(a) In general. If the acquiring corporation succeeds to the net operating loss carryovers of two or more distributor or transferor corporations on two or more dates of distribution or transfer within one taxable year of the acquiring corporation, the limitation to be applied under section 381(c)(1)(B) to the aggregate of the net operating loss carryovers to that taxable year from all of the distributor or transferor corporations shall be determined by applying the rules prescribed in paragraph (b) of this section, and the taxable income of the acquiring corporation for that taxable year under sections 381(c)(1)(C) and 172(b)(2) shall be determined by applying the rules prescribed in paragraph (c) of this section. For purposes of this section, the term postacquisition income means postacquisition part year taxable income determined under paragraph (d)(1) of § 1.381(c)(1)-1 by treating the first date of distribution or transfer as though it were the only date of distribution or transfer during the taxable year of the acquiring corporation.
(b) Determination of limitation under section 381(c)(1)(B)—(1) In general. If the acquiring corporation succeeds to the net operating loss carryovers of two or more distributor or transferor corporations on two or more dates of distribution or transfer during the same taxable year of the acquiring corporation, and if the amount of the net operating loss carryovers acquired on the first date of distribution or transfer equals or exceeds the postacquisition income, then the limitation under section 381(c)(1)(B) shall be an amount equal to such postacquisition income. If the amount of the net operating loss carryovers acquired on the first date of distribution or transfer is less than such postacquisition income, then the limitation under section 381(c)(1)(B) shall be determined as provided in subparagraphs (2) through (5) of this paragraph.
(2) Allocation of postacquisition income among partial postacquisition years. That part of the taxable year of the acquiring corporation beginning on the day following the first date of distribution or transfer and ending with the close of the taxable year of the acquiring corporation shall be divided into the same number of partial postacquisition years as the number of dates of distribution or transfer on which the acquiring corporation succeeds to net operating loss carryovers during its taxable year. The first partial postacquisition year shall begin with the day following the first date of distribution or transfer and shall end with the close of the second date of distribution or transfer. The second and succeeding partial postacquisition years shall begin with the day following the close of the preceding such partial year and shall end with the close of the succeeding date of distribution or transfer, or, if there is no such succeeding date, then with the close of the taxable year of the acquiring corporation. The postacquisition income of the acquiring corporation shall be allocated among the partial postacquisition years in proportion to the number of days in each such partial year.
(3) Two dates of distribution or transfer. If the acquiring corporation succeeds to the net operating loss carryovers of two distributor or transferor corporations on two dates of distribution or transfer during the same taxable year of the acquiring corporation, and if the amount of the net operating loss carryovers acquired on the first date equals or exceeds the income for the first partial postacquisition year, the limitation provided by section 381(c)(1)(B) shall be the amount of the postacquisition income. If the income for the first partial postacquisition year exceeds the net operating loss carryovers acquired on the first date of distribution or transfer, the limitation provided by section 381(c)(1)(B) shall be the amount of the postacquisition income reduced by the amount of such excess. The application of this subparagraph may be illustrated by the following example:
Example.(i) X Corporation has taxable income (computed without any net operating loss deduction) of $36,500 for its calendar year 1955. During 1955, X Corporation acquires the assets of Y and Z Corporations in statutory mergers to each of which section 361 applies, the dates of transfer being January 1 and December 1, respectively. The net operating loss carryovers of each transferor corporation and the income for each partial postacquisition year are:
| Corp.
| Carryovers
| Income for partial years
| Reduction
|
|---|
| Y | $1,000 | $33,400 ($36,500 × 334/365) | $32,400
|
| Z | 50,000 | 3,000 ($36,500 × 30/365) | 0
|
| | 51,000 | 36,400 | 32,400 |
(4) Three dates of distribution or transfer. If the acquiring corporation succeeds to the net operating loss carryovers of three distributor or transferor corporations on three dates of distribution or transfer during the same taxable year of the acquiring corporation, and if the amount of the net operating loss carryovers acquired on the first date equals or exceeds the income for the first and second partial postacquisition years, the limitation provided by section 381(c)(1)(B) shall be the amount of the postacquisition income. If the amount of the carryovers acquired on the first date equals or exceeds the income for the first partial postacquisition year but does not equal or exceed the income for the first and second partial postacquisition years, the limitation shall be the amount of the postacquisition income reduced by the excess of the income for the first and second partial postacquisition years over the amount of carryovers acquired on the first and second dates of distribution or transfer. If the income for the first partial postacquisition year exceeds the carryovers acquired on the first date, the limitation shall be the postacquisition income reduced by the sum of the amount of such excess plus the amount, if any, by which the income for the second partial postacquisition year exceeds the carryovers acquired on the second date. This subparagraph may be illustrated by the following examples:
Example 1.(i) X Corporation has taxable income (computed without any net operating loss deduction) of $36,500 for its calendar year 1955. During 1955, X Corporation acquires the assets of M, N, and Z Corporations in statutory mergers to each of which section 361 applies, the dates of transfer being January 1, January 31, and December 1, respectively. The net operating loss carryovers of each transferor corporation and the income for each partial postacquisition year are:
| Corp.
| Carryovers
| Income for partial years
| Reduction
|
|---|
| M | $4,000 | $3,000 ($36,500 × 30/365) | $23,400
|
| N | 6,000 | 30,400 ($36,500 × 304/365)
| |
| Z | 50,000 | 3,000 ($36,500 × 30/365) | 0
|
| | 60,000 | 36,400 | 23,400 |
| Corp.
| Carryovers
| Income for partial years
| Reduction
|
|---|
| M | $1,000 | $3,000 ($36,500 × 30/365) | $2,000
|
| N | 6,000 | 30,400 ($36,500 × 304/365) | 24,400
|
| Z | 50,000 | 3,000 ($36,500 × 30/365) | 0
|
| | 57,000 | 36,400 | 26,400 |
| Corp.
| Carryovers
| Income for partial years
| Reduction
|
|---|
| M | $1,000 | $3,000 ($36,500 × 30/365) | $2,000
|
| N | 75,000 | 30,400 ($36,500 × 304/365) | 0
|
| Z | 50,000 | 3,000 ($36,500 × 30/365) | 0
|
| | 126,000 | 36,400 | 2,000 |
(5) Four or more dates of distribution or transfer. If the acquiring corporation succeeds to the net operating loss carryovers of four or more distributor or transferor corporations on four or more dates of distribution or transfer during the same taxable year of the acquiring corporation, the limitation provided by section 381(c)(1)(B) shall be determined consistently with the methods prescribed in subparagraphs (3) and (4) of this paragraph. The application of this subparagraph may be illustrated by the following example:
Example.(i) X Corporation has taxable income (computed without any net operating loss deduction) of $36,500 for its calendar year 1955. During 1955, X Corporation acquired the assets of M, N, O, Y, and Z Corporations in statutory mergers to each of which section 361 applied, the dates of transfer being, respectively, January 1, January 31, March 3, April 2, and December 1. The net operating loss carryovers of each transferor corporation and the income for each partial postacquisition year are:
| Corp.
| Carryovers
| Income for partial years
| Reduction
|
|---|
| M | $1,000 | $3,000 ($36,500 × 30/365) | $2,000
|
| N | 4,000 | 3,100 ($36,500 × 31/365)
| |
| O | 1,000 | 3,000 ($36,500 × 30/365) | 1,100
|
| Y | 10,000 | 24,300 ($36,500 × 243/365) | 14,300
|
| Z | 20,000 | 3,000 ($36,500 × 30/365) | 0
|
| | 36,000 | 36,400 | 17,400 |
(c) Determination of taxable income of acquiring corporation under section 381(c)(1)(C)—(1) In general. If the acquiring corporation succeeds to the net operating loss carryovers of two or more distributor or transferor corporations on two or more dates of distribution or transfer within one taxable year of the acquiring corporation, then pursuant to section 381(c)(1)(C) the taxable income of the acquiring corporation for its taxable year which is a prior taxable year for purposes of section 172(b)(2) and paragraph (e) of § 1.381(c)(1)-1 shall be determined as provided in this paragraph.
(2) Division of taxable income. The taxable income of the acquiring corporation (computed with the modifications specified in section 172(b)(2)(A) but without any net operating loss deduction) shall be allocated proportionately on a daily basis among a preacquisition part year (determined under paragraph (f)(3) of § 1.381(c)(1)-1 by treating the first date of distribution or transfer as though it were the only date of distribution or transfer during the taxable year of the acquiring corporation) and two or more partial postacquisition years (determined as provided in paragraph (b)(2) of this section). The preacquisition part year and each partial postacquisition year shall be considered a separate taxable year, but only for the limited purpose of applying sections 172(b)(2) and 381(c)(1)(C).
(3) Net operating loss deduction. The net operating loss deduction of the preacquisition part year and the partial postacquisition years shall be determined consistently with the manner described in paragraph (f)(6) of § 1.381(c)(1)-1 but by taking into account, in the case of any partial postacquisition year, only the net operating loss carryovers and carrybacks of the acquiring corporation and those net operating loss carryovers from a distributor or transferor corporation which become available to the acquiring corporation as of the close of those dates of distribution or transfer which occur before the beginning of that specific partial postacquisition year. The sequence in which the net operating losses of the distributor or transferor and acquiring corporations shall be applied for this purpose shall be determined in the manner described in paragraph (e) of § 1.381(c)(1)-1. Subject to the preceding sentence, the net operating loss carryovers to any specific partial postacquisition year, whether from a distributor, transferor, or acquiring corporation, shall be taken into account in the order of the taxable years in which the net operating losses arose, beginning with the loss for the earliest taxable year.
(4) Illustration. The application of this paragraph may be illustrated by the following example:
Example.(i) Facts. X Corporation, which was organized on January 1, 1957, sustained a net operating loss of $20,000 for its calendar year 1957 and had taxable income (computed without any net operating loss deduction) of $36,500 for its calendar year 1958. During 1958, X Corporation acquired the assets of Y and Z Corporations in statutory mergers to each of which section 361 applied, the dates of transfer being June 30 and September 30, respectively. None of the modifications specified in section 172(b)(2)(A) apply to any of the corporations for any taxable year. The taxable income (computed without any net operating loss deduction) and net operating losses of Y and Z Corporations (which were organized on January 1, 1957, and January 1, 1954, respectively) are set forth below:
| Taxable year
| Acquiring corporation X
| Transferor corporation Y
| Transferor corporation Z
|
|---|
| 1954 | xxx | xxx | ($30,000)
|
| 1955 | xxx | xxx | 1,000
|
| 1956 | xxx | xxx | 1,000
|
| 1957 | ($20,000) | ($25,000) | 1,000
|
| Ending 6-30-58 | xxx | 1,000 | xxx
|
| Ending 9-30-58 | xxx | xxx | 1,000
|
| 1958 | 36,500 | xxx | xxx |
| Year
| Taxable income
| Computation
|
|---|
| Preacquisition part year | $18,100 | $36,500 × 181/365
|
| Partial No. 1 | 9,200 | 36,500 × 92/365
|
| Partial No. 2 | 9,200 | 36,500 × 92/365 |
| Net operating loss | $30,000
|
| Less:
| |
| Z's 1955, 1956, 1957, and 9/30/58-3 year income | 4,000
|
| Net operating loss carryover to Partial No. 2 year | 26,000
|
| Less:
| |
| Partial No. 2 year taxable income | 9,200
|
| | 16,800 |
| Net operating loss | $25,000
|
| Less:
| |
| Y's 6/30/58-year income | 1,000
|
| Net operating loss carryover to Partial No. 1 year | 24,000
|
| Less:
| |
| Partial No. 1 year taxable income | 9,200
|
| Carryover to Partial No. 2 year | 14,800
|
| Less:
| |
| X's Partial No. 2 year taxable income | $9,200
| |
| Minus X's net operating loss deduction for Partial No. 2 year (i.e., Z's 1954 carryover of $26,000 to such partial year) | 26,000
| |
| | 0
|
| Carryover to 1959 | 14,800 |
| Net operating loss | $20,000
|
| Less:
| |
| X's preacquisition part year taxable income | 18,100
|
| Carryover to Partial No. 1 year | 1,900
|
| Less:
| |
| Partial No. 1 year taxable income | $9,200
| |
| Minus X's net operating loss deduction for Partial No. 1 year (i.e., Y's 1957 carryover of $24,000 to such partial year) | 24,000
| |
| | 0
|
| Carryover to Partial No. 2 year | 1,900
|
| Less:
| |
| Partial No. 2 year taxable income | $9,200
| |
| Minus X's net operating loss deduction for Partial No. 2 year (i.e., Z's 1954 carryover of $26,000, and Y's 1957 carryover of $14,800, to such partial year | 40,800
| |
| | 0
|
| Carryover to 1959 | $1,900 |
| Z's 1954 loss | xxx
|
| Y's 1957 loss | $14,800
|
| X's 1957 loss | 91,900
|
| Total | 16,700 |