Reference no: EM133388733

Question: Summary of final consolidated return Treasury Regulations addressing recent NOL rule changes

On October 13, 2020, the Department of Treasury ("Treasury") and the Internal Revenue Service ("IRS") released final federal consolidated tax return Treasury Regulations that primarily address recent statutory changes made by the 2017 (the "Tax Act") (P.L. 115-97) and the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136, the "CARES Act") to the rules governing federal net operating losses (NOL).

In brief:
• The final Treasury Regulations (T.D. 9927) set forth amendments to Treas. Reg. § 1.1502-21, which governs consolidated federal net operating losses ("CNOL") and the CNOL deduction. The amendments to Treas. Reg. section 1.1502-21 principally concern three issues relevant to consolidated groups that were not expressly covered in the Tax Act or the CARES Act; specifically:
- How to determine the 80-percent of taxable income limitation in the case of a "mixed" group - that is, a consolidated group containing nonlife insurance companies and other members;
- The incorporation of the 80-percent of taxable income limitation into the operation of the separate return limitation year ("SRLY") rules;
and
- The calculation and allocation of farming losses.
• The final Treasury Regulations also amend the rules under Internal Revenue Code section 1503(d) addressing dual consolidated losses to clarify that, for purposes of the dual consolidated loss rules, the SRLY limitation is applied without regard to the new rule of Treas. Reg. section 1.1502-21(c)(1)(i)(E), which was added by the final Treasury Regulations.
• The final Treasury Regulations also include amendments to Treas. Reg. section 1.1502-47, which governs the filing of life/non-life consolidated federal income tax returns. For the most part, the amendments to Treas. Reg. section 1.1502-47 implement various statutory amendments dating back to the Deficit Reduction Act of 1984