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15 years, and the constituent parts of the NOL are of no importance
in determining the business’s eligibility for such treatment. If
the corporation were a commercial bank, however, then, because of
section 172(b)(1)(L), the constituent parts of the NOL would be
important, because the special period rules of section 172(l) apply
only to that portion of the NOL attributable to the deduction
allowed by section 166 (the bad debt portion). In theory, the bad
debt portion of the NOL might be determined in a number of ways. A
simple way would be to determine that, since the bad debt deduction
of $30 accounted for approximately 27 percent of the total
deductions of $110, 27 percent of the NOL, i.e., $2.70, is the bad
debt portion. Section 172(l)(1) adopts a different rule, one that
is favorable to the intended recipients, commercial banks. Under
section 172(l)(1), on the facts of our simple example, if the
corporation were a commercial bank, the bad debt portion is $10.
The assumption is that deductions for (losses from) bad debts
constitute the NOL to the extent of such deductions.
Neither party disagrees that section 172(l)(1) works as
described. Their disagreement concerns the composition of the
consolidated NOL. Respondent would allocate the consolidated NOL
among the loss members of the UBC affiliated group in proportion to
each loss member’s share of the aggregate of all loss member’s NOLs
and would further allocate each bank loss member’s share of the
consolidated NOL between the bad debt portion of the bank member’s
NOL and the remainder of the bank loss member’s NOL in proportion
to those relative amounts. Thus, assume that affiliated group ABC,
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