Carryback of Consolidated Net Operating Losses, 44210-44216 [2023-14644]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 88, Number 132 (Wednesday, July 12, 2023)]
[Rules and Regulations]
[Pages 44210-44216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14644]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9977]
RIN 1545-BP84


Carryback of Consolidated Net Operating Losses

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations; removal of temporary regulations.

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SUMMARY: This document contains final regulations that affect 
corporations filing consolidated returns. These regulations permit 
consolidated groups that acquire new members that were members of 
another consolidated group to elect in a year subsequent to the year of 
acquisition to waive all or part of the pre-acquisition portion of the 
carryback period for certain losses attributable to the acquired 
members where there is a retroactive statutory extension of the net 
operating loss (NOL) carryback period. This document finalizes certain 
provisions in proposed regulations that were published on July 8, 2020, 
and removes temporary regulations published on the same date.

DATES: 
    Effective date: These final regulations are effective on July 10, 
2023.
    Applicability date: For the date of applicability, see Sec.  
1.1502-21(h)(9).

FOR FURTHER INFORMATION CONTACT: Stephen R. Cleary at (202) 317-5353 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

I. Overview

    This Treasury decision amends the Income Tax Regulations (26 CFR 
part 1) under section 1502 of the Internal Revenue Code (Code). Section 
1502 authorizes the Secretary of the Treasury or her 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, as defined in Sec.  
1.1502-1(h)) to clearly reflect the Federal income tax liability of the 
consolidated group and to prevent avoidance of such tax liability. 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 Department of the Treasury (Treasury 
Department) and the IRS published a notice of proposed rulemaking (REG-
125716-18) in the Federal Register (85 FR 40927) under section 1502 
(2020 proposed regulations). The 2020 proposed regulations provided 
guidance that, in part, implemented amendments to section 172 under 
Public Law 115-97, 131 Stat. 2054 (Dec. 22, 2017), commonly known as 
the Tax Cuts and Jobs Act (TCJA), and the Coronavirus Aid, Relief, and 
Economic Security Act (CARES Act), Public Law 116-136, 134 Stat. 281 
(Mar. 27, 2020). Specifically, the 2020 proposed regulations provided 
guidance for consolidated groups regarding (i) the application of the 
80-percent limitation in section 172(a)(2), as originally enacted as 
part of the TCJA and subsequently amended by the CARES Act, and (ii) 
the absorption of NOL carrybacks and carryovers.
    In connection with the 2020 proposed regulations, the Treasury 
Department and the IRS published on the same date temporary regulations 
(TD 9900) in the Federal Register (85 FR 40892) under section 1502 
(2020 temporary regulations). The Treasury Department and the IRS 
issued the 2020 temporary regulations to provide guidance to 
consolidated groups regarding the application of the NOL carryback 
rules under section 172(b), as amended by (i) section 2303(b) of the 
CARES Act, and (ii) any similar future statutory amendments to section 
172. Specifically, if there is a retroactive statutory extension of the 
NOL carryback period under section 172 (retroactive statutory 
extension), the 2020 temporary regulations permit consolidated groups 
that, before the enactment of the retroactive statutory extension, 
acquired new members that were members of another consolidated group to 
elect to waive, in a taxable year subsequent to the taxable year of the 
acquisition, all or part of the pre-acquisition portion of the 
carryback period for consolidated net operating losses (CNOLs) 
attributable to the acquired members. The preamble to the 2020 
temporary regulations includes a background discussion of the rules

[[Page 44211]]

regarding NOL carrybacks and carryovers under section 172 and the 
related consolidated return regulations. Part II of this Background 
describes the 2020 temporary regulations in greater detail.
    A correction to the 2020 temporary regulations was published in the 
Federal Register (85 FR 53162) on August 28, 2020. The text of the 2020 
temporary regulations also serves as the text of Sec.  1.1502-
21(b)(3)(ii)(C) and (D) of the 2020 proposed regulations.
    The 2020 proposed regulations, other than proposed Sec.  1.1502-
21(b)(3)(ii)(C) and (D), were adopted as final regulations on October 
27, 2020. See TD 9927 (85 FR 67966).
    The IRS received one comment in response to the 2020 temporary 
regulations. A copy of the comment is available for public inspection 
at https://www.regulations.gov (type IRS-2020-0020 in the search field 
on the https://www.regulations.gov homepage) or upon request. No public 
hearing was requested or held.
    As described in greater detail in the Summary of Comment and 
Explanation of Revisions, the Treasury Department and the IRS have 
considered the commenter's recommendations and concluded that their 
adoption would necessitate conforming changes to the split-waiver 
election provisions set forth in Sec.  1.1502-21(b)(3)(ii)(B) (general 
split-waiver election), which are beyond the scope of this guidance. 
Therefore, the Treasury Department and the IRS have determined that, 
aside from non-substantive revisions to incorporate the rules regarding 
retroactive statutory extensions into Sec.  1.1502-21(b), improve 
readability, and make other perfecting edits, Sec.  1.1502-
21(b)(3)(ii)(C) and (D) of the 2020 proposed regulations should be 
adopted as final regulations without change, and that the 2020 
temporary regulations should be removed. The Treasury Department and 
the IRS continue to study the commenter's recommendations for purposes 
of potential future guidance.

II. 2020 Temporary Regulations

    On prior occasions, enacted legislation has amended section 172 to 
retroactively extend the carryback period for NOLs. See Worker, 
Homeownership, and Business Assistance Act of 2009, Public Law 111-92, 
123 Stat. 2984 (November 6, 2009); Job Creation and Worker Assistance 
Act of 2002, Public Law 107-147, 116 Stat. 21 (March 9, 2002). Most 
recently, section 2303(b) of the CARES Act added section 172(b)(1)(D) 
to the Code. Section 172(b)(1)(D) requires (in the absence of a waiver 
under section 172(b)(3)) a five-year carryback period for an NOL that 
arises in a taxable year beginning after December 31, 2017, and before 
January 1, 2021.
    Such retroactive statutory extensions of NOL carryback periods 
uniquely impact a consolidated group (acquiring group) that acquires 
one or more corporations (acquired member) before the enactment of the 
retroactive statutory extension of the carryback period. During the 
past two decades, the Treasury Department and the IRS have provided an 
acquiring group with certain additional elections for waiving 
carrybacks of losses into another consolidated group of which an 
acquired member previously was a member (former group). See 75 FR 35643 
(June 23, 2010) (2010 split-waiver regulations); 67 FR 38000 (May 31, 
2002) (2002 split-waiver regulations). These additional elections, 
while responsive to particular retroactive statutory extensions, have 
reflected common policy objectives of providing affected groups with 
the ability to waive all or a portion of the NOL carryback period of 
acquired members extended by retroactive statutory extensions 
applicable before, but enacted after, the acquisition(s).
    The Treasury Department and the IRS determined that it is 
appropriate to provide similar rules with regard to the NOL carryback 
rules retroactively amended by section 2303(b) of the CARES Act in 
particular, or by future legislation enacting retroactive statutory 
amendments to NOL carryback rules more generally. Therefore, the 2020 
temporary regulations provided principle-based rules, referred to in 
these regulations as ``amended carryback rules,'' applicable to CNOLs 
arising in taxable years to which amended carryback rules become 
applicable after the acquisition of a member. Under these rules, an 
acquiring group possesses the opportunity to waive, on a taxable-year-
by-taxable-year basis, all or a portion of the carryback period with 
regard to CNOLs attributable to acquired members for pre-acquisition 
years during which the acquired members were members of a former group.
    The 2020 temporary regulations provide two types of split-waiver 
elections for consolidated groups that (i) include one or more acquired 
members, and (ii) have CNOLs that, under amended carryback rules, 
become eligible to be carried back for a greater number of years than 
under statutory law in effect at the time of the acquisition (default 
carryback period). One type of election (amended statute split-waiver 
election) permits an acquiring group to relinquish that part of the 
carryback period during which an acquired member was a member of a 
former group (for the portion of a CNOL attributable to the acquired 
member), even though the acquiring group did not file a split-waiver 
election for the year in which the acquired member became a member of 
the acquiring group (as required by Sec.  1.1502-21(b)(3)(ii)(B)). See 
Sec.  1.1502-21T(b)(3)(ii)(C)(2)(v). The other type of election 
(extended split-waiver election) applies solely to the extended 
carryback period (that is, the additional carryback years provided 
under amended carryback rules). Through an extended split-waiver 
election, an acquiring group can ensure that amended carryback CNOLs 
are carried back to taxable years of former groups only to the extent 
those losses would have been carried back under prior law (that is, 
limiting CNOL carrybacks to the default carryback period). See Sec.  
1.1502-21T(b)(3)(ii)(C)(2)(ix). These two additional types of split-
waiver elections provide relief, and are subject to conditions and 
procedures, consistent with the applicable split-waiver elections set 
forth in the 2002 and 2010 split-waiver regulations.

Summary of Comment and Explanation of Revisions

    The Treasury Department and the IRS received one comment that 
recommended two changes to the split-waiver election provisions set 
forth in the 2020 temporary regulations (2020 split-waiver elections).
    As discussed in the preamble to the 2020 temporary regulations, a 
general split-waiver election and the 2020 split-waiver elections may 
be made only with respect to the portion of the carryback period for 
which the acquired member was a member of a former group. Thus, such an 
election would not be effective with respect to any portion of the 
carryback period during which the acquired member was a stand-alone 
corporation. The commenter recommended that split-waiver elections be 
available whenever a portion of a CNOL attributable to an acquired 
member would be carried back to a separate return year, regardless of 
whether the acquired member was a member of a former group or a stand-
alone corporation in that carryback year.
    The commenter also suggested that, although the rules governing 
split-waiver elections are too narrow insofar as they exclude 
acquisitions of stand-alone corporations, such rules also are too broad 
insofar as they apply to situations in which the acquired member was 
the common parent of a former group (whole-group

[[Page 44212]]

acquisitions). See Sec.  1.1502-21(b)(3)(ii)(B) (allowing the acquiring 
group to make a general split-waiver election with respect to the 
portion of the carryback period for which the acquired member was ``a 
member of another group''); Sec.  1.1502-21T(b)(3)(ii)(C)(2)(v) and 
(ix) (allowing the acquiring group to make a 2020 split-waiver election 
with respect to the portion of the carryback period for which the 
acquired member was ``a member of any former group''); Sec.  1.1502-
1(b) (defining the term ``member'' to include the common parent of the 
group).
    For example, assume that P is the common parent of Group 1 in Years 
1 and 2. At the beginning of Year 3, Group 2 acquires all the stock of 
P. In Year 6, Group 2 incurs a CNOL, a portion of which is attributable 
to P. In Year 7, Congress amends section 172 by extending the carryback 
period for NOLs arising in Year 6 to five years. Group 2 would be 
eligible to make either a general split-waiver election (if it filed 
the requisite statement with its Federal income tax return for Year 3) 
or one of the 2020 split-waiver elections. The commenter contended that 
a split-waiver election should not be available in such a situation 
because disputes regarding NOL carrybacks should not arise between the 
former group and the acquiring group (which controls the former group 
after the acquisition).
    The changes recommended by the commenter, if adopted, would 
necessitate revisions not only to the 2020 split-waiver elections, but 
also to the general split-waiver election provisions in Sec.  1.1502-
21(b)(3)(ii)(B). Both the general split-waiver election and the 2020 
split-waiver elections may be made only with respect to the portion of 
the carryback period for which the acquired member was a member of a 
former group. Moreover, both the general split-waiver election and the 
2020 split-waiver elections may apply to situations in which the 
acquired member was the common parent of a former group (that is, 
whole-group acquisitions). Consequently, after considering the comment, 
the Treasury Department and the IRS have determined that the scope of 
the changes suggested by the commenter exceed the scope of Sec.  
1.1502-21(b)(3)(ii)(C) and (D) of the 2020 proposed regulations.
    Thus, as noted in part I of the Background, the Treasury Department 
and the IRS have concluded that the split-waiver election provisions 
provided by the 2020 proposed regulations should be adopted without 
substantive change. The Treasury Department and the IRS continue to 
study the commenter's recommendations for purposes of potential future 
guidance. Accordingly, the final regulations contained in this Treasury 
decision adopt the provisions of Sec.  1.1502-21(b)(3)(ii)(C) and (D) 
of the 2020 proposed regulations without substantive change.
    Although no substantive changes are made to the rules of Sec.  
1.1502-21(b)(3)(ii)(C) and (D) of the 2020 proposed regulations, the 
final regulations make the following non-substantive changes to 
incorporate those rules into Sec.  1.1502-21(b) and to improve 
readability: (1) the provisions of Sec.  1.1502-21(b)(3)(ii)(A) have 
been redesignated as Sec.  1.1502-21(b)(3)(ii); (2) the provisions of 
Sec.  1.1502-21(b)(3)(ii)(B) have been redesignated as Sec.  1.1502-
21(b)(4); (3) the provisions of Sec.  1.1502-21(b)(3)(ii)(C) and (D) of 
the 2020 proposed regulations have been redesignated as Sec.  1.1502-
21(b)(5) and (6); (4) the provisions of Sec.  1.1502-21(b)(3)(iii) have 
been redesignated as Sec.  1.1502-21(b)(7); (5) the provisions of Sec.  
1.1502-21(b)(3)(iv) and (v) have been removed; and (6) corresponding 
perfecting edits have been made.

Special Analyses

I. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6(b) of Executive Order 12866, as amended. Therefore, a 
regulatory impact assessment is not required.

II. Paperwork Reduction Act

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

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

    The numbers of respondents in the table were estimated by the 
Research, Applied Analytics, and Statistics Division (RAAS) of the IRS 
from the Compliance Data Warehouse (CDW). Data for Form 1120 represents 
estimates of the total number of taxpayers that may attach an election 
statement to their Form 1120 to make the elections in Sec.  1.1502-
21(b)(5)(v)(A) and (B).
    It is estimated that 17,500 consolidated entities will be required 
to attach a statement under these final regulations. The burden 
estimates associated with the information collections in these final 
regulations are included in aggregated burden estimates for the OMB 
control number 1545-0123. The burden estimates provided in the OMB 
control numbers in the following table are aggregate amounts that 
relate to the entire package of forms associated with the OMB control 
number, and will in the future include, but not isolate, the estimated 
burden of those information collections associated with these final 
regulations. To guard against over-counting the burden that 
consolidated tax provisions imposed prior to Sec.  1.1502-21, the 
Treasury Department and the IRS urge readers to recognize that these 
burden estimates have also been cited by regulations that rely on the 
applicable OMB control numbers in order to collect information from the 
applicable types of filers.

[[Page 44213]]



----------------------------------------------------------------------------------------------------------------
                Form                          Type of filer            OMB No(s).               Status
----------------------------------------------------------------------------------------------------------------
Form 1120...........................  Corporation..................       1545-0123  Published in the Federal
                                                                                      Register on 12/22/2022.
                                                                                      Public Comment period
                                                                                      closed on 01/19/2023.
                                                                                      Approved by OMB through 12/
                                                                                      31/2023.
----------------------------------------------------------------------------------------------------------------
                                      Link:https://www.federalregister.gov/documents/2022/12/20/2022-27628/comment-request-us-business- income-tax-returns.
----------------------------------------------------------------------------------------------------------------
Source: RAAS:CDW.

III. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that this rulemaking will not have a significant 
economic impact on a substantial number of small entities within the 
meaning of section 601(6) of the Regulatory Flexibility Act. 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 will not create additional obligations for, or 
impose an economic impact on, small entities, and a regulatory 
flexibility analysis under the Regulatory Flexibility Act is not 
required.

IV. Section 7805(f)

    Pursuant to section 7805(f) of the 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 that notice of proposed rulemaking were received from the Chief 
Counsel for the Office of Advocacy of the Small Business 
Administration.

V. 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. These final regulations do 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.

VI. Executive Order 13132: Federalism

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

VII. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Management and Budget's Office of Information and 
Regulatory Affairs has designated this rule as not a ``major rule,'' as 
defined by 5 U.S.C. 804(2).

Drafting Information

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

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

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

PART 1--INCOME TAXES

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 1.1502-21 is amended by:
0
1. Removing the language ``paragraph (b)(3)(iii)'' in paragraph 
(b)(2)(iii) and adding the language ``paragraph (b)(7)'' in its place.
0
2. Revising paragraph (b)(3).
0
3. Adding paragraphs (b)(4) through (7).
0
4. Removing the language ``(b)(3)(ii)(B)'' in paragraph (h)(5) and 
adding the language ``(b)(4)'' in its place.

0
5. Revising paragraph (h)(9).
    The additions and revisions read as follows:


Sec.  1.1502-21   Net operating losses.

* * * * *
    (b) * * *
    (3) Election to relinquish entire carryback period--(i) In general. 
A group may make an irrevocable election under section 172(b)(3) to 
relinquish the entire carryback period with respect to a CNOL for any 
consolidated return year. Except as provided in paragraphs (b)(4) and 
(5) of this section, the election may not be made separately for any 
member (whether or not it remains a member), and must be made in a 
separate statement titled ``THIS IS AN ELECTION UNDER Sec.  1.1502-
21(b)(3)(i) TO WAIVE THE ENTIRE CARRYBACK PERIOD PURSUANT TO SECTION 
172(b)(3) FOR THE [insert consolidated return year] CNOLs OF THE 
CONSOLIDATED GROUP OF WHICH [insert name and employer identification 
number of common parent] IS THE COMMON PARENT.'' The statement must be 
filed with the group's income tax return for the consolidated return 
year in which the loss arises. If the consolidated return year in which 
the loss arises begins before January 1, 2003, the statement making the 
election must be signed by the common parent. If the consolidated 
return year in which the loss arises begins after December 31, 2002, 
the election may be made in an unsigned statement.
    (ii) Groups that include insolvent financial institutions. For 
rules applicable to relinquishing the entire carryback period with 
respect to losses attributable to insolvent financial

[[Page 44214]]

institutions, see Sec.  301.6402-7 of this chapter.
    (4) General split-waiver election. If one or more members of a 
consolidated group becomes a member of another consolidated group, the 
acquiring group may make an irrevocable election to relinquish, with 
respect to all consolidated net operating losses attributable to the 
member, the portion of the carryback period for which the corporation 
was a member of another group, provided that any other corporation 
joining the acquiring group that was affiliated with the member 
immediately before it joined the acquiring group is also included in 
the waiver. This election is not a yearly election and applies to all 
losses that would otherwise be subject to a carryback to a former group 
under section 172. The election must be made in a separate statement 
titled ``THIS IS AN ELECTION UNDER Sec.  1.1502-21(b)(4) TO WAIVE THE 
PRE-[insert first taxable year for which the member (or members) was 
not a member of another group] CARRYBACK PERIOD FOR THE CNOLs 
attributable to [insert names and employer identification number of 
members].'' The statement must be filed with the acquiring consolidated 
group's original income tax return for the year the corporation (or 
corporations) became a member. If the year in which the corporation (or 
corporations) became a member begins before January 1, 2003, the 
statement must be signed by the common parent and each of the members 
to which it applies. If the year in which the corporation (or 
corporations) became a member begins after December 31, 2002, the 
election may be made in an unsigned statement.
    (5) Split-waiver elections to which amended carryback rules apply--
(i) In general. An acquiring group may make either (but not both) an 
amended statute split-waiver election or an extended split-waiver 
election with respect to a particular amended carryback CNOL. These 
elections are available only if the statutory amendment to the 
carryback period referred to in paragraph (b)(5)(ii)(D) of this section 
occurs after the date of acquisition of an acquired member. A separate 
election is available for each taxable year to which amended carryback 
rules apply. An acquiring group may make an amended statute split-
waiver election or an extended split-waiver election only if the 
acquiring group, with regard to that election--
    (A) Satisfies the requirements in paragraph (b)(5)(iii) of this 
section; and
    (B) Follows the procedures in paragraphs (b)(5)(v) and (vi) of this 
section, as relevant to that election.
    (ii) Definitions. The definitions provided in this paragraph 
(b)(5)(ii) apply for purposes of paragraphs (b)(5) and (6) of this 
section.
    (A) Acquired member. The term acquired member means a member of a 
consolidated group that joins another consolidated group.
    (B) Acquiring group. The term acquiring group means a consolidated 
group that has acquired a former member of another consolidated group 
(that is, an acquired member).
    (C) Amended carryback CNOL. The term amended carryback CNOL means 
the portion of a CNOL attributable to an acquired member (determined 
pursuant to paragraph (b)(2)(iv)(B) of this section) arising in a 
taxable year to which amended carryback rules apply.
    (D) Amended carryback rules. The term amended carryback rules means 
the rules of section 172 of the Code after amendment by statute to 
extend the carryback period for NOLs attributable to an acquired member 
(determined pursuant to paragraph (b)(2)(iv)(B) of this section).
    (E) Amended statute split-waiver election. The term amended statute 
split-waiver election means, with respect to any amended carryback 
CNOL, an irrevocable election made by an acquiring group to relinquish 
the portion of the carryback period (including the default carryback 
period and the extended carryback period) for that loss during which an 
acquired member was a member of any former group.
    (F) Amended statute split-waiver election statement. The term 
amended statute split-waiver election statement has the meaning 
provided in paragraph (b)(5)(v)(A) of this section.
    (G) Default carryback period. The term default carryback period 
means the NOL carryback period existing at the time the acquiring group 
acquired the acquired member, before the applicability of amended 
carryback rules.
    (H) Extended carryback period. The term extended carryback period 
means the additional taxable years added to a default carryback period 
by any amended carryback rules.
    (I) Extended split-waiver election. The term extended split-waiver 
election means, with respect to any amended carryback CNOL, an 
irrevocable election made by an acquiring group to relinquish solely 
the portion of the extended carryback period (and no part of the 
default carryback period) for that loss during which an acquired member 
was a member of any former group.
    (J) Extended split-waiver election statement. The term extended 
split-waiver election statement has the meaning provided in paragraph 
(b)(5)(v)(B) of this section.
    (K) Former group. The term former group means a consolidated group 
of which an acquired member previously was a member.
    (iii) Conditions for making an amended statute split-waiver 
election or an extended split-waiver election. An acquiring group may 
make an amended statute split-waiver election or an extended split-
waiver election (but not both) with respect to an amended carryback 
CNOL only if--
    (A) The acquiring group has not filed a valid election described in 
paragraph (b)(4) of this section with respect to the acquired member on 
or before the effective date of the amended carryback rules;
    (B) The acquiring group has not filed a valid election described in 
section 172(b)(3) and paragraph (b)(3)(i) of this section with respect 
to a CNOL of the acquiring group from which the amended carryback CNOL 
is attributed to the acquired member;
    (C) Any other corporation joining the acquiring group that was 
affiliated with the acquired member immediately before the acquired 
member joined the acquiring group is included in the waiver; and
    (D) A former group does not claim any carryback (as provided in 
paragraph (b)(5)(iv) of this section) to any taxable year in the 
carryback period (in the case of an amended statute split-waiver 
election) or in the extended carryback period (in the case of an 
extended split-waiver election) with respect to the amended carryback 
CNOL on a return or other filing filed on or before the date the 
acquiring group files the election.
    (iv) Claim for a carryback. For purposes of paragraph 
(b)(5)(iii)(D) of this section, a carryback is claimed with respect to 
an amended carryback CNOL if there is a claim for refund, an amended 
return, an application for a tentative carryback adjustment, or any 
other filing that claims the benefit of the NOL in a taxable year prior 
to the taxable year of the loss, whether or not subsequently revoked in 
favor of a claim based on the period provided for in the amended 
carryback rules.
    (v) Procedures for making an amended statute split-waiver election 
or an extended split-waiver election--(A) Amended statute split-waiver 
election. An amended statute split-waiver election must be made in a 
separate amended statute split-waiver election

[[Page 44215]]

statement titled ``THIS IS AN ELECTION UNDER SECTION 1.1502-21(b)(5)(i) 
TO WAIVE THE PRE-[insert first day of the first taxable year for which 
the acquired member was a member of the acquiring group] CARRYBACK 
PERIOD FOR THE CNOLS ATTRIBUTABLE TO THE [insert taxable year of 
losses] TAXABLE YEAR(S) OF [insert names and employer identification 
numbers of members]''. The amended statute split-waiver election 
statement must be filed as provided in paragraph (b)(5)(vi) of this 
section.
    (B) Extended split-waiver election. An extended split-waiver 
election must be made in a separate extended split-waiver election 
statement titled ``THIS IS AN ELECTION UNDER SECTION 1.1502-21(b)(5)(i) 
TO WAIVE THE PRE-[insert first day of the first taxable year for which 
the acquired member was a member of the acquiring group] EXTENDED 
CARRYBACK PERIOD FOR THE CNOLS ATTRIBUTABLE TO THE [insert taxable year 
of losses] TAXABLE YEAR(S) OF [insert names and employer identification 
numbers of members]''. The extended split-waiver election statement 
must be filed as provided in paragraph (b)(5)(vi) of this section.
    (vi) Time and manner for filing statement--(A) In general. Except 
as otherwise provided in paragraph (b)(5)(vi)(B) or (C) of this 
section, an amended statute split-waiver election statement or extended 
split-waiver election statement must be filed with the acquiring 
group's timely filed consolidated return (including extensions) for the 
year during which the amended carryback CNOL is incurred.
    (B) Amended returns. This paragraph (b)(5)(vi)(B) applies if the 
date of the filing required under paragraph (b)(5)(vi)(A) of this 
section is not at least 150 days after the date of the statutory 
amendment to the carryback period referred to in paragraph 
(b)(5)(ii)(D) of this section. Under this paragraph (b)(5)(vi)(B), an 
amended statute split-waiver election statement or extended split-
waiver election statement may be attached to an amended return filed by 
the date that is 150 days after the date of the statutory amendment 
referred to in paragraph (b)(5)(ii)(D) of this section.
    (C) Certain taxable years beginning before January 1, 2021. This 
paragraph (b)(5)(vi)(C) applies to taxable years beginning before 
January 1, 2021, for which the date of the filing required under 
paragraph (b)(5)(vi)(A) of this section precedes November 30, 2020. 
Under this paragraph (b)(5)(vi)(C), an amended statute split-waiver 
election statement or extended split-waiver election statement may be 
attached to an amended return filed by November 30, 2020.
    (6) Examples. The following examples illustrate the rules of 
paragraph (b)(5) of this section. For purposes of these examples: All 
affiliated groups file consolidated returns; all corporations are 
includible corporations that have calendar taxable years; each of P, X, 
and T is a corporation having one class of stock outstanding; each of P 
and X is the common parent of a consolidated group (P Group and X 
Group, respectively); neither the P Group nor the X Group includes an 
insolvent financial institution or an insurance company; no NOL is a 
farming loss; there are no other relevant NOL carrybacks to the X 
Group's consolidated taxable years; except as otherwise stated, the X 
Group has sufficient consolidated taxable income determined under Sec.  
1.1502-11 (CTI) to absorb the stated NOL carryback by T; T has 
sufficient SRLY register income within the X Group to absorb the stated 
NOL carryback by T; all transactions occur between unrelated parties; 
and the facts set forth the only relevant transactions.
    (i) Example 1: Computation and absorption of amended carrybacks--
(A) Facts. In Year 1, T became a member of the X Group. On the last day 
of Year 5, P acquired all the stock of T from X. At the time of P's 
acquisition of T stock, the default carryback period was zero taxable 
years. The P Group did not make an irrevocable split-waiver election 
under paragraph (b)(4) of this section to relinquish, with respect to 
all CNOLs attributable to T while a member of the P Group, the portion 
of the carryback period for which T was a member of the X Group (that 
is, a former group). In Year 7, the P Group sustained a $1,000 CNOL, 
$600 of which was attributable to T pursuant to paragraph (b)(2)(iv)(B) 
of this section. In that year, P did not make an irrevocable general 
waiver election under section 172(b)(3) and paragraph (b)(3)(i) of this 
section with respect to the $1,000 CNOL when the P Group filed its 
consolidated return for Year 7. In Year 8, legislation was enacted that 
amended section 172 to require a carryback period of five years for 
NOLs arising in a taxable year beginning after Year 5 and before Year 
9.
    (B) Analysis. As a result of the amended carryback rules enacted in 
Year 8, the P Group's $1,000 CNOL in Year 7 must be carried back to 
Year 2. Therefore, T's $600 attributed portion of the P Group's Year 7 
CNOL (that is, T's amended carryback CNOL) must be carried back to 
taxable years of the X Group. See paragraphs (b)(1) and (b)(2)(i) of 
this section. To the extent T's amended carryback CNOL is not absorbed 
in the X Group's Year 2 taxable year, the remaining portion must be 
carried to the X Group's Year 3, Year 4, and Year 5 taxable years, as 
appropriate. See id. Any remaining portion of T's amended carryback 
CNOL is carried to consolidated return years of the P Group. See 
paragraph (b)(1) of this section.
    (ii) Example 2: Amended statute split-waiver election--(A) Facts. 
The facts are the same as in paragraph (b)(6)(i)(A) of this section 
(Example 1), except that, following the change in statutory carryback 
period in Year 8, the P Group made a valid amended statute split-waiver 
election under paragraph (b)(5)(i) of this section to relinquish solely 
the carryback of T's amended carryback CNOL.
    (B) Analysis. Because the P Group made a valid amended statute 
split-waiver election, T's amended carryback CNOL is not eligible to be 
carried back to any taxable years of the X Group (that is, a former 
group). However, the amended statute split-waiver election does not 
prevent T's Year 7 amended carryback CNOL from being carried back to 
years of the P group (that is, the acquiring group) during which T was 
a member. See paragraph (b)(5)(ii)(E) of this section. As a result, the 
entire amount of T's amended carryback CNOL is eligible to be carried 
back to taxable Year 6 of the P Group. Any remaining CNOL may then be 
carried over within the P Group. See paragraph (b)(1) of this section.
    (iii) Example 3: Computation and absorption of extended 
carrybacks--(A) Facts. The facts are the same as in paragraph 
(b)(6)(i)(A) of this section (Example 1), except that the X Group had 
$300 of CTI in Year 4 and $200 of CTI in Year 5 and, at the time of the 
P Group's acquisition of T, the default carryback period was two years. 
Therefore, T's $600 attributed portion of the P Group's Year 7 CNOL was 
required to be carried back to the X Group's Year 5 taxable year, and 
the X Group was able to offset $200 of CTI in Year 5.
    (B) Analysis. As a result of the amended carryback rules, the X 
Group must offset its $300 of CTI in Year 4 against T's amended 
carryback CNOL. See paragraphs (b)(1) and (b)(2)(i) of this section. 
The remaining $100 ($600-$300-$200) of T's amended carryback CNOL is 
carried to taxable years of the P Group. See paragraph (b)(1) of this 
section.
    (iv) Example 4: Extended split-waiver election--(A) Facts. The 
facts are the

[[Page 44216]]

same as in paragraph (b)(6)(iii)(A) of this section (Example 3), except 
that, following the change in law in Year 8, the P Group made a valid 
extended split-waiver election under paragraph (b)(5)(i) of this 
section to relinquish the extended carryback period for T's amended 
carryback CNOL for years in which T was a member of the X Group.
    (B) Analysis. As a result of the P Group's extended split-waiver 
election, T's amended carryback CNOL is not eligible to be carried back 
to any portion of the extended carryback period (that is, any taxable 
year prior to Year 5). See paragraph (b)(5)(ii)(I) of this section. As 
a result, the X Group absorbs $200 of T's $600 loss in Year 5, and the 
remaining $400 ($600-$200) is carried to taxable years of the P Group. 
See paragraph (b)(1) of this section.
    (7) Short years in connection with transactions to which section 
381(a) applies. If a member distributes or transfers assets to a 
corporation that is a member immediately after the distribution or 
transfer in a transaction to which section 381(a) applies, the 
transaction does not cause the distributor or transferor to have a 
short year within the consolidated return year of the group in which 
the transaction occurred that is counted as a separate year for 
purposes of determining the years to which a net operating loss may be 
carried.
* * * * *
    (h) * * *
    (9) Amended carryback rules. Paragraphs (b)(5) and (6) of this 
section apply to any CNOLs arising in a taxable year ending after July 
2, 2020. However, taxpayers may apply paragraphs (b)(5) and (6) of this 
section to any CNOLs arising in a taxable year beginning after December 
31, 2017.
* * * * *


Sec.  1.1502-21T   [Removed]

0
Par. 3. Section 1.1502-21T is removed.


Sec.  1.1502-78  [Amended]

0
Par. 4. Section 1.1502-78 is amended by removing the language ``Sec.  
1.1502-21(b)(3)(ii)(B)'' in paragraph (a) and adding the language 
``Sec.  1.1502-21(b)(4)'' in its place.

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

0
Par. 5. The authority citation for part 602 continues to read as 
follows:

    Authority:  26 U.S.C. 7805.


0
Par. 6. In Sec.  602.101, amend the table in paragraph (b) by:
0
a. Revising the entry for ``Sec.  1.1502-21''; and
0
b. Removing the entry for ``Sec.  1.1502.21T''.
    The revision reads as follows:


Sec.  602.101  OMB Control Numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                                * * * * *
1.1502-21...............................................       1545-0123
 
                                * * * * *
------------------------------------------------------------------------


Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.

    Approved: June 21, 2023.
Lily Batchelder,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2023-14644 Filed 7-10-23; 4:15 pm]
BILLING CODE 4830-01-P