CHANROBLES VIRTUAL LAW LIBRARY

ChanRobles™ Virtual Law Library | chanrobles.com™  
Main Index ChanRobles LawTube - Social Network Chan Robles Virtual Law Library Latest Legal Updates Philippine Legal Resources Significant Philippine Legal Resources Worldwide Legal Resources Philippine Supreme Court Decisions United States Supreme Court Jurisprudence United States Laws, Statutes & Codes

US LAWS, STATUTES & CODES ON-LINE

ChanRobles On-Line Bar Review

supreme.chanrobles.com


google search for chanrobles.comSearch for www.chanrobles.com


 ------------------------------------------------------------------------                                                 1983     1984     1985------------------------------------------------------------------------NT1...........................................   $(60)    $(140)     $15T1............................................   1,000       500     750NT2...........................................    (90)     (220)     150T2............................................   (300)       400     250------------------------------------------------------------------------
  In 1983, NT1, in addition to its other business activities, acted as a collection agency for T1. Deductions attributable to those activities exceeded gross income attributable to those activities by $70. NT1's other activities generated a $10 gain. In 1984 and 1985, NT1 acted as a collection agency for T1 as its sole activity.

(b) The tentative taxable incomes of T1 and T2 for 1983 (determined under paragraph (e) of this section) as of the close of that year are adjusted by paragraph (f) of this section as follows:

   (i) T1's tentative taxable income:  T1's tentative taxable income (before the             .......   $1,000   application of paragraph (f) of this section.......Less:  T2's tentative taxable loss.........................     $300  .......  NT1's functionally related loss (limited by NT1's          60      360   overall loss)......................................                                                       -----------------  T1's tentative taxable income for 1983..............  .......      640 
  (ii) T2's tentative taxable income for 1983 is zero.

(c) The tentative taxable incomes of T1 and T2 for 1984 (determined under paragraph (e) of this section as of the close of that year) are adjusted by paragraph (f) of this section as follows:

(i) T1's tentative taxable income:

   T1's tentative taxable income (before the application of            $500 paragraph (f) of this section)................................Less:  T1's allocable portion of NT1's functionally related loss           78   (140x500/(500+400)).........................................                                                                --------  T1's tentative taxable income for 1984.......................      422                                                                ========(ii) T2's tentative taxable income:  T2's tentative taxable income (before the application of           400   paragraph (f) of this section...............................Less:  T2's allocable portion of NT1's functionally related loss           62   (140x400/(500+400)).........................................  T2's tentative taxable income for 1984.......................      338 
  (d) For 1985, the amount under paragraph (f) (2) of this section for both T1 and T2 is $15 (NT1's tentative taxable income from functionally related activities for 1985). For 1983 and 1984, T1's tentative taxable income was reduced by a total of $138 (i.e., $60 + $78) due to NT1's losses from functionally related activities. For 1984, T2's tentative taxable income was reduced by $62 due to those losses. Accordingly, under paragraph (f)(2) of this section, T1's tentative taxable income for 1983 is increased by $10 (i.e., $15x$138/($138+$62)) and T2's tentative taxable income is increased by $5 (i.e., $15x$62/($138+$62)).

Example (2).  (a) In 1983, corporations T, NT1, and NT2 are formed. these corporations constitute an affiliated group. NT2 provides computer services to T as its sole activity. For the calendar years 1983, 1984, and 1985, the group files a consolidated return. The tentative taxable income of each member (before the application of paragraph (f) of this section) is as follows:

 ------------------------------------------------------------------------                                                 1983     1984     1985------------------------------------------------------------------------T............................................     $100       $0   $(200)NT1..........................................      200        0      100NT2..........................................     (20)       20        0------------------------------------------------------------------------
  (b) Under paragraph (f)(1) of this section, T's tentative taxable income for 1983 (determined at the close of that year) is reduced to $80 (i.e., $100 less NT2's $20 loss). For 1984, under paragraph (f)(2) of this section, T's tentative taxable income is increased by $20. For 1985, the consolidated net operating loss of $100 (all of which is attributable to T) is carried back to 1983. That $100 carryback is not limited by paragraph (f)(4)(iii) of this section, since consolidated taxable income for 1983 available for absorption after a bad debt deduction of $0 under section 593(b) (other than paragraph (2) thereof) for that year is $280. Accordingly, under paragraph (f)(1)(ii) of this section, T's tentative taxable income is reduced by the full $100, which is taken into account before the previous reduction of T's tentative taxable income under paragraph (f)(1)(iii) of this section. In addition, under paragraph (f)(3)(i) of this section, the group must file an amended return for 1984 to eliminate the increase to T's bad debt deduction for 1984 by reason of the consolidated net operating loss carryback to 1983.

Example (3).  (a) T and NT are formed in 1983 and are the only members of an affiliated group filing a consolidated return on a calendar year basis. NT provided computer services to T as its sole activity. For 1983, 1984, and 1985, the tentative taxable income of T and NT (before the application of paragraph (f) of this section) is as follows:

 ------------------------------------------------------------------------                                                 1983     1984     1985------------------------------------------------------------------------T............................................     $100       $0       $0NT...........................................        0       40     (40)------------------------------------------------------------------------
  (b) At the close of 1983, T's tentative taxable income is $100. For 1985, however, the group has a consolidated net operating loss of $40, all of which is attributable to NT's functionally related activities and which is carried back to 1983. However, T's tentative taxable income for 1983 is not reduced under paragraph (f)(1)(iv) of this section, since, under paragraph (f)(4)(iv) of this section, NT's 1984 income attributable to functionally related activities of $40 is netted against that $40 carryback.

Example (4).  (a) In 1983, corporations T1, T2, NT1, and NT2 are formed. For calendar years 1983, 1984, and 1985, the affiliated group consisting of T1, T2, NT1, and NT2 filed a consolidated return. NT1 provided computer services to T1 as its sole activity. The tentative taxable income of each member (before the application of paragraph (f) of this section) is as follows:

 ------------------------------------------------------------------------                                                 1983     1984     1985------------------------------------------------------------------------T1...........................................     (50)      100       30T2...........................................     (50)     (80)     (25)NT1..........................................     (50)     (40)     (99)NT2..........................................      120       30      100------------------------------------------------------------------------
  (b) For 1983, the group has a consolidated net operating loss of $30, apportioned $10 each to T1, T2, and NT1 under §1.1502–79A(a)(3). For 1984, the only thrift with tentative taxable income greater than zero (before applying paragraph (f) of this section) is T1. That tentative taxable income of $100 is first reduced to $20 by T2's $80 1984 loss under paragraph (f)(1)(i) of this section. Next, T1's remaining tentative taxable income of $20 is reduced to $10 by the portions attributable to T1 and T2 of the 1983 consolidated net operating loss carryover to 1984 under paragraph (f)(1)(ii) of this section. The sum of those portions is limited to $10 (i.e., $5 each) by paragraph (f)(4)(iii) of this section because 1984 consolidated taxable income available for absorption after a bad debt deduction under section 593(b) (other than paragraph (2) thereof) for each thrift member for that year is $10. For that reason, paragraph (f)(4)(iii) of this section also prevents any further portion of that carryover from being taken into account in 1984 as a reduction under paragraph (f)(1) of this section. T1's remaining tentative taxable income of $10 is reduced to zero, under paragraph (f)(1)(iii) of this section, by NT1's 1984 tentative taxable loss.

(c) For 1985, the only thrift with tentative taxable income greater than zero (before applying paragraph (f) of this section) is T1. T1's tentative taxable income for 1985 of $30 is reduced to $5 by T2's 1985 loss of $25 under paragraph (f)(1)(i) of this section. Next, the portions attributable to T1 and T2 of the consolidated net operating loss carryover from 1983 to 1985 for purposes of paragraph (f)(1)(ii) of this section must be determined. That determination is made without applying the rules for loss absorption in computing consolidated taxable income under §1.1502–21A(b)(3). Those portions are instead determined in 3 steps under paragraph (f)(4)(i) of this section. The first of those steps is to determine each of T1's and T2's attributable portions of the 1983 consolidated net operating loss which under §1.1502–79A (a)(3) is $10 or $20 for both thrifts. The second of those steps is to apply the anti-double counting rule under paragraph (h)(3)(iii) of this section to reduce that $20 amount by the $10 total of the two $5 portions attributable to T1 and T2 of the consolidated net operating loss carryover from 1983 to 1984 taken into account as reductions to T1's tentative taxable income for 1984 under paragraph (f)(1)(ii) of this section. That leaves a $10 total amount available to be taken into account as reductions to T1's remaining tentative taxable income of $5 for 1985 under paragraph (f)(1)(ii) of this section. Under the third of those steps that $10 amount, however, is limited, under the loss absorption limit of paragraph (f)(4)(iii) of this section, to the $6 of the 1983 consolidated net operating loss carryover to 1985 which is absorbed in computing consolidated taxable income for 1985 since 1985 consolidated taxable income available for absorption after a bad debt deduction under section 593(b) (other than paragraph (2) thereof) for that year is $6 (i.e., $30+$100−$99−$25). Because separate taxable income cannot be reduced below zero under paragraph (f)(1) of this section, T1's remaining tentative taxable income of $5 is thus reduced to zero by the portions attributable to T1 and T2, respectively, of the consolidated net operating loss carryover from 1983 to 1985 under paragraph (f)(1)(ii) of this section.

(Sec. 1502, 7805, Internal Revenue Code of 1954 (68A Stat. 367 and 917; (26 U.S.C. 1502 and 7805))

[T.D. 7637, 44 FR 46841, Aug. 9, 1979, as amended by T.D. 7815, 47 FR 11516, Mar. 17, 1982; T.D. 7876, 48 FR 11258, Mar. 17, 1983; 48 FR 13165, Mar. 30, 1983; T.D. 8677, 61 FR 33324, June 27, 1996; T.D. 8823, 64 FR 36100, July 2, 1999]

Browse Next



Back

Chan Robles Virtual Law Library

google search for chanrobles.com Search for www.chanrobles.com









cralaw

  Copyright©1998- present | chanrobles.com   Disclaimer   E-mail Restrictions
ChanRobles™ Virtual Law Library | chanrobles.com™
 
nad