net 
operating loss carryover. P also elects to apportion to itself $6 of the 
$10 value element of the separate section 382 limitation.
    (ii) For the consolidated return years ending after December 31, 
Year 3, P's separate section 382 limitation with respect to the 
reattributed net operating loss carryover is $6, adjusted as appropriate 
for any short taxable year, unused section 382 limitation, or other 
adjustment. For the P group's consolidated return year ending December 
31, Year 3, the separate section 382 limitation for L's net operating 
loss carryover is $8, the sum of $5 and $3. Five dollars of the 
limitation is the amount that bears the same relationship to $10 as the 
number of days in the period ending with the deemed section 381(a) 
transaction, 183 days, bears to 365. Three dollars of the limitation is 
the amount that bears the same relationship to $6 as the number of days 
in the period between July 3 and December 31, 182, bears to 365.
    (iii) For L's taxable years ending after December 31, Year 3, L's 
separate section 382 limitation for its $90 of net operating loss 
carryover that was not reattributed to P is $4, adjusted as appropriate 
for any short taxable year, unused section 382 limitation, or other 
adjustment. For L's short taxable year ending December 31, Year 3, the 
section 382 limitation for its $90 of net operating loss carryover is 
$2, the amount that bears the same relationship to $4 (the portion of 
the value element that was not apportioned to P), as the number of days 
during the short

[[Page 541]]

taxable year, 182 days, bears to 365. See Sec. 1.382-5(c).
    Example 2. No apportionment required for consolidated pre-change 
attribute. (i) P, the common parent of a consolidated group, forms L. 
For Year 1, L has an operating loss of $70 that is not absorbed and is 
included in the group's consolidated net operating loss that is carried 
over to subsequent years. On January 1 of Year 3, A buys all of the P 
stock and the P group has an ownership change. The consolidated section 
382 limitation based on the value of the P stock is $10.
    (ii) On April 13 of Year 4, P sells all of the stock of L to B and, 
under Sec. 1.1502-20(g), elects to reattribute to itself $45 of L's net 
operating loss carryover. Following the reattribution, the $45 portion 
of the Year 1 net operating loss carryover retains its character as a 
pre-change consolidated attribute, and remains subject to so much of the 
$10 consolidated section 382 limitation as P does not elect to apportion 
to L under Sec. 1.1502-95(c).

    (e) Time and manner of making election under Sec. 1.1502-91(d)(4)--
(1) In general. This paragraph (e) prescribes the time and manner of 
making the election under Sec. 1.1502-91(d)(4), relating to treating 
two or more corporations as treating the section 1504(a)(1) requirement 
of Sec. 1.1502-91(d)(1)(ii) and (d)(2)(ii) as satisfied.
    (2) Election statement. An election under Sec. 1.1502-91(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 Sec. 1.1502-
91(d)(4) TO TREAT THE FOLLOWING CORPORATIONS AS MEETING THE REQUIREMENTS 
OF Sec. 1.1502-91 (d)(1)(ii) AND (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.

[T.D. 8824, 64 FR 36170, July 2, 1999]