Section 1.1502-19 - Excess loss accounts(a)In general -(1)Purpose. This section provides rules for a member (M) to include in income its excess loss account in the stock of another member (S). The purpose of the excess loss account is to recapture in consolidated taxable income M's negative adjustments with respect to S's stock (e.g., under § 1.1502-32 from S's deductions, losses, and distributions), to the extent the negative adjustments exceed M's basis in the stock. This section also provides rules for eliminating losses and other attributes attributable to S in certain cases in which S stock becomes worthless or S ceases to be a member and does not have a separate return year.(2)Excess loss accounts - (i)In general. M's basis in S's stock is adjusted under the consolidated return regulations and other rules of law. Negative adjustments may exceed M's basis in S's stock. The resulting negative amount is M's excess loss account in S's stock. For example: (A) Once M's negative adjustments under § 1.1502-32 exceed its basis in S's stock, the excess is M's excess loss account in the S stock. If M has further adjustments, they first increase or decrease the excess loss account.(B) If M forms S by transferring property subject to liabilities in excess of basis, § 1.1502-80(d) provides for the nonapplicability of section 357(c) and the resulting negative basis under section 358 is M's excess loss account in the S stock.(ii)Treatment as negative basis. M's excess loss account is treated for all Federal income tax purposes as basis that is a negative amount, and a reference to M's basis in S's stock includes a reference to M's excess loss account.(3)Application of other rules of law, duplicative recapture. See § 1.1502-80(a) regarding the general applicability of other rules of law and a limitation on duplicative adjustments and recapture.(b)Excess loss account taken into account as income or gain -(1)Operating rules -(i)General rule. Except as provided in paragraph (b)(1)(ii) of this section, if M is treated under this section as disposing of a share of S's stock, M takes into account its excess loss account in the share as income or gain from the disposition.(ii)Special limitation on amount taken into account. Notwithstanding paragraph (b)(1)(i) of this section, if M is treated as disposing of a share of S's stock as a result of the application of paragraph (c)(1)(iii)(B) of this section, the aggregate amount of its excess loss account in the shares of S's stock that M takes into account as income or gain from the disposition shall not exceed the amount of S's indebtedness that is discharged that is neither included in gross income nor treated as tax-exempt income under § 1.1502-32(b)(3)(ii)(C) (1). If more than one share of S's stock has an excess loss account, such excess loss accounts shall be taken into account pursuant to the preceding sentence, to the extent possible, in a manner that equalizes the excess loss accounts in S's shares that have an excess loss account.(iii)Treatment of disposition. Except as provided in paragraph (b)(4) of this section, the disposition is treated as a sale or exchange for purposes of determining the character of the income or gain.(iv)Reduction of attributes in the case of certain dispositions by worthlessness or where S ceases to be a member and does not become a nonmember. If this paragraph (b)(1)(iv) applies, any net operating or capital loss carryover that is attributable to S, including any losses that would be apportioned to S under the principles of § 1.1502-21(b)(2) if S had a separate return year, any deferred deductions attributable to S, including S's portion of such consolidated tax attributes (for example, consolidated excess charitable contributions that would be apportioned to S under the principles of § 1.1502-79(e) if S had a separate return year), and any credit carryover attributable to S, including any consolidated credits that would be apportioned to S under the principles of § 1.1502-79 if S had a separate return year, are eliminated. Attributes other than consolidated tax attributes (determined as of the disposition) are eliminated under this paragraph (b)(1)(iv) immediately before the disposition resulting in the application of this paragraph (b)(1)(iv). The elimination of attributes under this paragraph (b)(1)(iv) is not a noncapital, nondeductible expense described in § 1.1502-32(b)(2)(iii) . This paragraph (b)(1)(iv) applies if-(A) A share of S stock becomes worthless under section 165, the requirements of paragraph (c)(1)(iii) of this section are satisfied, M does not recognize a net deduction or loss on the S stock, and S is a member of the group on the day following the last day of the group's taxable year during which the share becomes worthless; or(B) M recognizes any amount that is not a net deduction or loss on the stock of S in a transaction in which S ceases to be a member and does not become a nonmember.(2)Nonrecognition or deferral -(i)In general. M's income or gain under paragraph (b)(1) of this section is subject to any nonrecognition or deferral rules applicable to the disposition. For example, if S liquidates and the exchange of M's stock in S is subject to section 332, or M transfers all of its assets (including S's stock) to S in a reorganization to which section 361(a) applies, M's income or gain from the excess loss account is not recognized under these rules.(ii)Nonrecognition or deferral inapplicable. If M's income or gain under paragraph (b)(1) of this section is from a disposition described in paragraph (c)(1) (ii) or (iii) of this section (relating to deconsolidations and worthlessness), the income or gain is taken into account notwithstanding any nonrecognition or deferral rules (even if the disposition is also described in paragraph (c)(1)(i) of this section). For example, if M transfers S's stock to a nonmember in a transaction to which section 351 applies, M's income or gain from the excess loss account is taken into account.(3)Tiering up in chains. If the stock of more than one subsidiary is disposed of in the same transaction, the income or gain under this section is taken into account in the order of the tiers, from the lowest to the highest.(4)Insolvency - (i)In general. Gain under this section is treated as ordinary income to the extent of the amount by which S is insolvent (within the meaning of section 108(d)(3)) immediately before the disposition. For this purpose S's liabilities include any amount to which preferred stock would be entitled if S were liquidated immediately before the disposition, and any former liabilities that were discharged to the extent the discharge was treated as tax-exempt income under § 1.1502-32(b)(3)(ii)(C) (special rule for discharges).(ii)Reduction for amount of distributions. The amount treated as ordinary income under this paragraph (b)(4) is reduced to the extent it exceeds the amount of M's excess loss account redetermined without taking into account S's distributions to M to which § 1.1502-32(b)(2)(iv) applies.(c)Disposition of stock. For purposes of this section: (1)In general. M is treated as disposing of a share of S's stock: (i)Transfer, cancellation, etc. At the time- (A) M transfers or otherwise ceases to own the share for Federal income tax purposes, even if no gain or loss is taken into account; or(B) M takes into account gain or loss (in whole or in part) with respect to the share.(ii)Deconsolidation. At the time- (A) M becomes a nonmember, or a nonmember determines its basis in the share (or any other asset) by reference to M's basis in the share, directly or indirectly, in whole or in part (e.g., under section 362); or(B) S becomes a nonmember, or M's basis in the share is reflected, directly or indirectly, in whole or in part, in the basis of any asset other than member stock (e.g., under section 1071).(iii)Worthlessness. At the time- (A) All of S's assets (other than its corporate charter and those assets, if any, necessary to satisfy state law minimum capital requirements to maintain corporate existence) are treated as disposed of, abandoned, or destroyed for Federal income tax purposes (for example, under section 165(a) or § 1.1502-80(c) , or, if S's asset is stock of a lower-tier member, the stock is treated as disposed of under this paragraph (c)). An asset of S is not considered to be disposed of or abandoned to the extent the disposition is in complete liquidation of S under section 332 or is in exchange for consideration (other than relief from indebtedness);(B) An indebtedness of S is discharged, if any part of the amount discharged is not included in gross income and is not treated as tax-exempt income under § 1.1502-32(b)(3)(ii)(C) ; or(C) A member takes into account a deduction or loss for the uncollectibility of an indebtedness of S, and the deduction or loss is not matched in the same tax year by S's taking into account a corresponding amount of income or gain from the indebtedness in determining consolidated taxable income.(2)Becoming a nonmember. A member is treated as becoming a nonmember if it has a separate return year (including another group's consolidated return year). For example, S may become a nonmember if it issues additional stock to nonmembers, but S does not become a nonmember as a result of its complete liquidation. A disposition under paragraph (c)(1)(ii) of this section must be taken into account in the consolidated return of the group. For example, if a group ceases under § 1.1502-75(c) to file a consolidated return as of the close of its consolidated return year, the disposition under paragraph (c)(1)(ii) of this section is treated as occurring immediately before the close of the year. If S becomes a nonmember because M sells S's stock to a nonmember, M's sale is a disposition under both paragraphs (c)(1) (i) and (ii) of this section. If a group terminates under § 1.1502-75(d) because the common parent is the only remaining member, the common parent is not treated as having a deconsolidation event under paragraph (c)(1)(ii) of this section.(3)Exception for acquisition of group -(i)Application. This paragraph (c)(3) applies only if a consolidated group (the terminating group) ceases to exist as a result of- (A) The acquisition of either the assets of the common parent of the terminating group in a reorganization described in section 381(a)(2), or the stock of the common parent of the terminating group; or(B) The application of the principles of § 1.1502-75(d)(2) or (d)(3) .(ii)General rule. Paragraph (c)(1)(ii) of this section does not apply solely by reason of the termination of a group in a transaction to which this paragraph (c)(3) applies, if there is a surviving group that is, immediately thereafter, a consolidated group. Instead, the surviving group is treated as the terminating group for purposes of applying this section to the terminating group. This treatment does not apply, however, to members of the terminating group that are not members of the surviving group immediately after the terminating group ceases to exist (e.g., under section 1504(a)(3) relating to reconsolidation, or section 1504(c) relating to includible insurance companies).(d)Special allocation of basis in connection with an adjustment or determination - (1)Excess loss account in original shares. If a member has an excess loss account in shares of a class of S's stock at the time of a basis adjustment or determination under the Internal Revenue Code with respect to shares of the same class of S's stock owned by the member, the adjustment or determination is allocated first to equalize and eliminate that member's excess loss account. See § 1.1502-32(c) for similar allocations of investment adjustments to prevent or eliminate excess loss accounts.(2)Excess loss account in new S shares. If a member would otherwise determine shares of a class of S's stock (new shares) to have an excess loss account and such member owns one or more other shares of the same class of S's stock, the basis of such other shares is allocated to eliminate and equalize any excess loss account that would otherwise be in the new shares.(e)Anti-avoidance rule. If any person acts with a principal purpose contrary to the purposes of this section, to avoid the effect of the rules of this section or apply the rules of this section to avoid the effect of any other provision of the consolidated return regulations, adjustments must be made as necessary to carry out the purposes of this section.(f)Predecessors and successors. For purposes of this section, any reference to a corporation (or to a share of the corporation's stock) includes a reference to a successor or predecessor (or to a share of stock of a predecessor or successor), as the context may require.(g)Examples. For purposes of the examples in this section, unless otherwise stated, M owns all 100 shares of the only class of S's stock and S owns all 100 shares of the only class of T's stock, the stock is owned for the entire year, T owns no stock of lower-tier members, the tax year of all persons is the calendar year, all persons use the accrual method of accounting, the facts set forth the only corporate activity, all transactions are between unrelated persons, and tax liabilities are disregarded. The principles of this section are illustrated by the following examples. Example 1. Taxable disposition of stock. (a)Facts. M has a $150 basis in S's stock, and S has a $100 basis in T's stock. For Year 1, M has $500 of ordinary income, S has no income or loss, and T has a $200 ordinary loss. S sells T's stock to a nonmember for $60 at the close of Year 1.(b)Analysis. Under paragraph (c) of this section, the sale is a disposition of T's stock at the close of Year 1 (the day of the sale). Under § 1.1502-32(b) , T's loss results in S having a $100 excess loss account in T's stock immediately before the sale. Under paragraph (b)(1) of this section, S takes into account the $100 excess loss account as an additional $100 of gain from the sale. Consequently, S takes into account a $160 gain from the sale in determining the group's consolidated taxable income. Under § 1.1502-32(b) , T's $200 loss and S's $160 gain result in a net $40 decrease in M's basis in S's stock as of the close of Year 1, from $150 to $110.(c)Intercompany sale followed by sale to nonmember. The facts are the same as in paragraph (a) of this Example 1, except that S sells T's stock to M for $60 at the close of Year 1, and M sells T's stock to a nonmember at a gain at the beginning of Year 5. Under paragraph (c) of this section, S's sale is treated as a disposition of T's stock at the close of Year 1 (the day of the sale). Under § 1.1502-13 and paragraph (b)(2) of this section, S's $160 gain from the sale is deferred and taken into account in Year 5 as a result of M's sale of the T stock. Under § 1.1502-32(b) , the absorption of T's $200 loss in Year 1 results in M having a $50 excess loss account in S's stock at the close of Year 1. In Year 5, S's $160 gain taken into account eliminates M's excess loss account in S's stock and increases M's basis in the stock to $110.(d)Intercompany distribution followed by sale to a nonmember. The facts are the same as in paragraph (a) of this Example 1, except that the value of the T stock is $60 and S declares and distributes a dividend of all of the T stock to M at the close of Year 1, and M sells the T stock to a nonmember at a gain at the beginning of Year 5. Under paragraph (c) of this section, S's distribution is treated as a disposition of T's stock at the close of Year 1 (the day of the distribution). S's $100 excess loss account in T's stock is treated as additional gain under section 311(b) from the distribution. Under section 301(d), M's basis in the T stock is $60. Under § 1.1502-13 , and paragraph (b)(2) of this section, S's $160 gain from the distribution is deferred and taken into account in Year 5 as a result of M's sale of the T stock. Under § 1.1502-32(b) , T's $200 loss and S's $60 distribution result in M having a $110 excess loss account in S's stock at the close of Year 1. In Year 5, S's $160 gain taken into account eliminates M's excess loss account in S's stock and increases M's basis in the stock to $50.Example 2. Basis determinations under the Internal Revenue Code in intercompany reorganizations-transfer of shares without an excess loss account. (i)Facts. M owns all of the sole class of stock of each of S and T. M has 150 shares of S stock that it acquired on Date 1. Each S share has a $1 basis and a fair market value of $1. M has 100 shares of T stock that it acquired on Date 2. Each T share has a $1.20 excess loss account and a fair market value of $1. M transfers S's stock to T without receiving additional T stock. The transfer is an exchange described in both section 351 and section 354.(ii)Analysis. Under sections 351 and 354, M does not recognize gain in connection with the transfer. Under § 1.358-2(a)(2)(iii) , M is deemed to receive 150 shares of T stock of the same class. Without regard to the application of paragraph (d) of this section, under section 358 and § 1.358-2(a)(2)(i) , M would have a $1 basis in each such share. However, because the basis of the additional shares of T stock will be determined when M has an excess loss account in its original shares of T stock, under paragraph (d)(1) of this section, the basis that M would otherwise have in such additional shares will eliminate the excess loss account in M's original shares of T stock such that each original share of T stock will have a basis of $0 and each share of T stock deemed received will have a basis of $0.20. Then, under § 1.358-2(a)(2)(iii) , the T stock is deemed to be recapitalized in a reorganization under section 368(a)(1)(E) in which M receives 100 shares of T stock (those shares M actually owns immediately after the transfer) in exchange for those 100 shares of T stock that M held immediately prior to the transfer and those 150 shares of T stock M is deemed to receive in the transfer. Under § 1.358-2(a)(2)(i) , immediately after the transfer, M holds 100 shares of T stock, 60 of which take a basis of $0.50 each and 40 of which take a basis of $0 each. In addition, T takes a $1 basis in each share of S stock under section 362. (If M had actually received an additional 150 shares of T stock of the same class, paragraph (d)(1) of this section would apply to shift basis from such additional T shares to M's original T shares because the basis of the additional T stock would be determined when M had an excess loss account in its original T shares. M would have a basis of $0 in each of the original T shares and a basis of $0.20 in each of the additional T shares.)(iii)Transfer of shares with an excess loss account. The facts are the same as in paragraph (i) of this Example 2, except that M transfers T's stock to S without receiving additional S stock. The transfer is an exchange described in both section 351 and section 354. Under paragraph (c) of this section, M's transfer is treated as a disposition of T's stock. Under sections 351 and 354 and paragraph (b)(2) of this section, M does not recognize gain from the disposition. Under § 1.358-2(a)(2)(iii) , M is deemed to have received 100 shares of S stock of the same class. Without regard to the application of paragraph (d) of this section, M would have a $1.20 excess loss account in each such share. However, because M will have an excess loss account in such shares and M owns other shares of S stock of the same class, under paragraph (d)(2) of this section, the excess loss account that M would otherwise have in such shares will decrease M's basis in its original shares of S's stock such that each such original share will have a basis of $0.20 and each share deemed received will have a basis of $0. Then, under § 1.358-2(a)(2)(iii) , the S stock is deemed to be recapitalized in a reorganization under section 368(a)(1)(E) in which M receives 150 shares of S stock (those shares M actually owns immediately after the transfer) in exchange for those 150 shares of S stock that M held immediately prior to the transfer and those 100 shares of S stock that M is deemed to receive in connection with the transfer. Under § 1.358-2(a)(2)(i) , immediately after the transfer, M holds 150 shares of S stock, 90 of which take a basis of $0.33 each and 60 of which take a basis of $0 each. In addition, S takes an excess loss account of $1.20 in each share of T stock under section 362. (If M had actually received 100 additional shares of S stock of the same class, paragraph (d)(2) of this section would apply to shift basis from M's original S stock because M would have otherwise had an excess loss account in such additional shares and M owned other shares of S stock of the same class. The excess loss account that M would have otherwise had in such additional shares would have decreased M's basis in its original shares of S's stock. M would have had a basis of $0.20 in each of the original shares and a basis of $0 in each of the additional shares.)(iv)Intercompany merger-shares with excess loss account retained. The facts are the same as in paragraph (i) of this Example 2, except that S merges into T in a reorganization described in section 368(a)(1)(A) (and in section 368(a)(1)(D)), and M receives 150 additional shares of T stock of the same class in the reorganization. Under section 354, M does not recognize gain. Without regard to the application of paragraph (d) of this section, under section 358 and § 1.358-2(a)(2)(i) , M would have a $1 basis in each such share. However, because the basis of the additional shares of T stock will be determined when M has an excess loss account in its original shares of T stock, under paragraph (d)(1) of this section, the basis that M would otherwise have in such additional shares eliminates the excess loss account in M's original shares of T stock such that each original share of T stock has a basis of $0 and each additional share of T stock has a basis of $0.20.(v)Intercompany merger-shares with excess loss account surrendered. The facts are the same as in paragraph (i) of this Example 2, except that T merges into S in a reorganization described in section 368(a)(1)(A) (and in section 368(a)(1)(D)), and M receives 100 additional shares of S stock of the same class in the reorganization. Under section 354 and paragraph (b)(2) of this section, M does not recognize gain from the disposition. Without regard to the application of paragraph (d) of this section, under section 358 and § 1.358-2(a)(2)(i) , M would have a $1.20 excess loss account in each additional share of S stock received. However, because M would have an excess loss account in such shares and M owns other shares of S stock of the same class, under paragraph (d)(2) of this section, the excess loss account that M would otherwise have in such shares decreases M's basis in its original shares of S's stock such that each original share of S stock has a basis of $0.20 and each additional share of S stock has a basis of $0.Example 3. Section 355 distribution of stock with an excess loss account. (a)Facts. M has a $30 excess loss account in S's stock, and S has a $90 excess loss account in T's stock. S distributes the T stock to M in a transaction to which section 355 applies, and neither M nor S recognizes any gain or loss. At the time of the distribution, the T stock represents 33% of the value of the S stock. Following the distribution, M's basis in the S stock is allocated under § 1.358-2 in proportion to the fair market values of the S stock and the T stock.(b)Analysis. Under paragraph (c) of this section, S's distribution of the T stock is treated as a disposition. Under section 355(c) and paragraph (b)(2) of this section, S does not recognize any gain from the distribution. Under section 358, S's excess loss account in the T stock is eliminated, and M's $30 excess loss account in the S stock is treated as basis allocated between the S stock and the T stock based on their relative values. Consequently, M has a $20 excess loss account in the S stock and a $10 excess loss account in the T stock. (If M had a $30 basis rather than a $30 excess loss account in the S stock, S would not recognize gain, its excess loss account in the T stock would be eliminated, and M's basis in the stock of S and T would be $20 and $10, respectively.)(c)Section 355 distribution to nonmember. The facts are the same as in paragraph (a) of this Example 3, except that M also distributes the T stock to its shareholders in a transaction to which section 355 applies. Under paragraph (c) of this section, M's distribution is treated as a disposition of T's stock. Under paragraph (b)(2) of this section, because M's disposition is described in paragraph (c)(1)(ii) of this section, M's $10 excess loss account in the T stock must be taken into account at the time of the distribution, notwithstanding the nonrecognition rules of section 355(c).Example 4. Deconsolidation of a member. (a)Facts. M has a $50 excess loss account in S's stock, and S has a $100 excess loss account in T's stock. T issues additional stock to a nonmember and, as a consequence, T becomes a nonmember.(b)Analysis. Under paragraph (c)(2) of this section, S is treated as disposing of each of its shares of T's stock immediately before T becomes a nonmember. Under paragraph (b)(1) of this section, S takes into account its $100 excess loss account as gain from the sale or exchange of T's stock. Under § 1.1502-32(b) of this section, S's $100 gain eliminates M's excess loss account in S's stock and increases M's basis in S's stock to $50.(c)Deconsolidation of a higher-tier member. The facts are the same as in paragraph (a) of this Example 4, except that S (rather than T) issues the stock and, as a consequence, both S and T become nonmembers. Under paragraph (c)(2) of this section, M is treated as disposing of S's stock and S is treated as disposing of T's stock immediately before S and T become nonmembers. Under § 1.1502-32(b) and paragraph (b)(3) of this section, because S and T become nonmembers in the same transaction and T is the lower-tier member, S is first treated under paragraph (b)(1) of this section as taking into account its $100 excess loss account as gain from the sale or exchange of T's stock. Under § 1.1502-32(b) , S's $100 gain eliminates M's excess loss account in S's stock and increases M's basis in S's stock to $50 immediately before S becomes a nonmember. Thus, only S's $100 gain is taken into account in the determination of the group's consolidated taxable income.(d)Intercompany gain and deconsolidation. The facts are the same as in paragraph (c) of this Example 4, except that T has $30 of gain that is deferred under § 1.1502-13 and taken into account in determining consolidated taxable income immediately before T becomes a nonmember. Under § 1.1502-32(b) , T's $30 gain decreases S's excess loss account in T's stock from $100 to $70 immediately before S is treated as disposing of T's stock. Under paragraph (b)(1) of this section, S is treated as taking into account its $70 excess loss account as gain from the disposition of T's stock. Under § 1.1502-32(b) , S's $70 gain from the excess loss account and T's $30 deferred gain that is taken into account eliminate M's $50 excess loss account in S's stock and increase M's basis in S's stock to $50 immediately before S becomes a nonmember.Example 5. Worthlessness. (a)Facts. M forms S with a $150 contribution, and S borrows $150. For Year 1, S has a $50 ordinary loss that is carried over as part of the group's consolidated net operating loss. For Year 2, M has $160 of ordinary income, and S has a $160 ordinary loss. Under § 1.1502-32(b) , S's loss results in M having a $10 excess loss account in S's stock. During Year 3, the value of S's assets (without taking S's liabilities into account) continues to decline and S's stock becomes worthless within the meaning of section 165(g) (without taking into account § 1.1502-80(c) ). For Year 4, S has $10 of ordinary income.(b)Analysis. Under paragraph (c)(1)(iii)(A) of this section, M is not treated as disposing of S's stock in Year 3 solely because S's stock becomes worthless within the meaning of section 165(g) (taking S's liabilities into account). In addition, because S's stock is not treated as worthless, section 382(g)(4)(D) does not prevent the Year 1 consolidated net operating loss carryover from offsetting S's $10 of income in Year 4.(c)Discharge of indebtedness. The facts are the same as in paragraph (a) of this Example 5, except that, instead of S's stock becoming worthless within the meaning of section 165(g), S's creditor discharges $40 of S's indebtedness during Year 3, S is insolvent by more than $40 before the discharge, the discharge is excluded from the M group's gross income under section 108(a), and $40 of the $50 consolidated net operating loss carryover attributable to S is eliminated under section 108(b). Under § 1.1502 - 32(b)(3)(ii)(C), S's $40 of discharge income is treated as tax-exempt income because there is a corresponding decrease under § 1.1502-32(b)(3)(iii) for elimination of the loss carryover. Under paragraph (c)(1)(iii)(B) of this section, M is treated as disposing of S's stock if the amount discharged is not included in gross income and is not treated as tax-exempt income under § 1.1502-32(b)(3)(ii)(C) . Because the discharge is treated as tax-exempt income, M is not treated as disposing of S's stock by reason of the discharge.Example 6. Avoiding worthlessness. (a)Facts. M forms S with a $100 contribution and S borrows $150. For Years 1 through 5, S has a $210 ordinary loss that is absorbed by the group. Under § 1.1502-32(b) , S's loss results in M having a $110 excess loss account in S's stock. S defaults on the indebtedness, but the creditor does not discharge the debt (or initiate collection procedures). At the beginning of Year 6, S ceases any substantial operations with respect to the assets, but maintains their ownership with a principal purpose to avoid M's taking into account its excess loss account in S's stock.(b)Analysis. Under paragraph (c)(1)(iii)(A) of this section, M's excess loss account on each of its shares of S's stock ordinarily is taken into account at the time substantially all of S's assets are treated as disposed of, abandoned, or destroyed for Federal income tax purposes. Under paragraph (e) of this section, however, S's assets are not taken into account at the beginning of Year 6 for purposes of applying paragraph (c)(1)(iii)(A) of this section. Consequently, S is treated as worthless at the beginning of Year 6, and M's $110 excess loss account is taken into account.(h)Effective/applicability dates - (1)Application. This section applies with respect to determinations of the basis of (including an excess loss account in) the stock of a member in consolidated return years beginning on or after January 1, 1995. However, taxpayers may apply paragraph (c)(3)(i)(A) of this section to transactions that occurred prior to September 17, 2008. Any such determination or redetermination does not, however, affect any prior period. Paragraphs (a)(3), (c)(1)(iii)(A), and (c)(3)(i)(A) of this section apply with respect to determinations and transactions occurring on or after September 17, 2008. However, taxpayers may elect to apply paragraph (c)(3)(i)(A) of this section to transactions that occurred prior to September 17, 2008. The last sentence of paragraph (a)(1) and paragraph (b)(1)(iv) of this section applies with respect to dispositions on or after December 16, 2008.(2)Dispositions of stock - (i)Dispositions of stock before effective date. If M was treated as disposing of stock of S in a tax year beginning before January 1, 1995 (including, for example, a deemed disposition because S was worthless) under the rules of this section then in effect, the amount of M's income, gain, deduction, or loss, and the stock basis reflected in that amount, are not redetermined under paragraph (h)(1) of this section. See paragraph (h)(3) of this section for the applicable rules.(ii)Application of special limitation. If M was treated as disposing of stock of S because S was treated as worthless as a result of the application of paragraph (c)(1)(iii)(B) of this section after August 29, 2003, the amount of M's income, gain, deduction, or loss, and the stock basis reflected in that amount, are determined or redetermined with regard to paragraph (b)(1)(ii) of this section. If M was treated as disposing of stock of S because S was treated as worthless as a result of the application of paragraph (c)(1)(iii)(B) of this section on or before August 29, 2003, the group may determine or redetermine the amount of M's income, gain, deduction, or loss, and the stock basis reflected in that amount with regard to paragraph (b)(1)(ii) of this section.(iii)Intercompany amounts. For purposes of this paragraph (h)(2), a disposition does not include a transaction to which § 1.1502-13 , § 1.1502-13T , § 1.1502-14 , or § 1.1502-14T applies. Instead, the transaction is deemed to occur as the income, gain, deduction, or loss (if any) is taken into account.(iv)Intercompany reorganizations. Paragraphs (d) and (g) Example 2 of this section apply to transactions occurring on or after July 18, 2007. For transactions occurring on or after January 23, 2006, and before July 18, 2007, see § 1.1502-19T as contained in 26 CFR part 1 in effect April 1, 2007. For transactions occurring before January 23, 2006, see § 1.1502-19 as contained in 26 CFR part 1 in effect April 1, 2005.(3)Prior law. For prior determinations, see prior regulations under section 1502 as in effect with respect to the determination. See, e.g., § 1.1502-19 as contained in the 26 CFR part 1 edition revised as of April 1, 1994. For guidance regarding determinations of the basis of the stock of a subsidiary acquired in an intercompany reorganization before January 23, 2006, see paragraph (d) and (g) Example 2 of § 1.1502-19 as contained in the 26 CFR part 1 edition revised as of April 1, 2005.T.D. 8560, 59 FR 41677, Aug. 15, 1994, as amended by T.D. 8597, 62 FR 12097, Mar. 14, 1997; T.D. 9089, 68 FR 52490 , Sept. 4, 2003; T.D. 9192, 70 FR 14403 , Mar. 22, 2005; T.D. 9242, 71 FR 4274 , Jan. 26, 2006; T.D. 9341, 72 FR 39314 , July 18, 2007; T.D. 9424, 73 FR 53948 , Sept. 17, 2008; 73 FR 62204 , Oct. 20, 2008