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capacity to write insurance) could use nonlife losses to reduce
income of affiliated life companies. Congress anticipated that
the option to consolidate nonlife and life companies would, in
particular, improve the financial condition of P&C insurance
companies. See S. Rept. 94-938, at 454-455 (1976), 1976-3 C.B.
(Vol. 3) 49, 492-493.
Congress, however, in order to minimize trafficking by
profitable life insurance companies in unprofitable P&C insurance
companies, provided certain rules and limitations on the use in
consolidated Federal income tax returns of nonlife losses to
reduce life income. See S. Rept. 94-938, supra at 454-455, 1976-
3 C.B. (Vol. 3) at 492-493; 122 Cong. Rec. 24680-24685 (1976).
Section 1503(c)(1) provides generally that where an election
is made under section 1504(c)(2) to include both nonlife and life
companies in a consolidated Federal income tax return, certain
losses of nonlife companies may be taken into account and may
reduce income of the life companies included in the return but
only pursuant to regulations prescribed by the Secretary. Sec.
1503(c)(1).
Section 1503(c)(1) also provides that nonlife losses must
first be carried back against prior year income of the particular
nonlife companies that incurred the losses, and nonlife losses
that are not absorbed as carrybacks against prior year income of
the nonlife companies may be applied against income of the life
companies to the extent of only 35 percent of the nonlife CNOL or
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