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separate taxable income, computed under section 1.1502-12, Income
Tax Regs., are not taken into account in the computation of the
consolidated group's CNOL as required by section 172(f)(1).
Lynchburg had separate taxable income after taking into
account its allowable deductions, including the deductions for
the taxes and interest in issue. Accordingly, we conclude that
the deductions for the taxes and interest in issue do not qualify
as SLL's, within the meaning of section 172(f), because they were
not taken into account in the computation of the group's CNOL as
required by section 172(f)(1).
Petitioner contends that the consolidated return regulations
require a unified computation of the group's NOL at the
consolidated level. Accordingly, petitioner contends, the sum of
the deductions attributable to SLL's of all the members of the
group are used to calculate the group's CNOL regardless of
whether any particular member has positive or negative separate
taxable income. The sum of such deductions, petitioner argues,
limits the amount of the group's CNOL that may be carried back 10
years. In essence, petitioner argues that SLL's should be
considered solely on a consolidated basis.
Congress delegated broad authority to the Commissioner to
establish regulations for filing consolidated returns. Sec.
1502. In order to qualify for treatment as a consolidated group,
all members must agree to be bound by the consolidated return
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