Carryback of Consolidated Net Operating Losses, 40892-40899 [2020-14426]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 85, Number 131 (Wednesday, July 8, 2020)]
[Rules and Regulations]
[Pages 40892-40899]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14426]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9900]
RIN 1545-BP84


Carryback of Consolidated Net Operating Losses

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations under section 
1502 of the Internal Revenue Code (Code) that affect corporations 
filing consolidated returns. These regulations permit consolidated 
groups that acquire new members that were members of another 
consolidated group to elect in a year subsequent to the year of 
acquisition to waive all or part of the pre-acquisition portion of an 
extended carryback period under section 172 of the Code for certain 
losses attributable to the acquired members where there is a 
retroactive statutory extension of the NOL carryback period under 
section 172. These regulations respond to the enactment of section 2303 
of the CARES Act, which retroactively extends the carryback period 
under section 172 for taxable years beginning after 2017 and before 
2021.

DATES: 
    Effective date: These temporary regulations are effective on July 
2, 2020.
    Applicability date: For the date of applicability, see Sec.  
1.1502-21T(h)(9).

FOR FURTHER INFORMATION CONTACT: Jonathan R. Neuville, at (202) 317-
5363 (not a toll-free number).

SUPPLEMENTARY INFORMATION: The text of these temporary regulations also 
serves as the text of part of the proposed regulations set forth in the 
related notice of proposed rulemaking on this subject (REG-125716-18) 
in the Proposed Rules section in this issue of the Federal Register.

Background

    This Treasury decision amends the Income Tax Regulations (26 CFR 
part 1) under section 1502 of the Code. Section 1502 authorizes the 
Secretary of the Treasury or his delegate (Secretary) to prescribe 
regulations for an affiliated group of corporations that join in filing 
(or that are required to join in filing) a consolidated return 
(consolidated group) to reflect clearly the Federal income tax 
liability of the consolidated group and to prevent avoidance of such 
tax liability. See Sec.  1.1502-1(h) (defining the term ``consolidated 
group''). For purposes of carrying out those objectives, section 1502 
also permits the Secretary to prescribe rules that may be different 
from the provisions of chapter 1 of the Code that would apply if the 
corporations composing the consolidated group filed separate returns. 
Terms used in the consolidated return regulations generally are defined 
in Sec.  1.1502-1.
    The Department of the Treasury (Treasury Department) and the IRS 
are issuing these temporary regulations to provide guidance to 
consolidated groups regarding the application of the net operating loss 
(NOL) carryback rules under section 172(b) of the Code, as amended by 
(i) section 2303(b) of the Coronavirus Aid, Relief, and Economic 
Security Act, Public Law 116-136, 134 Stat. 281 (March 27, 2020) (CARES 
Act), and (ii) any future statutory amendments to section 172. 
Specifically, if there is a retroactive statutory extension of the NOL 
carryback period under section 172, these temporary regulations permit 
consolidated groups that acquired new members that were members of 
another consolidated group prior to the statutory change to elect to 
waive, in a taxable year subsequent to the taxable year of the 
acquisition, all or part of the pre-acquisition portion of an extended 
carryback period (as defined in part I of the Explanation of 
Provisions) under section 172 for consolidated net operating losses 
(CNOLs) attributable to the acquired members.

I. NOL Carrybacks and Carryovers Under Section 172

    For purposes of section 172, an NOL equals the excess of a 
taxpayer's deductions allowed by chapter 1 of the Code over the 
taxpayer's gross income, computed with the modifications specified in 
section 172(d). Section 172(c). For a taxable year beginning before 
January 1, 2021, section 172(a)(1) allows as a deduction an amount 
equal to the aggregate of the NOL carryovers and carrybacks to such 
year. As amended by section 2303(b)(2) of the CARES Act, section 
172(b)(1)(A)(i) of the Code provides that an NOL for any taxable year 
must be an NOL carryback to the extent provided in section 
172(b)(1)(B), 172(b)(1)(C)(i), and 172(b)(1)(D).
A. Tax Cuts and Jobs Act Amendments to Section 172
    Prior to enactment of the CARES Act, section 172 was most recently 
amended by Public Law 115-97, 131 Stat. 2054 (December 22, 2017), 
commonly referred to as the Tax Cuts and Jobs Act (TCJA). In relevant 
part, section 13302(b) of the TCJA amended section 172(b) to generally 
prohibit the carryback of NOLs arising in taxable years beginning after 
December 31, 2017 (post-2017 NOLs). The TCJA also provided limited 
exceptions to the general carryback prohibition by amending sections 
172(b)(1)(B) and 172(b)(1)(C)(i) to provide that farming losses (within 
the meaning of section 172(b)(1)(B)(ii)) and losses incurred by 
insurance companies (as defined in section 816(a) of the Code) other 
than life insurance companies (non-life insurance companies), 
respectively, must be carried back to each of the two taxable years 
preceding the taxable year of the loss. Therefore, prior to enactment 
of the CARES Act, taxpayers generally could not carry back post-2017 
NOLs to prior taxable years.

[[Page 40893]]

B. CARES Act Amendments to Section 172
    Section 2303(b) of the CARES Act added section 172(b)(1)(D) to the 
Code. This provision contains an additional exception to the general 
prohibition of NOL carrybacks. Specifically, section 172(b)(1)(D) 
provides that an NOL arising in a taxable year beginning after December 
31, 2017, and before January 1, 2021, must be carried back to each of 
the five taxable years preceding the taxable year in which that NOL 
arises (five-year carryback period). Section 172(b)(2) requires 
taxpayers to carry the entire amount of such NOL back to the earliest 
taxable year of that five-year carryback period. Section 172(b)(2) also 
provides that the portion of the NOL that must be carried to each 
successive taxable year in the five-year carryback period equals the 
amount, if any, that was not used in the preceding taxable years to 
which the NOL was carried.
    Section 172(b)(1)(D)(i)(II), as added by section 2303(b)(1) of the 
CARES Act, further provides that the exceptions to the prohibition of 
NOL carrybacks regarding farming losses and non-life insurance 
companies do not apply to NOLs that are subject to the five-year 
carryback period. See sections 172(b)(1)(B)(i) (regarding farming 
losses) and 172(b)(1)(C)(i) (regarding non-life insurance companies). 
Therefore, farming losses and losses incurred by non-life insurance 
companies arising in a taxable year beginning after December 31, 2017, 
and before January 1, 2021, are carried back five years instead of two 
years. Section 172(b)(1)(D)(i)(II).
C. Election To Waive Carryback Under Section 172(b)(3)
    Section 172(b)(3) permits a taxpayer entitled to a carryback period 
under section 172(b)(1) to make, with respect to an NOL for any taxable 
year, an irrevocable election to relinquish the carryback period. A 
taxpayer generally must make this election (i) in such manner as may be 
prescribed by the Secretary, and (ii) by the due date (including 
extensions of time) for filing the taxpayer's return for the taxable 
year of the NOL for which the election is to be in effect. However, 
solely with regard to NOLs arising in a taxable year beginning in 2018 
or 2019, section 172(b)(1)(D)(v)(II), as added by section 2303(b)(1) of 
the CARES Act, provides a special rule that requires elections to waive 
the carryback period for such NOLs under section 172(b)(3) to be made 
no later than the due date (including extensions of time) for filing 
the taxpayer's Federal income tax return for the first taxable year 
ending after March 27, 2020. See also Rev. Proc. 2020-24, 2020-18 
I.R.B. 750, Sec. Sec.  4.01(1), 4.03 (providing procedures regarding 
the time and manner of filing elections for consolidated groups to 
waive the carryback under section 172(b)(3) for NOLs arising in taxable 
years beginning in 2018 or 2019).

II. Consolidated Return Regulations

    Section 1.1502-21(a) defines the consolidated net operating loss 
(that is, a CNOL) deduction for any consolidated return year as ``the 
aggregate of the net operating loss carryovers and carrybacks to the 
year,'' which consist of (i) CNOLs of the consolidated group, and (ii) 
any NOLs of the group's members arising in separate return years. A 
``CNOL'' is, for a consolidated return year, the excess of a 
consolidated group's deductions over the group's gross income, as 
determined under Sec.  1.1502-11(a) (without regard to any CNOL 
deduction). See Sec.  1.1502-21(e).
A. General Rules Regarding NOL Carryovers and Carrybacks
    The NOL carryovers and carrybacks to a taxable year are determined 
under the principles of section 172 and Sec.  1.1502-21. Section 
1.1502-21(b)(1). Thus, losses permitted to be absorbed in a 
consolidated return year generally are absorbed in the order of the 
taxable years in which they arose, and losses carried from taxable 
years ending on the same date, and which are available to offset 
consolidated taxable income for the year, generally are absorbed on a 
pro rata basis. Id. If any percentage of the CNOL that is attributable 
to a member (determined pursuant to Sec.  1.1502-21(b)(2)(iv)(B)) may 
be carried to a separate return year of the member, the amount of the 
CNOL that is attributable to the member is apportioned to the member 
and carried to the separate return year. Section 1.1502-21(b)(2)(i). If 
carried back to a separate return year, the apportioned loss may not be 
carried back to an equivalent, or earlier, consolidated return year of 
the group. Id.
B. General Waiver Election To Relinquish Entire Carryback
    Section 1.1502-21(b)(3)(i) permits a consolidated group to make an 
irrevocable election under section 172(b)(3) to relinquish the entire 
carryback period with respect to a CNOL for any consolidated return 
year (general waiver election). When making this general waiver 
election for a consolidated return year, a consolidated group cannot 
make this election separately for a particular member (whether or not 
it remains a member). Section 1.1502-21(b)(3)(i). Rather, the 
consolidated return regulations provide only a narrowly scoped ``split-
waiver election'' (as described in detail in part II.C of this 
Background) that a consolidated group can make solely with respect to 
one or more members that previously were members of another group. Id. 
A general waiver election must be made in a separate statement filed 
with the group's Federal income tax return for the consolidated return 
year in which the NOL arises. Id.
C. Special Election for Acquisitions of Members That Were Members of 
Another Consolidated Group
    A consolidated group (acquiring group) that acquires a new member 
(acquired member) that was a member of another consolidated group 
(former group) may make an irrevocable election to relinquish, with 
respect to all CNOLs of the acquiring group that are attributable to 
the acquired member, the portion of the carryback period for which the 
acquired member was a member of a former group (split-waiver election). 
See Sec.  1.1502-21(b)(3)(ii)(B). If an acquiring group makes a split-
waiver election for a consolidated return year, the portion of the 
acquiring group's CNOL attributable to the acquired member for which 
the election is made will not be carried back to a former group. Id. 
Unlike a general waiver election, a split-waiver election is not a 
yearly election, but rather applies to all CNOLs attributable to an 
acquired member that otherwise would be subject to a carryback to a 
taxable year of a former group under section 172. Id.
    Eligibility for a split-waiver election is subject to certain 
conditions and procedures. Importantly, a split-waiver election must be 
made in a separate statement filed with the acquiring group's original 
Federal income tax return for the year the corporation became a member. 
Id. In other words, if a split-waiver election is not made with this 
particular Federal income tax return, the election cannot later be made 
by amending this return in a subsequent consolidated return year or by 
attaching the above-described statement to a Federal income tax return 
for a later consolidated return year. If any other corporation joining 
the acquiring group was affiliated with the acquired member immediately 
before the acquired member joined the acquiring group, that other 
corporation also must be included in the split-waiver election. Id.

[[Page 40894]]

Explanation of Provisions

I. In General

    On prior occasions, enacted legislation has amended section 172 to 
extend the carryback period for NOLs. See Worker, Homeownership, and 
Business Assistance Act of 2009, Public Law 111-92, 123 Stat. 2984 
(November 6, 2009); Job Creation and Worker Assistance Act of 2002, 
Public Law 107-147, 116 Stat. 21 (March 9, 2002). Most recently, 
section 2303(b) of the CARES Act added section 172(b)(1)(D) to the 
Code. As described in part I of the Background, section 172(b)(1)(D) 
requires (in the absence of a waiver under section 172(b)(3)) a five-
year carryback period for an NOL that arises in a taxable year 
beginning after December 31, 2017, and before January 1, 2021.
    Such statutory changes to NOL carryback periods uniquely impact 
consolidated groups that acquire one or more corporations prior to the 
statutory extension of the carryback period. During the past two 
decades, the Treasury Department and the IRS have provided consolidated 
groups with certain additional elections for waiving carrybacks of 
losses into other, former groups. See 75 FR 35643 (June 23, 2010) (2010 
split-waiver regulations); 67 FR 38000 (May 31, 2002) (2002 split-
waiver regulations). These additional elections, while responsive to 
particular statutory amendments, have reflected common policy 
objectives of providing affected groups with the ability to waive all 
or a portion of the statutorily extended NOL carryback period.
    The Treasury Department and the IRS have determined that it is 
appropriate to provide similar rules with regard to amendments to the 
NOL carryback rules under section 2303(b) of the CARES Act, as well as 
any similar statutory changes in the future. (For purposes of these 
regulations, the amended NOL carryback rules implemented by the CARES 
Act in particular or by future legislation more generally are referred 
to as the ``amended carryback rules.'') Therefore, these temporary 
regulations provide principle-based rules applicable to CNOLs arising 
in taxable years to which amended carryback rules become applicable 
after the acquisition of a member. Under these rules, which are 
consistent with the 2002 and 2010 split-waiver regulations (although 
these rules are not limited to a one-time statutory change of the NOL 
carryback rules), acquiring groups would possess the opportunity to 
waive, on a taxable-year-by-taxable-year basis, all or a portion of the 
carryback period with regard to CNOLs attributable to acquired members 
for pre-acquisition years during which the acquired members were 
members of a former group.
    Therefore, these temporary regulations provide two additional types 
of split-waiver elections for consolidated groups that (i) include one 
or more acquired members, and (ii) have CNOLs that, under amended 
carryback rules, become eligible to be carried back for a greater 
number of years than under statutory law in effect at the time of the 
acquisition (default carryback period). See the discussion in parts II 
through IV of this Explanation of Provisions. A default carryback 
period may consist of zero years in the case of a complete prohibition 
on carrybacks. The additional years added under amended carryback rules 
constitute the ``extended carryback period.'' The two additional types 
of split-waiver elections set forth in these temporary regulations 
provide relief, and are subject to conditions and procedures, 
consistent with the applicable split-waiver elections set forth in the 
2002 and 2010 split-waiver regulations.

II. Amended Statute Split-Waiver Election

    These temporary regulations permit an acquiring group to make a 
special split-waiver election with regard to a CNOL for a consolidated 
return year in which an acquired member was included in the acquiring 
group and to which amended carryback rules apply (amended statute 
split-waiver election). Through this election, an acquiring group can 
relinquish that part of the extended carryback period during which an 
acquired member was a member of a former group (for the portion of a 
CNOL attributable to the acquired member), notwithstanding that the 
group did not file a split-waiver election for the year in which the 
acquired member became a member of the acquiring group (as required by 
Sec.  1.1502-21(b)(3)(ii)(B)). Accordingly, an amended statute split-
waiver election applies only to the portion of a CNOL that is 
attributable to an acquired member for the portion of the carryback 
period (including the default carryback period and the extended 
carryback period) during which the acquired member was a member of a 
former group.
    An acquiring group makes an amended statute split-waiver election 
on a year-by-year basis, consistent with the 2002 and 2010 split-waiver 
regulations. Consequently, an acquiring group may make this election 
for the portion of a CNOL attributable to an acquired member that 
arises in any particular taxable year to which an amended carryback 
rule applies (amended carryback CNOL), regardless of whether the 
acquiring group makes such an election for CNOLs arising in other 
consolidated return years. However, also consistent with the 2002 and 
2010 split-waiver regulations, an acquiring group can make an amended 
statute split-waiver election with respect to an amended carryback CNOL 
only if any carryback to a taxable year included in the extended 
carryback period is not claimed on a return or other filing by a former 
group that is filed on or before the date this election is filed by the 
acquiring group. Also consistent with the 2002 and 2010 split-waiver 
regulations, an acquiring group can make an amended statute split-
waiver election with respect to an acquired member only if the 
acquiring group did not file (i) a valid split-waiver election with 
respect to that acquired member on or before the effective date of the 
relevant amended carryback rules, or (ii) a general waiver election 
with respect to a CNOL of the acquiring group from which the amended 
carryback CNOL is attributed to the acquired member.
    The amended statute split-waiver election generally must be made by 
attaching a statement to the acquiring group's timely filed tax return 
(including extensions) with regard to the consolidated return year 
during which the amended carryback CNOL was incurred. In certain 
circumstances, the statement may be attached to an amended return, but 
that return must be filed no later than 150 days after the effective 
date of the relevant amended carryback rules. These regulations also 
include rules specific to the amendments to section 172 made by section 
2303(b) of the CARES Act, which provide an additional option under 
which the statement may be attached to an amended return filed no later 
than November 30, 2020 (a date that is 150 days after the date of 
filing of these temporary regulations). These filing requirements 
incorporate the principles of the filing requirements set forth in the 
2002 and 2010 split-waiver regulations, which were tailored to specific 
enacted legislation.

III. Extended Split-Waiver Election

    To provide acquiring groups with additional flexibility for making 
split-waiver elections, these temporary regulations provide a second, 
alternative split-waiver election (extended split-waiver election) that 
applies solely to the extended carryback period (that is, the 
additional carryback years provided under amended carryback rules). 
Through an extended split-waiver

[[Page 40895]]

election, an acquiring group can ensure that amended carryback CNOLs 
are carried back to taxable years of former groups only to the extent 
those losses would have been carried back under prior law (that is, the 
default carryback period). In other words, this election affects only 
the extended carryback period for an acquired member's attributed loss.
    The extended split-waiver election and the amended statute split-
waiver election are subject to the same conditions and procedures, and 
provide the same relief, except that the extended split-waiver election 
waives only the extended carryback period. Therefore, any CNOL 
carryback to default carryback years would be unaffected by an extended 
split-waiver election. For example, if the default carryback period 
were two years and a change in law extended the carryback period to 
five years, an acquiring group could make an extended split-waiver 
election to waive the carryback to a former group of only the three 
additional carryback years with respect to the amended carryback CNOL. 
Accordingly, the extended split-waiver election is available if losses 
attributable to the acquired member have been carried back solely to 
taxable years of a former group in the default carryback period, but 
not in the extended carryback period.

IV. Applicability Date

    These temporary regulations apply to any CNOLs arising in a taxable 
year ending after July 2, 2020. However, consistent with the 
applicability date for the amendments to section 172(b) pursuant to 
section 2303(b) of the CARES Act, and pursuant to section 7805(b)(2), 
taxpayers may apply these temporary regulations to any CNOLs arising in 
a taxable year beginning after December 31, 2017. The applicability of 
these temporary regulations will expire on July 3, 2023.

V. Good Cause

    The Treasury Department and the IRS are issuing these temporary 
regulations without prior notice and the opportunity for public comment 
pursuant to section 553(b)(B) of the Administrative Procedure Act 
(APA), which provides that advance notice and the opportunity for 
public comment are not required with respect to a rulemaking when an 
agency ``for good cause finds (and incorporates the finding and a brief 
statement of reasons therefor in the rules issued) that notice and 
public procedure thereon are impracticable, unnecessary, or contrary to 
the public interest.'' Under the ``public interest'' prong of 5 U.S.C. 
553(b)(B), the good cause exception appropriately applies where notice 
and comment would harm, defeat, or frustrate the public interest, 
rather than serving it.
    These temporary regulations, which solely provide certain acquiring 
groups with elective relief, are necessary to permit certain acquiring 
groups to elect to waive all or a portion of the carryback period for 
certain losses attributable to acquired members for pre-acquisition 
years during which the acquired members were members of a former group. 
The amended carryback rules enacted by section 2303(b) of the CARES Act 
apply for NOLs arising in a taxable year beginning after December 31, 
2017, and before January 1, 2021. Consequently, good cause arises from 
the fact that these temporary regulations will affect taxable years of 
certain acquiring groups for which tax returns already are due or may 
become due during a period of comment and delayed effectiveness. 
Deferring the effectiveness of the temporary regulations until after 
such a period could prevent taxpayers from immediately electing to 
obtain the intended benefits of section 2303(b) of the CARES Act and 
increase taxpayer compliance costs and uncertainty because of delay of 
the time before which relevant acquiring groups could make the 
elections permitted by the regulations with certainty.

Special Analyses

I. Regulatory Planning and Review

    Executive Orders 13771, 13563, and 12866 direct agencies to assess 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility.
    These regulations are not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Treasury Department and the Office of Management 
and Budget regarding review of tax regulations.

II. Paperwork Reduction Act

    The collections of information in these temporary regulations are 
in Sec.  1.1502-21T(b)(3)(ii)(C)(5)(i) and Sec.  1.1502-
21T(b)(3)(ii)(C)(5)(ii). The information is required to inform the IRS 
on whether, and to what extent, an acquiring group makes either of the 
elections described in these temporary regulations.
    The collection of information provided by these temporary 
regulations has been approved by the Office of Management and Budget 
(OMB) under control number 1545-0123. For purposes of the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq. (PRA), the reporting burden 
associated with the collection of information in Form 1120 (U.S. 
Corporation Income Tax Return) will be reflected in the PRA Submission 
associated with OMB control number 1545-0123.
    In general, if the acquiring group makes an election under Sec.  
1.1502-21T(b)(3)(ii)(C), the acquiring group is required to attach a 
separate statement to its Form 1120 as provided in Sec.  1.1502-
21T(b)(3)(ii)(C)(5)(i) and Sec.  1.1502-21T(b)(3)(ii)(C)(5)(ii), 
respectively. This statement must be filed as provided in Sec.  1.1502-
21T(b)(3)(ii)(C)(6).
    The following table displays the number of respondents estimated to 
be required to report on Form 1120 with respect to the collections of 
information required by these temporary regulations. Due to the absence 
of historical tax data, direct estimates of the number of respondents 
required to attach a statement to other types of tax returns, as 
applicable, are not available.

------------------------------------------------------------------------
                                                             Number of
                                                            respondents
                                                            (estimated)
------------------------------------------------------------------------
 Amended Statute Split-Waiver Election & Extended Split-Waiver Election
------------------------------------------------------------------------
Form 1120...............................................          17,500
------------------------------------------------------------------------
Source: RAAS:CDW.

    The numbers of respondents in the table were estimated by the 
Research, Applied Analytics and Statistics Division (RAAS) of the IRS 
from the Compliance Data Warehouse (CDW). Data for Form 1120 represents 
estimates of the total number of taxpayers that may attach an election 
statement to their Form 1120 to make the elections in Sec.  1.1502-
21T(b)(3)(ii)(C)(5)(i) and Sec.  1.1502-21T(b)(3)(ii)(C)(5)(ii).
    It is estimated that 17,500 consolidated entities will be required 
to attach a statement under these temporary regulations. The burden 
associated with the information collections in these temporary 
regulations are included in aggregated burden estimates for the OMB 
control number 1545-0123. The burden estimates provided in the OMB 
control

[[Page 40896]]

numbers in the following table are aggregate amounts that relate to the 
entire package of forms associated with the OMB control number, and 
will in the future include, but not isolate, the estimated burden of 
those information collections associated with these temporary 
regulations. To guard against over-counting the burden that 
consolidated tax provisions imposed prior to Sec.  1.1502-21T, the 
Treasury Department and the IRS urge readers to recognize that these 
burden estimates have also been cited by regulations that rely on the 
applicable OMB control numbers in order to collect information from the 
applicable types of filers.

----------------------------------------------------------------------------------------------------------------
                 Form                         Type of filer            OMB No.                 Status
----------------------------------------------------------------------------------------------------------------
Form 1120.............................  Corporation..............       1545-0123  Published in the Federal
                                                                                    Register on 9/30/19. Public
                                                                                    Comment period closed on 11/
                                                                                    29/19. Approved by OIRA
                                                                                    through 1/31/2021.
                                       -------------------------------------------------------------------------
                                        Link: https://www.federalregister.gov/documents/2018/10/09/2018-21846/proposed-collection-comment-request-for-forms-1065-1065-b-1066-1120-1120-1120-f-1120-h-1120-nd.
----------------------------------------------------------------------------------------------------------------
Source: RAAS:CDW.

III. Regulatory Flexibility Act

    These temporary regulations do not impose a collection of 
information on small entities. Further, pursuant to the Regulatory 
Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these 
temporary regulations would not have a significant economic impact on a 
substantial number of small entities. This certification is based on 
the fact that these temporary regulations apply only to corporations 
that file consolidated Federal income tax returns, and that such 
corporations tend to be larger businesses. Therefore, these temporary 
regulations would not create additional obligations for, or impose an 
economic impact on, small entities.
    Pursuant to section 7805(f) of the Internal Revenue Code, these 
temporary regulations have been submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a state, 
local, or tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2020, that threshold is approximately $156 million. This 
rule does not include any Federal mandate that may result in 
expenditures by state, local, or tribal governments, or by the private 
sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial, direct compliance costs on state and local 
governments, and is not required by statute, or preempts state law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive Order. These temporary regulations do not 
have federalism implications, do not impose substantial direct 
compliance costs on state and local governments, and do not preempt 
state law within the meaning of the Executive Order.

Statement of Availability of IRS Documents

    IRS Revenue Procedures, Revenue Rulings, and Notices cited in this 
preamble are published in the Internal Revenue Bulletin (or Cumulative 
Bulletin) and are available from the Superintendent of Documents, U.S. 
Government Publishing Office, Washington, DC 20402, or by visiting the 
IRS website at https://www.irs.gov.

Drafting Information

    The principal author of these regulations is Jonathan R. Neuville 
of the Office of Associate Chief Counsel (Corporate). However, other 
personnel from the Treasury Department and the IRS participated in 
their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAX

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.1502-21T is revised to read as follows:


Sec.  1.1502-21T   Net operating losses (temporary).

    (a) For further guidance, see Sec.  1.1502-21(a).
    (b) For further guidance, see Sec.  1.1502-21(b) introductory text 
through (b)(2).
    (1) and (2) [Reserved]
    (3) For further guidance, see Sec.  1.1502-21(b)(3) introductory 
text through (b)(3)(ii)(B).
    (i) [Reserved]
    (ii)(A) [Reserved]
    (B) [Reserved]
    (C) Waiver of carryback period for losses in taxable years to which 
statutorily amended carryback rules apply--(1) In general. An acquiring 
group may make either (but not both) an amended statute split-waiver 
election or an extended split-waiver election with respect to a 
particular amended carryback CNOL. (See paragraph (b)(3)(ii)(C)(2) of 
this section for definitions of terms used in paragraph this 
(b)(3)(ii)(C) and paragraph (b)(3)(ii)(D) of this section.) These 
elections are available only if the statutory amendment to the 
carryback period referred to in paragraph (b)(3)(ii)(C)(2)(iv) of this 
section occurs after the date of acquisition of an acquired member. A 
separate election is available for each taxable year to which amended 
carryback rules apply. An acquiring group may make an amended statute 
split-waiver election or an extended split-waiver election only if the 
acquiring group, with regard to that election--
    (i) Satisfies the requirements in paragraph (b)(3)(ii)(C)(3) of 
this section; and
    (ii) Follows the procedures in paragraphs (b)(3)(ii)(C)(5) and (6) 
of this section, as relevant to that election.
    (2) Definitions. The definitions provided in this paragraph 
(b)(3)(ii)(C)(2) apply for purposes of this paragraph (b)(3)(ii)(C) and 
paragraph (b)(3)(ii)(D) of this section.
    (i) Acquired member. The term acquired member means a member of a 
consolidated group that joins another consolidated group.

[[Page 40897]]

    (ii) Acquiring group. The term acquiring group means a consolidated 
group that has acquired a former member of another consolidated group 
(that is, an acquired member).
    (iii) Amended carryback CNOL. The term amended carryback CNOL means 
the portion of a CNOL attributable to an acquired member (determined 
pursuant to Sec.  1.1502-21(b)(2)(iv)(B)) arising in a taxable year to 
which amended carryback rules apply.
    (iv) Amended carryback rules. The term amended carryback rules 
means the rules of section 172 of the Code after amendment by statute 
to extend the carryback period for NOLs attributable to an acquired 
member (determined pursuant to Sec.  1.1502-21(b)(2)(iv)(B)).
    (v) Amended statute split-waiver election. The term amended statute 
split-waiver election means, with respect to any amended carryback 
CNOL, an irrevocable election made by an acquiring group to relinquish 
the portion of the carryback period (including the default carryback 
period and the extended carryback period) for that loss during which an 
acquired member was a member of any former group.
    (vi) Amended statute split-waiver election statement. The term 
amended statute split-waiver election statement has the meaning 
provided in paragraph (b)(3)(ii)(C)(5)(i) of this section.
    (vii) Default carryback period. The term default carryback period 
means the NOL carryback period existing at the time the acquiring group 
acquired the acquired member, before the applicability of amended 
carryback rules.
    (viii) Extended carryback period. The term extended carryback 
period means the additional taxable years added to a default carryback 
period by any amended carryback rules.
    (ix) Extended split-waiver election. The term extended split-waiver 
election means, with respect to any amended carryback CNOL, an 
irrevocable election made by an acquiring group to relinquish solely 
the portion of the extended carryback period (and no part of the 
default carryback period) for that loss during which an acquired member 
was a member of any former group.
    (x) Extended split-waiver election statement. The term extended 
split-waiver election statement has the meaning provided in paragraph 
(b)(3)(ii)(C)(5)(ii) of this section.
    (xi) Former group. The term former group means a consolidated group 
of which an acquired member previously was a member.
    (3) Conditions for making an amended statute split-waiver election 
or an extended split-waiver election. An acquiring group may make an 
amended statute split-waiver election or an extended split-waiver 
election (but not both) with respect to an amended carryback CNOL only 
if--
    (i) The acquiring group has not filed a valid election described in 
Sec.  1.1502-21(b)(3)(ii)(B) with respect to the acquired member on or 
before the effective date of amended carryback rules;
    (ii) The acquiring group has not filed a valid election described 
in section 172(b)(3) and Sec.  1.1502-21(b)(3)(i) with respect to a 
CNOL of the acquiring group from which the amended carryback CNOL is 
attributed to the acquired member;
    (iii) Any other corporation joining the acquiring group that was 
affiliated with the acquired member immediately before the acquired 
member joined the acquiring group is included in the waiver; and
    (iv) A former group does not claim any carryback (as provided in 
paragraph (b)(3)(ii)(C)(4) of this section) to any taxable year in the 
carryback period (in the case of an amended statute split-waiver 
election) or in the extended carryback period (in the case of an 
extended split-waiver election) with respect to the amended carryback 
CNOL on a return or other filing filed on or before the date the 
acquiring group files the election.
    (4) Claim for a carryback. For purposes of paragraph 
(b)(3)(ii)(C)(3)(iv) of this section, a carryback is claimed with 
respect to an amended carryback CNOL if there is a claim for refund, an 
amended return, an application for a tentative carryback adjustment, or 
any other filing that claims the benefit of the NOL in a taxable year 
prior to the taxable year of the loss, whether or not subsequently 
revoked in favor of a claim based on the period provided for in the 
amended carryback rules.
    (5) Procedures for making an amended statute split-waiver election 
or an extended split-waiver election--(i) Amended statute split-waiver 
election. An amended statute split-waiver election must be made in a 
separate statement entitled ``THIS IS AN ELECTION UNDER SECTION 1.1502-
21T(b)(3)(ii)(C)(2)(v) TO WAIVE THE PRE-[insert first day of the first 
taxable year for which the acquired member was a member of the 
acquiring group] CARRYBACK PERIOD FOR THE CNOLS ATTRIBUTABLE TO THE 
[insert taxable year of losses] TAXABLE YEAR(S) OF [insert names and 
employer identification numbers of members]'' (amended statute split-
waiver election statement). This statement must be filed as provided in 
paragraph (b)(3)(ii)(C)(6) of this section.
    (ii) Extended split-waiver election. An extended split-waiver 
election must be made in a separate statement entitled ``THIS IS AN 
ELECTION UNDER SECTION 1.1502-21T(b)(3)(ii)(C)(2)(ix) TO WAIVE THE PRE-
[insert first day of the first taxable year for which the acquired 
member was a member of the acquiring group] EXTENDED CARRYBACK PERIOD 
FOR THE CNOLS ATTRIBUTABLE TO THE [insert taxable year of losses] 
TAXABLE YEAR(S) OF [insert names and employer identification numbers of 
members]'' (extended split-waiver election statement). This statement 
must be filed as provided in paragraph (b)(3)(ii)(C)(6) of this 
section.
    (6) Time and manner for filing statement--(i) In general. Except as 
otherwise provided in paragraph (b)(3)(ii)(C)(6)(ii) or (iii) of this 
section, an amended statute split-waiver election statement or extended 
split-waiver election statement must be filed with the acquiring 
group's timely filed consolidated return (including extensions) for the 
year during which the amended carryback CNOL is incurred.
    (ii) Amended returns. This paragraph (b)(3)(ii)(C)(6)(ii) applies 
if the date of the filing required under paragraph (b)(3)(ii)(C)(6)(i) 
of this section is not at least 150 days after the date of the 
statutory amendment to the carryback period referred to in paragraph 
(b)(3)(ii)(C)(2)(iv) of this section. Under this paragraph 
(b)(3)(ii)(C)(6)(ii), an amended statute split-waiver election 
statement or extended split-waiver election statement may be attached 
to an amended return filed by the date that is 150 days after the date 
of the statutory amendment referred to in paragraph 
(b)(3)(ii)(C)(2)(iv) of this section.
    (iii) Certain taxable years beginning before January 1, 2021. This 
paragraph (b)(3)(ii)(C)(6)(iii) applies to taxable years beginning 
before January 1, 2021, for which the date of the filing required under 
paragraph (b)(3)(ii)(C)(6)(i) of this section precedes November 30, 
2020. Under this paragraph (b)(3)(ii)(C)(6)(iii), an amended statute 
split-waiver election statement or extended split-waiver election 
statement may be attached to an amended return filed by November 30, 
2020.
    (D) Examples. The following examples illustrate the rules of 
paragraph (b)(3)(ii)(C) of this section. For purposes of these 
examples: All affiliated groups file consolidated returns; all 
corporations are includible corporations that have calendar taxable 
years; each of P, X, and T is a

[[Page 40898]]

corporation having one class of stock outstanding; each of P and X is 
the common parent of a consolidated group (P Group and X Group, 
respectively); neither the P Group nor the X Group includes an 
insolvent financial institution or an insurance company; no NOL is a 
farming loss; there are no other relevant NOL carrybacks to the X 
Group's consolidated taxable years; except as otherwise stated, the X 
Group has sufficient consolidated taxable income determined under Sec.  
1.1502-11 (CTI) to absorb the stated NOL carryback by T; T has 
sufficient SRLY register income within the X Group to absorb the stated 
NOL carryback by T; all transactions occur between unrelated parties; 
and the facts set forth the only relevant transactions.
    (1) Example 1: Computation and absorption of amended carrybacks--
(i) Facts. In Year 1, T became a member of the X Group. On the last day 
of Year 5, P acquired all the stock of T from X. At the time of P's 
acquisition of T stock, the default carryback period was zero taxable 
years. The P Group did not make an irrevocable split-waiver election 
under Sec.  1.1502-21(b)(3)(ii)(B) to relinquish, with respect to all 
CNOLs attributable to T while a member of the P Group, the portion of 
the carryback period for which T was a member of the X Group (that is, 
a former group). In Year 7, the P Group sustained a $1,000 CNOL, $600 
of which was attributable to T pursuant to Sec.  1.1502-
21(b)(2)(iv)(B). In that year, P did not make an irrevocable general 
waiver election under section 172(b)(3) and Sec.  1.1502-21(b)(3)(i) 
with respect to the $1,000 CNOL when the P Group filed its consolidated 
return for Year 7. In Year 8, legislation was enacted that amended 
section 172 to require a carryback period of five years for NOLs 
arising in a taxable year beginning after Year 5 and before Year 9.
    (ii) Analysis. As a result of the amended carryback rules enacted 
in Year 8, the P Group's $1,000 CNOL in Year 7 must be carried back to 
Year 2. Therefore, T's $600 attributed portion of the P Group's Year 7 
CNOL (that is, T's amended carryback CNOL) must be carried back to 
taxable years of the X Group. See Sec. Sec.  1.1502-21(b)(1) and 
1.1502-21(b)(2)(i). To the extent T's amended carryback CNOL is not 
absorbed in the X Group's Year 2 taxable year, the remaining portion 
must be carried to the X Group's Year 3, Year 4, and Year 5 taxable 
years, as appropriate. See id. Any remaining portion of T's amended 
carryback CNOL is carried to consolidated return years of the P Group. 
See Sec.  1.1502-21(b)(1).
    (2) Example 2: Amended statute split-waiver election--(i) Facts. 
The facts are the same as in paragraph (b)(3)(ii)(D)(1)(i) of this 
section (Example 1), except that, following the change in statutory 
carryback period in Year 8, the P Group made a valid amended statute 
split-waiver election under paragraph (b)(3)(ii)(C) of this section to 
relinquish solely the carryback of T's amended carryback CNOL.
    (ii) Analysis. Because the P Group made a valid amended statute 
split-waiver election, T's amended carryback CNOL is not eligible to be 
carried back to any taxable years of the X Group (that is, a former 
group). However, the amended statute split-waiver election does not 
prevent T's Year 7 amended carryback CNOL from being carried back to 
years of the P group (that is, the acquiring group) during which T was 
a member. See paragraph (b)(3)(ii)(C)(1)(v) of this section. As a 
result, the entire amount of T's amended carryback CNOL is eligible to 
be carried back to taxable Year 6 of the P Group. Any remaining CNOL 
may then be carried over within the P Group. See Sec.  1.1502-21(b)(1).
    (3) Example 3: Computation and absorption of extended carrybacks--
(i) Facts. The facts are the same as in paragraph (b)(3)(ii)(D)(1)(i) 
of this section (Example 1), except that the X Group had $300 of CTI in 
Year 4 and $200 of CTI in Year 5 and, at the time of the P Group's 
acquisition of T, the default carryback period was two years. 
Therefore, T's $600 attributed portion of the P Group's Year 7 CNOL was 
required to be carried back to the X Group's Year 5 taxable year, and 
the X Group was able to offset $200 of CTI in Year 5.
    (ii) Analysis. As a result of the amended carryback rules, the X 
Group must offset its $300 of CTI in Year 4 against T's amended 
carryback CNOL. See Sec. Sec.  1.1502-21(b)(1) and (b)(2)(i). The 
remaining $100 ($600-$300-$200) of T's amended carryback CNOL is 
carried to taxable years of the P Group. See Sec.  1.1502-21(b)(1).
    (4) Example 4: Extended split-waiver election--(i) Facts. The facts 
are the same as in paragraph (b)(3)(ii)(D)(3)(i) of this section 
(Example 3), except that, following the change in law in Year 8, the P 
Group made a valid extended split-waiver election under paragraph 
(b)(3)(ii)(C) of this section to relinquish the extended carryback 
period for T's amended carryback CNOL for years in which T was a member 
of the X Group.
    (ii) Analysis. As a result of the P Group's extended split-waiver 
election, T's amended carryback CNOL is not eligible to be carried back 
to any portion of the extended carryback period (that is, any taxable 
year prior to Year 5). See paragraph (b)(3)(ii)(C)(1)(ix) of this 
section. As a result, the X Group absorbs $200 of T's $600 loss in Year 
5, and the remaining $400 ($600-$200) is carried to taxable years of 
the P Group. See Sec.  1.1502-21(b)(1).
    (iii) For further guidance, see Sec.  1.1502-21(b)(3)(iii).
    (c) For further guidance, see Sec.  1.1502-21(c) through (h)(8).
    (d) through (j) [Reserved]
    (h)(1) through (8) [Reserved]
    (9) Amended carryback rules--(i) Applicability date. Paragraphs 
(b)(3)(ii)(C) and (D) of this section apply to any CNOLs arising in a 
taxable year ending after July 2, 2020. However, taxpayers may apply 
paragraphs (b)(3)(ii)(C) and (D) of this section to any CNOLs arising 
in a taxable year beginning after December 31, 2017.
    (ii) Expiration date. The applicability of paragraphs (b)(3)(ii)(C) 
and (D) of this section will expire on July 3, 2023.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 3. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


0
Par. 4. In Sec.  602.101, paragraph (b), the entry for Sec.  1.1502-21T 
is revised to read as follows:


Sec.  602.101   OMB Control Numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                              * * * * * * *
1.1502.21T..............................................       1545-0123
 
                              * * * * * * *
------------------------------------------------------------------------



[[Page 40899]]

Douglas W. O'Donnell,
Acting Deputy Commissioner for Services and Enforcement.
    Approved: June 23, 2020.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2020-14426 Filed 7-2-20; 4:15 pm]
BILLING CODE 4830-01-P