CNOLConsolidated Net Operating Loss (Income tax deduction)
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In Year 3, the consolidated group generates a $3,000 CNOL, $1,000 of which is allocated to Subsidiary 1 aid $2,000 of which is allocated to Subsidiary 2 {Exhibit 5).
The IRS subsequently issued Lattice a deficiency notice disallowing the relevant expense deduction and the corresponding CNOL carrybacks, and Lattice timely filed a petition in Tax Court challenging the IRS's determination.
In tax refund claims, United Dominion asserted that it had PLLs for each of those years, calculated by comparing the group's total PLEs against the CNOL. The IRS disallowed the claim, contending that each member's PLE should be compared to that member's STI, determined under Treas.
The proposed regulations would provide a somewhat complex, ninestep calculation designed to prevent a potential circular-basis quagmire when reducing a member's share of the CNOL on a sale of its stock outside the group in the year of attribute reduction.
Because the CNOL exceeded the aggregate PLEs of its member companies each tax year, the taxpayer treated the total PLEs as a consolidated PLL subject to the 10-year carryback.
Thus, in Example 8 above, P will no longer have to reduce its basis in S as if the $20 CNOL had been absorbed--the $20 worthless stock deduction would be allowed.
In year 1, the P group sustained a $250 CNOL. Under applicable regulations, $125 of the loss was attributable to P and $125 to S1.
The amount excluded eliminates the entire $50 million CNOL. A separate-company approach would also exclude S2's debt relief from income under Sec.
Although the amount of a group's CNOL attributable to a member may be easily determined under Regs.
On the other hand, if a single-entity approach was adopted, as urged by the taxpayer, PLEs for each consolidated-group member would be aggregated and compared to the CNOL.
The Court indicated that the statute and the regulations governing affiliated groups that file a consolidated return provide for a definition of a CNOL, and not a definition of a separate NOL for members of an affiliated group.
381 is not applicable and the CNOL attributable to T is carried back to T's two preceding tax years (Regs.