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 ------------------------------------------------------------------------                                                           P        T------------------------------------------------------------------------                              Year 1 (SRLY)------------------------------------------------------------------------Ordinary..............................................  .......  .......Capital...............................................  .......     (20)                                 Year 2------------------------------------------------------------------------Ordinary..............................................       10       20Capital...............................................       70        0§ 1231...........................................     (60)       30------------------------------------------------------------------------
  (ii) Under section 1231, if the section 1231 losses for any taxable year exceed the section 1231 gains for such taxable year, such gains and losses are treated as ordinary gains or losses. Because the P group's section 1231 losses, $(60), exceed the section 1231 gains, $30, the P group's net loss is treated as an ordinary loss. T's net section 1231 gain has the same character as the P group's consolidated net section 1231 loss, so T's $30 of section 1231 income is treated as ordinary income for purposes of applying §1.1502–22(c). Under §1.1502–22(c), the group's consolidated net capital gain determined by reference only to T's items is $0. None of T's capital loss carryover from Year 1 may be taken into account in Year 2.

(c) Recapture of ordinary loss. [Reserved]

(d) Effective date—(1) In general. This section applies to gains and losses arising in the determination of consolidated net section 1231 gain or loss for taxable years for which the due date (without extensions) of the consolidated return is after June 25, 1999.

(2) Application to prior periods. See §1.1502–21(h)(3) for rules applicable to groups that applied the rules of this section to consolidated return years ending on or after January 29, 1991, and beginning before January 1, 1997.

[T.D. 8823, 64 FR 36115, July 2, 1999; 64 FR 41784, Aug. 2, 1999]

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