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carrybacks to the UBC consolidated group's taxable years 1977,
1978, and 1981 under the provisions of section 172(b)(1)(L)
totaling $6,924,421 ($6,579,591 (non-SRLY bank members) + $344,830
(SRLY carryback to 1981)).
In respondent’s notice of deficiency issued to petitioner for
the UBC affiliated group's taxable years 1977 through 1980, 1984,
and 1985 (the "notice"), respondent adjusted the consolidated 1987
NOL to take into account various proposed adjustments. As UBC did
on the Form 1139, respondent calculated the bad debt portion of the
consolidated 1987 NOL by (1) determining the bad debt and nonbad
debt portions of each loss bank member's NOL, (2) allocating the
consolidated 1987 NOL among the loss members and, in the case of
loss bank members, between the bad debt and nonbad debt portions of
their NOLs, and (3) aggregating the portions of the consolidated
1987 NOL allocated to the bad debt portions of the loss bank
members' NOLs.
In the notice, respondent, like UBC on the Form 1139,
determined the bad debt portion of each loss bank member's NOL by
taking the excess of its NOL over its NOL less its bad debt
deduction (i.e., an amount equal to the lesser of the bank's NOL or
bad debt deduction). Thus, for example, in the case of Aurora-
South, which had an NOL of $341,183 and a bad debt deduction of
$136,881, the bad debt portion of the NOL was determined to be
$136,881.
After determining the bad debt portion of each loss bank
member's NOL, respondent, like UBC, allocated the consolidated 1987
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