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ARTICLE · 14 NOVEMBER 2013

IRS Grants Separate Return Limitation Year Relief

Grant Thornton LLP
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The IRS has issued a private letter ruling providing that a taxpayer’s net positive and negative income under Treas. Reg. 1.1502-21(f)(2), from a subsidiary with separate return limitation year net operating losses, was included in the computation of consolidated taxable income for a SRLY subgroup of a consolidated group.

United StatesTax
Andrew Cordonnier
Andrew Cordonnier
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The IRS has issued a private letter ruling (PLR 2013-42-004) providing that a taxpayer's net positive and negative income under Treas. Reg. 1.1502-21(f)(2), from a subsidiary with separate return limitation year (SRLY) net operating losses (NOLs), was included in the computation of consolidated taxable income for a SRLY subgroup of a consolidated group. 

In general, if an entity joins a consolidated group with net operating loss carryovers, and the "overlap" rule under Treas. Reg. Sec. 1.1502-21(g) does not apply (which turns off SRLY rules when there is a Section 382 change that occurs contemporaneously with the SRLY event of joining the group), the NOLs are considered to be SRLY. These NOLs can be used only to offset the gains of the SRLY entity (or subgroup) until the SRLY entity (or subgroup) builds up enough positive income (the SRLY register) to "free up" the NOLs for use by the rest of the group.

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