Final Regs Modify Stock Ownership Segregation Rules

 [4830-01-u]

 ACTION: Final and temporary regulations.

 SUMMARY: This document contains final income tax regulations relating to the segregation of public groups following certain stock issuances for purposes of determining whether an ownership change has occurred under section 382 of the Internal Revenue Code of 1986, as amended. These regulations provide exceptions to the segregation rules contained in temporary regulations issued by the IRS on August 5, 1987.

 DATES: These regulations are effective October 4, 1993.

 For dates of applicability of these regulations, see "Effective date" paragraph in the "SUPPLEMENTARY INFORMATION" portion of the preamble.

 FOR FURTHER INFORMATION CONTACT: Roberta F. Mann of the Office of Assistant Chief Counsel (Corporate), Office of Chief Counsel, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. 20224 (Attention: CC:DOM:CORP:5) or telephone 202-622-7550 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

 The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3504(h)) under control number 1545-1345. The estimated annual burden per respondent varies from 0.05 to 0.2 hours depending on individual circumstances, with an estimated average of 0.1 hour.

 These estimates are approximations of the average time expected to be necessary for a collection of information. They are based on such information as is available to the Internal Revenue Service. Individual respondents may require more or less time, depending on their particular circumstances.

 Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 20224, and to the Office of Management and Budget, Attention: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

BACKGROUND

 This document contains final and temporary regulations to be added to the Income Tax Regulations (26 CFR part 1) under section 382 of the Internal Revenue Code. The final regulations provide exceptions to the rules of the temporary regulations that require the segregation of public groups after issuances of stock. Proposed regulations on this subject were set forth in a notice of proposed rulemaking published in the Federal Register on November 5, 1992 (57 FR 52738). The IRS received public comments on the proposed regulations and held a public hearing on February 2, 1993. Having considered the comments and the statements made at the hearing, the IRS and the Treasury Department adopt the proposed regulations as revised by this Treasury decision.

EXPLANATION OF PROVISIONS

 The final regulations adopt the exceptions to the segregation rules provided in the proposed regulations, with the clarifications and revisions described below.

A. APPLICATION OF CASH ISSUANCE EXCEPTION TO ISSUANCES FOR BOTH CASH AND NONCASH CONSIDERATION  The proposed regulations would have excepted from the segregation rules a portion of stock issued by a loss corporation "for cash." The proposed regulations would have provided that two or more related issuances are treated as a single issuance. Commentators requested clarification of whether the cash issuance exception applies when a loss corporation issues stock for cash and, either in the same issuance or in a separate but related issuance, also issues stock for consideration other than cash.

 The final regulations clarify that the cash issuance exception applies if a loss corporation issues stock solely for cash. A share of stock is not issued solely for cash, if, as a condition of acquiring that share for cash, the acquiror is required to purchase other stock for consideration other than cash.

B. STOCK ISSUED UPON THE EXERCISE OF RIGHTS DISTRIBUTED PRO RATA TO EXISTING SHAREHOLDERS  The proposed regulations would have required a loss corporation to take into account subsequent transfers of any option issued on or after November 4, 1992 (including transfers described in section 1.382-2T(h)(4)(xi)), in applying the actual knowledge exception to the segregation rules on the exercise of the options. It was intended that operation of the segregation rules on the exercise (or deemed exercise) of transferable options issued pro rata to shareholders be the same as the operation of the rules on a stock offering.

 To fully effectuate this intent, the final regulations provide that, if transferable options are issued to more than one public group, section 1.382-2T(j)(2)(iii)(F) does not apply to treat options as exercised pro rata by each public group that acquired the options.

C. EFFECTIVE DATE

 As proposed, the regulations would have applied to issuances of stock in taxable years ending on or after November 4, 1992, the date on which the IRS filed the proposed regulations with the Federal Register. Taxpayers would have been allowed to elect to apply the rules of the proposed regulations to prior taxable years.

 Commentators questioned the mandatory application of the proposed regulations to stock issuances occurring prior to the filing of the proposed regulations. The IRS and the Treasury Department agree that the regulations should not mandatorily apply to a transaction that occurred before the taxpayer had notice of the proposed regulations. Therefore, the final regulations generally apply to issuances of stock in taxable years beginning on or after November 4, 1992. Taxpayers may elect, however, to apply the rules of the final regulations to issuances of stock occurring in taxable years beginning prior to November 4, 1992.

 The final regulations also contain a special effective date for the rule relating to stock issued on the exercise of certain options described in B. of this preamble. This rule generally applies to stock issued on the exercise of options issued on or after November 4, 1992, unless the option was issued under a transitional rule previously published in Notice 92-54, 1992-2 C.B. 384.

D. APPLICATION OF THE REGULATIONS TO FARM CREDIT SYSTEM INSTITUTIONS

 A commentator suggested that the regulations should contain a provision exempting Farm Credit System institutions from the application of the segregation rules. Exemption of FCS institutions from the application of the segregation rules is beyond the scope of these regulations. The Service and the Treasury Department are studying the application of the segregation rules to FCS institutions.

SPECIAL ANALYSES

 It has been determined that these regulations are not major rules as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

DRAFTING INFORMATION

 The principal author of these regulations is Roberta F. Mann, Office of the Assistant Chief Counsel (Corporate), Internal Revenue Service. However, other personnel from the IRS and Treasury Department participated in their development.

LIST OF SUBJECTS

26 CFR part 1

 Income taxes, Reporting and recordkeeping requirements.

26 CFR part 602

 Reporting and recordkeeping requirements.

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART I -- INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

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

Section 1.382-3 also issued under 26 U.S.C. 382(m).

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Par. 2. Section 1.382-1 is amended by revising the entries for section 1.382-3(b) through (j), to read as follows:

 SECTION 1.382-1  TABLE OF CONTENTS.

Par 3. Section 1.382-2T is amended by:

1. Adding a sentence to the end of the concluding text of paragraph (j)(2)(iii)(B)(1).

2. Adding a sentence to the end of paragraph (j)(2)(iii)(D)(1).

3. Adding a sentence to the end of paragraph (j)(2)(iii)(F)(1).

4. The additions read as follows:

SECTION 1.382-2T DETERMINATION OF OWNERSHIP CHANGE UNDER SECTION 382, AS AMENDED BY THE TAX REFORM ACT OF 1986 (TEMPORARY).

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(j) * * *

(2) * * *

(iii) * * *

(B) * * * (1) * * *

* * * See section 1.382-3(j) for exceptions to the segregation rules of this paragraph (j)(2)(iii)(B)(1).

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(D) * * * (1) * * * See section 1.382-3(j)(9) for rules relating to this paragraph (j)(2)(iii)(D).

* * * * *

(F) * * * (1) * * * See section 1.382-3(j)(10) for an exception to the application of the rule of this paragraph (j)(2)(iii)(F)(1) to stock issued on the exercise of a transferable option.

* * * * *

Par. 4. In section 1.382-3, paragraph (j) is added to read as follows:

SECTION 1.382-3 DEFINITIONS AND RULES RELATING TO A 5-PERCENT SHAREHOLDER.

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(j) MODIFICATION OF THE SEGREGATION RULES OF SECTION 1.382-2T(j)(2)(iii) IN THE CASE OF CERTAIN ISSUANCES OF STOCK -- (1) INTRODUCTION. This paragraph (j) exempts, in whole or in part, certain issuances of stock by a loss corporation from the segregation rules of section 1.382-2T(j)(2)(iii)(B). Terms and nomenclature used in this paragraph (j), and not otherwise defined herein, have the same meanings as in section 382 and the regulations thereunder.

(2) SMALL ISSUANCE EXCEPTION -- (i) IN GENERAL. Section 1.382-2T(j)(2)(iii)(B) does not apply to a small issuance (as defined in paragraph (j)(2)(ii) of this section), except to the extent that the total amount of stock issued in that issuance and all other small issuances previously made in the same taxable year (determined in each case on issuance) exceeds the small issuance limitation. This paragraph (j)(2) does not apply to an issuance of stock that, by itself, exceeds the small issuance limitation.

(ii) SMALL ISSUANCE DEFINED. Small issuance means an issuance (other than an issuance described in paragraph (j)(6) of this section) by the loss corporation of an amount of stock not exceeding the small issuance limitation. For purposes of this paragraph (j)(2)(ii), all stock issued in the issuance is taken into account, including stock owned immediately after the issuance by a 5-percent shareholder that is not a direct public group.

(iii) SMALL ISSUANCE LIMITATION -- (A) IN GENERAL. For each taxable year, the loss corporation may, at its option, apply this paragraph (j)(2) --

(1) On a corporation-wide basis, in which case the small issuance limitation is 10 percent of the total value of the loss corporation's stock outstanding at the beginning of the taxable year (excluding the value of stock described in section 1504(a)(4)); or

(2) On a class-by-class basis, in which case the small issuance limitation is 10 percent of the number of shares of the class outstanding at the beginning of the taxable year.

(B) CLASS OF STOCK DEFINED. For purposes of this paragraph (j)(2)(iii), a class of stock includes all stock with the same material terms.

(C) ADJUSTMENTS FOR STOCK SPLITS AND SIMILAR TRANSACTIONS. Appropriate adjustments to the number of shares of a class outstanding at the beginning of a taxable year must be made to take into account any stock split, reverse stock split, stock dividend to which section 305(a) applies, recapitalization, or similar transaction occurring during the taxable year.

(D) EXCEPTION. The loss corporation may not apply this paragraph (j)(2)(iii) on a class-by-class basis if, during the taxable year, more than one class of stock is issued in a single issuance (or in two or more issuances that are treated as a single issuance under paragraph (j)(8)(ii) of this section).

(iv) SHORT TAXABLE YEARS. In the case of a taxable year that is less than 365 days, the small issuance limitation is reduced by multiplying it by a fraction, the numerator of which is the number of days in the taxable year, and the denominator of which is 365.

(3) OTHER ISSUANCES OF STOCK FOR CASH -- (i) IN GENERAL. If the loss corporation issues stock solely for cash, section 1.382-2T(j)(2)(iii)(B) does not apply to such stock in an amount equal (as a percentage of the total stock issued) to one-half of the aggregate percentage ownership interest of direct public groups immediately before the issuance.

(ii) SOLELY FOR CASH -- (A) IN GENERAL. A share of stock is not issued solely for cash if --

(1) The acquiror, as a condition of acquiring that share for cash, is required to purchase other stock for consideration other than cash; or

(2) The share is acquired upon the exercise of an option that was not issued solely for cash or was not distributed with respect to stock.

(B) RELATED ISSUANCES. Paragraph (j)(8)(i) of this section (relating to the treatment of one or more issuances as a single issuance) does not apply in determining whether stock is issued solely for cash.

(iii) COORDINATION WITH PARAGRAPH (J)(2) OF THIS SECTION. This paragraph (j)(3) does not apply to a small issuance exempted in whole from section 1.382-2T(j)(2)(iii)(B) under paragraph (j)(2) of this section. In the case of a small issuance exempted in part from section 1.382-2T(j)(2)(iii)(B) under paragraph (j)(2) of this section, this paragraph (j)(3) applies only to the portion of the issuance not so exempted, and that portion is treated as a separate issuance for purposes of this paragraph (j)(3).

(4) LIMITATION ON EXEMPTED STOCK. The total amount of stock that is exempted from the application of section 1.382-2T(j)(2)(iii)(B) under paragraphs (j)(2) and (j)(3) of this section cannot exceed the total amount of stock issued in the issuance less the amount of that stock owned by a 5-percent shareholder (other than a direct public group) immediately after the issuance. Except to the extent that the loss corporation has actual knowledge to the contrary, any increase in the amount of the loss corporation's stock owned by a 5-percent shareholder on the day of the issuance is considered to be attributable to an acquisition of stock in the issuance.

(5) PROPORTIONATE ACQUISITION OF EXEMPTED STOCK -- (i) IN GENERAL. Each direct public group that exists immediately before an issuance to which paragraph (j)(2) or (j)(3) of this section applies is treated as acquiring its proportionate share of the amount of stock exempted from the application of section 1.382-2T(j)(2)(iii)(B) under paragraph (j)(2) or (j)(3) of this section.

(ii) ACTUAL KNOWLEDGE OF GREATER OVERLAPPING OWNERSHIP. Under the last sentence of section 1.382-2T(k)(2), the loss corporation may treat direct public groups existing immediately before an issuance to which paragraph (j)(2) or (j)(3) of this section applies as acquiring in the aggregate more stock than the amount determined under paragraph (j)(5)(i) of this section, but only if the loss corporation actually knows that the aggregate amount acquired by those groups in the issuance exceeds the amount so determined.

(6) EXCEPTION FOR EQUITY STRUCTURE SHIFTS. This paragraph (j) does not apply to any issuance of stock in an equity structure shift, except that paragraph (j)(2) of this section applies (if its requirements are met) to the issuance of stock in a recapitalization under section 368(a)(1)(E).

(7) TRANSITORY OWNERSHIP BY UNDERWRITER DISREGARDED. For purposes of section 1.382-2T(g)(1) and (j), and this paragraph (j), the transitory ownership of stock by an underwriter of the issuance is disregarded.

(8) CERTAIN RELATED ISSUANCES. For purposes of this paragraph (j), two or more issuances (including issuances of stock by first tier or higher tier entities) are treated as a single issuance if --

(i) The issuances occur at approximately the same time pursuant to the same plan or arrangement; or

(ii) A principal purpose of issuing the stock in separate issuances rather than in a single issuance is to minimize or avoid an owner shift under the rules of this paragraph (j). (9) APPLICATION TO OPTIONS. The principles of this paragraph (j) apply for purposes of applying section 1.382-2T(j)(2)(iii)(D) (relating to the deemed acquisition of stock as a result of the ownership of an option).

(10) ISSUANCE OF STOCK PURSUANT TO THE EXERCISE OF CERTAIN OPTIONS. If stock is issued on the exercise of a transferable option issued by the loss corporation, section 1.382-2T(j)(2)(iii)(F) does not apply and, in applying the last sentence of section 1.382-2T(k)(2), the loss corporation must take into account any transfers of the option (including transfers described in section 1.382-2T(h)(4)(xi)). Therefore, even if transferable options are distributed pro rata to members of existing public groups, the actual knowledge exception of section 1.382-2T(k)(2) applies only to the extent that the loss corporation actually knows that the persons acquiring stock on exercise of the options are members of a pre- existing public group. Moreover, if transferable options are issued to more than one public group, section 1.382-2T(j)(2)(iii)(F) does not apply to treat the options as exercised pro rata by each such public group as the options are actually exercised.

(11) APPLICATION TO FIRST TIER AND HIGHER TIER ENTITIES. The principles of this paragraph (j) apply to issuances of stock by a first tier entity or a higher tier entity that owns 5 percent or more of the loss corporation's stock (determined without regard to section 1.382-2T(h)(2)(i)(A)).

(12) CERTAIN NON-STOCK OWNERSHIP INTERESTS. As the context may require, a non-stock ownership interest in an entity other than a corporation is treated as stock for purposes of this paragraph (j).

(13) EXAMPLES. The provisions of this paragraph (j) are illustrated by the following examples:

EXAMPLE 1. (i) L corporation is a calendar year taxpayer. On January 1, 1994, L has 1,000 shares of a single class of common stock outstanding, all of which are owned by a single direct public group (Public L). On February 1, 1994, L issues to employees as compensation 60 new common shares of the same class. On May 1, 1994, L issues 50 new common shares of the same class solely for cash. Following each issuance, L's stock is owned entirely by public shareholders. No other changes in the ownership of L's stock occur prior to May 1, 1994. L chooses to determine its small issuance limitation for 1994 on a class-by- class basis under paragraph (j)(2)(iii)(A)(2) of this section.

(ii) The February issuance is a small issuance because the number of shares issued (60) does not exceed 100, the small issuance limitation (10 percent of the number of common shares outstanding on January 1, 1994). Under paragraph (j)(2) of this section, the segregation rules of section 1.382-2T(j)(2)(iii)(B) do not apply to the February issuance. Under paragraph (j)(5) of this section, Public L is treated as acquiring all 60 shares issued.

(iii) The May issuance is a small issuance because the number of shares issued (50) does not exceed 100, the small issuance limitation (10 percent of the number of common shares outstanding on January 1, 1994). However, under paragraph (j)(2) of this section, only 40 of the 50 shares issued are exempted from the segregation rules of section 1.382-2T(j)(2)(iii)(B) because the total number of shares of common stock issued in the February and May issuances exceeds 100, the small issuance limitation, by 10. Because the May issuance is solely for cash, paragraph (j)(3) of this section exempts 5 of the 10 remaining shares from the segregation rules of section 1.382-2T(j)(2)(iii)(B) (10 shares multiplied by 50 percent, one-half of Public L's 100 percent ownership interest immediately before the May issuance -- 1,060 shares/1,060 shares). Accordingly, under paragraph (j)(5) of this section, Public L is treated as acquiring 45 shares in the May issuance. Section 1.382-2T(j)(2)(iii)(B) applies to the remaining 5 shares issued, which are treated as acquired by a direct public group separate from Public L. Each such public group is treated as an individual who is a separate 5-percent shareholder. See section 1.382-2T(g)(1)(iv) and (j)(1)(ii).

(iv) Assume that L actually knows that at least 10 shares of the May issuance are acquired by members of Public L. The result is the same. See paragraph (j)(5)(ii) of this section.

(v) Assume instead that L actually knows that all 50 shares of the May issuance are acquired by members of Public L. Under paragraph (j)(5)(ii) of this section, L may treat Public L as acquiring 50 shares in the May issuance.

EXAMPLE 2. (i) L corporation is a calendar year taxpayer. On January 1, 1995, L has 1,000 shares of Class A common stock outstanding, the aggregate value of which is $1,000. Five hundred shares are owned by one direct public group (Public 1), and 500 shares are owned by another direct public group (Public 2). On August 1, 1995, L issues 200 shares of Class B common stock for $200 cash. A, an individual, acquires 120 Class B shares in the transaction. The remaining 80 Class B shares are acquired by public shareholders. No other changes in ownership of L's stock occur prior to August 1, 1995.

(ii) The August issuance is not a small issuance. The total value of the Class B stock issued ($200) exceeds $100, the small issuance limitation as calculated under paragraph (j)(2)(iii)(A)(1) of this section (10 percent of the value of L's stock on January 1, 1995). The total number of Class B shares issued (200) exceeds 0, the small issuance limitation as calculated under paragraph (j)(2)(iii)(A)(2) of this section (10 percent of the number of Class B shares outstanding on January 1, 1995). Accordingly, paragraph (j)(2) of this section does not apply to the August issuance.

(iii) Paragraph (j)(3) of this section, as limited by paragraph (j)(4) of this section, exempts 80 Class B shares from the segregation rule of section 1.382-2T(j)(2)(iii)(B). Paragraph (j)(3) of this section, without regard to paragraph (j)(4) of this section, would exempt 100 Class B shares: the product of the 200 Class B shares issued and 50 percent (one- half of the combined 100 percent pre-issuance ownership interest of Public 1 and Public 2). Paragraph (j)(4), however, limits the total number of Class B shares that may be excluded to 80 Class B shares: the difference between the 200 shares issued and the 120 shares acquired by A. Under paragraph (j)(5) of this section, Public 1 and Public 2 are treated as acquiring the 80 exempted Class B shares. Because Public 1 and Public 2 each owned 500 Class A shares prior to the issuance, Public 1 and Public 2 are considered to acquire 40 Class B shares each.

EXAMPLE 3. (i) L has 1,000 shares of a single class of common stock outstanding, all of which are owned by a direct public group (Public L). At the same time pursuant to the same plan, L issues 500 shares of its stock to its creditors in exchange for its outstanding debt and 500 shares of its stock to the public for cash. Assume that the separate issuances of stock for debt and stock for cash do not have a principal purpose of minimizing or avoiding an owner shift. L has no individual 5-percent shareholders immediately after the issuances.

(ii) The 500 shares of stock issued by L to its former creditors were not issued solely for cash. Therefore, paragraph (j)(3) of this section does not apply to those 500 shares, which are treated as owned by a public group separate from Public L. See section 1.382-2T(j)(2)(iii)(B)(1)(ii).

(iii) Paragraph (j)(3) of this section applies to the 500 shares of stock issued by L to the public because that stock was issued solely for cash. Because the two issuances occur at the same time pursuant to the same plan, they are generally treated as a single issuance for purposes of this paragraph (j). See paragraph (j)(8)(i) of this section. The treatment of the two issuances as a single issuance does not apply, however, for the purpose of determining whether the stock issued to the public was issued solely for cash. See paragraph (j)(3)(ii)(B) of this section.

(iv) Paragraph (j)(3) of this section applies to exempt 250 of the 500 shares issued solely for cash from the segregation rules of section 1.382-2T(j)(2)(iii)(B) (the product of the 500 shares issued for cash and 50 percent (one-half of the 100 percent pre-issuance ownership interest of Public L)). The creditors that receive stock in exchange for their debt would not be treated as acquiring any of the 250 exempted shares even if their exchange of debt for stock occurs prior to the cash issuance. Paragraph (j)(5)(i) of this section allocates exempted shares among the direct public groups that exist immediately before an issuance. Because the issuance for cash and the issuance for debt are generally treated as a single issuance, the public group comprised of the former creditors of L was not a public group that existed immediately before the issuance.

(v) Three public groups owning L stock exist immediately after the two issuances. Public L owns 1,250 shares -- the 1,000 shares it owned prior to the issuances plus the 250 shares it is treated as acquiring in the cash issuance. A separate group comprised of the former creditors of L owns the 500 shares issued for debt. A third public group owns the 250 shares that are not treated as acquired by Public L in the cash issuance.

EXAMPLE 4. (i) L has 1,000 shares of a single class of common stock outstanding, all of which are owned by a direct public group (Public L). L issues 1,000 shares pursuant to an offer under which 500 shares must be acquired in exchange for debt and the remainder may be acquired for cash. Under the terms of the offer, only persons that acquire stock for debt are eligible to acquire stock for cash. L has no 5-percent shareholders other than direct public groups immediately after the issuance.

(ii) As a condition of acquiring shares for cash, the creditors are required to purchase stock for debt. Therefore, paragraph (j)(3) of this section does not apply to any part of the issuance because it is not an issuance of stock solely for cash. The segregation rules of section 1.382-2T(j)(2)(iii)(B) apply to treat all 1,000 shares as acquired by a new public group separate from Public L.

(14) EFFECTIVE DATE -- (i) IN GENERAL. Except as otherwise provided in this paragraph (j)(14), this paragraph (j) applies to issuances or deemed issuances of stock in taxable years beginning on or after November 4, 1992.

(ii) EFFECTIVE DATE FOR PARAGRAPH (j)(10) OF THIS SECTION. Paragraph (j)(10) of this section applies to stock issued on the exercise of an option issued on or after November 4, 1992, unless the option was issued before May 4, 1993, and the issuer, on or before November 4, 1992, filed a registration statement with the Securities and Exchange Commission (or a comparable document with a State agency regulating securities) for the specific purpose of such issuance.

(iii) ELECTION TO APPLY THIS PARAGRAPH (j) RETROACTIVELY -- (A) ELECTION. A loss corporation may elect to apply paragraphs (j)(1) through (j)(13) of this section to all issuances or deemed issuances of stock to which section 1.382-2T(j)(2)(iii)(B) or (D) applied (or would have applied taking paragraph (j)(7) of this section into account) occurring in taxable years beginning prior to November 4, 1992. This election is made by filing with the loss corporation's first income tax return filed more than 60 days after October 4, 1993, the statement, "THIS IS AN ELECTION TO APPLY SECTION 1.382-3(j) RETROACTIVELY," accompanied by the amended returns and revised information statements described in paragraphs (j)(14)(iii)(B) and (C) of this section. An election under this paragraph (j)(14)(iii) is irrevocable.

(B) AMENDED RETURNS. If the retroactive application of the rules of this paragraph (j) affects the amount of taxable income or loss for a prior taxable year, then, except as precluded by the applicable statute of limitations, the loss corporation (or the common parent of any consolidated group of which the loss corporation was a member for the year) must file an amended return for the year that reflects the effects of the retroactive application of the rules of this paragraph (j). If the statute of limitations precludes the filing of an amended return for one or more such prior taxable years, the loss corporation (or the common parent) must make appropriate adjustments under the principles of section 382(l)(2)(A) in subsequent taxable years to reflect the difference between the losses and credits actually used in such prior taxable years and the amount that would have been used in those years applying the rules of this paragraph (j).

(C) REVISED INFORMATION STATEMENTS. If the retroactive application of the rules of this paragraph (j) affects the information reported on an information statement filed for any prior taxable year pursuant to section 1.382-2T(a)(2)(ii), then the loss corporation (or the common parent of any consolidated group of which the loss corporation was a member for the year) must file a revised information statement for the year that reflects the retroactive application of the rules of this paragraph (j).

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PART 602 -- OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 5. The authority citation for part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 6. Section 602.101(c) is amended by revising the entry for "1.382-3" in the table to read as follows:

SECTION 602.101 OMB CONTROL NUMBERS.

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(c) * * *

 CFR part or section where                    Current OMB