Then, the CNOL for year 2 is reduced by S2's $40 share to $160, and S2's $50 SRLY
NOL is reduced to zero.
For a detailed discussion of the SRLY
overlap rules, see "Acquisition of Loss Companies by Consolidated Groups," by Randy A.
6411 (a), the SRLY
of a new qualified member shall be treated as ending on the same date as the end of the current tax year of the consolidated group that the qualified new member joins.
losses can be used to the extent of the member's cumulative contribution to consolidated taxable income since joining the group, not just the new member's contribution to current-year consolidated taxable income.
In June 1996, the IRS issued temporary regulations (TD 8677) amending the SRLY
provisions for net operating losses (NOLs), capital losses, and built-in losses.
The recent adoption of the overlap rule, however, has eliminated the application of SRLY
limits when SRLY
loss carryovers are acquired by a consolidated group in certain transactions that also cause those loss carryovers to become subject to a Sec.
In Notice 98-38, the IRS and Treasury Department pose the question whether the current SRLY
rules limiting the utilization of operating losses should be replaced with an approach modeled after section 382 (hereinafter "section-382 approach").
Since 1997, the SRLY
regulations have limited the absorption of carryovers with the sub-grouping and the cumulative-register approaches.
The reduction to basis for expired SRLY
loss carryovers applies only to acquisitions occurring after the effective date.
However, a recently released 1993 Field Service Advice (FSA) and expected revisions to the SRLY
rules offer some hope to acquirors.
If the asset were sold by S, S would recognize a $90 loss that could offset other income generated by S, and thus hamper S's ability to fully use its SRLY
The general thrust of the SRLY
limitations is to prevent the group from reaping the principal benefit of filing consolidated returns--the ability to offset one member's loss against another member's income.