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making a consolidated return of income, had a consolidated NOL of
$10, and each member had separate taxable incomes as follows:
Member A $100
Member B (80)
Member C (30)
Further assume that Member C is a commercial bank, and is the only
member that is a commercial bank, and that the bad debt portion of
its NOL is $20. Respondent would apportion 73 percent of the
consolidated NOL ($7.30) to Member B and 27 percent ($2.70) to
Member C. Respondent would further determine that the bad debt
portion of the consolidated NOL is $1.82 ($20 x ($10 � $110)).
Under petitioner’s method: "[T]he bad debt portion of the
consolidated NOL is equal to the excess of the consolidated NOL
over the consolidated NOL computed without the bad debt deductions
of the bank members.” Thus, with respect to affiliated group ABC,
petitioner would determine that the bad debt portion of the
consolidated NOL is $20.
The difference between the parties is whether the special
ordering rule of section 172(l)(1) should be applied to a
consolidated NOL. The gist of petitioner’s argument is that the
consolidated return regulations provide that the consolidated NOL
must be determined on a consolidated basis. Petitioner would,
thus, analogize an affiliated group with both bank and nonbank loss
members (and with a consolidated NOL) to a separate corporation
with both bad debt and nonbad debt losses (and an NOL) and apply
section 172(l)(1) to the consolidated NOL.
We find no basis in the consolidated return regulations for
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