n-98-40.pdf

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# Part III - Administrative, Procedural, and Miscellaneous

Effective Date of Consolidated Overall Foreign Loss Provisions
Notice 98-40

This notice announces that Treasury and the Service intend
to issue regulations permitting taxpayers to elect to delay
the effective date of Treas. Reg. $ 1.1502-9T, published in the
Federal Register on January 12, 1998 (63 F.R. 1740), and modified
on March 16, 1998 (63 F.R. 12641) .

On January 12, 1998, Treasury and the Service published in
the Federal Register final, temporary and proposed regulations
(the "January 1998 regulations") relating to limitations on the
use of certain tax credits and related attributes by corporations
filing consolidated income tax returns. In general, the January
1998 regulations relate to the separate return limitation year
("SRLY") provisions for general business credits, alternative
minimum tax credits, foreign tax credits and overall foreign loss
accounts. The January 1998 regulations were generally applicable
to consolidated return years beginning on or after January 1,
1997.

On March 16, 1998, Treasury and the Service published in the
Federal Register final, temporary, and proposed regulations (the
"March 1998 regulations") modifying the effective date of the
January 1998 regulations. The March 1998 regulations provide
that the provisions of the January 1998 regulations will apply
for consolidated return years for which the due date (without

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extensions) of the income tax return is after March 13, 1998. In
lieu of applying this effective date, however, the March 1998
regulations permit a consolidated group to choose to apply the
effective date provisions under the January 1998 regulations.
The March 1998 regulations provide that taxpayers making this
choice must apply all those effective date provisions for all
relevant years. Thus, under the March 1998 regulations, such
taxpayers are not permitted to apply one provision of the January
1998 regulations (e.g., the general business credit effective
date) and not another (e.g., the foreign tax credit effective
date) .

On May 7, 1998, a public hearing was held regarding the
proposed January and March regulations. At the hearing and in
written submissions, commentators expressed concern regarding
the effective dates contained in the January 1998 and March 1998
regulations with respect to the overall foreign loss account
provisions of Treas. Reg. $ 1.1502-9T. The commentators'
principal concern was that these effective dates resulted in
adverse tax consequences not anticipated by taxpayers with
respect to business transactions that occurred prior to the
issuance of the January 1998 regulations. Treasury and the
Service now believe that certain of these consequences are
inappropriate.

Accordingly, this notice announces that Treasury and the
Service intend to issue regulations permitting taxpayers to elect
not to apply Treas. Reg. $ 1.1502-9T (the overall foreign loss
account provisions) to consolidated return years beginning before

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January 1, 1998. A taxpayer that chooses under the March 1998
regulations to apply the effective date provisions under the
January 1998 regulations may also make the election under this
notice.

To make the election under this notice, a taxpayer must
write "Election Pursuant to Notice 98-40" across the top of page
1 of an original or amended tax return for each consolidated
return year subject to the election. For the first consolidated
return year to which the overall foreign loss provisions of
Treas. Reg. $ 1.1502-9T apply (i.e., the first year beginning on
or after January 1, 1998), such taxpayer must write "Notice 98-40
Election in Effect in Prior Years" across the top of page 1 of
the consolidated tax return for that year. For purposes of
applying Treas. Reg. $ 1.1502-9T with respect to such year, any
member with a balance in an overall foreign loss account from a
separate return limitation year on the first day of such year
shall be treated as joining the group on such first day.

Treasury and the Service intend to amend the regulations
under section 1502 to incorporate the guidance set forth in this
notice. Until the regulations are amended, taxpayers may rely on
the guidance set forth in this notice.

For further information regarding this notice, contact Trina
Dang of the Office of Associate Chief Counsel (International) at
(202) 622-3880 (not a toll-free call) .