For Tax Professionals  
REG-104062-97 January 09, 1998

Consolidated Returns--Limitations on the Use of
Certain Credits & Related Tax Attributes

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-104062-97] RIN 1545-AV88

TITLE: Consolidated returns--Limitations on the use of certain
credits and related tax attributes

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to
temporary regulations and notice of public hearing.

SUMMARY: In the Rules and Regulations section of this issue of the
Federal Register, the IRS is issuing temporary regulations that
relate to the use of certain tax credits and losses of a
consolidated group and its members. The text of those temporary
regulations also serves as the text of these proposed regulations.
This document also provides notice of a public hearing on these
proposed regulations.

DATES: Written comments and outlines of topics to be discussed at
the public hearing scheduled for May 7, 1998, at 10 a.m., must be
received by April 13, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R [REG-104062-97], room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R [REG-104005- 98],
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue
NW., Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the "Tax Regs" option
on the Home Page or by submitting comments directly to the IRS
Internet site at:

http://www.irs.ustreas.gov/prod/tax_regs/comments.html. The public
hearing has been scheduled for May 7, 1998, at 10 a.m., in room
2615, Internal Revenue Building, 1111 Constitution Avenue NW.,
Washington DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed
regulations, in general, Roy A. Hirschhorn (202) 622-7770;
concerning submissions and the hearing, Mike Slaughter (202) 622-
7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Temporary regulations in the Rules and Regulations section of this
issue of the Federal Register amend the Income Tax Regulations (26
CFR part 1) relating to section 1502. The temporary regulations
provide rules that relate to the use of certain tax credits and
related tax attributes of a consolidated group and its members. The
text of those temporary regulations also serves as the text of these
proposed regulations. The preamble to the temporary regulations
explains the temporary regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not required.

It is hereby certified that these regulations do not have a
significant economic impact on a substantial number of small
entities. This certification is based on the fact that these
regulations principally affect corporations filing consolidated
federal income tax returns that have carryover or carryback of
credits from separate return limitation years. Available data
indicates that many consolidated return filers are large companies
(not small businesses). In addition, the data indicates that an
insubstantial number of consolidated return filers that are smaller
companies have credit carryovers or carrybacks, and thus even fewer
of these filers have credit carryovers or carrybacks that are
subject to the separate return limitation year rules. Therefore, a
Regulatory Flexibility Analysis under the Regulatory Flexibility Act
(5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice of proposed rulemaking will
be submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (preferably a
signed original and eight (8) copies) that are submitted timely to
the IRS. All comments will be made available for public inspection
and copying.

A public hearing has been scheduled for May 7, 1998, at 10 a.m., in
room 2615. Because of access restrictions, visitors will not be
admitted beyond the Internal Revenue Building lobby more than 15
minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons who wish to present oral comments at the hearing must submit
written comments and an outline of the topics (signed original and
eight (8) copies) to be discussed by April 13, 1998.

A period of 10 minutes will be allotted to each person for making
comments.

An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed.

Copies of the agenda will be available free of charge at the
hearing.

Drafting Information

The principal author of these regulations is Roy A.

Hirschhorn of the Office of Assistant Chief Counsel (Corporate).

Other personnel from the IRS and Treasury participated in their
development.

List of Subjects in 26 CFR Part 1 Income taxes, Reporting and
recordkeeping requirements.

Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is
proposed to be amended as follows:

PART 1-INCOME TAXES Paragraph 1. The authority citation for 26 CFR
part 1 is amended by adding entries in numerical order to read in
part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.1502-3 also issued under 26 U.S.C. 1502.

Section 1.1502-4 also issued under 26 U.S.C. 1502.

Section 1.1502-9 also issued under 26 U.S.C. 1502. * * *

Section 1.1502-55 also issued under 26 U.S.C. 1502. * * *

Par. 2. Section 1.1502-3, as proposed to be amended at 63 FR 1804,
January 12, 1998, is amended by revising paragraphs (c)(3) and (d)
(2) and adding paragraph (c)(4) to read as follows:

1.1502-3 Consolidated investment credit.

* * * * *

(c) * * *

(3) and (4) [The text of proposed paragraphs (c)(3) and (4) of this
section is the same as the text of 1.1502-3T(c)(3) and (4)
published elsewhere in this issue of the Federal Register.]

(d) * * *

(2) [The text of proposed paragraph (d)(2) of this section is the
same as the text of 1.1502-3T(d)(2) published elsewhere in this
issue of the Federal Register.]

* * * * *

Par. 3. Section 1.1502-4, as proposed to be amended at 63 FR 1804,
January 12, 1998, is amended by revising paragraphs (f)(3) and (g)
(3) to read as follows:

1.1502-4 Consolidated foreign tax credit.

* * * * *

(f) * * *

(3) [The text of proposed paragraph (f)(3) of this section is the
same as the text of 1.1502-4T(f)(3) published elsewhere in this
issue of the Federal Register.]

(g) * * *

(3) [The text of proposed paragraph (g)(3) of this section is the
same as the text of 1.1502-4T and (g)(3) published elsewhere in
this issue of the Federal Register.]

* * * * *

Par. 4. Section 1.1502-9, as proposed to be amended at 63 FR 1804,
January 12, 1998, is amended by revising paragraph (b)(1)(v) to read
as follows:

1.1502-9 Application of overall foreign losses recapture rules to
corporations filing consolidated returns.

* * * * *

(b) * * *

(1) * * *

(v) [The text of proposed paragraph (b)(1)(v) of this section is the
same as the text of 1.1502-9T(b)(1)(v) published elsewhere in this
issue of the Federal Register.]

* * * * *.Par. 5. Section 1.1502-55, as proposed to be added at 57
FR 62257, December 30, 1992, and amended at 63 FR 1804, January 12,
1998, is further amended by revising paragraph (h)(4)(iii)(C) to
read as follows as follows:

1.1502-55 Computation of alternative minimum tax of consolidated
groU.S.
* * * * *

(h) * * *

(4) * * *

(iii) * * *

(C) [The text of proposed paragraph (h)(4)(iii)(C) of this section
is the same as the text of 1.1502-55T(h)(4)(iii)(C) published
elsewhere in this issue of the Federal Register.]

* * * * *

Michael P. Dolan
Deputy Commissioner of Internal Revenue


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