Sec. 1.1502-96A Miscellaneous rules generally applicable for testing dates before June 25, 1999.

(1) Application. This paragraph (a) applies to a member (or a loss subgroup) with a net operating loss carryover that arose (or is treated under section 1.1502-21(c) or 1.1502-21T(c) in effect prior to June 25, 1999, as contained in 26 CFR part 1 revised April 1, 1999, as applicable) in a SRLY (or a net unrealized built-in gain or loss determined at the time that the member (or loss subgroup) becomes a member of the consolidated group if there is --

(2) Effect of end of separate tracking. If this paragraph (a) applies with respect to a member (or loss subgroup), then, starting on the day after the earlier of the change date (but not earlier than the day the member (or loss subgroup) becomes a member of the consolidated group) or the last day of the 5 consecutive year period described in paragraph (a)(1)(ii) of this section, the member's net operating loss carryover that arose (or is treated under section 1.1502-21(c) or 1.1502-21T(c) in effect prior to June 25, 1999, as contained in 26 CFR part 1 revised April 1, 1999, as applicable) in a SRLY, is treated as described in section 1.1502-91A(c)(1)(i). Also, the member's separately computed net unrealized built-in gain or loss is included in the determination whether the group has a net unrealized built-in gain or loss. The preceding sentences also apply for purposes of determining whether there is an ownership change with respect to such attributes following such change date (or earlier day) or 5 consecutive year period. Thus, for example, starting the day after the change date or the end of the 5 consecutive year period --

(3) Continuing effect of end of separate tracking. As the context may require, a current group determines which of its members are included in a loss subgroup on any testing date by taking into account the application of this section in the former group. See the example in section 1.1502-91A(f)(2).

(4) Special rule for testing period. For purposes of determining the beginning of the testing period for a loss group, the member's (or loss subgroup's) net operating loss carryovers (or net unrealized built-in gain or loss) described in paragraph (a)(2) of this section are considered to arise --

(5) Limits on effects of end of separate tracking. The rule contained in this paragraph (a) applies solely for purposes of sections 1.1502-15 and 1.1502-21 (or section 1.1502-15T in effect prior to June 25, 1999, as contained in 26 CFR part 1 revised April 1, 1999 and 1.1502-21T in effect prior to June 25, 1999, as contained in 26 CFR part 1 revised April 1, 1999, as applicable) and this section (other than paragraph (b)(2)(ii)(B) of this section (relating to the definition of pre-change attributes of a subsidiary)) and section 1.1502-98A, and not for purposes of other provisions of the consolidated return regulations, including, for example, sections 1.1502-15A and 1.1502-21A (relating to the consolidated net operating loss deduction). See also paragraph (c) of this section for the continuing effect of an ownership change with respect to pre-change attributes.

(1) Ownership change of a subsidiary because of options or plan or arrangement. Notwithstanding section 1.1502-92A, a subsidiary may have an ownership change for purposes of section 382 with respect to its attributes which a group or loss subgroup includes in making a determination under section 1.1502-91A(c)(1) (relating to the definition of loss group) or section 1.1502-91A(d) (relating to the definition of loss subgroup). The subsidiary has such an ownership change if it has an ownership change under the principles of section 1.1502-95A(b) and section 382 and the regulations thereunder (determined on a separate entity basis by treating the subsidiary as not being a member of a consolidated group) in the event of --

(2) Effect of the ownership change.

(3) Coordination with sections 1.1502-91A, 1.1502-92A, and 1.1502-94A. If an increase in percentage ownership interest causes an ownership change with respect to an attribute under this paragraph (b) and under section 1.1502-92A on the same day, the ownership change is considered to occur only under section 1.1502-92A and not under this paragraph (b). See section 1.1502-94A for anti-duplication rules relating to value.

(4) Example. The following example illustrates paragraph (b)(1)(ii) of this section.

Example. Plan to avoid an ownership change of a subsidiary. (a) L owns all the stock of L1, L1 owns all the stock of L2, L2 owns all the stock of L3, and L3 owns all the stock of L4. The L group has a consolidated net operating loss arising in Year 1 that is carried over to Year 2. L has assets other than its L1 stock with a value of $900. L1, L2, and L3 own no assets other than their L2, L3, and L4 stock. L4 has assets with a value of $100. During Year 2, A, B, C, and D, acting pursuant to a plan to avoid an ownership change of L4, acquire the following ownership interests in the members of the L loss group: (A) on September 11, Year 2, A acquires 20 percent of the L1 stock from L and B acquires 20 percent of the L2 stock from L1; and (B) on September 20, Year 2, C acquires 20 percent of the stock of L3 from L2 and D acquires 20 percent of the stock of L4 from L3. The following is a graphic illustration of these facts:

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(b) The acquisitions by A, B, C, and D pursuant to the plan have increased their respective percentage ownership interests in L4 by approximately 10, 13, 16, and 20 percentage points, for a total of approximately 59 percentage points during the testing period. This more than 50 percentage point increase in the percentage ownership interest in L4 causes an ownership change of L4 under paragraph (b)(2) of this section.