Consolidated Net Operating Losses

Published date27 October 2020
Record Number2020-22974
SectionRules and Regulations
CourtInternal Revenue Service
Federal Register, Volume 85 Issue 208 (Tuesday, October 27, 2020)
[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 http://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
                

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