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   Consolidated foreign source taxable income.................         $400Consolidated foreign source taxable income recomputed by            -200 excluding H's foreign source income and deduction.........                                                            ------------   $200....................................................  x 50%....................................................         $100Amount from H's separate return limitation year overall             $100 foreign loss account added to the consolidated overall foreign loss account...................................... 

This amount is subject to recapture beginning in the same taxable year, as it is treated as a consolidated overall foreign loss incurred in a previous year. Therefore, under paragraph (d) of this section and §1.904(f)–2 JH also recaptures this $100, reducing the consolidated overall foreign loss account to $0. H has $300 remaining in its separate overall foreign loss account at the end of 1984.

  (iv) In 1985, H has separate taxable income of $400, comprised of $100 of United States source taxable income and $300 of foreign source taxable income. J has separate taxable income of $300 comprised of $600 of United States source taxable income and $300 of foreign source losses. JH has consolidated taxable income of $700, all of which is United States source. Under paragraph (b)(1)(iii) of this section an additional $150 from H's separate overall foreign loss is added to the consolidated overall foreign loss account, computed as follows:
   Consolidated foreign source taxable income.................           $0Consolidated foreign source taxable income recomputed by          -(300) excluding H's foreign source income and deductions........                                                            ------------   300.....................................................  x 50%....................................................         $150Amount from H's separate return limitation year overall             $150 foreign loss account added to the consolidated overall foreign loss account...................................... 

Thus, an additional $150 of H's separate overall foreign loss is added to the consolidated overall foreign loss account, and, under paragraph (c)(1)(i)(B) of this section, the same amount is added to J's notional account. While this amount is subject to recapture beginning in the same taxable year, JH has no consolidated foreign source taxable income in 1985, so no overall foreign loss is recaptured. H has a remaining balance of $150 in its separate return limitation year overall foreign loss account and HJ has $150 in its consolidated overall foreign loss account.

Example (6).  A, B, and C are members of an affiliated group of corporations (as defined in section 1504), and all use the calendar year as their taxable year. For 1986, A, B, and C file a consolidated return. A has an overall foreign loss account which arose in a separate return limitation year. The amount in the overall foreign loss account is $2,000. A makes a disposition of all its assets to B on January 1, 1986. The gain on the transfer is $1,500, all of which would be recognized under section 904(f)(3). However, if A adds the total amount of its overall foreign loss from separate return limitation years to ABC's consolidated overall foreign loss account, no gain will be recognized on the transfer until the intercompany gain is taken into account under §1.1502–13. In the interim, any foreign source gain of the purchasing member (or any other member of the consolidated group) may be used to recapture on a consolidated basis the amount in ABC's consolidated overall foreign loss account.

[T.D. 8153, 52 FR 32005, Aug. 25, 1987; 52 FR 43434, Nov. 12, 1987, as amended by T.D. 8597, 60 FR 36679, July 18, 1995; T.D. 8677, 61 FR 33323, June 27, 1996; T.D. 8766, 63 FR 12643, Mar. 16, 1998; T.D. 8800, 63 FR 71590, Dec. 29, 1998; T.D. 8823, 64 FR 36099, July 2, 1999; Redesignated and amended by T.D. 8833, 64 FR 43615, Aug. 11, 1999; T.D. 8884, 65 FR 33760, May 25, 2000]




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