Consolidated Net Operating Losses, 67966-67988 [2020-22974]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 85, Number 208 (Tuesday, October 27, 2020)]
[Rules and Regulations]
[Pages 67966-67988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22974]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9927]
RIN 1545-BP27


Consolidated Net Operating Losses

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations under sections 1502 
and 1503 of the Internal Revenue Code (Code). These regulations provide 
guidance implementing recent statutory amendments to section 172 of the 
Code

[[Page 67967]]

relating to the absorption of consolidated net operating loss (CNOL) 
carryovers and carrybacks. These regulations also update regulations 
applicable to consolidated groups that include both life insurance 
companies and other companies to reflect statutory changes. These 
regulations affect corporations that file consolidated returns.

DATES: 
    Effective Date: These regulations are effective on December 28, 
2020.
    Applicability Date: For dates of applicability, see Sec. Sec.  
1.1502-1(l), 1.1502-21(h)(10), 1.1502-47(n), and 1.1503(d)-8(b)(8).

FOR FURTHER INFORMATION CONTACT: Justin O. Kellar at (202) 317-6720, 
Gregory J. Galvin at (202) 317-3598, or William W. Burhop at (202) 317-
5363.

SUPPLEMENTARY INFORMATION:

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.
    On July 8, 2020, the IRS published a notice of proposed rulemaking 
(REG-125716-18) in the Federal Register (85 FR 40927) under section 
1502 of the Code (proposed regulations). The proposed regulations 
provided guidance implementing recent statutory amendments to section 
172, relating to net operating loss (NOL) deductions, and withdrew and 
re-proposed certain sections of proposed guidance issued in prior 
notices of proposed rulemaking relating to the absorption of CNOL 
carryovers and carrybacks. In addition, the proposed regulations 
updated regulations applicable to consolidated groups that include both 
life insurance companies and other companies to reflect statutory 
changes.
    In connection with the proposed regulations, the IRS published on 
the same date temporary regulations under section 1502 (TD 9900) in the 
Federal Register (85 FR 40892) (temporary regulations). The temporary 
regulations permit consolidated groups that acquire new members that 
were members of another consolidated group to elect to waive all or 
part of the pre-acquisition portion of an extended carryback period 
under section 172 for certain losses attributable to the acquired 
members. The text of the temporary regulations also serves as the text 
of Sec.  1.1502-21(b)(3)(ii)(C) and (D) of the proposed regulations.
    The IRS received seven comments in response to the proposed 
regulations. Copies of the comments received are available for public 
inspection at https://www.regulations.gov or upon request. No public 
hearing was requested or held. This Treasury decision adopts the 
proposed regulations, other than proposed Sec.  1.1502-21(b)(3)(ii)(C) 
and (D), as final regulations with the changes described in the 
following Summary of Comments and Explanation of Revisions. The 
Treasury Department and the IRS expect to finalize proposed Sec.  
1.1502-21(b)(3)(ii)(C) and (D) at a later date and welcome further 
comments on these provisions.

Summary of Comments and Explanation of Revisions

I. Comments On and Changes To Proposed Sec.  1.1502-21

A. Overview of Section 172

    These final revisions implement certain statutory amendments to 
section 172 made by Public Law 115-97, 131 Stat. 2054 (December 22, 
2017), commonly referred to as the Tax Cuts and Jobs Act (TCJA), and by 
the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), 
Public Law 116-136, 134 Stat. 281 (March 27, 2020). See generally the 
Background section of the preamble to the proposed regulations. As 
amended, section 172(a)(2) allows an NOL deduction for a taxable year 
beginning after December 31, 2020, in an amount equal to the sum of (A) 
the aggregate amount of pre-2018 NOLs that are carried to such taxable 
year, and (B) the lesser of (i) the aggregate amount of post-2017 NOLs 
that are carried to such taxable year, or (ii) the ``80-percent 
limitation.'' The 80-percent limitation is equal to 80 percent of the 
excess (if any) of (I) taxable income computed without regard to any 
deductions under sections 172, 199A, and 250 of the Code, over (II) the 
aggregate amount of pre-2018 NOLs carried to the taxable year. See 
section 172(a)(2)(B)(ii). For purposes of the foregoing computation, 
the term ``pre-2018 NOLs'' refers to NOLs arising in taxable years 
beginning before January 1, 2018, and the term ``post-2017 NOLs'' 
refers to NOLs arising in taxable years beginning after December 31, 
2017.
    The 80-percent limitation does not apply to the offset of income by 
NOLs in taxable years beginning before January 1, 2021. Section 
172(a)(1). The 80-percent limitation also does not apply to limit the 
use of pre-2018 NOLs. Section 172(a)(2)(A).
    Moreover, the 80-percent limitation does not apply to insurance 
companies other than life insurance companies (nonlife insurance 
companies). Section 172(f). Therefore, the taxable income of nonlife 
insurance companies may be fully offset by NOL deductions. In addition, 
under section 172(b)(1)(C) and (b)(1)(D)(i), losses of nonlife 
insurance companies arising in taxable years beginning after December 
31, 2020, may be carried back two years and carried over 20 years. In 
contrast, losses (aside from farming losses) of other taxpayers arising 
in such taxable years may not be carried back but may be carried 
forward indefinitely. Section 172(b)(1). Thus, nonlife insurance 
companies are subject to special rules under section 172 both with 
respect to the amount of taxable income that may be offset by NOL 
deductions and with respect to the taxable years to which NOLs may be 
carried.

B. Overview of the Proposed Approach and the Alternative Approach

    To implement the special rules under section 172 for nonlife 
insurance companies for a consolidated return year beginning after 
December 31, 2020, the proposed regulations provided that the 
application of the 80-percent limitation within a consolidated group to 
post-2017 NOLs depends on the status of the member that generated the 
income being offset. The proposed regulations further provided that the 
amount of post-2017 CNOLs that may be absorbed by one or more members 
of the group in such a consolidated return year (post-2017 CNOL 
deduction limit) is determined by applying the 80-percent limitation, 
section 172(f) (that is, the special rule for nonlife insurance 
companies), or both, to the group's consolidated taxable income (CTI) 
for that year. See proposed Sec.  1.1502-21(a)(2)(ii)(A) and (B).
    For consolidated groups comprised of both nonlife insurance 
companies and other members for a consolidated return year beginning 
after December 31, 2020, the proposed regulations adopted a two-factor 
computation (proposed

[[Page 67968]]

approach). In general, under the proposed approach, the post-2017 CNOL 
deduction limit for such a group equals the sum of two amounts. The 
first amount, which relates to the income of those members that are not 
nonlife insurance companies (residual income pool), is subject to the 
80-percent limitation. The second amount, which relates to the income 
of those members that are nonlife insurance companies (nonlife income 
pool), is not subject to the 80-percent limitation. See proposed Sec.  
1.1502-21(a)(2)(iii)(C). Thus, the proposed approach divides a 
consolidated group's nonlife insurance companies and its other members 
into two separate ``pools'' for purposes of determining the amount of 
CTI that is available to be offset by post-2017 CNOLs after applying 
the 80-percent limitation.
    In formulating the proposed regulations, the Treasury Department 
and the IRS considered another approach (alternative approach). This 
alternative approach would have required a group to first offset income 
and loss items within a pool of nonlife insurance companies and a pool 
of other members for all purposes of section 172 applicable to taxable 
years beginning after December 31, 2020. In other words, the 
alternative approach would have applied a pooling concept beyond merely 
determining the group's post-2017 CNOL deduction limit, but would have 
required a group's CTI to be allocated between the operations of its 
nonlife insurance company members, which can be offset fully by CNOL 
deductions, and the operations of its other members subject to the 80-
percent limitation. This alternative approach would also have applied 
similar rules to allocate CNOLs within groups including both nonlife 
insurance companies and other members to consistently identify the 
portions of CNOLs allocable to nonlife insurance company members, which 
are subject to different carryover rules than those of other members.
    The alternative approach would have contrasted with the historical 
application of Sec.  1.1502-21(b)(2)(iv)(B), under which a CNOL for a 
taxable year is attributed pro rata to all members of a group that 
produce net loss, without first netting among entities of the same 
type. In the preamble to the proposed regulations, the Treasury 
Department and the IRS requested comments regarding both the proposed 
approach and the alternative approach.

C. Comments on the Proposed Approach and the Alternative Approach

    In response to the request for comments, the Treasury Department 
and the IRS received comments that uniformly approved the proposed 
approach. For example, two commenters commended the proposed 
regulations as implementing the statutory amendments to section 172 in 
a reasonable manner that is consistent with both the statute and 
consolidated return principles. Specifically, both commenters supported 
the proposed regulations' approach to computing a group's post-2017 
CNOL deduction limit as well as the proposed regulations' retention of 
the historical pro rata approach under Sec.  1.1502-21(b)(2)(iv)(B) to 
determine the amount of nonlife insurance company losses that can be 
carried to other taxable years.
    In support of the proposed regulations, one commenter asserted that 
the proposed approach is more consistent with the treatment of CNOLs as 
consolidated items and with the current CNOL use and absorption rules 
in Sec.  1.1502-21 than the alternative approach. The commenter further 
asserted that, because the alternative approach would depart from the 
general pro rata rules of Sec.  1.1502-21 by first netting income and 
loss among entities of the same type within a consolidated group, the 
alternative approach could result in computational and compliance 
complications in circumstances that may be difficult to anticipate.
    In response to the comments received, these final regulations 
retain the proposed approach to computing a consolidated group's post-
2017 CNOL deduction limit.

D. Application of the Proposed Approach to Life-Nonlife Groups

    One commenter recommended that, for consolidated groups with both 
nonlife insurance companies and life insurance companies, the amounts 
of the residual income pool and the nonlife income pool in proposed 
Sec.  1.1502-21(a)(2)(iii)(C)(2) and (3) be clarified to refer only to 
the items of income, gain, deduction, or loss of members of the nonlife 
subgroup (as defined in Sec.  1.1502-47(b)(9) of these final 
regulations). The commenter further recommended that, in making this 
clarification, the Treasury Department and the IRS should not prevent 
nonlife CNOLs from offsetting life subgroup income where permitted by 
the Code and Sec.  1.1502-47. The commenter noted that this outcome 
appears to be the intent of the cross-reference to Sec.  1.1502-47 in 
proposed Sec.  1.1502-21(b)(2)(iv)(E), but the commenter indicated that 
clarification would be useful. The Treasury Department and the IRS 
agree with the commenter regarding the purpose of the cross-reference 
to Sec.  1.1502-47 in proposed Sec.  1.1502-21(b)(2)(iv)(E) and have 
revised the regulations to more clearly confirm this outcome.

E. Consolidated Capital Gain Net Income

    Section 1.1502-11(a)(3) provides that the CTI for a consolidated 
return year is determined by taking into account, among other 
enumerated items, any consolidated capital gain net income. See 
generally Sec.  1.1502-22(a) (providing rules for determining 
consolidated capital gain net income). Under Sec.  1.1502-22(a), the 
determinations for a consolidated group under section 1222, including 
capital gain net income, are not made separately. Instead, such 
consolidated amounts are determined for the group as a whole.
    Section 1.1502-11 does not provide explicit rules for allocating 
consolidated capital gain net income among members. Thus, one commenter 
requested that the final regulations clarify that, for groups that 
include nonlife insurance companies, consolidated capital gain net 
income under Sec.  1.1502-11(a)(3) is allocated to the residual income 
pool and the nonlife income pool using a pro rata method based on the 
principles of Sec.  1.1502-21(b)(2)(iv), as reflected in the general 
rule in Sec.  1.1502-21(b)(1), for the use and absorption of CNOLs.
    Section 1.1502-11 also does not provide explicit rules for 
determining the amount of each member's income that is offset by losses 
(whether incurred in the current year or carried over or back as a part 
of a CNOL or consolidated net capital loss). However, the Treasury 
Department and the IRS understand that, in the absence of express 
rules, consolidated return practitioners generally apply the principles 
of Sec.  1.1502-21(b)(2)(iv) to make such determinations. The 
methodology for computing a consolidated group's post-2017 CNOL 
deduction limit is intended to implement the changes made to section 
172(a) by the TCJA and the CARES Act in a manner that is flexible for 
taxpayers to apply and administrable for the IRS. The Treasury 
Department and the IRS have determined that specific rules regarding 
the allocation of consolidated capital gain net income to the residual 
income pool and the nonlife income pool under Sec.  1.1502-
21(a)(2)(iii)(C)(2) and (3) would exceed the scope of these final 
regulations. Accordingly, the Treasury Department and the IRS continue 
to reflect on the commenter's recommendation but have not incorporated 
that recommendation into the final regulations.

[[Page 67969]]

F. Example 6 in Proposed Sec.  1.1502-21(b)(2)(v)(F)

    Proposed Sec.  1.1502-21(b)(2)(v)(F) (Example 6) contains an 
example that illustrates the application of section 172 to a CNOL 
incurred by a consolidated group (P group) that includes P, an 
includible corporation under section 1504(b) of a type other than a 
nonlife insurance company, and PC1, a nonlife insurance company. Both P 
and PC1 were incorporated in Year 1, a year beginning after December 
31, 2020. In Year 1, the P group has $45 of CTI, $20 of which is 
attributable to P and $25 of which is attributable to PC1. In Year 2, 
the P group incurs a $16 CNOL that is attributable to PC1 and that is 
carried back to Year 1 under section 172(b)(1)(C)(i).
    The example illustrates that, under proposed Sec.  1.1502-
21(a)(2)(iii)(C), the P group's post-2017 CNOL deduction limit for Year 
1 is $41, which is the sum of the residual income pool ($16) and the 
nonlife income pool ($25), as described in proposed Sec.  1.1502-
21(a)(2)(iii)(C)(2) and (3), respectively. More specifically, the 
amount of the residual income pool equaled the lesser of the aggregate 
amount of post-2017 NOLs carried to Year 1 ($16), or 80 percent of the 
excess of P's taxable income for that year ($20) over the aggregate 
amount of pre-2018 NOLs allocable to P ($0), which also was $16 (80 
percent x ($20-$0)). See proposed Sec.  1.1502-21(b)(2)(v)(F)(3). The 
amount of the nonlife income pool equaled the excess of PC1's taxable 
income for Year 1 ($25) over the aggregate amount of pre-2018 NOLs 
allocable to PC1 ($0). Id.
    Two commenters requested clarification as to how much taxable 
income in each pool is offset by a CNOL carryover or carryback if each 
pool has positive taxable income, as in Example 6. Specifically, 
commenters contended that a specific absorption rule is needed to 
determine how much taxable income in the residual income pool (which is 
subject to the 80-percent limitation) can be offset by subsequent CNOL 
carryovers or carrybacks to the same year. For example, assume the same 
facts as in Example 6, but that the P group also incurs a $30 CNOL in 
Year 3 that is entirely attributable to PC1 and that is eligible to be 
carried back to Year 1. Absent a rule specifying how much taxable 
income in each pool was offset in Year 1 by the $16 Year 2 CNOL 
carryback, the commenters questioned how to compute the residual income 
pool for purposes of determining how much of the P group's Year 3 CNOL 
carryback could be absorbed by the P group in Year 1.
    As noted in part I.A of this Summary of Comments and Explanation of 
Revisions, the computation in section 172(a)(2)(B)(ii) is made 
``without regard to the deductions under [section 172] and sections 
199A and 250.'' Consistent with the statute, the amount of income in 
the residual income pool that is subject to the 80-percent limitation 
for a particular consolidated return year is not recomputed to reflect 
the amount of CNOLs carried over to and absorbed in that year. See 
Sec.  1.1502-21(a)(2)(iii)(C)(2) of these final regulations. Rather, 
the only component of the post-2017 CNOL deduction limit that is 
subject to change upon the carryover or carryback of additional CNOLs 
to the same consolidated return year is the aggregate amount of post-
2017 CNOLs carried to that year. See Sec.  1.1502-
21(a)(2)(iii)(C)(1)(i) of these final regulations. Determining this 
amount does not require an absorption rule.
    With regard to Example 6, if the P group were to incur a $30 CNOL 
in Year 3 that was eligible to be carried back to Year 1, the P group 
would redetermine the aggregate amount of the P group's post-2017 CNOLs 
that are carried to Year 1, but the P group would not recompute the 
amount of Year 1 income subject to the 80-percent limitation. Thus, an 
absorption rule is not needed to determine how much of the P group's 
Year 1 CTI can be offset by subsequent CNOL carrybacks. However, these 
final regulations provide additional facts in Example 6 to illustrate 
the computation of the amount of additional CNOL carryovers or 
carrybacks to the same consolidated return year that can be deducted to 
offset income in that year.

G. Split-Waiver Elections

    If a member of one consolidated group becomes a member of another 
consolidated group, Sec.  1.1502-21(b)(3)(ii)(B) permits the acquiring 
group to make an irrevocable election to relinquish, with respect to 
all CNOLs attributable to the acquired corporation, the portion of the 
carryback period for which the acquired corporation was a member of 
another group (so long as any other corporation joining the acquiring 
group that was affiliated with the acquired corporation immediately 
before it joined the acquiring group also is included in the waiver).
    A commenter noted that, pursuant to Sec.  1.1502-21(b)(3)(ii)(B), 
an acquiring group may make a split-waiver election only with respect 
to acquired corporations that were members of a different consolidated 
group in a carryback year. The commenter recommended that Sec.  1.1502-
21(b)(3)(ii) be expanded to allow a split-waiver election if the 
acquired corporation was not a member of a consolidated group in the 
carryback year.
    The Treasury Department and the IRS appreciate the commenter's 
suggestion and will continue to consider it in connection with the 
future finalization of the temporary regulations. However, this comment 
exceeds the scope of these final regulations, which adopt the 
provisions of the proposed regulations other than those for which the 
text was contained in the temporary regulations (specifically, Sec.  
1.1502-21(b)(3)(ii)(C) and (D)). Therefore, the Treasury Department and 
the IRS decline to adopt this recommendation in this Treasury decision.

H. Modification to SRLY Rules

    The proposed regulations modify the separate return limitation year 
(SRLY) rules in Sec.  1.1502-21(c) to take into account the limitations 
on NOL deductions under section 172, as amended by the TCJA and the 
CARES Act. See proposed Sec.  1.1502-21(c)(1)(i)(E). A commenter 
recommended that this modification not apply for purposes of section 
1503(d) (the dual consolidated loss (DCL) rules). In certain cases, the 
extent to which section 1503(d) restricts the use of a DCL, or requires 
the recapture of a DCL (or a related interest charge), depends on the 
application of the SRLY rules in Sec.  1.1502-21(c), subject to certain 
adjustments. See Sec. Sec.  1.1503(d)-4(c)(3) and 1.1503(d)-6(h)(2). In 
these cases, the adjusted SRLY rules are generally intended to ensure 
that a DCL may be used only to offset income of the dual resident 
corporation or separate unit that incurred the DCL, such that the use 
does not result in a ``double dip'' of the DCL.
    The commenter recommended that the modification reflected in 
proposed Sec.  1.1502-21(c)(1)(i)(E) not apply for purposes of the DCL 
rules because the modification addresses policies specific to the SRLY 
rules in Sec.  1.1502-21(c) (replicating, to the extent possible, 
separate-entity usage of SRLY attributes), which differ from the 
policies underlying the DCL rules (preventing double dipping of 
losses). In addition, the commenter asserted that applying the rule in 
proposed Sec.  1.1502-21(c)(1)(i)(E) for DCL purposes could distort the 
determination of whether double dipping could occur.
    The Treasury Department and the IRS agree with the commenter. The 
final regulations therefore provide that Sec.  1.1502-21(c)(1)(i)(E) 
does not apply for purposes of the DCL rules. See Sec.  1.1503(d)-
4(c)(3)(v).

[[Page 67970]]

I. Clarifying Changes to Proposed Sec.  1.1502-21

    In addition to the foregoing comments, a commenter recommended 
clarifying changes to proposed Sec.  1.1502-21. The Treasury Department 
and the IRS appreciate these suggested clarifications and have 
incorporated many of them into the final regulations. However, the 
commenter also recommended deleting the reference to section 199A in 
proposed Sec. Sec.  1.1502-21(a)(2)(iii)(A)(2)(ii) and 1.1502-
21(a)(2)(iii)(C)(2)(ii) on the grounds that the deduction under section 
199A is available to only noncorporate taxpayers. Because section 
199A(g) provides a deduction for specified agricultural or 
horticultural cooperatives, which (as C corporations) can be members of 
a consolidated group, these references to section 199A have been 
retained in the final regulations.
    The Treasury Department and the IRS also have made additional 
clarifying revisions based on further review of the proposed 
regulations. In particular, the final regulations contain corrections 
to scrivener's errors in the two-factor computation in proposed Sec.  
1.1502-21(a)(2)(iii). Specifically, the ``lesser of'' language in 
proposed Sec.  1.1502-21(a)(2)(iii)(C)(2), which was intended to 
reflect the application of section 172(a)(2)(B) to groups that include 
both nonlife insurance companies and other corporations, was 
mislocated. To accurately reflect the comparison required under section 
172(a)(2)(B), the language at issue has been moved to Sec.  1.1502-
21(a)(2)(iii)(C)(1) of the final regulations.
    Additional edits have been made to enhance the consistency and 
clarity of the rules in proposed Sec.  1.1502-21(a)(2). For example, 
language reflecting the ``lesser of'' comparison described in the 
preceding paragraph has been explicitly integrated into Sec. Sec.  
1.1502-21(a)(2)(iii)(B) and 1.1502-21(a)(2)(iii)(C)(5)(ii) (concerning 
CNOL deductions that offset income of nonlife insurance company 
members) of these final regulations. As discussed in part II.B of this 
Summary of Comments and Explanation of Revisions, the post-2017 CNOL 
deduction limit equals the maximum amount of post-2017 CNOLs that can 
be deducted against taxable income in a consolidated return year 
beginning after December 31, 2020. This amount could never exceed the 
total amount of post-2017 CNOLs carried to that year. See section 
172(f) (providing that, in the case of a nonlife insurance company, the 
amount of the NOL deduction allowed under section 172(a) in any taxable 
year equals the aggregate of NOL carrybacks and carryovers to that 
year).
    Likewise, in the absence of any other limitation, the taxable 
income of a taxpayer always constitutes a limit on the deductibility of 
NOLs. See generally section 172(b)(2). Without such limit, the 
deduction of NOLs in excess of taxable income would create an 
additional NOL. The Treasury Department and IRS have determined that 
explicitly providing the respective post-2017 CNOL and taxable income 
limitations on the deduction of NOLs to offset taxable income of 
nonlife insurance companies will enhance the clarity of the final 
regulations and the consistency of their application.

II. Comments On and Changes To Proposed Sec.  1.1502-47

    The proposed regulations updated the rules in Sec.  1.1502-47 to 
reflect statutory changes enacted since these rules were promulgated. 
Commenters commended the Treasury Department and the IRS for updating 
these regulations. Additionally, several commenters expressed their 
understanding that another guidance project has been initiated to 
propose substantive changes to Sec.  1.1502-47 and urged the Treasury 
Department and the IRS to give priority to this effort. These 
commenters argued that the objective of that guidance project should be 
the elimination of any provisions that depart from general consolidated 
return principles in life-nonlife consolidation, except to the extent 
non-conforming provisions are necessary to implement specific 
provisions of the Code. In particular, these commenters expressed 
concern about the treatment of consolidated capital gains and losses 
under Sec.  1.1502-47 and requested simplification of the eligibility 
and tacking rules.
    The Treasury Department and the IRS appreciate the commenters' 
input and welcome further comments regarding substantive changes to 
Sec.  1.1502-47 for purposes of potential future guidance. However, 
such changes are beyond the scope of these final regulations.
    Additionally, commenters recommended several clarifying changes to 
proposed Sec.  1.1502-47. Many of these suggested clarifications have 
been incorporated into the final regulations. For example, these final 
regulations have added a cross-reference to the definition of ``nonlife 
insurance company'' in Sec.  1.1502-1(k). However, one commenter 
recommended that Sec.  1.1502-47(g)(3) of these final regulations be 
modified to more closely parallel Sec.  1.1502-47(f)(3) of these final 
regulations. The commenter further requested that paragraph (d)(5) of 
these final regulations be modified to explicitly set forth the various 
rules (both statutory and regulatory) that apply to certain dividends 
received by an includible member from another member of the 
consolidated group. These comments exceed the scope of these final 
regulations, but the Treasury Department and the IRS will continue to 
consider these comments for purposes of potential future guidance 
regarding Sec.  1.1502-47.

Effective/Applicability Dates

    The final regulations in Sec. Sec.  1.1502-1(k), 1.1502-21(a), 
(b)(1), (b)(2)(iv), and (c)(1)(i)(E), 1.1502-47, and 1.1503(d)-8(b)(8) 
apply to taxable years beginning after December 31, 2020. However, a 
taxpayer may choose to apply the rules in Sec. Sec.  1.1502-1(k) and 
1.1502-47 of these final regulations to taxable years beginning on or 
before December 31, 2020. If a taxpayer makes the choice described in 
the previous sentence with regard to the rules in Sec.  1.1502-47, the 
corporation must apply those rules in their entirety and consistently 
with the provisions of the Internal Revenue Code applicable to the 
years at issue.

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    Executive Orders 13563, 13771, 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, of reducing costs, of harmonizing rules, and of promoting 
flexibility.
    These final regulations have been designated as subject to review 
under Executive Order 12866 pursuant to the Memorandum of Agreement 
(April 11, 2018) between the Treasury Department and the Office of 
Management and Budget (OMB) regarding review of tax regulations. The 
Office of Information and Regulatory Affairs (OIRA) has designated the 
final regulations as economically significant under section 1(c) of the 
Memorandum of Agreement. Accordingly, OMB has reviewed the final 
regulations.

A. Background and Need for Regulations

    In general, taxpayers whose deductions exceed their income generate 
a net operating loss (NOL),

[[Page 67971]]

calculated under the rules of section 172. Section 172 also governs the 
use of NOLs generated in other years to offset taxable income in the 
current year. Regulations issued under the authority of section 1502 
may be used to govern how section 172 applies to consolidated groups of 
C corporations. In general, a consolidated group generates a combined 
NOL at an aggregate level (CNOL), with the CNOL generally equal to the 
loss generated from treating the consolidated group as a single entity. 
Under regulations promulgated prior to the Tax Cuts and Jobs Act 
(TCJA), the allowed CNOL deduction was equal to the lesser of the CNOL 
carryover or the combined taxable income of the group (before the CNOL 
deduction).
    The TCJA and the Coronavirus Aid, Relief, and Economic Security 
(CARES) Act made several changes to section 172. First, the TCJA and 
the CARES Act disallowed the carry back of NOLs generated in taxable 
years beginning after 2020, except for farming losses and losses 
incurred by corporations that are insurance companies other than life 
insurance companies (nonlife insurance companies). Second, the TCJA and 
the CARES Act limited the NOL deduction in taxable years beginning 
after 2020 for NOLs generated in 2018 or later (post-2017 NOLs) to 80 
percent of taxable income determined after the deduction for pre-2018 
NOLs but before the deduction for post-2017 NOLs. This 80-percent 
limitation does not apply to nonlife insurance companies.
    These final regulations implement the changes to section 172 in the 
context of consolidated groups. In particular, regulations are needed 
to address three issues related to consolidated groups that were not 
expressly addressed in the TCJA or the CARES Act. First, the final 
regulations describe how to determine the 80-percent limitation in the 
case of a ``mixed'' group--that is, a consolidated group containing 
nonlife insurance companies and other members. Second, the final 
regulations address the calculation and allocation of farming losses. 
Third, the final regulations implement the 80-percent limitation into 
existing regulations to determine the CNOL deduction attributable to 
losses from a member arising during periods in which that member was 
not part of that group. Part I.B of this Special Analyses describes the 
manner by which the final regulations addresses each of these issues.
    Part I.B also describes an alternative approach that was 
contemplated by the Treasury Department and the IRS regarding the 
allocation of currently generated losses to nonlife insurance companies 
and other members. The Treasury Department and the IRS elected not to 
implement this approach.

B. Overview of the Final Regulations

    In this part I.B the following terms are used. The term ``P group'' 
means a consolidated group of which P is the common parent. The term 
``P&C member'' means a member of the P group that is a nonlife 
insurance company. The term ``C member'' means a member of the P group 
that is a C corporation other than a nonlife insurance company.
1. Application of 80-Percent Limitation in Mixed Groups
    Under the statute, the general rule for determining the NOL 
deduction (for a taxable year beginning after December 31, 2020) 
effectively proceeds in two steps. First, the taxpayer deducts pre-2018 
NOLs without limit. Second, the taxpayer deducts post-2017 NOLs up to 
80 percent of the taxpayer's taxable income (computed without regard to 
the deductions under sections 199A and 250) determined after the 
deduction of pre-2018 NOLs (but, naturally, before the deduction for 
post-2017 NOLs). However, this 80-percent limitation does not apply for 
corporations that are nonlife insurance companies.
    The application of the 80-percent limitation to the P group is 
straightforward if (i) there are no pre-2018 NOLs and (ii) both classes 
of P&C members and C members have positive income before the CNOL 
deduction. In that case, these final regulations provide, quite 
naturally, that the CNOL limitation is determined by adding (i) the 
pre-CNOL income generated by the class of C members (C member income 
pool), determined by applying the 80-percent limitation, plus (ii) 100 
percent of the pre-CNOL income generated by the class of P&C members 
(P&C member income pool). This latter treatment reflects the rule in 
section 172(f) that nonlife insurance companies are not subject to the 
80-percent limitation.
    One complication arises when the pre-CNOL C member income pool is 
positive and the pre-CNOL P&C income pool is negative, and the P group 
has positive combined pre-CNOL taxable income. In this case (where the 
pre-CNOL income is generated by C members, rather than P&C members), 
these final regulations provide that the post-2017 CNOL deduction limit 
is determined by applying the 80-percent limitation to the income of 
the P group. If the situation were reversed, such that the P group had 
positive combined taxable income but the pre-CNOL income is generated 
by P&C members, rather than the C members, the post-2017 CNOL deduction 
limit is equal to the income of the P group (that is, determined 
without regard to the 80-percent limitation). In essence, in these 
situations, the amount of the P group's income able to absorb a post-
2017 CNOL carryover is defined by the member pool (that is, the C 
member income pool or the P&C member income pool) that is generating 
the income.
    The other complication occurs when there is a pre-2018 NOL. In this 
situation, it matters whether the pre-2018 NOL is treated as reducing 
the amount of the C member income pool or reducing the amount of P&C 
member income pool. Consider the following example (Example 1). In 
Example 1, the P group carries $50 in pre-2018 NOLs and $1000 in post-
2017 NOLs to 2021. In 2021, the P&C members and the C members, 
respectively, earn (pre-CNOL) income of $100. If the pre-2018 NOL were 
treated as solely reducing the amount of C member income pool, then the 
limitation for the post-2017 CNOL deduction would be $100 plus 80 
percent of $50 ($100 minus $50), equal to $140. If the pre-2018 NOL 
were treated as solely reducing the amount of the P&C member income 
pool, then the post-2017 CNOL deduction limit for the P group would be 
$50 ($100 minus $50) plus 80 percent of $100, or $130.
    These final regulations allocate the pre-2018 NOL pro-rata to the C 
member income pool and the P&C member income pool in proportion to 
their current-year income. In Example 1, $25 of the pre-2018 NOL would 
be allocated to the C member income pool and $25 to the P&C member 
income pool. Therefore, the post-2017 CNOL deduction limit for the P 
group would be $75 ($100 minus $25) plus 80 percent of $75 ($100 minus 
$25), or $135.
2. Farming Losses
    Section 172 provides that NOLs arising in a taxable year beginning 
after December 31, 2020, may not be carried back to prior years, with 
two exceptions: (1) Farming losses and (2) nonlife insurance company 
losses. Section 172(b)(1)(B) defines a ``farming loss'' as the smaller 
of the actual loss from farming activities in a given year (that is, 
the excess of the deductions in farming activities over income in 
farming activities) and the total NOL generated in that year. This 
statutory provision means that if a taxpayer incurs a loss in farming 
activities but has overall income in other activities, the farming loss 
will be smaller than the loss in farming activities (and can possibly 
be zero).

[[Page 67972]]

    Regulations were needed to clarify two issues that arise in the 
context of consolidated groups. First, these regulations clarify that 
the maximum amount of farming loss is the CNOL of the group rather than 
the NOL of the specific member generating the loss in farming 
activities. This approach follows closely regulations issued by the 
Treasury Department and the IRS in 2012 in an analogous setting.
    Second, given the overlapping categories of carryback-eligible NOLs 
(farming losses and nonlife insurance companies), regulations are 
needed to allocate the farming loss to the various members to determine 
the total amount of CNOL that can be carried back. Consider the 
following example (Example 2). In Example 2, the P group consists of 
one C member and one P&C member. In 2021, the C member's only activity 
is farming and the C member incurs a loss of $30, while the P&C member 
incurs a loss of $10. The total farming loss is $30, since $30 is less 
than the P group CNOL of $40. If this farming loss were allocated 
entirely to the C member, then the total amount eligible for carryback 
would be $40 (that is, $30 for the farming loss and $10 for the loss 
incurred by the P&C member). By contrast, if the farming loss were 
allocated entirely to the P&C member, only $30 would be eligible to be 
carried back.
    Again, following a similar rule as the 2012 regulations, these 
final regulations allocate the farming loss to each member of the group 
in proportion with their share of total losses, without regard to 
whether each member actually engaged in farming. In Example 2, this 
would allocate $7.50 (that is, one-fourth of $30) of the farming loss 
to the P&C member and the remaining $22.50 (that is, three-fourths of 
$30) to the C member. Therefore, the P group would be allowed to carry 
back $32.50 total (that is, the $10 of loss generated by the P&C member 
and the $22.50 of farming losses allocated to the C member).
3. Separate Return Limitation Year
    To reduce ``loss trafficking,'' existing regulations under section 
1502 limit the extent to which a consolidated group (that is, the P 
group) can claim a CNOL attributable to losses generated by some member 
(M) in years in which M was not a member. In particular, existing rules 
limit this amount of loss to the amount of the loss that would have 
been deductible had M remained a separate entity; that is, the rules 
are designed to preserve neutrality in loss use between being a 
separate entity or a member of a group. Existing rules operationalize 
this principle using the mechanic of a ``cumulative register.'' The 
cumulative register is equal to the (cumulative) amount of M's income 
that is taken into account in the P group's income. Income earned by M 
while a member of the P group increases the cumulative register, while 
losses (carried over or otherwise) taken into account by the group 
reduce the cumulative register. In general, the existing rules provide 
that M's pre-group NOLs cannot offset the P group's income when the 
cumulative register is less than or equal to zero.
    The introduction of the 80-percent limitation in the TCJA and CARES 
Act necessitates an adjustment to this mechanism in order to retain 
this neutrality-in-loss-use property. In particular, these final 
regulations provide that any losses by M that are absorbed by the P 
group and subject to the 80-percent limitation cause a reduction to the 
register equal to the full amount of income needed to support that 
deduction. The following example (Example 3) demonstrates why this 
adjustment is necessary. In Example 3, P and S are each corporations 
other than nonlife insurance companies (that is, they are subject to 
the 80-percent limitation). Suppose in 2021, S incurs a loss of $800, 
which is the only loss ever incurred by S. In 2022, S incurs income of 
$400. If S were not a member of a consolidated group, its 2022 NOL 
deduction would be limited to $320 (80 percent of $400). Suppose 
instead that P acquires S in 2022 and that P has separate income of 
$600 in 2022, so the consolidated group has $1000 in pre-CNOL income in 
2022. Before claiming any CNOLs, S's cumulative register would increase 
to $400 in 2022. Without any additional rules, the $400 cumulative 
register would allow P to claim a CNOL of $400 (bringing the register 
down to zero), greater than what would have been allowed had S remained 
a separate entity. By contrast, requiring the register to be reduced by 
125 percent of the NOL (as under the final regulations) allows P to 
claim only a $320 CNOL, replicating the result if S were a separate 
entity.
4. Allocation of Current Losses to Nonlife Insurance Companies
    In general, under the TCJA and CARES Act, taxpayers may not carry 
back any losses generated in tax years beginning after 2020, with the 
exception of losses generated by nonlife insurance companies and 
farming losses. Existing regulations clarify that CNOLs are allocated 
to each member in proportion to the total loss. This allocation rule 
can be illustrated by example (Example 4). In Example 4, the C member 
has a current loss of $10 (in a tax year beginning in 2021 or later). 
The P&C members are corporations PC1 and PC2. PC1 has a gain of $40 and 
PC2 has a loss of $40. Assume that the P group does not engage in any 
farming activities. The CNOL for the P group is $10. The $10 of CNOL is 
allocated to the C member and PC2 in proportion to their total losses. 
The C member has one-fifth of the total loss ($10 divided by $50) and 
PC2 has four-fifths. Therefore, under the existing regulations, the C 
member is allocated $2 ($10 times one-fifth) and PC2 is allocated $8 
($10 times four-fifths). In the end, $8 of the CNOL may be carried back 
in Example 4. The final regulations do not alter these existing 
regulations.
    In formulating these final regulations, the Treasury Department and 
the IRS contemplated an alternative approach. Under this alternative, 
consolidated groups would be required to compute gain and loss by 
grouping P&C members and C members separately prior to allocating CNOL 
to members. The application of this approach can be seen by revisiting 
Example 4. Under this alternative approach, because the P&C members as 
a whole do not have a loss, no CNOL would be allocated to any P&C 
member regardless of the gain or loss of any of the individual P&C 
members. Thus, under the alternative approach, none of the $10 CNOL 
would be eligible for carryback in Example 4.

C. Economic Analysis

1. Baseline
    In this analysis, the Treasury Department and the IRS assess the 
benefits and costs of the final regulations relative to a no-action 
baseline reflecting anticipated Federal income tax-related behavior in 
the absence of these regulations.
2. Summary of Economic Effects
    The final regulations provide certainty and clarity to taxpayers 
regarding the treatment of NOLs under section 172 and the regulations 
under section 1502. In the absence of such guidance, the chance that 
different taxpayers would interpret the statute and the regulations 
differently would be exacerbated. Similarly situated taxpayers might 
interpret those rules differently, with one taxpayer pursuing an 
economic opportunity that another taxpayer might decline to make 
because of different interpretations of the ability of losses to offset 
taxable income. If this second taxpayer's activity were more 
profitable, the resulting economic decisions are inefficient. Such 
situations are more likely to arise in the absence of guidance. While 
no guidance can

[[Page 67973]]

curtail all differential or inaccurate interpretations of the statute, 
the regulations significantly mitigate the chance for differential or 
inaccurate interpretations and thereby increase economic efficiency.
    To the extent that the specific provisions of the final regulations 
result in the acceleration or delay of the tax year in which taxpayers 
deduct an NOL relative to the baseline, those taxpayers may face a 
change in the present value of the after-tax return to new investment, 
particularly investment that may result in losses. The resulting 
changes in the incentives facing the taxpayer are complex and may lead 
the taxpayer either to increase, decrease, or leave unchanged the 
volume and risk level of its investment portfolio, relative to the 
baseline, in ways that depend on the taxpayer's stock of NOLs and the 
depreciation schedules and income patterns of investments they would 
typically consider, including whether the investment is subject to 
bonus depreciation. Because these elements are complex and taxpayer-
specific and because the sign of the effect on investment is generally 
ambiguous, the Treasury Department and the IRS have not projected the 
specific effects on economic activity arising from the final 
regulations.
    The Treasury Department and the IRS project that these regulations 
will have annual effects below $100 million ($2020) relative to the 
baseline. The effects are small because the regulations apply only to 
consolidated groups; in addition, several provisions of the final 
regulations apply only to the extent that a consolidated group contains 
a mix of member types. Moreover, the effects are small because: (i) For 
provisions of the final regulations that affect the deduction for pre-
2018 NOLs, the effects are limited to the stock of the pre-2018 NOLs; 
and (ii) for provisions that affect the allowable rate of loss usage of 
post-2017 NOLs, the effect arises only from the 20 percentage point 
differential in the deduction for these NOLs. This latter effect in 
particular, to which the bulk of the provisions apply, is too small to 
substantially affect taxpayers' use of NOLs and thus too small to lead 
to meaningful changes in economic decisions.
    The Treasury Department and the IRS did not estimate more precisely 
the economic effects of these regulations because (i) the effects are 
expected to be small and (ii) data or models that would address the 
effects of these regulations are not readily available. In the absence 
of quantitative estimates, the subsequent discussion provides 
qualitative analysis of these economic effects.
    The proposed regulations solicited comments on the economic effects 
of the proposed regulations. No such comments were received.
3. Allocation of CNOLs to Specific Members of Consolidated Groups
    The final regulations do not amend existing rules for the 
allocation of the CNOL within consolidated groups. The final 
regulations follow existing rules and allocate the CNOLs to each member 
of the group in proportion to the total loss.
    The Treasury Department and the IRS considered an alternative 
approach that would have required groups to compute gain and loss at 
the subgroup level prior to allocating CNOL to members. Recall Example 
4 in which the P&C subgroup had no gain or loss but the C subgroup had 
a loss of $10. Under this alternative approach, because the P&C 
subgroup as a whole does not have a loss, no CNOL would be allocated to 
any member in the P&C group regardless of the gain or loss of any of 
the individual members of PC. Thus, in Example 4, none of the $10 CNOL 
would be eligible for carryback.
    The Treasury Department and the IRS recognize that as a result of 
the TCJA and the CARES Act, the final regulations may provide groups 
with an incentive to split their C members into several corporations--
some with loss and some with gain; this potential incentive would not 
exist under the alternative regulatory approach. In certain 
circumstances, such a strategy would effectively enable some share of 
the losses generated by the other C members to be carried back. This 
change in the business structure of consolidated groups may entail 
economic costs because, to the extent this strategy is pursued, it 
would result from tax-driven rather than market-driven considerations. 
The Treasury Department and the IRS project, however, that the adopted 
approach will have lower compliance costs for taxpayers, relative to 
the alternative regulatory approach, because it generally follows 
existing regulatory practice for allocating losses within a 
consolidated group.
    The Treasury Department and the IRS have not attempted to estimate 
the economic consequences of either of these effects but project them 
to be small. The effects are projected to be small because (i) only a 
small number of taxpayers are likely to be affected; (ii) any 
reorganization that occurs due to the final regulations will primarily 
be ``on paper'' and entail little or no economic loss; and (iii) the 
compliance burden of loss allocation, under either the final 
regulations or the alternative approach, is not high.
    No additional substantive alternatives were raised by the comments.
4. Affected Taxpayers
    The Treasury Department and the IRS project that these regulations 
will primarily affect consolidated groups that contain at least one 
nonlife insurance member and at least one member that is not a nonlife 
insurance company. Based on data from 2015, the Treasury Department and 
the IRS calculate that there were 1,130 such consolidated groups. 
Approximately 460 of these groups were of ``mixed loss'' status, 
meaning that at least one nonlife insurance member had a gain and one 
other member had a loss, or vice versa.

D. Summary

    In sum, these regulations clarify the recent statutory changes to 
section 172 as they apply to consolidated corporate groups. The 
Treasury Department and IRS project the economic effect of these 
regulations to be small given that (1) the effect of NOL usage on 
investment incentives is of ambiguous sign, (2) these regulations are 
projected to have only a small effect on NOL usage, and (3) it is 
expected that most taxpayers would have come to a similar 
interpretation of the statute in the absence of these regulations.

II. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that these final regulations will not have a 
significant economic impact on a substantial number of small entities. 
This certification is based on the fact that these final regulations 
apply only to corporations that file consolidated Federal income tax 
returns, and that such corporations almost exclusively consist of 
larger businesses. Specifically, based on data available to the IRS, 
corporations that file consolidated Federal income tax returns 
represent only approximately two percent of all filers of Forms 1120 
(U.S. Corporation Income Tax Return). However, these consolidated 
Federal income tax returns account for approximately 95 percent of the 
aggregate amount of receipts provided on all Forms 1120. Therefore, 
these final regulations would not create additional obligations for, or 
impose an economic impact on, small entities. Accordingly, the 
Secretary certifies that the final regulations will not have a 
significant economic impact on a substantial number of small entities.

[[Page 67974]]

    Pursuant to section 7805(f) of the Internal Revenue Code, the 
notice of proposed rulemaking that preceded these final regulations was 
submitted to the Chief Counsel for the Office of Advocacy of the Small 
Business Administration for comment on its impact on small business. No 
comments on the notice were received from the Chief Counsel for the 
Office of Advocacy of the Small Business Administration.

III. 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.

IV. 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. This rule does not have federalism 
implications, does not impose substantial direct compliance costs on 
state and local governments, and does not preempt state law within the 
meaning of the Executive Order.

V. Congressional Review Act

    The Administrator of OIRA has determined that this is a major rule 
for purposes of the Congressional Review Act (5 U.S.C. 801 et seq.) 
(CRA). Under section 801(3) of the CRA, a major rule takes effect 60 
days after the rule is published in the Federal Register. Consistent 
with this requirement, the effective date of this Treasury decision is 
December 28, 2020, whereas the rules in this Treasury decision apply 
for taxable years beginning after December 31, 2020.

Drafting Information

    The principal authors of these regulations are Justin O. Kellar, 
Gregory J. Galvin, and William W. Burhop 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 in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is 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 1.1502-1 is amended by adding paragraphs (k) and (l) to 
read as follows:


Sec.  1.1502-1  Definitions.

* * * * *
    (k) Nonlife insurance company. The term nonlife insurance company 
means a member that is an insurance company other than a life insurance 
company, each as defined in section 816(a).
    (l) Applicability date. Paragraph (k) of this section applies to 
taxable years beginning after December 31, 2020. However, a taxpayer 
may choose to apply paragraph (k) of this section to taxable years 
beginning on or before December 31, 2020.

0
Par. 3. Section 1.1502-21 is amended:
0
1. By revising paragraph (a).
0
2. By revising paragraph (b)(1).
0
3. By revising paragraph (b)(2)(iv).
0
4. By revising paragraph (b)(2)(v) introductory text.
0
5. In paragraph (b)(2)(v), by designating Examples 1 through 3 as 
paragraphs (b)(2)(v)(A) through (C), respectively, and removing the 
period after each example number in the paragraph headings and 
replacing them with a colon.
0
6. In newly designated paragraphs (b)(2)(v)(A) through (C), by 
redesignating paragraphs (b)(2)(v)(A)(i) and (ii) as paragraphs 
(b)(2)(v)(A)(1) and (2), paragraphs (b)(2)(v)(B)(i) and (ii) as 
paragraphs (b)(2)(v)(B)(1) and (2), and paragraphs (b)(2)(v)(C)(i) and 
(ii) as paragraphs (b)(2)(v)(C)(1) and (2).
0
7. By adding paragraphs (b)(2)(v)(D) through (G).
0
8. In paragraph (b)(3)(ii)(B), by removing the text ``Sec.  1.1502-
21(b)(3)(ii)(B)(2)'' and adding in its place ``Sec.  1.1502-
21(b)(3)(ii)(B)''.
0
9. By revising paragraph (b)(3)(ii)(C).
0
10. By adding paragraph (b)(3)(ii)(D).
0
11. By revising paragraph (c)(1)(i) introductory text.
0
12. In paragraph (c)(1)(i)(C)(2), by removing the word ``and''.
0
13. In paragraph (c)(1)(i)(D), by removing the word ``account.'' and 
adding in its place ``account; and''.
0
14. By adding paragraph (c)(1)(i)(E).
0
15. By revising paragraph (c)(1)(iii) introductory text.
0
16. In paragraph (c)(1)(iii), by designating Examples 1 through 5 as 
paragraphs (c)(1)(iii)(A) through (E), respectively, and removing the 
period after each example number in the paragraph headings and 
replacing them with a colon.
0
17. In newly redesignated paragraphs (c)(1)(iii)(A) through (E), by 
redesignating paragraphs (c)(1)(iii)(A)(i) through (iii) as paragraphs 
(c)(1)(iii)(A)(1) through (3), paragraphs (c)(1)(iii)(B)(i) through 
(vi) as paragraphs (c)(1)(iii)(B)(1) through (6), paragraphs 
(c)(1)(iii)(C)(i) through (iii) as paragraphs (c)(1)(iii)(C)(1) through 
(3), paragraphs (c)(1)(iii)(D)(i) through (iv) as paragraphs 
(c)(1)(iii)(D)(1) through (4), and paragraphs (c)(1)(iii)(E)(i) through 
(v) as paragraphs (c)(1)(iii)(E)(1) through (5).
0
18. By revising newly redesignated paragraphs (c)(1)(iii)(A)(2) and 
(c)(1)(iii)(B)(2) through (6).
0
19. In newly redesignated paragraph (c)(1)(iii)(C)(2), by adding the 
words ``, a taxable year that begins on January 1, 2021'' after the 
words ``at the beginning of Year 4''.
0
20. By revising newly redesignated paragraphs (c)(1)(iii)(D)(2) through 
(4).
0
21. By adding paragraph (c)(1)(iii)(D)(5).
0
22. By revising newly redesignated paragraphs (c)(1)(iii)(E)(2) through 
(5).
0
23. By adding paragraphs (c)(1)(iii)(E)(6) and (c)(1)(iii)(F).
0
24. By revising paragraph (c)(2)(v).
0
25. By revising paragraph (c)(2)(viii) introductory text,.
0
26. In paragraph (c)(2)(viii), by designating Examples 1 through 4 as 
paragraphs (c)(2)(viii)(A) through (D), respectively, and removing the 
period after each example number in the paragraph headings and 
replacing them with a colon.
0
27. In newly designated paragraphs (c)(2)(viii)(A) through (D), by 
redesignating paragraphs (c)(2)(viii)(A)(i) through (vii) as paragraphs 
(c)(2)(viii)(A)(1) through (7), paragraphs (c)(2)(viii)(B)(i) through 
(iv) as paragraphs (c)(2)(viii)(B)(1) through (4), paragraphs 
(c)(2)(viii)(C)(i) through (iii) as paragraphs (c)(2)(viii)(C)(1) 
through (3), and paragraphs (c)(2)(viii)(D)(i) and (ii) as paragraphs 
(c)(2)(viii)(D)(1) and (2).
0
28. In newly redesignated paragraphs (c)(2)(viii)(A)(3) through (7), 
the first

[[Page 67975]]

sentence of each, by adding the words ``, including the limitation 
under paragraph (c)(1)(i)(E) of this section'' after the words ``under 
paragraph (c) of this section''.
0
29. In newly redesignated paragraph (c)(2)(viii)(B)(1), the first 
sentence, by adding the words ``, none of which is a nonlife insurance 
company'' after the text ``S, T, P and M''.
0
30. In newly redesignated paragraph (c)(2)(viii)(B)(1), the fourth 
sentence, by adding the text ``(a taxable year beginning after December 
31, 2020)'' after the language ``Year 3''.
0
31. By revising newly designated paragraph (c)(2)(viii)(B)(3).
0
32. By redesignating newly redesignated paragraph (c)(2)(viii)(B)(4) as 
paragraph (c)(2)(viii)(B)(5).
0
33. By adding a new paragraph (c)(2)(viii)(B)(4).
0
34. By revising newly redesignated paragraph (c)(2)(viii)(B)(5).
0
35. By adding paragraph (c)(2)(viii)(B)(6).
0
36. In paragraph (g)(5), by designating Examples 1 through 9 as 
paragraphs (g)(5)(i) through (ix), respectively, and removing the 
period after each example number in the paragraph headings and 
replacing them with a colon.
0
37. In newly redesignated paragraphs (g)(5)(i) through (ix), by 
redesignating paragraphs (g)(5)(i)(i) through (iv) as paragraphs 
(g)(5)(i)(A) through (D), paragraphs (g)(5)(ii)(i) through (iv) as 
paragraphs (g)(5)(ii)(A) through (D), paragraphs (g)(5)(iii)(i) through 
(iii) as paragraphs (g)(5)(iii)(A) through (C), paragraphs 
(g)(5)(iv)(i) through (iv) as paragraphs (g)(5)(iv)(A) through (D), 
paragraphs (g)(5)(v)(i) through (iv) as paragraphs (g)(5)(v)(A) through 
(D), paragraphs (g)(5)(vi)(i) through (iv) as paragraphs (g)(5)(vi)(A) 
through (D), paragraphs (g)(5)(vii)(i) through (vi) as paragraphs 
(g)(5)(vii)(A) through (F), paragraphs (g)(5)(viii)(i) through (v) as 
paragraphs (g)(5)(viii)(A) through (E), and paragraphs (g)(5)(ix)(i) 
through (vii) as paragraphs (g)(5)(ix)(A) through (G).
0
38. By revising paragraph (h)(9).
0
39. By adding paragraph (h)(10).
    The revisions and additions read as follows:


Sec.  1.1502-21  Net operating losses.

    (a) Consolidated net operating loss deduction--(1) In general. 
Subject to any limitations under the Internal Revenue Code or this 
chapter (for example, the limitations under section 172(a)(2) and 
paragraph (a)(2) of this section), the consolidated net operating loss 
deduction (or CNOL deduction) for any consolidated return year is the 
aggregate of the net operating loss carryovers and carrybacks to the 
year. The net operating loss carryovers and carrybacks consist of--
    (i) Any CNOLs (as defined in paragraph (e) of this section) of the 
consolidated group; and
    (ii) Any net operating losses (or NOLs) of the members arising in 
separate return years.
    (2) Application of section 172 for computing net operating loss 
deductions--(i) Overview. For purposes of Sec.  1.1502-11(a)(2) 
(regarding a CNOL deduction), the rules of section 172 regarding the 
use of net operating losses are taken into account as provided by this 
paragraph (a)(2) in calculating the consolidated taxable income of a 
group for a particular consolidated return year. More specifically, in 
computing taxable income for taxable years beginning after December 31, 
2020, section 172(a) generally limits the deductibility of net 
operating losses arising in taxable years beginning after December 31, 
2017 (post-2017 NOLs). However, these limitations do not apply to net 
operating losses arising in taxable years beginning before January 1, 
2018 (pre-2018 NOLs). Therefore, in any particular consolidated return 
year beginning after December 31, 2020, the group's CNOL deduction 
includes CNOLs arising in taxable years beginning before January 1, 
2018 (pre-2018 CNOLs), without limitation under section 172(a). 
Following the deduction of pre-2018 CNOLs, this paragraph (a)(2) 
applies to compute the maximum amount of CNOLs from taxable years 
beginning after December 31, 2017 (post-2017 CNOLs), that can be 
deducted against taxable income in a consolidated return year beginning 
after December 31, 2020 (post-2017 CNOL deduction limit). See section 
172(a)(2)(A) and (B).
    (ii) Computation of the 80-percent limitation and special rule for 
nonlife insurance companies--(A) Determinations based on status of 
group members. If a portion of a post-2017 CNOL is carried back or 
carried over to a consolidated return year beginning after December 31, 
2020, whether the members of the group include nonlife insurance 
companies, other types of corporations, or both determines whether 
section 172(a) (including the limitation described in section 
172(a)(2)(B)(ii) (80-percent limitation)), section 172(f) (providing 
special rules for nonlife insurance companies), or both, apply to the 
group for the consolidated return year.
    (B) Determination of post-2017 CNOL deduction limit. The post-2017 
CNOL deduction limit is determined under paragraph (a)(2)(iii) of this 
section by applying section 172(a)(2)(B)(ii) (that is, the 80-percent 
limitation), section 172(f) (that is, the special rule for nonlife 
insurance companies), or both, to the group's consolidated taxable 
income for that year.
    (C) Inapplicability of 80-percent limitation. The 80-percent 
limitation does not apply to CNOL deductions taken in taxable years 
beginning before January 1, 2021, or to CNOLs arising in taxable years 
beginning before January 1, 2018 (that is, pre-2018 CNOLs). See section 
172(a).
    (iii) Computations under sections 172(a)(2)(B) and 172(f). This 
paragraph (a)(2)(iii) provides rules for applying sections 172(f) and 
172(a)(2)(B) to consolidated return years beginning after December 31, 
2020 (that is, for computing the post-2017 CNOL deduction limit). 
Section 172(f) applies to income of nonlife insurance company members, 
whereas section 172(a)(2)(B)(ii) applies to income of members that are 
not nonlife insurance companies. Thus, this paragraph (a)(2)(iii) 
provides specific rules for groups with no nonlife insurance company 
members, only nonlife insurance company members, or a combination of 
nonlife insurance company members and other members. For groups with 
both nonlife insurance company members and life insurance company 
members, see paragraph (b)(2)(iv)(E) of this section.
    (A) Groups without nonlife insurance company members. If no member 
of a group is a nonlife insurance company during a particular 
consolidated return year beginning after December 31, 2020, section 
172(a)(2)(B)(ii) (that is, the 80-percent limitation) applies to all 
income of the group for that year. Therefore, the post-2017 CNOL 
deduction limit for the group for that year is the lesser of--
    (1) The aggregate amount of post-2017 NOLs carried to that year; or
    (2) The amount determined by multiplying--
    (i) 80 percent, by
    (ii) Consolidated taxable income for the group for that year 
(determined without regard to any deductions under sections 172, 199A, 
and 250) less the aggregate amount of pre-2018 NOLs carried to that 
year.
    (B) Groups comprised solely of nonlife insurance companies. If a 
group is comprised solely of nonlife insurance companies during a 
particular consolidated return year beginning after December 31, 2020, 
section 172(f) applies to all income of the group for that year. 
Therefore, the post-2017 CNOL deduction limit for the group for that 
year equals the lesser of--
    (1) The aggregate amount of post-2017 NOLs carried to that year, or

[[Page 67976]]

    (2) Consolidated taxable income less the aggregate amount of pre-
2018 NOLs carried to that year.
    (C) Groups that include both nonlife insurance companies and other 
corporations--(1) General rule. Except as provided in paragraph 
(a)(2)(iii)(C)(5) of this section, if a group has at least one member 
that is a nonlife insurance company and at least one member that is not 
a nonlife insurance company during a particular consolidated return 
year beginning after December 31, 2020, the post-2017 CNOL deduction 
limit for the group for that year equals the lesser of--
    (i) The aggregate amount of post-2017 NOLs carried to that year, or
    (ii) The sum of the amounts in the income pools determined under 
paragraphs (a)(2)(iii)(C)(2) and (3) of this section.
    (2) Residual income pool. The amount determined under this 
paragraph (a)(2)(iii)(C)(2) (residual income pool) is eighty percent of 
the excess of--
    (i) The consolidated taxable income of the group for a consolidated 
return year beginning after December 31, 2020, determined without 
regard to any income, gain, deduction, or loss of members that are 
nonlife insurance companies and without regard to any deductions under 
sections 172, 199A, and 250, over
    (ii) The aggregate amount of pre-2018 NOLs carried to that year 
that are allocated to this income pool under paragraph 
(a)(2)(iii)(C)(4) of this section (that is, by applying the 80-percent 
limitation). See section 172(a)(2)(B)(ii).
    (3) Nonlife income pool. The amount determined under this paragraph 
(a)(2)(iii)(C)(3) (nonlife income pool) is the consolidated taxable 
income of the group for a consolidated return year beginning after 
December 31, 2020, determined without regard to any income, gain, 
deduction, or loss of members included in the computation under 
paragraph (a)(2)(iii)(C)(2) of this section, less the aggregate amount 
of pre-2018 NOLs carried to that year that are allocated to this income 
pool under paragraph (a)(2)(iii)(C)(4) of this section. See section 
172(f).
    (4) Pro rata allocation of pre-2018 NOLs between pools of income. 
For purposes of paragraphs (a)(2)(iii)(C)(2) and (3) of this section, 
the aggregate amount of pre-2018 NOLs carried to any particular 
consolidated return year beginning after December 31, 2020, is prorated 
between the residual income pool and the nonlife income pool based on 
the relative amounts of positive income of those two pools. For 
example, if $30 of pre-2018 NOLs is carried over to a consolidated 
return year in which the residual income pool contains $75 and the 
nonlife income pool contains $150, the residual income pool is 
allocated $10 of the pre-2018 NOLs ($30 x $75/($75 + $150), or $30 x 
\1/3\), and the nonlife income pool is allocated the remaining $20 of 
pre-2018 NOLs ($30 x $150/($75 + $150), or $30 x \2/3\).
    (5) Exception. The post-2017 CNOL deduction limit for the group for 
a consolidated return year is determined under this paragraph 
(a)(2)(iii)(C)(5) if the amounts computed under paragraphs 
(a)(2)(iii)(C)(2) and (3) of this section for that year are not both 
positive.
    (i) Positive residual income pool and negative nonlife income pool. 
This paragraph (a)(2)(iii)(C)(5)(i) applies if the amount computed 
under paragraph (a)(2)(iii)(C)(2) of this section for the residual 
income pool is positive and the amount computed under paragraph 
(a)(2)(iii)(C)(3) of this section for the nonlife income pool is 
negative. If this paragraph (a)(2)(iii)(C)(5)(i) applies, the post-2017 
CNOL deduction limit for the group for a consolidated return year 
equals the lesser of the aggregate amount of post-2017 NOLs carried to 
that year, or 80 percent of the consolidated taxable income of the 
entire group (determined without regard to any deductions under 
sections 172, 199A, and 250) after subtracting the aggregate amount of 
pre-2018 NOLs carried to that year (that is, by applying the 80-percent 
limitation). See section 172(a)(2)(B).
    (ii) Positive nonlife income pool and negative residual income 
pool. If the amount computed under paragraph (a)(2)(iii)(C)(3) of this 
section for the nonlife income pool is positive and the amount computed 
under paragraph (a)(2)(iii)(C)(2) of this section for the residual 
income pool is negative, the post-2017 CNOL deduction limit for the 
group for a consolidated return year equals the lesser of the aggregate 
amount of post-2017 NOLs carried to that year, or the consolidated 
taxable income of the entire group less the aggregate amount of pre-
2018 NOLs carried to that year. See section 172(f).
    (b) * * *
    (1) Carryovers and carrybacks generally. The net operating loss 
carryovers and carrybacks to a taxable year are determined under the 
principles of, and are subject to any limitations under, section 172 
and this section. 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. In addition, except as otherwise provided in this 
section, the amount of any CNOL absorbed by the group in any year is 
apportioned among members based on the percentage of the CNOL eligible 
for carryback or carryover that is attributable to each member as of 
the beginning of the year. The percentage of the CNOL attributable to a 
member is determined pursuant to paragraph (b)(2)(iv)(B) of this 
section. Additional rules provided under the Internal Revenue Code or 
regulations also apply. See, for example, section 382(l)(2)(B) (if 
losses are carried from the same taxable year, losses subject to 
limitation under section 382 are absorbed before losses that are not 
subject to limitation under section 382). See paragraph (c)(1)(iii)(B) 
of this section, (Example 2), for an illustration of pro rata 
absorption of losses subject to a SRLY limitation.
    (2) * * *
    (iv) Operating rules. (A) Amount of CNOL attributable to a member. 
The amount of a CNOL that is attributable to a member equals the 
product obtained by multiplying the CNOL and the percentage of the CNOL 
attributable to the member.
    (B) Percentage of CNOL attributable to a member--(1) In general. 
Except as provided in paragraph (b)(2)(iv)(B)(2) of this section, the 
percentage of the CNOL for the consolidated return year attributable to 
a member equals the separate net operating loss of the member for the 
consolidated return year divided by the sum of the separate net 
operating losses for that year of all members having such losses for 
that year. For this purpose, the separate net operating loss of a 
member is determined by computing the CNOL by reference to only the 
member's items of income, gain, deduction, and loss, including the 
member's losses and deductions actually absorbed by the group in the 
consolidated return year (whether or not absorbed by the member).
    (2) Recomputed percentage. If, for any reason, a member's portion 
of a CNOL is absorbed or reduced on a non-pro rata basis (for example, 
under Sec.  1.1502-11(b) or (c), paragraph (b)(2)(iv)(C) of this 
section, Sec.  1.1502-28, or 1.1502-36(d), or as the result of a 
carryback to a separate return year), the percentage of the CNOL 
attributable to each member is recomputed. In addition, if a member 
with a separate net operating loss ceases to be a member, the 
percentage of the CNOL attributable to each remaining member is 
recomputed. The recomputed percentage of the CNOL attributable to each 
member equals the remaining

[[Page 67977]]

CNOL attributable to the member at the time of the recomputation 
divided by the sum of the remaining CNOL attributable to all of the 
remaining members at the time of the recomputation. For purposes of 
this paragraph (b)(2)(iv)(B)(2), a CNOL that is permanently disallowed 
or eliminated is treated as absorbed.
    (C) Net operating loss carryovers and carrybacks--(1) General 
rules. Subject to the rules regarding allocation of special status 
losses under paragraph (b)(2)(iv)(D) of this section--
    (i) Nonlife insurance companies. The portion of a CNOL attributable 
to any members of the group that are nonlife insurance companies is 
carried back or carried over under the rules in section 172(b) 
applicable to nonlife insurance companies.
    (ii) Corporations other than nonlife insurance companies. The 
portion of a CNOL attributable to any other members of the group is 
carried back or carried over under the rules in section 172(b) 
applicable to corporations other than nonlife insurance companies.
    (2) Recomputed percentage. For rules governing the recomputation of 
the percentage of a CNOL attributable to each remaining member if any 
portion of the CNOL attributable to a member is carried back under 
section 172(b)(1)(B) or (C) and absorbed on a non-pro rata basis, see 
paragraph (b)(2)(iv)(B)(2) of this section.
    (D) Allocation of special status losses. The amount of the group's 
CNOL that is determined to constitute a farming loss (as defined in 
section 172(b)(1)(B)(ii)) or any other net operating loss that is 
subject to special carryback or carryover rules (special status loss) 
is allocated to each member separately from the remainder of the CNOL 
based on the percentage of the CNOL attributable to the member, as 
determined under paragraph (b)(2)(iv)(B) of this section. This 
allocation is made without regard to whether a particular member 
actually incurred specific expenses or engaged in specific activities 
required by the special status loss provisions. This paragraph 
(b)(2)(iv)(D) applies only with regard to losses for which the special 
carryback or carryover rules are dependent on the type of expense 
generating the loss, rather than on the special status of the entity to 
which the loss is allocable. See section 172(b)(1)(C) and paragraph 
(b)(2)(iv)(C)(1)(i) of this section (applicable to losses of nonlife 
insurance companies). This paragraph (b)(2)(iv)(D) does not apply to 
farming losses incurred by a consolidated group in any taxable year 
beginning after December 31, 2017, and before January 1, 2021.
    (E) Coordination with rules for life-nonlife groups under Sec.  
1.1502-47. For groups that include at least one member that is a life 
insurance company and for which an election is in effect under section 
1504(c)(2), any computation of the 80-percent limitation under 
paragraph (a)(2)(iii)(C) of this section is computed only with respect 
to items of income, gain, deduction, and loss of the members of the 
nonlife subgroup (as defined in Sec.  1.1502-47(b)(9)). For rules 
regarding the use of CNOLs of the nonlife subgroup to offset life 
insurance company taxable income of the life subgroup (each as defined 
in Sec.  1.1502-47(b)), or the use of CNOLs of the life subgroup to 
offset consolidated taxable income of the nonlife subgroup, see 
generally section 1503(c)(1) and Sec.  1.1502-47.
    (v) Examples. For purposes of the examples in this paragraph 
(b)(2)(v), unless otherwise stated, all groups file consolidated 
returns, all corporations have calendar taxable years, all losses are 
farming losses within the meaning of section 172(b)(1)(B)(ii), all 
taxable years begin after December 31, 2020, the facts set forth the 
only corporate activity, value means fair market value and the adjusted 
basis of each asset equals its value, all transactions are with 
unrelated persons, and the application of any limitation or threshold 
under section 382 is disregarded. The principles of this paragraph (b) 
are illustrated by the following examples:
* * * * *
    (D) Example 4: Allocation of a CNOL arising in a consolidated 
return year beginning after December 31, 2020. (1) P is the common 
parent of a consolidated group that includes S. Neither P nor S is a 
nonlife insurance company. The P group also includes nonlife insurance 
companies PC1, PC2, and PC3. In the P group's 2021 consolidated return 
year, all members except S have separate net operating losses, and the 
P group's CNOL in that year is $40. No member of the P group engages in 
farming activities. See section 172(b)(1)(B)(ii).
    (2) Under paragraphs (b)(1) and (b)(2)(iv)(B)(1) of this section, 
for purposes of carrying losses to other taxable years, the P group's 
$40 CNOL is allocated pro rata among the group members that have 
separate net operating losses. Under paragraph (b)(2)(iv)(C) of this 
section, those respective portions of the CNOL attributable to PC1, 
PC2, and PC3 (that is, members that are nonlife insurance companies) 
are carried back to each of the two preceding taxable years and then 
carried over to each of the 20 subsequent taxable years. See section 
172(b)(1)(C). The portion attributable to P (which is not a nonlife 
insurance company) may not be carried back but is carried over to 
future years. See section 172(b)(1)(A).
    (E) Example 5: Allocation of a CNOL arising in a consolidated 
return year beginning before January 1, 2021. The facts are the same as 
in paragraph (b)(2)(v)(D)(1) of this section, except that the P group 
incurred the CNOL during the P group's 2020 consolidated return year. 
The allocation among the P group members of the CNOL described in 
paragraph (b)(2)(v)(D)(2) of this section would be the same. However, 
those respective portions of the CNOL attributable to PC1, PC2, and PC3 
(that is, members that are nonlife insurance companies) will be carried 
back to each of the five preceding taxable years and then carried over 
to each of the 20 subsequent taxable years. See section 172(b)(1)(C) 
and section 172(b)(1)(D)(i). The portion attributable to P (which is 
not a nonlife insurance company) will be carried back to each of the 
five preceding taxable years and then carried over to future years. See 
section 172(b)(1)(A) and section 172(b)(1)(D)(i).
    (F) Example 6: CNOL deduction and application of section 172. (1) P 
(a type of corporation other than a nonlife insurance company) is the 
common parent of a consolidated group that includes PC1 (a nonlife 
insurance company). P and PC1 were both incorporated in Year 1 (a year 
beginning after December 31, 2020). In Year 1, P and PC1 have separate 
taxable income of $20 and $25, respectively. As a result, the P group 
has Year 1 consolidated taxable income of $45. In Year 2, P has 
separate taxable income of $24, and PC1 has a separate taxable loss of 
$40, resulting in a P group CNOL of $16. Additionally, in Year 3, P has 
separate taxable income of $15, and PC1 has a separate taxable loss of 
$45, resulting in a P group CNOL of $30. No member of the P group 
engages in farming activities. See section 172(b)(1)(B)(ii).
    (2) Under paragraph (b)(2)(iv)(B) of this section, the P group's 
Year 2 CNOL and Year 3 CNOL are entirely attributable to PC1, a nonlife 
insurance company. Therefore, under section 172(b)(1)(C)(i), the entire 
amount of each of these CNOLs is eligible to be carried back to Year 1.
    (3) Under paragraph (a)(2)(ii) of this section, the amount of the 
Year 2 CNOL that may be used by the P group in Year 1 is determined by 
taking into account the status (nonlife insurance company or other type 
of corporation) of the member that has separate taxable income 
composing in whole or in part

[[Page 67978]]

the P group's consolidated taxable income. Because the P group includes 
both a nonlife insurance company member and a member that is not a 
nonlife insurance company, paragraph (a)(2)(iii)(C) of this section 
applies to determine the computation of the post-2017 CNOL deduction 
limit for the group for Year 1. Therefore, the 80-percent limitation is 
applied to the residual income pool, which consists of the taxable 
income of P, a type of corporation other than a nonlife insurance 
company. Under the 80-percent limitation, the maximum amount of P's 
Year 1 income that may be offset by the P group's post-2017 CNOLs is 
$16, which equals 80 percent of the excess of P's taxable income for 
Year 1 ($20) over the aggregate amount of pre-2018 NOLs allocable to P 
($0) (80 percent x ($20-$0)). See paragraph (a)(2)(iii)(C)(2) and 
(a)(2)(iii)(C)(4) of this section. PC1 is a nonlife insurance company 
to which section 172(f), rather than the 80-percent limitation in 
section 172(a)(2)(B)(ii), applies. Therefore, the maximum amount of 
PC1's Year 1 income that may be offset by the P group's post-2017 CNOLs 
is $25, which equals the excess of PC1's taxable income for Year 1 
($25) over the aggregate amount of pre-2018 NOLs allocable to PC1 ($0). 
See paragraph (a)(2)(iii)(C)(3) and (4) of this section.
    (4) Based on paragraph (a)(2)(iii)(C) of this section and the 
analysis set forth in paragraph (b)(2)(v)(F)(3) of this section, at the 
end of Year 2, the P group's post-2017 CNOL deduction limit for Year 1 
is the lesser of the aggregate amount of post-2017 NOLs carried to Year 
1 ($16), or $41 ($16 + $25). Therefore, the P group can offset $16 of 
its Year 1 income with its CNOL carryback from Year 2.
    (5) When the Year 3 CNOL is carried back to Year 1, the P group's 
post-2017 CNOL deduction limit for Year 1 is the lesser of $46 (the 
aggregate amount of post-2017 NOLs carried to Year 1) or $41 ($16 + 
$25; see the computation in paragraph (b)(2)(v)(F)(3) of this section). 
Thus, the total amount of the P group's Year 1 income that may be 
offset by the P group's Year 2 and Year 3 CNOLs is $41 ($16 from Year 2 
+ $25 from Year 3). As a result, the P group reports $4 of income ($45-
$41) in Year 1 that is ineligible for offset by any other NOLs. The P 
group carries over its remaining $5 CNOL ($46-$41) to future years.
    (G) Example 7: Pre-2018 and post-2017 CNOLs. (1) P is the common 
parent of a consolidated group. No member of the P group is a nonlife 
insurance company or is engaged in a farming business, and no member of 
the P group has a loss that is subject to a SRLY limitation. The P 
group had the following consolidated taxable income or CNOL for the 
following taxable years:

                  Table 1 to Paragraph (b)(2)(v)(G)(1)
------------------------------------------------------------------------
  2014      2015      2016     2017     2018     2019     2020     2021
------------------------------------------------------------------------
    $60        $0       $0    ($90)      $30    ($40)   ($100)     $120
------------------------------------------------------------------------

    (2) Under section 172(a)(1), all $30 of the P group's 2018 
consolidated taxable income is offset by the 2017 CNOL carryover 
without limitation. The remaining $60 of the P group's 2017 CNOL is 
carried over to 2021 under section 172(b)(1)(A)(ii)(I).
    (3) Under section 172(b)(1)(D)(i)(I), the P group's $40 2019 CNOL 
is carried back to the five taxable years preceding the year of the 
loss. Thus, the P group's $40 2019 CNOL is carried back to offset $40 
of its 2014 consolidated taxable income.
    (4) Under section 172(a)(2) and paragraph (a)(2)(i) of this 
section, the P group's CNOL deduction for 2021 equals the aggregate 
amount of pre-2018 NOLs carried to 2021 plus the group's post-2017 CNOL 
deduction limit. The P group has $60 of pre-2018 NOLs carried to 2021 
($90-$30). Because no member of the P group is a nonlife insurance 
company, paragraph (a)(2)(iii)(A) of this section applies to determine 
the computation of the group's post-2017 CNOL deduction limit for 2021. 
See also section 172(a)(2)(B). Therefore, the post-2017 CNOL deduction 
limit of the P group for 2021 is $48, which equals the lesser of the 
aggregate amount of post-2017 NOLs carried to 2021 ($100), or 80 
percent of the excess of the P group's consolidated taxable income for 
that year computed without regard to any deductions under sections 172, 
199A, and 250 ($120) over the aggregate amount of pre-2018 NOLs carried 
to 2021 ($60) (that is, 80 percent x $60). Thus, the P group's CNOL 
deduction for 2021 equals $108 ($60 pre-2018 NOLs carried to 2021 + $48 
post-2017 CNOL deduction limit). See section 172(a)(2) and paragraph 
(a)(2)(i) of this section. The P group offsets $108 of its $120 of 2021 
consolidated taxable income, resulting in $12 of consolidated taxable 
income in 2021. The remaining $52 of the P group's 2020 CNOL ($100-$48) 
is carried over to future taxable years. See section 
172(b)(1)(A)(ii)(II).
    (3) * * *
    (ii) * * *
    (C) Waiver of carryback period for losses in taxable years to which 
statutorily amended carryback rules apply. For further information, see 
Sec.  1.1502-21T(b)(3)(ii)(C).
    (D) Examples. For further information, see Sec.  1.1502-
21T(b)(3)(ii)(D).
* * * * *
    (c) * * *
    (1) * * *
    (i) General rule. Except as provided in paragraph (g) of this 
section (relating to an overlap with section 382), the aggregate of the 
net operating loss carryovers and carrybacks of a member (SRLY member) 
arising (or treated as arising) in SRLYs (SRLY NOLs) that are included 
in the CNOL deductions for all consolidated return years of the group 
under paragraph (a) of this section may not exceed the aggregate 
consolidated taxable income for all consolidated return years of the 
group determined by reference to only the member's items of income, 
gain, deduction, and loss (cumulative register). For this purpose--
* * * * *
    (E) If a limitation on the amount of taxable income that may be 
offset under section 172(a) (see paragraph (a)(2) of this section) 
applies in a taxable year to a member whose carryovers or carrybacks 
are subject to a SRLY limitation (SRLY member), the amount of net 
operating loss subject to a SRLY limitation that is available for use 
by the group in that year is limited to the percentage of the balance 
in the cumulative register that would be available for offset under 
section 172(a) if the SRLY member filed a separate return and reported 
as taxable income in that year the amount contained in the cumulative 
register. For example, assume that a consolidated group has a SRLY 
member that is a corporation other than a nonlife insurance company, 
and that the SRLY member has a SRLY NOL that arose in a taxable year 
beginning after December 31, 2017 (post-2017 NOL). The group's 
consolidated taxable income for a consolidated return year beginning 
after December 31, 2020 is $200, but the cumulative register has a 
positive

[[Page 67979]]

balance of only $120 (and no other net operating loss carryovers or 
carrybacks are available for the year). Because the SRLY limitation 
would be $96 ($120 x 80 percent), only $96 of SRLY loss may be used, 
rather than $160 ($200 x 80 percent). In addition, to the extent that 
this paragraph (c)(1)(i)(E) applies, the cumulative register is 
decreased by the full amount of income required under section 172(a) to 
support the amount of SRLY NOL absorption. See, for example, paragraph 
(c)(1)(iii)(A) and (B) of this section for examples illustrating the 
application of this rule.
* * * * *
    (iii) Examples. For purposes of the examples in this paragraph 
(c)(1)(iii), no corporation is a nonlife insurance company and, unless 
otherwise specified, all taxable years begin after December 31, 2020, 
and all CNOLs arise in taxable years beginning after December 31, 2020. 
The principles of this paragraph (c)(1) are illustrated by the 
following examples:
    (A) * * *
    (2) T's $100 net operating loss carryover from Year 1 arose in a 
SRLY. See Sec.  1.1502-1(f)(2)(iii). P's acquisition of T was not an 
ownership change as defined by section 382(g). Thus, the $100 net 
operating loss carryover is subject to the SRLY limitation in paragraph 
(c)(1) of this section. The positive balance of the cumulative register 
of T for Year 2 equals the consolidated taxable income of the P group 
determined by reference to only T's items, or $70. However, due to the 
80-percent limitation and the application of paragraph (c)(1)(i)(E) of 
this section, the SRLY limitation is $56 ($70 x 80 percent). No losses 
from equivalent years are available, and the P group otherwise has 
sufficient consolidated taxable income to support the CNOL deduction 
($300 x 80 percent = $240). Therefore, $56 of the SRLY net operating 
loss is included under paragraph (a) of this section in the P group's 
CNOL deduction for Year 2. Although only $56 is absorbed, the 
cumulative register of T is reduced by $70, the full amount of income 
necessary to support the $56 deduction after taking into account the 
80-percent limitation ($70 x 80 percent = $56).
* * * * *
    (B) * * *
    (2) P's Year 1, Year 2, and Year 3 are not SRLYs with respect to 
the P group. See Sec.  1.1502-1(f)(2)(i). Thus, P's $40 net operating 
loss arising in Year 1 and $120 net operating loss arising in Year 3 
are not subject to the SRLY limitation under paragraph (c) of this 
section. Although the P group has $160 of taxable income in Year 4, the 
80-percent limitation reduces the P group's net operating loss 
deduction in that year to $128 ($160 x 80 percent). Under the 
principles of section 172, paragraph (b) of this section requires that 
P's $40 loss arising in Year 1 be the first loss absorbed by the P 
group in Year 4. Absorption of this loss leaves $88 ($128-$40) of the P 
group's Year 4 consolidated taxable income available for offset by loss 
carryovers.
    (3) T's Year 2 and Year 3 are SRLYs with respect to the P group. 
See Sec.  1.1502-1(f)(2)(ii). P's acquisition of T was not an ownership 
change as defined by section 382(g). Thus, T's $50 net operating loss 
arising in Year 2 and $60 net operating loss arising in Year 3 are 
subject to the SRLY limitation. The positive balance of the cumulative 
register of T for Year 4 equals the P group's consolidated taxable 
income determined by reference to only T's items, or $70. Under 
paragraph (c)(1)(i)(E) of this section, after taking into account the 
80-percent limitation, T's SRLY limitation is $56 ($70 x 80 percent). 
Therefore, the P group can absorb up to $56 of T's SRLY net operating 
losses in Year 4. Under the principles of section 172, T's $50 SRLY net 
operating loss from Year 2 is included under paragraph (a) of this 
section in the P group's CNOL deduction for Year 4. After absorption of 
this loss, under paragraph (c)(1)(i) of this section, $6 of SRLY limit 
remains in Year 4 ($56-$50). Further, the total amount of Year 4 
consolidated taxable income available for offset by other loss 
carryovers under section 172(a) is $38 ($88-$50).
    (4) P and T each carry over net operating losses to Year 4 from a 
taxable year ending on the same date (that is, Year 3). The losses 
carried over from Year 3 total $180. However, the remaining Year 4 SRLY 
limit is $6. Therefore, the total amount of loss available for 
absorption is $126 ($120 allocable to P and $6 allocable to T). Under 
paragraph (b) of this section, the losses available for absorption that 
are carried over from Year 3 are absorbed on a pro rata basis, even 
though one loss arises in a SRLY and the other loss does not. Thus, 
$36.19 of P's Year 3 loss is absorbed ($120/($120 + $6)) x $38 = 
$36.19. In addition, $1.81 of T's Year 3 loss is absorbed ($6/($120 + 
$6)) x $38 = $1.81.
    (5) After deduction of T's SRLY net operating losses in Year 4, the 
cumulative register of T is adjusted pursuant to paragraph (c)(1)(i)(E) 
of this section. A total of $51.81 of SRLY net operating losses were 
absorbed in Year 4 ($50 + $1.81). After taking into account the 80-
percent limitation, the amount of income necessary to support this 
deduction is $64.76 ($64.76 x 80 percent = $51.81). Therefore, the 
cumulative register of T is decreased by $64.76, and $5.24 remains in 
the cumulative register ($70-$64.76).
    (6) P carries its remaining $83.81 ($120-$36.19) Year 3 net 
operating loss and T carries its remaining $58.19 ($60-$1.81) Year 3 
net operating loss over to Year 5. Assume that, in Year 5, the P group 
has $90 of consolidated taxable income (computed without regard to the 
CNOL deduction). The P group's consolidated taxable income determined 
by reference to only T's items is a CNOL of $4. Therefore, the positive 
balance of the cumulative register of T in Year 5 equals $1.24 ($5.24-
$4). Under paragraph (c)(1)(i)(E) of this section, after taking into 
account the 80-percent limitation, T's SRLY limitation is $0.99 ($1.24 
x 80 percent). For Year 5, the total amount of Year 5 consolidated 
taxable income available for offset by loss carryovers as a result of 
the 80-percent limitation is $72 ($90 x 80 percent). Under paragraph 
(b) of this section, the losses carried over from Year 3 are absorbed 
on a pro rata basis, even though one loss arises in a SRLY and the 
other loss does not. Therefore, $71.16 of P's Year 3 loss is absorbed 
(($83.81/($83.81 + $0.99)) x $72 = $71.16). In addition, $0.84 of T's 
Year 3 losses is absorbed (($0.99/($83.81 + $0.99)) x $72 = $0.84).
* * * * *
    (D) * * *
    (2) Under Sec.  1.1502-15(a), T's $100 of ordinary loss in Year 3 
constitutes a built-in loss that is subject to the SRLY limitation 
under paragraph (c) of this section. The amount of the limitation is 
determined by treating the deduction as a net operating loss carryover 
from a SRLY. The built-in loss is therefore subject to both a SRLY 
limitation and the 80-percent limitation for Year 3. The built-in loss 
is treated as a net operating loss carryover solely for purposes of 
determining the extent to which the loss is not allowed by reason of 
the SRLY limitation, and for all other purposes the loss remains a loss 
arising in Year 3. See Sec.  1.1502-21(c)(1)(i)(D). Consequently, under 
paragraph (b) of this section, the built-in loss is absorbed by the P 
group before the net operating loss carryover from Year 1 is absorbed. 
The positive balance of the cumulative register of T for Year 3 equals 
the P group's consolidated taxable income determined by reference to 
only T's items, or $60. Under paragraph (c)(1)(i)(E) of this section, 
after taking into account the 80-percent limitation, the SRLY 
limitation

[[Page 67980]]

for Year 3 is $48 ($60 x 80 percent). Therefore, $48 of the built-in 
loss is absorbed by the P group. None of T's $100 SRLY net operating 
loss carryover from Year 1 is allowed.
    (3) After deduction of T's $48 SRLY built-in loss in Year 4, the 
cumulative register of T is adjusted pursuant to paragraph (c)(1)(i)(E) 
of this section. After taking into account the 80-percent limitation, 
the amount of income necessary to support this deduction is $60 ($60 x 
80 percent = $48). Therefore, the cumulative register of T is decreased 
by $60, and zero remains in the cumulative register ($60-$60).
    (4) Under Sec.  1.1502-15(a), the $52 balance of the built-in loss 
that is not allowed in Year 3 because of the SRLY limitation and the 
80-percent limitation is treated as a $52 net operating loss arising in 
Year 3 that is subject to the SRLY limitation because, under paragraph 
(c)(1)(ii) of this section, Year 3 is treated as a SRLY. The built-in 
loss is carried to other years in accordance with the rules of 
paragraph (b) of this section. The positive balance of the cumulative 
register of T for Year 4 equals $40 (zero from Year 3 + $40). Under 
paragraph (c)(1)(i)(E) of this section, after taking into account the 
80-percent limitation, the SRLY limitation for Year 4 is $32 ($40 x 80 
percent). Therefore, under paragraph (c) of this section, $32 of T's 
$100 net operating loss carryover from Year 1 is included in the CNOL 
deduction under paragraph (a) of this section in Year 4.
    (5) After deduction of T's $32 SRLY net operating loss in Year 4, 
the cumulative register of T is adjusted pursuant to paragraph 
(c)(1)(i)(E) of this section. After taking into account the 80-percent 
limitation, the amount of income necessary to support this deduction is 
$40 ($40 x 80 percent = $32). Therefore, the cumulative register is 
decreased by $40, and zero remains in the cumulative register ($40-
$40).
    (E) * * *
    (2) For Year 2, the P group computes separate SRLY limits for each 
of T's SRLY carryovers from Year 1. The group determines its ability to 
use its capital loss carryover before it determines its ability to use 
its ordinary loss carryover. Under section 1212, because the P group 
has no Year 2 capital gain, it cannot absorb any capital losses in Year 
2. T's Year 1 net capital loss and the P group's Year 2 consolidated 
net capital loss (all of which is attributable to T) are carried over 
to Year 3.
    (3) The P group's ability to deduct net operating losses in Year 2 
is subject to the 80-percent limitation, based on the P group's 
consolidated taxable income for the year. Thus, the group's limitation 
for Year 2 is $72 ($90 x 80 percent). However, use of the Year 1 net 
operating loss also is subject to the SRLY limitation. The positive 
balance of the cumulative register of T applicable to SRLY net 
operating losses for Year 2 equals the P group's consolidated taxable 
income determined by reference to only T's items, or $60. Under 
paragraph (c)(1)(i)(E) of this section, after taking into account the 
80-percent limitation, the SRLY limitation for Year 2 is $48 ($60 x 80 
percent). Therefore, only $48 of T's Year 1 SRLY net operating loss is 
absorbed by the P group in Year 2. T carries over its remaining $52 of 
its Year 1 loss to Year 3.
    (4) After deduction of T's SRLY net operating losses in Year 2, the 
net operating loss cumulative register is adjusted pursuant to 
paragraph (c)(1)(i)(E) of this section. The P group deducted $48 of T's 
SRLY net operating losses in Year 2. After taking into account the 80-
percent limitation, the amount of taxable income necessary to support 
this deduction is $60 ($60 x 80 percent = $48). Therefore, the net 
operating loss cumulative register of T is decreased by $60, and zero 
remains in the net operating loss cumulative register ($60-$60).
    (5) For Year 3, the P group again computes separate SRLY limits for 
each of T's SRLY carryovers from Year 1. The group has consolidated net 
capital gain (without taking into account a net capital loss carryover 
deduction) of $30. Under Sec.  1.1502-22(c), the aggregate amount of 
T's $50 capital loss carryover from Year 1 that is included in 
computing the P group's consolidated net capital gain for all years of 
the group (in this case, Years 2 and 3) may not exceed $30 (the 
aggregate consolidated net capital gain computed by reference only to 
T's items, including losses and deductions actually absorbed (that is, 
$30 of capital gain in Year 3)). Thus, the P group may include $30 of 
T's Year 1 capital loss carryover in its computation of consolidated 
net capital gain for Year 3, which offsets the group's capital gains 
for Year 3. T carries over its remaining $20 of its Year 1 capital loss 
to Year 4. Therefore, the capital loss cumulative register of T is 
decreased by $30, and zero remains in the capital loss cumulative 
register ($30-$30). Further, because the net operating loss cumulative 
register includes all taxable income of T included in the P group, as 
well as all absorbed losses of T (including capital items), a zero net 
increase occurs in the net operating loss cumulative register. The P 
group carries over the Year 2 consolidated net capital loss to Year 4.
    (6) The P group's ability to deduct net operating losses in Year 3 
is subject to the 80-percent limitation, based on the P group's 
consolidated taxable income for the year. Thus, the P group's taxable 
income for Year 3 that can be offset, before use of net operating 
losses, is $40 (80 percent x the sum of zero capital gain, after use of 
the capital loss carryover, plus $50 of ordinary income). However, use 
of the Year 1 net operating loss also is subject to the SRLY 
limitation. The positive balance of the cumulative register of T 
applicable to SRLY net operating losses for Year 3 equals the P group's 
consolidated taxable income determined by reference only to T's items, 
or $40. This amount equals the sum obtained by adding the zero 
carryover from Year 2, a net inclusion of zero from capital items 
implicated in Year 3 ($30-$30), and $40 of taxable income in Year 3. 
Under paragraph (c)(1)(i)(E) of this section, after taking into account 
the 80-percent limitation, the SRLY limitation for Year 3 is $32 ($40 x 
80 percent). Therefore, only $32 of the Year 1 net operating loss is 
absorbed by the P group in Year 3. T carries over its remaining $20 of 
its Year 1 loss to Year 4.
    (F) Example 6: Pre-2018 NOLs and post-2017 NOLs. (1) Individual A 
owns P. On January 1, 2017, A forms T. P and T are calendar-year 
taxpayers. In 2017, T sustains a $100 net operating loss that is 
carried over. During 2018, 2019, and 2020, T deducts a total of $90 of 
its 2017 net operating loss against its taxable income, and T carries 
over the remaining $10 of its 2017 net operating loss. In 2021, T 
sustains a net operating loss of $50. On December 31, 2021, P acquires 
all the stock of T, and T becomes a member of the P group. The P group 
has $300 of consolidated taxable income in 2022 (computed without 
regard to the CNOL deduction). Such consolidated taxable income would 
be $70 if determined by reference to only T's items. The P group has no 
other SRLY net operating loss carryovers or CNOL carryovers.
    (2) T's remaining $10 of net operating loss carryover from 2017 and 
its $50 net operating loss carryover from 2021 are both SRLY losses in 
the P group. See Sec.  1.1502-1(f)(2)(iii). P's acquisition of T was 
not an ownership change as defined by section 382(g). Thus, T's net 
operating loss carryovers are subject to the SRLY limitation in 
paragraph (c)(1) of this section. The SRLY limitation for the P group's 
2022 consolidated return year is consolidated taxable income determined 
by reference to only T's $70 of items.
    (3) Because T's oldest (2017) carryover was sustained in a year

[[Page 67981]]

beginning before January 1, 2018, its use is not subject to limitation 
under section 172(a)(2)(B). Therefore, all $10 of T's 2017 SRLY net 
operating loss (that is, a pre-2018 NOL) is included under paragraph 
(a) of this section in the P group's CNOL deduction for 2022. After 
deduction of T's $10 SRLY net operating loss from 2017, the cumulative 
register of T is reduced on a dollar-for-dollar basis, pursuant to 
paragraph (c)(1)(i) of this section. Therefore, the cumulative register 
of T is decreased by $10, and $60 remains in the cumulative register 
($70-$10).
    (4) The P group's deduction of T's 2021 net operating loss is 
subject to both a SRLY limitation and the 80-percent limitation under 
section 172(a)(2)(B)(ii). Therefore, the total limitation on the use of 
T's 2021 net operating loss in the P group is $48 (the remaining 
cumulative register of $60 x 80 percent). No losses from equivalent 
years are available, and the P group otherwise has sufficient 
consolidated taxable income to support the CNOL deduction ($290 x 80 
percent = $232). Therefore, $48 of T's 2021 SRLY net operating loss is 
included under paragraph (a) of this section in the P group's CNOL 
deduction for 2022. The remaining $2 of T's 2021 SRLY net operating 
loss ($50-$48) is carried over to the P group's 2023 consolidated 
return year.
    (5) After deduction of T's $48 SRLY NOL in 2022, the cumulative 
register of T is adjusted pursuant to paragraph (c)(1)(i)(E) of this 
section. After taking into account the 80-percent limitation, the 
amount of income necessary to support this deduction is $60 ($60 x 80 
percent = $48). Therefore, the cumulative register of T is decreased by 
$60, and zero remains in the cumulative register ($60-$60).
    (2) * * *
    (v) Coordination with other limitations. This paragraph (c)(2) does 
not allow a net operating loss to offset income to the extent 
inconsistent with other limitations or restrictions on the use of 
losses, such as a limitation based on the nature or activities of 
members. For example, a net operating loss may not offset income in 
excess of any limitations under section 172(a) and paragraph (a)(2) of 
this section. Additionally, any dual consolidated loss may not reduce 
the taxable income to an extent greater than that allowed under section 
1503(d) and Sec. Sec.  1.1503(d)-1 through 1.1503(d)-8. See also Sec.  
1.1502-47(k) (relating to preemption of rules for life-nonlife groups).
* * * * *
    (viii) Examples. For purposes of the examples in this paragraph 
(c)(2)(viii), no corporation is a nonlife insurance company or has any 
farming losses. The principles of this paragraph (c)(2) are illustrated 
by the following examples:
* * * * *
    (B) * * *
    (3) In Year 4, the M group has $10 of consolidated taxable income 
(computed without regard to the CNOL deduction for Year 4). That 
consolidated taxable income would be $45 if determined by reference 
only to the items of P, S, and T, the members included in the SRLY 
subgroup with respect to P's loss carryover. Therefore, the positive 
balance of the cumulative register of the P SRLY subgroup for Year 4 
equals $45 and, due to the application of the 80-percent limitation 
under paragraph (c)(2)(v) of this section, the SRLY subgroup limitation 
under this paragraph (c)(2) is $36 ($45 x 80 percent). However, the M 
group has only $10 of consolidated taxable income in Year 4. Thus, due 
to the 80-percent limitation and the application of paragraph (b)(1) of 
this section, the M group's deduction of all net operating losses in 
Year 4 is limited to $8 ($10 x 80 percent). As a result, the M group 
deducts $8 of P's SRLY net operating loss carryover, and the remaining 
$37 is carried over to Year 5.
    (4) After deduction of $8 of P's SRLY net operating loss in Year 4, 
the cumulative register of the P SRLY subgroup is adjusted pursuant to 
paragraph (c)(1)(i)(E) of this section. After taking into account the 
80-percent limitation, the amount of income necessary to support this 
deduction is $10 ($10 x 80 percent = $8). Therefore, the cumulative 
register of the P SRLY subgroup is decreased by $10, and $35 remains in 
the cumulative register ($45-$10).
    (5) In Year 5, the M group has $100 of consolidated taxable income 
(computed without regard to the CNOL deduction for Year 5). None of P, 
S, or T has any items of income, gain, deduction, or loss in Year 5. 
Although the members of the P SRLY subgroup do not contribute to the 
$100 of consolidated taxable income in Year 5, the positive balance of 
the cumulative register of the P SRLY subgroup for Year 5 is $35 and, 
due to the application of the 80-percent limitation under paragraph 
(c)(2)(v) of this section, the SRLY subgroup limitation under this 
paragraph (c)(2) is $28 ($35 x 80 percent). Because of the 80-percent 
limitation and the application of paragraph (b)(1) of this section, the 
M group's deduction of net operating losses in Year 5 is limited to $80 
($100 x 80 percent). Because the $28 of net operating loss available to 
be absorbed is less than 80 percent of the M group's consolidated 
taxable income, $28 of P's SRLY net operating loss is absorbed in Year 
5, and the remaining $9 ($37-$28) is carried over to Year 6.
    (6) After deduction of $28 of P's SRLY net operating loss in Year 
5, the cumulative register of the P SRLY subgroup is adjusted pursuant 
to paragraph (c)(1)(i)(E) of this section. After taking into account 
the 80-percent limitation, the amount of income necessary to support 
this deduction is $35 ($35 x 80 percent = $28). Therefore, the 
cumulative register of the P SRLY subgroup is decreased by $35, and 
zero remains in the cumulative register ($35-$35).
* * * * *
    (h) * * *
    (9) For the applicability dates of paragraphs (b)(3)(ii)(C) and 
(b)(3)(ii)(D) of this section, see Sec.  1.1502-21T(h)(9).
    (10) The rules of paragraphs (a), (b)(1), (b)(2)(iv), and 
(c)(1)(i)(E) of this section apply to taxable years beginning after 
December 31, 2020.

0
Par. 4. Section 1.1502-47 is amended:
0
1. By revising paragraphs (a)(2)(i) and (ii).
0
2. By removing paragraph (a)(3).
0
3. By redesignating paragraph (a)(4) as paragraph (a)(3).
0
4. By removing paragraphs (b) and (c).
0
5. By redesignating paragraph (d) as paragraph (b).
0
6. By revising newly redesignated paragraphs (b)(1), (2), (3), (4), 
(5), (10), (11), and (13).
0
7. In newly redesignated paragraph (b)(14), by designating Examples 1 
through 14 as paragraphs (b)(14)(i) through (xiv), respectively.
0
8. In newly redesignated paragraph (b)(14)(i), by adding a sentence at 
the end of the paragraph.
0
9. By revising newly redesignated paragraph (b)(14)(ii).
0
10. By removing newly redesignated paragraph (b)(14)(xiv).
0
11. By redesignating paragraph (e) as paragraph (c).
0
12. By removing newly redesignated paragraphs (c)(4) and (5).
0
13. By redesignating paragraph (c)(6) as paragraph (c)(4).
0
14. By redesignating paragraph (f) as paragraph (d).
0
15. By revising newly redesignated paragraph (d)(5).
0
16. By removing the last sentence of newly redesignated paragraph 
(d)(6).
0
17. By removing newly redesignated paragraph (d)(7)(ii).
0
18. By redesignating paragraph (d)(7)(iii) as paragraph (d)(7)(ii).
0
19. By revising newly redesignated paragraph (d)(7)(ii).

[[Page 67982]]

0
20. By redesignating paragraph (g) as paragraph (e).
0
21. In newly redesignated paragraph (e)(2), by removing the language 
``partial'' everywhere it appears.
0
22. By removing newly redesignated paragraph (e)(3).
0
23. By redesignating paragraph (h) as paragraph (f).
0
24. By revising newly redesignated paragraph (f)(2)(iii).
0
25. In newly designated paragraph (f)(2)(v), by removing the word 
``partial'' everywhere it appears.
0
26. In newly redesignated paragraph (f)(2)(v), by adding a sentence at 
the end of the paragraph.
0
27. By revising newly redesignated paragraph (f)(2)(vi) and (vii).
0
28. By removing newly redesignated paragraph (f)(3).
0
29. By redesignating newly redesignated paragraph (f)(4) as paragraph 
(f)(3).
0
30. By revising newly redesignated paragraph (f)(3)(ii).
0
31. By adding a new paragraph (g).
0
32. By removing paragraphs (j), (k), and (l).
0
33. By redesignating paragraph (m) as paragraph (h), and redesignating 
paragraph (n) as paragraph (j).
0
34. In newly redesignated paragraph (h), by removing the language 
``partial'' everywhere it appears.
0
35. In newly redesignated paragraph (h)(2)(ii), by adding a sentence at 
the end of the paragraph.
0
36. In newly redesignated paragraph (h)(3)(iv), by adding a sentence at 
the end of the paragraph.
0
37. In newly redesignated paragraph (h)(3)(viii), by removing the 
language ``common parent's election'' and adding in its place 
``election by the agent for the group (within the meaning of Sec.  
1.1502-77)''.
0
38. In newly redesignated paragraph (h)(3)(ix), by removing the last 
two sentences.
0
39. By removing newly redesignated paragraph (h)(4).
0
40. By redesignating newly redesignated paragraph (h)(5) as paragraph 
(h)(4).
0
41. By revising newly redesignated paragraph (h)(4) introductory text.
0
42. In newly redesignated paragraph (h)(4), by redesignating Examples 1 
through 6 as paragraphs (h)(4)(i) through (vi).
0
43. By revising newly redesignated paragraphs (h)(4)(ii) and (iii).
0
44. By removing newly redesignated paragraphs (h)(4)(v) and (vi).
0
45. By revising redesignated paragraph (j)(2)(iii).
0
46. By removing newly redesignated paragraph (j)(2)(v).
0
47. By redesignating newly redesignated paragraph (j)(2)(vi) as 
paragraph (j)(2)(v).
0
48. By revising newly redesignated paragraph (j)(3).
0
49. By redesignating paragraphs (q), (r), and (s) as paragraphs (k), 
(l), and (m), respectively.
0
50. By adding a new paragraph (n).
0
51. By removing paragraphs (o), (p), and (t).
0
52. In the following table, for each section designated or redesignated 
under these regulations (as indicated in the second column), removing 
the language in the third column and adding the language in the fourth 
column with the frequency indicated in the fifth column:

----------------------------------------------------------------------------------------------------------------
            Paragraph               Redesignations          Remove                Add              Frequency
----------------------------------------------------------------------------------------------------------------
1.1502-47(a)(1).................  N/A...............  section 802 or 821  section 801         Once.
                                                       (relating           (relating to life
                                                       respectively to     insurance
                                                       life insurance      companies).
                                                       companies and to
                                                       certain mutual
                                                       insurance
                                                       companies).
1.1502-47(a)(1).................  N/A...............  life insurance      life insurance      Once.
                                                       companies and       companies may.
                                                       mutual insurance
                                                       companies may.
1.1502-47(a)(1).................  N/A...............  composition and     composition, its    Once.
                                                       its consolidated    consolidated
                                                       tax.                taxable income
                                                                           (or loss), and
                                                                           its consolidated
                                                                           tax.
1.1502-47(a)(4).................  1.1502-47(a)(3)...  Sec.  Sec.          Sec.  Sec.          Once.
                                                       1.1502-1 through    1.1502-0 through
                                                       1.1502-80.          1.1502-100.
1.1502-47(a)(4).................  1.1502-47(a)(3)...  844...............  848...............  Once.
1.1502-47(d)(12)(i)(A),           1.1502-47(b)(12)(i  (d)(12)...........  (b)(12)...........  Each place it
 (d)(12)(i)(C), (d)(12)(i)(D),     )(A),                                                       appears.
 (d)(12)(iii), (d)(12)(iv),        (b)(12)(i)(C),
 (d)(12)(v), (d)(12)(v)(B),        (b)(12)(i)(D),
 (d)(12)(v)(C), (d)(12)(v)(D),     (b)(12)(iii),
 (d)(12)(vi), (d)(12)(vii), and    (b)(12)(iv),
 (d)(12)(viii)(F).                 (b)(12)(v),
                                   (b)(12)(v)(B),
                                   (b)(12)(v)(C),
                                   (b)(12)(v)(D),
                                   (b)(12)(vi),
                                   (b)(12)(vii), and
                                   (b)(12)(viii)(F),
                                   respectively.
1.1502-47(d)(12)(iii)...........  1.1502-47(b)(12)(i  subdivision (iii).  paragraph           Once.
                                   ii).                                    (b)(12)(iii).
1.1502-47(d)(12)(iv)............  1.1502-47(b)(12)(i  subdivision (iv)..  paragraph           Once.
                                   v).                                     (b)(12)(iv).
1.1502-47(d)(12)(v)(B)..........  1.1502-47(b)(12)(v  (i.e., sections     (for example,       Once.
                                   )(B).               11, 802, 821, or    section 11,
                                                       831).               section 801, or
                                                                           section 831).
1.1502-47(d)(12)(vi)............  1.1502-47(b)(12)(v  subdivision (vi)..  paragraph           Once.
                                   i).                                     (b)(12)(vi).
1.1502-47(d)(12)(vii)...........  1.1502-47(b)(12)(v  return year and     return year even..  Once.
                                   ii).                even.
1.1502-47(d)(12)(viii)(A).......  1.1502-47(b)(12)(v  (i.e., total        (that is, total     Once.
                                   iii)(A).            reserves in         reserves in
                                                       section 801(c)).    section 816(c),
                                                                           as modified by
                                                                           section 816(h)).
1.1502-47(d)(12)(viii)(D) and     1.1502-47(b)(12)(v  subdivision (viii)  paragraph           Once.
 (F).                              iii)(D) and (F),                        (b)(12)(viii).
                                   respectively.
1.1502-47(d)(14)................  1.1502-47(b)(14)..  Illustrations.....  Examples..........  Once.
1.1502-47(d)(14)................  1.1502-47(b)(14)..  paragraph (d).....  paragraph (b).....  Once.
1.1502-47(d)(14), Example 1.....  1.1502-47(b)(14)(i  1913..............  2012..............  Once.
                                   ).
1.1502-47(d)(14), Examples 2      1.1502-47(b)(14)(i  1974..............  2012..............  Each place it
 through 4, 8, 10, and 12.         i) through (iv),                                            appears.
                                   (viii), (x), and
                                   (xii),
                                   respectively.
1.1502-47(d)(14), Examples 1      1.1502-47(b)(14)(i  1980..............  2018..............  Each place it
 through 3.                        ) through (iii),                                            appears.
                                   respectively.
1.1502-47(d)(14), Examples 1      1.1502-47(b)(14)(i  1982..............  2020..............  Each place it
 through 5 and 8 through 13.       ) through (v) and                                           appears.
                                   (viii) through
                                   (xiii),
                                   respectively.

[[Page 67983]]

 
1.1502-47(d)(14), Examples 5      1.1502-47(b)(14)(v  1983..............  2021..............  Each place it
 through 7 and 9.                  ) through (vii)                                             appears.
                                   and (ix),
                                   respectively.
1.1502-47(d)(14), Examples 2      1.1502-47(b)(14)(i  (d)(12)...........  (b)(12)...........  Each place it
 through 5 and 8 through 12.       i) through (v)                                              appears.
                                   and (viii)
                                   through (xii),
                                   respectively.
1.1502-47(d)(14), Examples 2, 3,  1.1502-47(b)(14)(i  stock casualty....  nonlife insurance.  Each place it
 and 12.                           i), (iii), and                                              appears.
                                   (xii),
                                   respectively.
1.1502-47(d)(14), Example 3.....  1.1502-47(b)(14)(i  subparagraph        paragraph           Once.
                                   ii).                (d)(12)(v)(B) and   (b)(12)(v)(B) and
                                                       (E).                (D).
1.1502-47(d)(14), Example 3.....  1.1502-47(b)(14)(i  e.g...............  for example.......  Once.
                                   ii).
1.1502-47(d)(14), Example 5.....  1.1502-47(b)(14)(v  i.e...............  in other words....  Once.
                                   ).
1.1502-47(d)(14), Example 12....  1.1502-47(b)(14)(x  casualty..........  nonlife insurance.  Once.
                                   ii).
1.1502-47(e)(1).................  1.1502-47(c)(1)...  life company or an  life company......  Once.
                                                       ineligible mutual
                                                       company.
1.1502-47(e)(3).................  1.1502-47(c)(3)...  Sec.   1.1502-      Sec.   1.1502-      Once.
                                                       75(c) and           75(c).
                                                       paragraph (e)(4)
                                                       of this section.
1.1502-47(f)(3).................  1.1502-47(d)(3)...  1981..............  2019..............  Each place it
                                                                                               appears.
1.1502-47(f)(3).................  1.1502-47(d)(3)...  1982..............  2020..............  Each place it
                                                                                               appears.
1.1502-47(f)(3).................  1.1502-47(d)(3)...  applying Sec.       applying Sec.       Once.
                                                       Sec.   1.1502-13,   Sec.   1.1502-13
                                                       1.1502-18, and      and 1.1502-19.
                                                       1.1502-19.
1.1502-47(f)(7)(i)..............  1.1502-47(d)(7)(i)  paragraph (g).....  paragraph (e).....  Once.
1.1502-47(f)(7)(i)..............  1.1502-47(d)(7)(i)  sections 802(a),    sections 801(a)     Once.
                                                       821(a), and         and 831(a).
                                                       831(a).
1.1502-47(g)....................  1.1502-47(e)......  three.............  two...............  Once.
1.1502-47(g)(1).................  1.1502-47(e)(1)...  paragraph (h).....  paragraph (f).....  Once.
1.1502-47(g)(1).................  1.1502-47(e)(1)...  paragraph (n).....  paragraph (j).....  Once.
1.1502-47(g)(1).................  1.1502-47(e)(1)...  paragraph (g)(1)..  paragraph (e)(1)..  Once.
1.1502-47(g)(2).................  1.1502-47(e)(2)...  paragraph (j).....  paragraph (g)(1)..  Once.
1.1502-47(g)(2).................  1.1502-47(e)(2)...  paragraph (m).....  paragraph (h).....  Once.
1.1502-47(g)(2).................  1.1502-47(e)(2)...  paragraph (g)(2)..  paragraph (e)(2)..  Once.
1.1502-47(h)(1).................  1.1502-47(f)(1)...  paragraph (h).....  paragraph (f).....  Once.
1.1502-47(h)(1).................  1.1502-47(f)(1)...  includes separate   includes insurance  Once.
                                                       mutual insurance    company taxable
                                                       company taxable     income.
                                                       income (as
                                                       defined in
                                                       section 821(b))
                                                       and insurance
                                                       company taxable
                                                       income.
1.1502-47(h)(2)(i)..............  1.1502-47(f)(2)(i)  Sec.  Sec.          Sec.   1.1502-21,   Once.
                                                       1.1502-21 or        the rules in this
                                                       1.1502-21A (as      paragraph (f)(2).
                                                       appropriate), the
                                                       rules in this
                                                       subparagraph (2).
1.1502-47(h)(2)(ii).............  1.1502-47(f)(2)(ii  Sec.  Sec.          Sec.   1.1502-      Once.
                                   ).                  1.1502-21(A)(f)     21(e).
                                                       or 1.1502-21(e)
                                                       (as appropriate).
1.1502-47(h)(2)(iv).............  1.1502-47(f)(2)(iv  year beginning      year, Sec.          Once.
                                   ).                  after December      1.1502-21.
                                                       31, 1981, Sec.
                                                       Sec.   1.1502-21A
                                                       or 1.1502-21 (as
                                                       appropriate).
1.1502-47(h)(2)(iv).............  1.1502-47(f)(2)(iv  nonlife loss......  nonlife subgroup    Once.
                                   ).                                      loss.
1.1502-47(h)(2)(v)..............  1.1502-47(f)(2)(v)  subparagraph (2)..  paragraph (f)(2)..  Once.
1.1502-47(h)(4)(i)..............  1.1502-47(f)(3)(i)  Sec.  Sec.          Sec.   1.1502-22..  Once.
                                                       1.1502-22 or
                                                       1.1502-22A (as
                                                       appropriate).
1.1502-47(h)(4)(i)..............  1.1502-47(f)(3)(i)  subparagraph (4)..  paragraph (f)(3)..  Once.
1.1502-47(h)(4)(i)..............  1.1502-47(f)(3)(i)  Sec.  Sec.          Sec.   1.1502-22..  Once.
                                                       1.1502-22 or
                                                       1.1502-22A(a) (as
                                                       appropriate).
1.1502-47(h)(4)(iii)............  1.1502-47(f)(3)(ii  Sec.  Sec.          Sec.   1.1502-      Once.
                                   i).                 1.1502-22A(b)(1)    22(b).
                                                       or 1.1502-22(b).
1.1502-47(h)(4)(iii)(A).........  1.1502-47(f)(3)(ii  allowed under       allowed under       Once.
                                   i)(A).              section 822(c)(6)   section 832(c)(5).
                                                       or section
                                                       832(c)(5).
1.1502-47(m)....................  1.1502-47(h)......  paragraph (g).....  paragraph (e).....  Each place it
                                                                                               appears.
1.1502-47(m)....................  1.1502-47(h)......  paragraph (h).....  paragraph (f).....  Each place it
                                                                                               appears.
1.1502-47(m)....................  1.1502-47(h)......  paragraph (l).....  paragraph (g).....  Each place it
                                                                                               appears.
1.1502-47(m)....................  1.1502-47(h)......  paragraph (m).....  paragraph (h).....  Each place it
                                                                                               appears.
1.1502-47(m)(2)(ii).............  1.1502-47(h)(2)(ii  Sec.  Sec.   1502-  Sec.   1.1502-21..  Once.
                                   ).                  21 or 1.1502-21A
                                                       (as appropriate).
1.1502-47(m)(2)(ii).............  1.1502-47(h)(2)(ii  Sec.  Sec.          Sec.   1.1502-22..  Once.
                                   ).                  1.1502-22 or
                                                       1.1502-22A (as
                                                       appropriate).
1.1502-47(m)(3)(i)..............  1.1502-47(h)(3)(i)  But see             But see paragraph   Once.
                                                       subdivision (ix)    (h)(3)(ix) of
                                                       of this paragraph   this section.
                                                       (m)(3).
1.1502-47(m)(3)(i)..............  1.1502-47(h)(3)(i)  arising in          arising in          Once.
                                                       separate return     separate return
                                                       years ending        years.
                                                       after December
                                                       31, 1980.
1.1502-47(m)(3)(i)..............  1.1502-47(h)(3)(i)  and 1.1502-22 (or   and 1.1502-22.....  Once.
                                                       Sec.  Sec.
                                                       1.1502-21A and
                                                       1.1502-22A, as
                                                       appropriate).
1.1502-47(m)(3)(iii)............  1.1502-47(h)(3)(ii  consolidated LO...  life consolidated   Once.
                                   i).                                     net operating
                                                                           loss.
1.1502-47(m)(3)(v)..............  1.1502-47(h)(3)(v)  GO or TII.........  taxable income....  Once.
1.1502-47(m)(3)(v)..............  1.1502-47(h)(3)(v)  LICTI (as           LICTI for any.....  Once.
                                                       determined under
                                                       paragraph (j) of
                                                       this section) for
                                                       any.
1.1502-47(m)(3)(vi)(A)..........  1.1502-47(h)(3)(vi  subparagraph (3)..  paragraph (h)(3)..  Once.
                                   )(A).
1.1502-47(m)(3)(vii)(A).........  1.1502-47(h)(3)(vi  notwithstanding     notwithstanding     Once.
                                   i)(A).              Sec.   1.1502-      Sec.   1.1502-
                                                       21A(b)(3)(ii) or    21(b).
                                                       1.1502-21(b).
1.1502-47(m)(3)(vii)(A).........  1.1502-47(h)(3)(vi  taxable income for  taxable income for  Once.
                                   i)(A).              that year.          that year,
                                                                           subject to the
                                                                           limitation in
                                                                           section 172(a).
1.1502-47(m)(3)(vii)(B).........  1.1502-47(h)(3)(vi  (A) of this         paragraph           Once.
                                   i)(B).              subdivision (vii).  (h)(3)(vii)(A) of
                                                                           this section.
1.1502-47(m)(3)(viii)...........  1.1502-47(h)(3)(vi  section             section 172(b)(3).  Once.
                                   ii).                172(b)(3)(C).

[[Page 67984]]

 
1.1502-47(m)(3)(ix).............  1.1502-47(h)(3)(ix  243(b)(2).........  243(b)(3).........  Once.
                                   ).
1.1502-47(m)(3)(ix).............  1.1502-47(h)(3)(ix  return year ending  return year.......  Once.
                                   ).                  after December
                                                       31, 1980.
1.1502-47(m)(3)(x)..............  1.1502-47(h)(3)(x)  LICTI (as defined   LICTI in the        Once.
                                                       in paragraph (j)    particular.
                                                       of this section)
                                                       in the particular.
1.1502-47(m)(3)(xii)............  1.1502-47(h)(3)(xi  carryback of a      carryback of a      Once.
                                   i).                 consolidated LO.    life consolidated
                                                                           net operating
                                                                           loss.
1.1502-47(m)(3)(xii)............  1.1502-47(h)(3)(xi  (2) or (4)........  (2) or (3)........  Once.
                                   i).
1.1502-47(m)(5), Examples 1       1.1502-47(h)(4)(i)  1982..............  2021..............  Each place it
 through 4.                        through (iv),                                               appears.
                                   respectively.
1.1502-47(m)(5), Examples 1       1.1502-47(h)(4)(i)  i.e...............  that is...........  Each place it
 through 4.                        through (iv),                                               appears.
                                   respectively.
1.1502-47(m)(5), Example 1......  1.1502-47(h)(4)(i)  paragraph (d)(13).  paragraph (b)(13).  Once.
1.1502-47(m)(5), Example 1......  1.1502-47(h)(4)(i)  attributable to I   attributable to I   Once.
                                                       (an ineligible      (an ineligible
                                                       member).            member that is
                                                                           not a nonlife
                                                                           insurance
                                                                           company).
1.1502-47(m)(5), Example 1......  1.1502-47(h)(4)(i)  of this section.    of this section     Once.
                                                       The result would    and section
                                                       be.                 172(a). The
                                                                           result would be.
1.1502-47(m)(5), Example 4......  1.1502-47(h)(4)(iv  of this section or  of this section...  Once.
                                   ).                  under Sec.
                                                       1.1502-15A.
1.1502-47(m)(5), Example 4......  1.1502-47(h)(4)(iv  taxable income is   taxable income is   Once.
                                   ).                  $35.                $32.5.
1.1502-47(m)(5), Example 4......  1.1502-47(h)(4)(iv  30%...............  35%...............  Once.
                                   ).
1.1502-47(m)(5), Example 4......  1.1502-47(h)(4)(iv  (15)..............  (17.5)............  Once.
                                   ).
1.1502-47(m)(5), Example 4......  1.1502-47(h)(4)(iv  (65)..............  (67.5)............  Once.
                                   ).
1.1502-47(m)(5), Example 4......  1.1502-47(h)(4)(iv  (85)..............  (82.5)............  Once.
                                   ).
1.1502-47(n)....................  1.1502-47(j)......  consolidated LO...  life consolidated   Each place it
                                                                           net operating       appears.
                                                                           loss and
                                                                           consolidated
                                                                           operations loss
                                                                           carryovers.
1.1502-47(n)(1).................  1.1502-47(j)(1)...  paragraph (g)(1)..  paragraph (e)(1)..  Once.
1.1502-47(n)(1).................  1.1502-47(j)(1)...  paragraph (n)(2)    paragraph (j)(2)    Once.
                                                       of this section.    of this section,
                                                                           subject to the
                                                                           rules and
                                                                           limitations in
                                                                           paragraph (j)(3)
                                                                           of this section.
1.1502-47(n)(1).................  1.1502-47(j)(1)...  consolidated net    consolidated net    Once.
                                                       capital loss (as    capital loss.
                                                       determined under
                                                       paragraph (l)(4)
                                                       of this section).
1.1502-47(n)(2).................  1.1502-47(j)(2)...  paragraph (h).....  paragraph (f).....  Once.
1.1502-47(n)(2).................  1.1502-47(j)(2)...  paragraphs (m)(2)   paragraphs (h)(2)   Once.
                                                       and (3).            and (3).
1.1502-47(n)(2)(ii).............  1.1502-47(j)(2)(ii  consolidated        consolidated LICTI  Once.
                                   ).                  partial LICTI.
1.1502-47(n)(2)(iv).............  1.1502-47(j)(2)(iv  Paragraphs          Paragraphs          Once.
                                   ).                  (m)(3)(vi),         (h)(3)(vi),
                                                       (vii), (x), and     (vii), (x), and
                                                       (xi).               (xi).
1.1502-47(q)....................  1.1502-47(k)......  Sec.   1.1502-1     Sec.  Sec.          Once.
                                                       through 1.1502-80.  1.1502-0 through
                                                                           1.1502-100.
1.1502-47(q)....................  1.1502-47(k)......  paragraph           paragraph           Once.
                                                       (m)(3)(vi).         (h)(3)(vi).
1.1502-47(q)....................  1.1502-47(k)......  Sec.  Sec.          Sec.   1.1502-21..  Once.
                                                       1.1502-21A(b)(3)
                                                       and 1.1502-
                                                       79A(a)(3) (or
                                                       Sec.   1.1502-21,
                                                       as appropriate).
1.1502-47(r)....................  1.1502-47(l)......  partial LICTI (or   LICTI (or life      Once.
                                                       LO).                consolidated net
                                                                           operating loss).
1.1502-47(r)....................  1.1502-47(l)......  Sec.  Sec.          Sec.  Sec.          Once.
                                                       1.1502-0--1.1502-   1.1502-0 through
                                                       80.                 1.1502-100.
1.1502-47(s)(1)(iii)............  1.1502-47(m)(1)(ii  paragraphs (g),     paragraphs (e),     Once.
                                   i).                 (m), and (n).       (h), and (j).
1.1502-47(s)(1)(iv).............  1.1502-47(m)(1)(iv  paragraph (h).....  paragraph (f).....  Once.
                                   ).
1.1502-47(s)(1)(v)..............  1.1502-47(m)(1)(v)  consolidated        consolidated Life.  Once.
                                                       partial Life.
1.1502-47(s)(1)(v)..............  1.1502-47(m)(1)(v)  (as defined by      or life             Once.
                                                       paragraph (d)(3)    consolidated net
                                                       of this section),   operating loss.
                                                       determined under
                                                       paragraph (j) of
                                                       this section
----------------------------------------------------------------------------------------------------------------

    The additions and revisions read as follows:


Sec.  1.1502-47  Consolidated returns by life-nonlife groups.

    (a) * * *
    (2) General method of consolidation--(i) Subgroup method. The 
regulations adopt a subgroup method to determine consolidated taxable 
income. One subgroup is the group's nonlife companies. The other 
subgroup is the group's life insurance companies. Initially, the 
nonlife subgroup computes nonlife consolidated taxable income and the 
life subgroup computes consolidated LICTI. A subgroup's income may in 
effect be reduced by a loss of the other subgroup, subject to the 
limitations in sections 172 and 1503(c). The life subgroup losses 
consist of life consolidated net operating loss, consolidated 
operations loss carryovers from taxable years beginning before January 
1, 2018 (consolidated operations loss carryovers), and life 
consolidated net capital loss. The nonlife subgroup losses consist of 
nonlife consolidated net operating loss and nonlife consolidated net 
capital loss. Consolidated taxable income is therefore defined in 
pertinent part as the sum of nonlife consolidated taxable income and 
consolidated LICTI, reduced by life subgroup losses and/or nonlife 
subgroup losses.
    (ii) Subgroup loss. A subgroup loss does not actually affect the 
computation of nonlife consolidated taxable income or consolidated 
LICTI. It merely constitutes a bottom-line adjustment in reaching 
consolidated taxable income. Furthermore, the amount of a subgroup's 
loss, if any, that is eligible to be carried back to a prior taxable 
year

[[Page 67985]]

first must be carried back against income of the same subgroup before 
it may be used as a setoff against the other subgroup's income in the 
taxable year the loss arose. (See sections 172(b)(1) and 1503(c)(1); 
see also Sec.  1.1502-21(b).) The carryback of losses from one subgroup 
may not be used to offset income of the other subgroup in the year to 
which the loss is to be carried. This carryback of one subgroup's loss 
may ``bump'' the other subgroup's loss that, in effect, previously 
reduced the income of the first subgroup. The subgroup's loss that is 
bumped in appropriate cases may, in effect, reduce a succeeding year's 
income of either subgroup. This approach gives the group the tax 
savings of the use of losses, but the bumping rule assures that, 
insofar as possible, life deductions will be matched against life 
income and nonlife deductions against nonlife income.
* * * * *
    (b) * * *
    (1) Life company. The term life company means a life insurance 
company as defined in section 816 and subject to tax under section 801. 
Section 816 applies to each company separately.
    (2) Nonlife insurance company. The term nonlife insurance company 
has the meaning provided in Sec.  1.1502-1(k).
    (3) Life insurance company taxable income. The term life insurance 
company taxable income or LICTI has the meaning provided in section 
801(b).
    (4) Group. The term group has the meaning provided in Sec.  1.1502-
1(a). Unless otherwise indicated in this section, a group's composition 
is determined without regard to section 1504(b)(2).
    (5) Member. The term member has the meaning provided in Sec.  
1.1502-1(b). A life company is tentatively treated as a member for any 
taxable year for purposes of determining if it is an eligible 
corporation under paragraph (b)(12) of this section and, therefore, if 
it is an includible corporation under section 1504(c)(2). If such a 
company is eligible and includible (under section 1504(c)(2)), it will 
actually be treated as a member of the group.
* * * * *
    (10) Separate return year. The term separate return year has the 
meaning provided in Sec.  1.1502-1(e). For purposes of this paragraph 
(b)(10), the term group is defined with regard to section 1504(b)(2) 
for years in which an election under section 1504(c)(2) is not in 
effect. Thus, a separate return year includes a taxable year for which 
that election is not in effect.
    (11) Separate return limitation year. Section 1.1502-1(f)(2) 
provides exceptions to the definition of the term separate return 
limitation year. For purposes of applying those exceptions to this 
section, the term group is defined without regard to section 
1504(b)(2), and the definition in this paragraph (b)(11) applies 
separately to the nonlife subgroup in determining nonlife consolidated 
taxable income under paragraph (f) of this section and to the life 
subgroup in determining consolidated LICTI under paragraph (g) of this 
section. Paragraph (h)(3)(ix) of this section defines the term separate 
return limitation year for purposes of determining whether the losses 
of one subgroup may be used against the income of the other subgroup.
* * * * *
    (13) Ineligible corporation. A corporation that is not an eligible 
corporation is ineligible. If a life company is ineligible, it is not 
treated under section 1504(c)(2) as an includible corporation. Losses 
of a nonlife member arising in years when it is ineligible may not be 
used under section 1503(c)(2) and paragraph (g) of this section to set 
off the income of a life member. If a life company is ineligible and is 
the common parent of the group (without regard to section 1504(b)(2)), 
the election under section 1504(c)(2) may not be made.
    (14) * * *
    (i) * * * S2 must file its own separate return for 2020.
    (ii) Example 2. Since 2012, L1 has been a life company owning all 
the stock of L2. In 2018, L1 transfers assets to S1, a new nonlife 
insurance company subject to taxation under section 831(a). For 2020, 
only L1 and L2 are eligible corporations. The tacking rule in paragraph 
(b)(12)(v) of this section does not apply in 2020 because the old 
corporation (L1) and the new corporation (S1) do not have the same tax 
character.
* * * * *
    (d) * * *
    (5) Dividends received deduction--(i) Dividends received by an 
includible insurance company. Dividends received by an includible 
member insurance company, taxed under either section 801 or section 
831, from another includible member of the group are treated for 
Federal income tax purposes as if the group did not file a consolidated 
return. See sections 818(e)(2) and 805(a)(4) for rules regarding a 
member taxed under section 801, and see sections 832(g) and 
832(b)(5)(B) through (E) for rules regarding a member taxed under 
section 831.
    (ii) Other dividends. Dividends received from a life company member 
of the group that are not subject to paragraph (d)(5)(i) of this 
section are not included in gross income of the distributee member. See 
section 1504(c)(2)(B)(i). If the distributee corporation is a nonlife 
insurance company subject to tax under section 831, the rules of 
section 832(b)(5)(B) through (E) apply.
* * * * *
    (7) * * *
    (ii) Any taxes described in Sec.  1.1502-2 (other than in Sec.  
1.1502-2(a)(1), (a)(6), and (a)(7)).
* * * * *
    (f) * * *
    (2) * * *
    (iii) Carrybacks. The portion of the nonlife consolidated net 
operating loss for the nonlife subgroup described in paragraph 
(f)(2)(vi) of this section, if any, that is eligible to be carried back 
to prior taxable years under Sec.  1.1502-21 is carried back to the 
appropriate years (whether consolidated or separate) before the nonlife 
consolidated net operating loss may be used as a nonlife subgroup loss 
under paragraphs (e)(2) and (h) of this section to set off consolidated 
LICTI in the year the loss arose. The election under section 172(b)(3) 
to relinquish the entire carryback period for the net operating loss of 
the nonlife subgroup may be made by the agent for the group within the 
meaning of Sec.  1.1502-77.
* * * * *
    (v) * * * For limitations on the use of nonlife carryovers to 
offset nonlife consolidated taxable income or consolidated LICTI, see 
Sec.  1.1502-21.
    (vi) Portion of nonlife consolidated net operating loss that is 
carried back to prior taxable years. The portion of the nonlife 
consolidated net operating loss that (absent an election to waive 
carrybacks) is carried back to the two preceding taxable years is the 
sum of the nonlife subgroup's farming loss (within the meaning of 
section 172(b)(1)(B)(ii)) and the amount of the subgroup's net 
operating loss that is attributable to nonlife insurance companies (as 
determined under Sec.  1.1502-21). For rules governing the absorption 
of net operating loss carrybacks, including limitations on the amount 
of net operating loss carrybacks that may be absorbed in prior taxable 
years, see Sec.  1.1502-21(b).
    (vii) Example. P, a holding company that is not an insurance 
company, owns all of the stock of S, a nonlife insurance company, and 
L1, a life insurance company. L1 owns all of the stock of L2, a life 
insurance company. Both L1 and

[[Page 67986]]

L2 satisfy the eligibility requirements of Sec.  1.1502-47(b)(12). Each 
corporation uses the calendar year as its taxable year, and no 
corporation has incurred farming losses (within the meaning of section 
172(b)(1)(B)(ii)). For 2021, the group first files a consolidated 
return for which the election under section 1504(c)(2) is effective. P 
and S filed consolidated returns for 2019 and 2020. In 2021, the P-S 
group sustains a nonlife consolidated net operating loss that is 
attributable entirely to S (see Sec.  1.1502-21(b)). The election in 
2021 under section 1504(c)(2) does not result under paragraph (d)(1) of 
this section in the creation of a new group or the termination of the 
P-S group. The loss is carried back to the consolidated return years 
2019 and 2020 of P and S. Pursuant to Sec.  1.1502-21(b), the loss may 
be used to offset S's income in 2019 and 2020 without limitation, and 
the loss may be used to offset P's income in those years, subject to 
the limitation in section 172(a) (see Sec.  1.1502-21(b)). The portion 
of the loss not absorbed in 2019 and 2020 may serve as a nonlife 
subgroup loss in 2021 that may set off the consolidated LICTI of L1 and 
L2 under paragraphs (e)(2) and (h) of this section.
    (3) * * *
    (ii) Additional principles. In applying Sec.  1.1502-22 to nonlife 
consolidated net capital loss carryovers and carrybacks, the principles 
set forth in paragraph (f)(2)(iii) through (v) of this section for 
applying Sec.  1.1502-21 to nonlife consolidated net operating loss 
carryovers and carrybacks also apply, without regard to the limitation 
in paragraph (f)(2)(vi) of this section.
* * * * *
    (g) Consolidated LICTI--(1) General rule. Consolidated LICTI is the 
consolidated taxable income of the life subgroup, computed under Sec.  
1.1502-11 as modified by this paragraph (g).
    (2) Life consolidated net operating loss deduction--(i) In general. 
In applying Sec.  1.1502-21, the rules in this paragraph (g)(2) apply 
in determining for the life subgroup the life net operating loss and 
the portion of the life net operating loss carryovers and carrybacks to 
the taxable year.
    (ii) Life CNOL. The life consolidated net operating loss is 
determined under Sec.  1.1502-21(e) by treating the life subgroup as 
the group.
    (iii) Carrybacks--(A) General rule. The portion of the life 
consolidated net operating loss for the life subgroup, if any, that is 
eligible to be carried back under Sec.  1.1502-21 is carried back to 
the appropriate years (whether consolidated or separate) before the 
life consolidated net operating loss may be used as a life subgroup 
loss under paragraphs (e)(1) and (j) of this section to set off nonlife 
consolidated taxable income in the year the loss arose. The election 
under section 172(b)(3) to relinquish the entire carryback period for 
the consolidated net operating loss of the life subgroup may be made by 
the agent for the group within the meaning of Sec.  1.1502-77.
    (B) Special rule for life consolidated net operating losses arising 
in 2018, 2019, or 2020. If a life consolidated net operating loss 
arising in a taxable year beginning after December 31, 2017, and before 
January 1, 2021, is carried back to a life insurance company taxable 
year beginning before January 1, 2018, then such life consolidated net 
operating loss is treated as an operations loss carryback (within the 
meaning of section 810, as in effect prior to its repeal) of such 
company to such taxable year.
    (iv) Subgroup rule. In determining the portion of the life 
consolidated net operating loss that is absorbed when the loss is 
carried back to a consolidated return year, Sec.  1.1502-21 is applied 
by treating the life subgroup as the group. Therefore, the absorption 
is determined without taking into account any nonlife subgroup losses 
that were previously reported on a consolidated return as setting off 
life consolidated taxable income for the year to which the life 
subgroup loss is carried back.
    (v) Carryovers. The portion of the life consolidated net operating 
loss that is not absorbed in a prior year as a carryback, or as a life 
subgroup loss that set off nonlife consolidated taxable income for the 
year the loss arose, constitutes a life carryover under this paragraph 
(g)(2) to reduce consolidated LICTI before that portion may constitute 
a life subgroup loss that sets off nonlife consolidated taxable income 
for that particular year. For limitations on the use of life carryovers 
to offset nonlife consolidated taxable income or consolidated LICTI, 
see Sec.  1.1502-21(b).
    (3) Life consolidated capital gain net income or loss--(i) 
[Reserved].
    (ii) Life consolidated net capital loss carryovers and carrybacks. 
The life consolidated net capital loss carryovers and carrybacks for 
the life subgroup are determined by applying the principles of Sec.  
1.1502-22 as modified by the following rules in this paragraph 
(g)(3)(ii):
    (A) Life consolidated net capital loss is first carried back (or 
apportioned to the life members for separate return years) to be 
absorbed by life consolidated capital gain net income without regard to 
any nonlife subgroup capital losses and before the life consolidated 
net capital loss may serve as a life subgroup capital loss that sets 
off nonlife consolidated capital gain net income in the year the life 
consolidated net capital loss arose.
    (B) If a life consolidated net capital loss is not carried back or 
is not a life subgroup loss that sets off nonlife consolidated capital 
gain net income in the year the life consolidated net capital loss 
arose, then it is carried over to the particular year under this 
paragraph (g)(3)(ii) first against life consolidated capital gain net 
income before it may serve as a life subgroup capital loss that sets 
off nonlife consolidated capital gain net income in that particular 
year.
    (h) * * *
    (2) * * *
    (ii) * * * Additionally, the amount of consolidated LICTI that may 
be offset by nonlife consolidated net operating loss carryovers may be 
subject to limitation (see section 172 and Sec.  1.1502-21).
* * * * *
    (3) * * *
    (iv) * * * The amount of consolidated LICTI that may be offset by 
nonlife consolidated net operating loss carryovers may be subject to 
limitation (see section 172 and Sec.  1.1502-21).
* * * * *
    (4) Examples. The following examples illustrate the principles of 
this paragraph (h). In the examples, L indicates a life company, S is a 
nonlife insurance company, another letter indicates a nonlife company 
that is not an insurance company, no company has farming losses (within 
the meaning of section 172(b)(1)(B)(ii)), and each corporation uses the 
calendar year as its taxable year.
* * * * *
    (ii) Example 2. (A) The facts are the same as in paragraph 
(h)(4)(i) of this section, except that, for 2021, S's separate net 
operating loss is $200. Assume further that L's consolidated LICTI is 
$200. Under paragraph (h)(3)(vi) of this section, the offsettable 
nonlife consolidated net operating loss is $100 (the nonlife 
consolidated net operating loss computed under paragraph (f)(2)(ii) of 
this section ($200), reduced by the separate net operating loss of I 
($100)). The offsettable nonlife consolidated net operating loss that 
may be set off against consolidated LICTI in 2021 is $35 (35 percent of 
the lesser of the offsettable $100 or consolidated LICTI of $200). See 
section 1503(c)(1) and paragraph (h)(3)(x) of this section. S carries 
over a loss of $65, and I carries over a loss of $100, to 2022 under 
paragraph (f)(2) of this section to be used against nonlife 
consolidated taxable income (consolidated net

[[Page 67987]]

operating loss ($200) less amount used in 2021 ($35)). Under paragraph 
(h)(2)(ii) of this section, the offsettable nonlife consolidated net 
operating loss that may be carried to 2022 is $65 ($100 minus $35). The 
facts and results are summarized in the following table.

                                       Table 1 to Paragraph  (h)(4)(ii)(A)
                                                [Dollars omitted]
----------------------------------------------------------------------------------------------------------------
                                                       Facts        Offsettable        Limit        Unused Loss
                                                             (a)             (b)             (c)             (d)
----------------------------------------------------------------------------------------------------------------
1. P............................................             100  ..............  ..............  ..............
2. S............................................           (200)           (100)  ..............            (65)
3. I............................................           (100)  ..............  ..............           (100)
4. Nonlife Subgroup.............................           (200)           (100)           (100)           (165)
5. L............................................             200  ..............             200  ..............
6. 35% of lower of line 4(c) or 5(c)............  ..............  ..............              35  ..............
7. Unused offsettable loss......................  ..............  ..............  ..............            (65)
----------------------------------------------------------------------------------------------------------------

    (B) Accordingly, under paragraph (e) of this section, consolidated 
taxable income is $165 (line 5(a) minus line 6(c)).
    (iii) Example 3. The facts are the same as in paragraph (h)(4)(ii) 
of this section, with the following additions for 2022. The nonlife 
subgroup has nonlife consolidated taxable income of $50 (all of which 
is attributable to I) before the nonlife consolidated net operating 
loss deduction under paragraph (f)(2) of this section. Consolidated 
LICTI is $100. Under paragraph (f)(2) of this section, $50 of the 
nonlife consolidated net operating loss carryover ($165) is used in 
2022 and, under paragraph (h)(3)(vi) and (vii) of this section, the 
portion used in 2022 is attributable to I, the ineligible nonlife 
member. Accordingly, the offsettable nonlife consolidated net operating 
loss from 2021 under paragraph (h)(3)(ii) of this section is $65, the 
unused loss from 2021. The offsettable nonlife consolidated net 
operating loss in 2022 is $22.75 (35 percent of the lesser of the 
offsettable loss of $65 or consolidated LICTI of $100). Accordingly, 
under paragraph (e) of this section, consolidated taxable income is 
$77.25 (consolidated LICTI of $100 minus the offsettable loss of 
$22.75).
* * * * *
    (j) * * *
    (2) * * *
    (iii) Substitute the term ``life consolidated net operating loss 
and consolidated operations loss carryovers'' for ``nonlife 
consolidated net operating loss'', and ``paragraph (g)'' for 
``paragraph (f)''.
    (3) Examples. The following examples illustrate the principles of 
this paragraph (j). In the examples, L indicates a life company, S is a 
nonlife insurance company, another letter indicates a nonlife company 
that is not an insurance company, no company has farming losses (within 
the meaning of section 172(b)(1)(B)(ii)), and each corporation uses the 
calendar year as its taxable year.
    (i) Example 1. P, S, L1 and L2 constitute a group that elects under 
section 1504(c)(2) to file a consolidated return for 2021. In 2021, the 
nonlife subgroup consolidated taxable income is $100 and there is $20 
of nonlife consolidated net capital loss that cannot be carried back 
under paragraph (f) of this section to taxable years (whether 
consolidated or separate) preceding 2021. The nonlife subgroup has no 
carryover from years prior to 2021. The life consolidated net operating 
loss is $150, which under paragraph (g) of this section includes life 
consolidated capital gain net income of $25. Since life consolidated 
capital gain net income is zero for 2021 (see paragraph (h)(3)(iii) of 
this section), the nonlife capital loss offset is zero (see paragraph 
(h)(3)(ii) of this section). However, $100 of life consolidated net 
operating loss sets off the $100 nonlife consolidated taxable income in 
2021. The life subgroup carries under paragraph (g)(2) of this section 
to 2022 $50 of the life consolidated net operating loss ($150 minus 
$100). The $50 carryover will be used in 2022 (subject to the 
limitation in section 172(a)) against life subgroup income before it 
may be used in 2022 to setoff nonlife consolidated taxable income.
    (ii) Example 2. The facts are the same as in paragraph (j)(3)(i) of 
this section, except that, for 2021, the nonlife consolidated taxable 
income is $150 (this amount is entirely attributable to S and includes 
nonlife consolidated capital gain net income of $50), consolidated 
LICTI is $200, and a life consolidated net capital loss is $50. The $50 
life consolidated net capital loss sets off the $50 nonlife 
consolidated capital gain net income. Consolidated taxable income under 
paragraph (e) of this section is $300 (nonlife consolidated taxable 
income ($150) minus the setoff of the life consolidated net capital 
loss ($50), plus consolidated LICTI ($200)).
    (iii) Example 3. The facts are the same as in paragraph (j)(3)(ii) 
of this section, except that, for 2022, the nonlife consolidated net 
operating loss is $150. This entire amount is attributable to S; thus, 
it is eligible to be carried back to 2021 against nonlife consolidated 
taxable income under paragraph (f)(2) of this section and Sec.  1.1502-
21(b). If P, the agent for the group within the meaning of Sec.  
1.1502-77, does not elect to relinquish the carryback under section 
172(b)(3), the entire $150 will be carried back, reducing 2021 nonlife 
consolidated taxable income to zero and nonlife consolidated capital 
gain net income to zero. Under paragraph (h)(3)(xii) of this section, 
the setoff in 2021 of the nonlife consolidated capital gain net income 
($50) by the life consolidated net capital loss ($50) is restored. 
Accordingly, the 2021 life consolidated net capital loss may be carried 
over by the life subgroup to 2022. Under paragraph (e) of this section, 
after the carryback, consolidated taxable income for 2021 is $200 
(nonlife consolidated taxable income ($0) plus consolidated LICTI 
($200)).
    (iv) Example 4. The facts are the same as in paragraph (j)(3)(iii) 
of this section, except that P elects under section 172(b)(3) to 
relinquish the carryback of $150 arising in 2022. The setoff in Example 
2 is not restored. However, the offsettable nonlife consolidated net 
operating loss for 2022 (or that may be carried over from 2022) is 
zero. See paragraph (h)(3)(viii) of this section. Nevertheless, the 
$150 nonlife consolidated net operating loss may be

[[Page 67988]]

carried over to be used by the nonlife group.
    (v) Example 5. P owns all of the stock of S1 and of L1. On January 
1, 2017, L1 purchases all of the stock of L2. For 2021, the group 
elects under section 1504(c)(2) to file a consolidated return. For 
2021, L1 is an eligible corporation under paragraph (b)(12) of this 
section but L2 is ineligible. Thus, L1 but not L2 is a member for 2021. 
For 2021, L2 sustains a net operating loss, which cannot be carried 
back (see section 172(b)). For 2021, L2 is treated under paragraph 
(d)(6) of this section as a member of a controlled group of 
corporations under section 1563 with P, S, and L1. For 2022, L2 is 
eligible and is included on the group's consolidated return. L2's net 
operating loss for 2021 that may be carried to 2022 is not treated 
under paragraph (b)(11) of this section as having been sustained in a 
separate return limitation year for purposes of computing consolidated 
LICTI of the L1-L2 life subgroup for 2022. Furthermore, the portion of 
L2's net operating loss not used under paragraph (g)(2) of this section 
against life subgroup income in 2022 may be included in offsettable 
life consolidated net operating loss under paragraph (j)(2) and 
(h)(3)(i) of this section that reduces in 2022 nonlife consolidated 
taxable income (subject to the limitation in section 172(a)) because 
L2's loss in 2021 was not sustained in a separate return limitation 
year under paragraph (j)(2) and (h)(3)(ix)(A) of this section or in a 
separate return year (2021) when an election was in effect under 
neither section 1504(c)(2) nor section 243(b)(3).
* * * * *
    (n) Effective/applicability dates. The rules of this section apply 
to taxable years beginning after December 31, 2020. However, a taxpayer 
may choose to apply the rules of this section to taxable years 
beginning on or before December 31, 2020. If a taxpayer makes the 
choice described in the previous sentence, the taxpayer must apply 
those rules in their entirety and consistently with the provisions of 
subchapter L of the Internal Revenue Code applicable to the years at 
issue.

0
Par. 5. Section 1.1503(d)-4 is amended by:
0
1. In paragraph (c)(3)(iii)(B), removing the period and adding in its 
place a semi-colon.
0
2. In paragraph (c)(3)(iv), removing the period and adding in its place 
``; and''.
0
3. Adding paragraph (c)(3)(v).
    The addition reads as follows:


Sec.  1.1503(d)-4  Domestic use limitation and related operating rules.

* * * * *
    (c) * * *
    (3) * * *
    (v) The SRLY limitation is applied without regard to Sec.  1.1502-
21(c)(1)(i)(E) (section 172(a) limitation applicable to a SRLY member).
* * * * *

0
Par. 6. Section 1.1503(d)-8 is amended by adding paragraph (b)(8) to 
read as follows:


Sec.  1.1503(d)-8  Effective dates.

* * * * *
    (b) * * *
    (8) Rule providing that SRLY limitation applies without regard to 
Sec.  1.1502-21(c)(1)(i)(E). Section 1.1503(d)-4(c)(3)(v) applies to 
any period to which Sec.  1.1502-21(c)(1)(i)(E) applies.

Sunita Lough,
Deputy Commissioner for Services and Enforcement.
    Approved: September 29, 2020.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2020-22974 Filed 10-23-20; 11:15 am]
BILLING CODE 4830-01-P