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C. Petitioner’s Position
Petitioner contends that the method used both by UBC on the
Form 1139 and respondent in the notice to determine the bad debt
portion of the consolidated 1987 NOL is incorrect. Under the
method asserted by petitioner, the bad debt portion of the
consolidated NOL is equal to the excess of the consolidated 1987
NOL over the consolidated 1987 NOL computed without the bad debt
deductions of the bank members. Under that method, regardless of
whether the consolidated 1987 NOL on the Form 1139 ($12,549,042) or
in the notice ($9,239,383) is used, since the bad debt deductions
of the bank members for 1987 total $61,296,286, elimination of such
bad debt deductions from the consolidated 1987 NOL (i.e., the
"without" calculation) would eliminate the consolidated 1987 NOL
and result in substantial consolidated taxable income for the UBC
consolidated group. Under those circumstances, there would be no
consolidated 1987 NOL to be allocated among the loss members of the
group. Thus, under the method asserted by petitioner, the entire
amount of the consolidated 1987 NOL is attributable to bad debt
deductions of bank members, and the entire portion of the
consolidated 1987 NOL allocated to the loss bank members is subject
to the 10-year carryback provisions of section 172(b)(1)(L).
D. Discussion
Consider a business with $100 of gross income, deductions
other than bad debts of $80, and deductible bad debts of $30. The
business has a NOL of $10. Under the general rule of section
172(b)(1)(A), the NOL may be carried back 3 years and carried over
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