Temp-Reg-152524-02

Federal Register / Vol. 68, No. 88 / Wednesday, May 7, 2003 / Rules and Regulations
(3) Application of section 811(d). An
additional reserve computation rule
applies under section 811(d) for
contracts that guarantee certain interest
payments beyond the end of the taxable
year. Section 811(d) is waived for nonequity-indexed MGCs.
(4) Periods after the end of the
temporary guarantee period. For periods
after the end of the temporary guarantee
period, sections 807(c)(3), 807(d)(2)(B),
811(d) and 812(b)(2)(A) are not modified
when applied to non-equity-indexed
MGCs. None of these sections are
affected by the definition of current
market rate contained in paragraph
(a)(5) of this section once the temporary
guarantee period has expired.
(5) Examples. The following examples
illustrate this paragraph (b):
Example 1. (i) IC, a life insurance company
as defined in section 816, issues a MGC (the
Contract) on August 1 of 1996. The Contract
is an annuity contract that gives rise to life
insurance reserves, as defined in section
816(b). IC is a calendar year taxpayer. The
Contract guarantees that interest will be
credited at 8 percent per year for the first 8
contract years and 4 percent per year
thereafter. During the 8-year temporary
guarantee period, the Contract provides for a
market value adjustment based on changes in
a published bond index and not on the
performance of stocks, other equity
instruments or equity based derivatives. IC
has chosen to avail itself of the provisions of
these regulations for 1996 and taxable years
thereafter. The 10-year Treasury constant
maturity interest rate published for December
of 1996 was 6.30 percent. The next shortest
maturity published for Treasury constant
maturity interest rates is 7 years. As of the
end of 1996, the remaining duration of the
temporary guarantee period for the Contract
was 7 years and 7 months.
(ii) To determine under section 807(d)(2)
the end of 1996 reserves for the Contract, IC
must use a discount interest rate of 6.30
percent for the temporary guarantee period.
The interest rate to be used in computing
required interest under section 812(b)(2)(A)
for 1996 reserves is also 6.30 percent.
(iii) The discount rate applicable to periods
outside the 8-year temporary guarantee
period is determined under sections
807(c)(3), 807(d)(2)(B), 811(d) and
812(b)(2)(A) without regard to the current
market rate.
Example 2. Assume the same facts as in
Example 1 except that it is now the last day
of 1998. The remaining duration of the
temporary guarantee period under the
Contract is now 5 years and 7 months. The
7-year Treasury constant maturity interest
rate published for December of 1998 was 4.65
percent. The next shortest duration
published for Treasury constant maturity
interest rates is 5 years. A discount rate of
4.65 percent is used for the remaining
duration of the temporary guarantee period
for the purpose of determining a reserve
under section 807(d) and for the purpose of
determining required interest under section
812(b)(2)(A).

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Example 3. Assume the same facts as in
Example 1 except that it is now the last day
of 2001. The remaining duration of the
temporary guarantee period under the
Contract is now 2 years and 7 months. The
3-year Treasury constant maturity interest
rate published for December of 2001 was 3.62
percent. The next shortest duration
published for Treasury constant maturity
interest rates is 2 years. A discount rate of
3.62 percent is used for the remaining
duration of the temporary guarantee period
for the purpose of determining a reserve
under section 807(d) and for the purpose of
determining required interest under section
812(b)(2)(A).

(c) Applicable interest rates for equityindexed modified guaranteed contracts.
[Reserved.]
(d) Effective date. Paragraphs (a), (b)
and (d) of this section are effective on
May 7, 2003. However, pursuant to
section 7805(b)(7), taxpayers may elect
to apply those paragraphs retroactively
for all taxable years beginning after
December 31, 1995, the effective date of
section 817A.
David A. Mader,
Assistant Deputy Commissioner of Internal
Revenue.
Approved: April 25, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 03–11211 Filed 5–6–03; 8:45 am]
BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9057]
RIN 1545–BB39

Guidance Under Section 1502;
Amendment of Waiver of Loss
Carryovers From Separate Return
Limitation Years
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations under section
1502 that permit the amendment of
certain elections to waive the loss
carryovers of an acquired subsidiary.
The text of these temporary regulations
also serves as the text of the proposed
regulations set forth in the notice of
proposed rulemaking on this subject in
the Proposed Rules section in this issue
of the Federal Register. These
regulations apply to corporations filing
consolidated returns. This document
also provides notice of a public hearing

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on these temporary and proposed
regulations.
DATES: Effective Date: These regulations
are effective May 7, 2003.
Applicability Date: For dates of
applicability, see § 1.1502–
20T(i)(3)(viii)(C), § 1.1502–20T(i)(5)(ii),
and § 1.1502–32T(b)(4)(vii)(F). The
applicability of these sections expires
on May 8, 2006.
FOR FURTHER INFORMATION CONTACT:
Alison G. Burns or Jeffrey B. Fienberg
(202) 622–7930 (not a toll-free number).
SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act
The collection of information
contained in these regulations has been
previously reviewed and approved by
the Office of Management and Budget
under control number 1545–1774.
Responses to this collection of
information are required to obtain a
benefit. This collection of information is
revised by these regulations. These
amended regulations are being issued
without prior notice and public
procedure pursuant to the
Administrative Procedure Act (5 U.S.C.
553). For this reason, the revised
collection of information contained in
these regulations has been reviewed
and, pending receipt and evaluation of
public comments, approved by the
Office of Management and Budget under
control number 1545–1774.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
For further information concerning
this collection of information, and
where to submit comments on the
collection of information and the
accuracy of the estimated burden, and
suggestions for reducing this burden,
please refer to the preamble of the crossreferencing notice of proposed
rulemaking published in the Proposed
Rules section of this issue of the Federal
Register.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background and Explanation of
Provisions
In 1991, the IRS and Treasury
Department promulgated § 1.1502–20
setting forth rules regarding the extent
to which a loss recognized by a member

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Federal Register / Vol. 68, No. 88 / Wednesday, May 7, 2003 / Rules and Regulations

of a consolidated group on the
disposition of stock of a subsidiary
member of the same group was allowed
and the extent to which the basis of
subsidiary member stock was required
to be reduced prior to its
deconsolidation. Section 1.1502–20
provides that a loss recognized by a
group member on the disposition of
subsidiary member stock is allowable
only to the extent it exceeds the sum of
‘‘extraordinary gain dispositions,’’
‘‘positive investment adjustments,’’ and
‘‘duplicated loss.’’ In addition, it
provides that the basis of subsidiary
member stock that is deconsolidated is
reduced to its value to the extent of the
sum of the same amounts immediately
prior to its deconsolidation. The
duplicated loss amount equals the sum
of the aggregated adjusted basis of the
assets of the subsidiary (other than any
stock and securities that the subsidiary
owns in another member), the losses
attributable to the subsidiary that are
carried forward to the subsidiary’s first
taxable year following the disposition or
deconsolidation, and any deferred
deductions of the subsidiary, over the
sum of the value of the subsidiary’s
stock and its liabilities.
Section 1.1502–32(b)(4) provides that,
if a subsidiary has a loss carryover from
a separate return limitation year when it
becomes a member of a consolidated
group, the group may make an election
to treat all or any portion of the loss
carryover as expiring immediately
before the subsidiary becomes a member
of the consolidated group. This election
allows an acquiring group to prevent the
loss of stock basis that otherwise would
result if the subsidiary’s loss carryovers
were to expire before the group could
absorb them. See § 1.1502–32(b)(2)(iii).
Section 1.1502–32(b)(4) further provides
that, if the subsidiary was a member of
another group immediately before it
became a member of the consolidated
group, the losses are treated as expiring
immediately after the subsidiary ceases
to be a member of the prior group. The
election described in § 1.1502–32(b)(4)
may be made by identifying either the
amount of each loss carryover deemed
to expire or the amount of each loss
carryover deemed not to expire.
If stock of a subsidiary with loss
carryovers is sold by one consolidated
group to another and the acquiring
group waives all or a portion of the
subsidiary’s loss carryovers pursuant to
§ 1.1502–32(b)(4), the selling group can
exclude the waived loss carryovers from
its computation of duplicated loss. In
certain cases, the waiver could have the
effect of increasing the amount of stock
loss allowed on the disposition of
subsidiary stock or reducing the basis

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reduction required on the
deconsolidation of subsidiary stock. The
IRS and Treasury understand that
certain waivers of loss carryovers that
were made pursuant to § 1.1502–
32(b)(4) were made so as to increase the
amount of allowed loss on a disposition
of subsidiary stock.
In Rite Aid Corp. v. United States, 255
F.3d 1357 (Fed. Cir. 2001), the United
States Court of Appeals for the Federal
Circuit held that the duplicated loss
component of § 1.1502–20 was an
invalid exercise of regulatory authority.
In response to the Rite Aid decision, on
March 7, 2002, the IRS and Treasury
Department filed with the Federal
Register temporary regulations under
sections 337(d) and 1502 governing the
determination of a consolidated group’s
allowable stock loss and basis reduction
required on a disposition or
deconsolidation of subsidiary member
stock. Under the temporary regulations,
consolidated groups can compute the
allowable loss or the basis reduction
required on dispositions and
deconsolidations of subsidiary stock
before March 7, 2002, and certain
dispositions and deconsolidations of
subsidiary stock on or after March 7,
2002, by applying § 1.1502–20 in its
entirety, by applying the provisions of
§ 1.1502–20 without regard to the
duplicated loss factor of the loss
disallowance formula, or by applying
the provisions of § 1.337(d)–2T. See
§ 1.1502–20T(i)(2).
The IRS and Treasury Department
believe that in certain cases in which a
selling group elects to compute the
allowable loss or the basis reduction
required on a disposition or
deconsolidation of subsidiary member
stock by applying § 1.1502–20 without
regard to the duplicated loss factor of
the loss disallowance formula, or by
applying the provisions of § 1.337(d)–
2T, it is appropriate to permit an
acquiring group to amend certain prior
waivers of loss carryovers. The
following paragraphs describe these
cases and the amendments that this
document makes to §§ 1.1502–20T and
1.1502–32T to allow certain
amendments to prior waivers of loss
carryovers.
Prior Waivers of Loss Carryovers Made
To Increase Allowable Loss or Reduce
Basis Reduction Required
If a selling group elects to compute
the allowable loss or the basis reduction
required on a disposition or
deconsolidation of subsidiary stock by
applying the provisions of § 1.1502–20
without regard to the duplicated loss
factor of the loss disallowance formula,
or by applying the provisions of

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§ 1.337(d)–2T, the acquiring group’s
prior waiver of loss carryovers of the
subsidiary or lower-tier corporation of
such subsidiary will have no effect on
the selling group’s allowable loss or the
basis reduction required with respect to
the disposed of or deconsolidated
subsidiary stock. To the extent,
therefore, that an acquiring group made
an election to waive loss carryovers to
increase the allowable loss or to reduce
the basis reduction required with
respect to the disposed of or
deconsolidated subsidiary stock, the IRS
and Treasury Department believe that
the acquiring group should be permitted
to amend such waivers to decrease, to
a limited extent, the amounts of loss
carryovers deemed to expire.
Accordingly, the regulations
contained in this document provide
that, if the acquiring group made an
election pursuant to § 1.1502–32(b)(4) to
waive a subsidiary’s loss carryovers,
that election increased the amount of
the allowable loss or reduced the basis
reduction required with respect to the
disposed of or deconsolidated
subsidiary stock, and the selling group
elects to compute the allowable loss or
the basis reduction required with
respect to the disposed of or
deconsolidated subsidiary stock by
applying the provisions of § 1.1502–20
without regard to the duplicated loss
factor of the loss disallowance formula,
or by applying the provisions of
§ 1.337(d)–2T, then the acquiring group
may reduce the amount of any loss
carryover deemed to expire (or increase
the amount of any loss carryover
deemed not to expire) as a result of the
election made pursuant to § 1.1502–
32(b)(4). The aggregate amount of loss
carryovers that may be treated as not
expiring as a result of such an
amendment of a waiver of a loss
carryover of the subsidiary the stock of
which is disposed of or deconsolidated
and any lower-tier corporation of such
subsidiary, however, may not exceed
the duplicated loss with respect to the
disposed of or deconsolidated
subsidiary stock. This limitation is
intended to ensure that all of the loss
carryovers that do not expire as a result
of the amendment did, in fact, increase
the amount of the allowable loss or
reduce the basis reduction required with
respect to the disposed of or
deconsolidated subsidiary stock. In
addition, to enable the acquiring group’s
use of loss carryovers that are not
deemed to expire as a result of such an
amendment, these regulations permit a
selling group to reapportion separate,
subgroup, and consolidated section 382
limitations.

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Federal Register / Vol. 68, No. 88 / Wednesday, May 7, 2003 / Rules and Regulations
Inadvertent Waivers of Loss Carryovers
A selling group’s election to compute
the allowable loss or the basis reduction
required on a disposition or
deconsolidation of subsidiary stock by
applying the provisions of § 1.1502–20
without regard to the duplicated loss
factor of the loss disallowance formula,
or by applying the provisions of
§ 1.337(d)–2T, may result in a reduction
of the amount of losses treated as
reattributed to the selling group
pursuant to an election described in
§ 1.1502–20(g). To the extent that losses
treated as reattributed to the selling
group are reduced, the losses of a
subsidiary are increased. In this case, if
the acquiring group made an election to
waive certain loss carryovers of the
subsidiary by identifying those losses
that were deemed not to expire, it may
have inadvertently waived those losses
that are treated as losses of the
subsidiary as a result of the election by
the selling group. The IRS and Treasury
Department believe that such acquiring
groups should be permitted to make
certain amendments of such waivers.
Accordingly, these regulations permit
acquiring groups to amend an election
made pursuant to § 1.1502–32(b)(4)
where the group of which the subsidiary
was a member immediately before the
acquisition (the prior group) elected to
determine the amount of the allowable
loss or the basis reduction required with
respect to the stock of the subsidiary or
a higher-tier corporation of the
subsidiary by applying § 1.1502–20
without regard to the duplicated loss
factor of the loss disallowance formula,
or by applying the provisions of
§ 1.337(d)–2T, the subsidiary’s loss
carryovers are increased by such
election by the prior group, and the
acquiring group made an election
pursuant to § 1.1502–32(b)(4) by
identifying those losses that would be
deemed not to expire. In this case,
pursuant to these regulations, the
acquiring group may amend its election
made pursuant to § 1.1502–32(b)(4) to
provide that all or a portion of the loss
carryovers of the subsidiary that are
treated as loss carryovers of the
subsidiary as a result of the prior
group’s election are deemed not to
expire.
The regulations contained in this
document only permit acquiring groups
to reduce the amount of loss carryovers
deemed to expire, or increase the
amount of loss carryovers deemed not to
expire, as a result of an election under
§ 1.1502–32(b)(4). The regulations,
however, do not permit acquiring
groups to increase the amount of loss
carryovers deemed to expire, or reduce

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the amount of loss carryovers deemed
not to expire, as a result of such an
election. The regulations, therefore,
permit increases, but not decreases, of
the amount of loss carryovers available
to acquiring groups.
Limited Extension of Time To Apply
Alternative Regime
In addition to the provisions
described above, the regulations include
a limited extension of time for selling
groups to make an election to compute
the allowable loss or the basis reduction
required on a disposition or
deconsolidation of subsidiary stock by
applying the provisions of § 1.1502–20
without regard to the duplicated loss
factor of the loss disallowance formula,
or by applying the provisions of
§ 1.337(d)–2T, if the acquiring group is
otherwise eligible to amend an election
under § 1.1502–32(b)(4) pursuant to
these regulations, but the time period
during which the selling group could
make its election has or has almost
expired.
Additional Adjustments
In promulgating § 1.1502–20T and
related provisions, the IRS and Treasury
have attempted to ameliorate where
possible the situation of groups that
relied on the provisions of § 1.1502–20
in prior periods. The IRS and Treasury
recognize that the loss disallowance rule
in § 1.1502–20 affected the manner in
which some transactions were
structured. For example, some groups
caused subsidiaries to sell their assets
rather than engage in stock sales subject
to loss disallowance under § 1.1502–20.
Alternatively, groups may have engaged
in deemed asset sales under
§ 338(h)(10). The IRS and Treasury
believe that transactions cast in the form
of actual or deemed asset sales should
not be undone, notwithstanding the
possible role of § 1.1502–20 in their
planning. However, as was the case with
the relief provided earlier in § 1.1502–
20T and its related amendments, the IRS
and Treasury have concluded that relief
is appropriate and administrable in the
situation that is the subject of these
temporary regulations.
Special Analyses
In light of the Federal Circuit’s
decision in Rite Aid Corp. v. United
States, 255 F.3d 1357 (Fed. Cir. 2001),
these temporary regulations are
necessary to provide taxpayers with
immediate guidance regarding the
amendment of certain elections to waive
the loss carryovers of an acquired
subsidiary. Without such immediate
guidance, taxpayers may not be able to
avail themselves of the relief provided

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for in these regulations. Accordingly,
good cause is found for dispensing with
notice and public procedure pursuant to
5 U.S.C. 553(b)(B) and with a delayed
effective date pursuant to 5 U.S.C.
553(d)(1) and (3). For applicability of
the Regulatory Flexibility Act, please
refer to the cross-reference notice of
proposed rulemaking published
elsewhere in this issue of the Federal
Register. Pursuant to § 7805(f) of the
Internal Revenue Code, these temporary
regulations will be submitted to the
Chief Counsel of Advocacy of the Small
Business Administration for comment
on their impact.
Drafting Information
The principal author of these
regulations is Jeffrey B. Fienberg, Office
of Associate Chief Counsel (Corporate).
However, other personnel from the IRS
and Treasury Department participated
in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 1.1502–20T also issued under 26
U.S.C. 1502. * * *
Section 1.1502–32T also issued under 26
U.S.C. 1502. * * *

Par. 2. In § 1.1502–20T paragraph (i)(5)
is redesignated as paragraph (i)(6).
■ Par. 3. Section 1.1502–20T is amended
by adding paragraphs (i)(3)(viii) and
(i)(5) to read as follows:
■

§ 1.1502–20T—Disposition or
deconsolidation of subsidiary stock
(temporary).

*

*
*
*
*
(i) * * *
(3) * * *
(viii) Apportionment of section 382
limitation in the case of an amendment
of an election made pursuant to
§ 1.1502–32(b)(4). (A) In general. If, in
connection with a disposition or
deconsolidation of subsidiary stock, the
subsidiary the stock of which was
disposed of or deconsolidated became a
member of another consolidated group
(the acquiring group), and, pursuant to
§ 1.1502–32T(b)(4)(vii), the acquiring
group amends an election made
pursuant to § 1.1502–32(b)(4) to treat all
or a portion of the loss carryovers of

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such subsidiary (or a lower-tier
corporation of such subsidiary) as
expiring for all Federal income tax
purposes, then the common parent may
reapportion a separate, subgroup, or
consolidated section 382 limitation with
respect to such subsidiary or lower-tier
corporation in a manner consistent with
the principles of paragraph (i)(3)(iii)(A)
through (D) of this section. Any
reapportionment of a section 382
limitation made pursuant to the
previous sentence shall have the effects
described in paragraph (i)(3)(iii)(D)(ii)
and (iii) of this section. For purposes of
this section, a lower-tier corporation is
a corporation that was a member of the
group of which the subsidiary was a
member immediately before becoming a
member of the acquiring group and that
became a member of the acquiring group
as a result of the subsidiary becoming a
member of the acquiring group.
(B) Time and manner of adjustment of
apportionment of section 382 limitation.
The common parent must include a
statement entitled Adjustment of
Apportionment of Section 382
Limitation in Connection with
Amendment of Election under § 1.1502–
32(b)(4) with or as part of any timely
filed (including any extensions) original
return for a taxable year that includes
any date on or before May 7, 2003 or
with or as part of an amended return
filed before the date the original return
for the taxable year that includes May 7,
2003 is due (with regard to extensions).
The statement must set forth the name
and employer identification number
(E.I.N.) of the subsidiary and both the
original and the adjusted apportionment
of a separate section 382 limitation, a
subgroup section 382 limitation, and a
consolidated section 382 limitation, as
applicable. The requirements of this
paragraph (i)(3)(viii)(B) will be treated
as satisfied if the information required
by this paragraph (i)(3)(viii)(B) is
included in the statement required by
paragraph (i)(4) of this section rather
than in a separate statement.
(C) Effective date. This paragraph
(i)(3)(viii) is applicable on and after May
7, 2003.
*
*
*
*
*
(5) Special time for filing election in
the case of a waiver under § 1.1502–
32(b)(4). (i) In general. Notwithstanding
the provisions of paragraph (i)(4) of this
section, the election to determine
allowable loss or basis reduction
provided in this paragraph (i) may be
made by including the statement
required by paragraph (i)(4) of this
section with or as part of an original or
amended return that is filed on or before
June 15, 2003, if—

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(A) The group that includes the
acquirer of the subsidiary stock made an
election pursuant to § 1.1502–32(b)(4) to
treat all or a portion of the loss
carryovers of the subsidiary (or a lowertier corporation of such subsidiary) as
expiring for all Federal income tax
purposes;
(B) The timely filing of an election to
determine allowable loss or basis
reduction by applying the provisions
described in paragraph (i)(2)(i) or (ii) of
this section would permit the acquiring
group to amend its election under
§ 1.1502–32(b)(4) pursuant to § 1.1502–
32T(b)(4)(vii);
(C) June 6, 2003 is after the date the
original return of the consolidated group
for the taxable year that includes March
7, 2002, is due (including extensions);
and
(D) The statement required by
paragraph (i)(4) of this section specifies
that the filing of the election is
permitted under this paragraph (i)(5).
(ii) Effective date. This paragraph
(i)(5) is applicable on and after May 7,
2003.
*
*
*
*
*
■ Par. 4. Section 1.1502–32T is amended
by adding paragraph (b)(4)(vii) to read as
follows:
§ 1.1502–32T—Investment
(temporary).

adjustments

*

*
*
*
*
(b) * * *
(4) * * *
(vii) Special rules for amending
waiver of loss carryovers from separate
return limitation year—(A) Waivers that
increased allowable loss or reduced
basis reduction required. If, in
connection with the acquisition of S, the
group made an election pursuant to
§ 1.1502–32(b)(4) to treat all or any
portion of S’s loss carryovers as
expiring, and the prior group elected to
determine the amount of the allowable
loss or the basis reduction required with
respect to the stock of S or a higher-tier
corporation of S by applying the
provisions described in § 1.1502–
20T(i)(2)(i) or (ii), then the group may
reduce the amount of any loss carryover
deemed to expire (or increase the
amount of any loss carryover deemed
not to expire) as a result of the election
made pursuant to § 1.1502–32(b)(4). The
aggregate amount of loss carryovers that
may be treated as not expiring as a
result of amendments made pursuant to
this paragraph (b)(4)(vii)(A) with respect
to S and any higher- and lower-tier
corporation of S may not exceed the
amount described in § 1.1502–
20(c)(1)(iii) with respect to the acquired
stock (computed without regard to the
effect of the group’s election or elections

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pursuant to § 1.1502–32(b)(4), but with
regard to the effect of the prior group’s
election pursuant to § 1.1502–20(g), if
any, prior to the application of § 1.1502–
20T(i)(3)). For purposes of determining
the aggregate amount of loss carryovers
that may be treated as not expiring as a
result of amendments made pursuant to
this paragraph (b)(4)(vii)(A) with respect
to S and any higher- and lower-tier
corporation of S, the group may rely on
a written notification provided by the
prior group. Nothing in this paragraph
shall be construed as permitting a group
to increase the amount of any loss
carryover deemed to expire (or reduce
the amount of any loss carryover
deemed not to expire) as a result of the
election made pursuant to § 1.1502–
32(b)(4).
(B) Inadvertent waivers of loss
carryovers previously subject to an
election described in § 1.1502–20(g). If,
in connection with the acquisition of S,
the group made an election pursuant to
§ 1.1502–32(b)(4) to waive loss
carryovers of S by identifying the
amount of each loss carryover deemed
not to expire, the prior group elected to
determine the amount of the allowable
loss or the basis reduction required with
respect to the stock of S or a higher-tier
corporation of S by applying the
provisions described in § 1.1502–
20T(i)(2)(i) or (ii), and the amount of S’s
loss carryovers treated as reattributed to
the prior group pursuant to the election
described in § 1.1502–20(g) is reduced
pursuant to § 1.1502–20T(i)(3), then the
group may amend its election made
pursuant to § 1.1502–32(b)(4) to provide
that all or a portion of the loss
carryovers of S that are treated as loss
carryovers of S as a result of the prior
group’s election to apply the provisions
described in § 1.1502–20T(i)(2)(i) or (ii)
are deemed not to expire. This
paragraph (b)(4)(vii)(B), however, does
not permit a group to reduce the amount
of any loss carryover deemed not to
expire as a result of the election made
pursuant to § 1.1502–32(b)(4).
(C) Time and manner of amending an
election under § 1.1502–32(b)(4). The
amendment of an election made
pursuant to § 1.1502–32(b)(4) must be
made in a statement entitled
Amendment of Election to Treat Loss
Carryover as Expiring Under § 1.1502–
32(b)(4) Pursuant to § 1.1502–
32T(b)(4)(vii). The statement must be
filed with or as part of any timely filed
(including extensions) original return
for the taxable year that includes May 7,
2003 or with or as part of an amended
return filed before the date the original
return for the taxable year that includes
May 7, 2003 is due (with regard to
extensions). A separate statement shall

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Federal Register / Vol. 68, No. 88 / Wednesday, May 7, 2003 / Rules and Regulations
be filed for each election made pursuant
to § 1.1502–32(b)(4) that is being
amended pursuant to this paragraph
(b)(4)(vii). For purposes of making this
statement, the group may rely on the
statements set forth in a written
notification provided by the prior group.
The statement filed under this
paragraph must include the following—
(1) The name and employer
identification number (E.I.N.) of S;
(2) In the case of an amendment made
pursuant to paragraph (b)(4)(vii)(A), a
statement that the group has received a
written notification from the prior group
confirming that the group’s prior
election or elections pursuant to
§ 1.1502–32(b)(4) had the effect of either
increasing the prior group’s allowable
loss on the disposition of subsidiary
stock or reducing the prior group’s
amount of basis reduction required;
(3) The amount of each loss carryover
of S deemed to expire (or the amount of
loss carryover deemed not to expire) as
set forth in the election made pursuant
to § 1.1502–32(b)(4);
(4) The amended amount of each loss
carryover of S deemed to expire (or the
amended amount of loss carryover
deemed not to expire); and
(5) In the case of an amendment made
pursuant to paragraph (b)(4)(vii)(A) of
this section, a statement that the
aggregate amount of loss carryovers of S
and any higher- and lower-tier
corporation of S that will be treated as
not expiring as a result of amendments
made pursuant to paragraph
(b)(4)(vii)(A) of this section will not
exceed the amount described in
§ 1.1502–20(c)(1)(iii) with respect to the
acquired stock (computed without
regard to the effect of the group’s
election or elections pursuant to
§ 1.1502–32(b)(4), but with regard to the
effect of the prior group’s election
pursuant to § 1.1502–20(g), if any, prior
to the application of § 1.1502–20T(i)(3)).
(D) Items taken into account in open
years. An amendment to an election
made pursuant to § 1.1502–32(b)(4)
affects the group’s items of income,
gain, deduction or loss only to the
extent that the amendment gives rise,
directly or indirectly, to items or
amounts that would properly be taken
into account in a year for which an
assessment of deficiency or a refund for
overpayment, as the case may be, is not
prevented by any law or rule of law.
Under this paragraph, if the year to
which a loss previously deemed to
expire as a result of an election made
pursuant to § 1.1502–32(b)(4) is deemed
not to expire as a result of an election
made pursuant to this paragraph would
have been carried back or carried
forward is a year for which a refund of

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overpayment is prevented by law, then
to the extent that the absorption of such
loss in such year would have affected
the tax treatment of another item (e.g.,
another loss that was absorbed in such
year) that has an effect in a year for
which a refund of overpayment is not
prevented by any law or rule of law, the
amendment to the election made
pursuant to § 1.1502–32(b)(4) will affect
the treatment of such other item.
Therefore, if the absorption of such loss
(the first loss) in a year for which a
refund of overpayment is prevented by
law would have prevented the
absorption of another loss (the second
loss) in such year and such second loss
would have been carried to and used in
a year for which a refund of
overpayment is not prevented by any
law or rule of law (the other year), the
amendment of the election makes the
second loss available for use in the other
year.
(E) Higher- and lower-tier
corporations of S. A higher-tier
corporation of S is a corporation that
was a member of the prior group and,
as a result of such higher-tier
corporation becoming a member of the
group, S became a member of the group.
A lower-tier corporation of S is a
corporation that was a member of the
prior group and became a member of the
group as a result of S becoming a
member of the group.
(F) Effective date. This paragraph
(b)(4)(vii) is applicable on and after May
7, 2003.
*
*
*
*
*
David A. Mader,
Assistant Deputy Commissioner of Internal
Revenue.
Approved: April 25, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 03–11209 Filed 5–6–03; 8:45 am]
BILLING CODE 4830–01–P

DEPARTMENT OF THE INTERIOR
Office of Surface Mining Reclamation
and Enforcement
30 CFR Part 948
[WV–092–FOR]

West Virginia Regulatory Program
AGENCY: Office of Surface Mining
Reclamation and Enforcement (OSM),
Interior.
ACTION: Final rule; approval of
amendment.
SUMMARY: We are approving a proposed
amendment to the West Virginia surface

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24355

coal mining regulatory program (the
West Virginia program) under the
Surface Mining Control and
Reclamation Act of 1977 (SMCRA or the
Act). The amendment consists of
changes to the Code of West Virginia
(W. Va. Code) as contained in Senate
Bill 603. The amendment concerns
reclamation plan requirements and
authorizes the submittal and inclusion
of master land use plans for postmining
land use in permit application
reclamation plans. The amendments are
intended to improve the effectiveness of
the West Virginia program.
EFFECTIVE DATE: May 7, 2003.
FOR FURTHER INFORMATION CONTACT: Mr.
Roger W. Calhoun, Director, Charleston
Field Office, 1027 Virginia Street East,
Charleston, West Virginia 25301.
Telephone: (304) 347–7158; Internet
address: [email protected].
SUPPLEMENTARY INFORMATION

I. Background on the West Virginia Program
II. Submission of the Amendment
III. OSM’s Findings
IV. Summary and Disposition of Comments
V. OSM’s Decision
VI. Procedural Determinations

I. Background on the West Virginia
Program
Section 503(a) of the Act permits a
State to assume primacy for the
regulation of surface coal mining and
reclamation operations on non-Federal
and non-Indian lands within its borders
by demonstrating that its program
includes, among other things, ‘‘* * * a
State law which provides for the
regulation of surface coal mining and
reclamation operations in accordance
with the requirements of the Act * * *;
and rules and regulations consistent
with regulations issued by the Secretary
pursuant to the Act.’’ See 30 U.S.C.
1253(a)(1) and (7). On the basis of these
criteria, the Secretary of the Interior
conditionally approved the West
Virginia program on January 21, 1981.
You can find background information
on the West Virginia program, including
the Secretary’s findings, the disposition
of comments, and conditions of
approval of the West Virginia program
in the January 21, 1981, Federal
Register (46 FR 5915). You can also find
later actions concerning West Virginia’s
program and program amendments at 30
CFR 948.10, 948.12, 948.13, 948.15, and
948.16.
II. Submission of the Amendment
By letter dated May 21, 2001
(Administrative Record Number WV–
1217), the West Virginia Department of
Environmental Protection (WVDEP) sent
us a proposed amendment to its
program under SMCRA (30 U.S.C. 1201

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