[Code of Federal Regulations]
[Title 26, Volume 10]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.996-8]

[Page 734]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.996-8  Effect of carryback of capital loss or net operating 
loss to prior DISC taxable year.

    (a) Under Sec. 1.995-2(e), the deduction under section 172 for a 
net operating loss carryback or under section 1212 for a capital loss 
carryback is determined as if the DISC were a domestic corporation which 
had not elected to be treated as a DISC. A carryback of a net operating 
loss or of a capital loss of any corporation which reduces its taxable 
income for a preceding taxable year for which it qualified as a DISC 
will have the consequences enumerated in paragraphs (b) through (e) of 
this section.
    (b) For such preceding taxable year, the amount of a deemed 
distribution of one-half of certain taxable income described in Sec. 
1.995-2(a)(4) will ordinarily be reduced in effect (but not below zero) 
by one-half of the sum of the amount of the deduction under section 172 
for such year for net operating loss carrybacks and the amount of the 
deduction under section 1212 for such year for capital loss carrybacks.
    (c) The amount of reduction in the deemed distribution under 
paragraph (b) of this section will have the effect of increasing the 
limitation, provided in Sec. 1.995-2(b)(2), on the amount of foreign 
investment attributable to producer's loans which is deemed distributed 
under Sec. 1.995-2(a)(5).
    (d) If the amount of a deemed distribution for a preceding taxable 
year is reduced as described in paragraph (b) of this section, then for 
such preceding taxable year the previously taxed income (as defined in 
Sec. 1.996-3(c)) shall be decreased by the amount of such reduction and 
the accumulated DISC income (as defined in Sec. 1.996-3(b)) shall be 
increased by the amount of such reduction. Such adjustments shall be 
made as of the time the deemed distribution for such preceding taxable 
year is treated as having occurred. See Sec. 1.996-1(d) for the 
priority of such deemed distribution in relation to other distributions 
made in that preceding taxable year.
    (e) The amount and treatment of any actual distribution made in such 
preceding taxable year or a year subsequent to such preceding year, and 
the treatment of gain on a disposition (in any such year) of the DISC's 
stock to which Sec. 1.995-4 applies, shall be properly adjusted to 
reflect the adjustments to previously taxed income and accumulated DISC 
income described in paragraph (d) of this section.

[T.D. 7324, 39 FR 35125, Sept. 30, 1974]