SECTION 4. MODIFIED

CARRYBACK TERM AND CONDITION

.01 Section 6.08 of Rev. Proc. 2002–37 and section 5.04(6) of Rev. Proc. 2002–39 are modified to read as follows:

“If the taxpayer generates a net operating loss (NOL) or capital loss (CL) in the short period required to effect a change in annual accounting period, the taxpayer may not carry the NOL or CL back, but must carry it over in accordance with the provisions of §§ 172 and 1212, respectively, beginning with the first taxable year after the short period. However, except as otherwise provided in the Code or regulations, the short period NOL or CL must be carried back or carried over in accordance with § 172 or 1212, respectively, if it is either: (a) $50,000 or less; or (b) less than the NOL or CL, respectively, generated for the full 12-month period beginning with the first day of the short period. The taxpayer must wait until this 12-month period has expired to determine whether the taxpayer qualifies for the exception in (b) above.”

.02 A taxpayer that is eligible to carry back an NOL and wishes to forego the carryback of such NOL must do so by mak

May 5, 2003 857 2003–18 I.R.B.

ryback Term and Condition of section 4.01 of this revenue procedure or the Alternative Carryback Term and Condition of section 5.03.

(2) Time for making election . An election to apply either the Modified Carryback Term and Condition or the Alternative Carryback Term and Condition in lieu of the Original Carryback Term and Condition must be made no later than September 30, 2003. The Special Elections for Consolidated Groups of section 5.04 of this revenue procedure must be made concurrently with the election to apply either the Modified Carryback Term and Condition or the Alternative Carryback Term and Condition.

(3) Manner of making elections . (a) What to file . A taxpayer may elect to apply either the Modified Carryback Term and Condition or the Alternative Carryback Term and Condition, and may make one of the Special Elections for Consolidated Groups, by filing with the appropriate Internal Revenue Service Center on or before September 30, 2003, whichever of the following statements applies. The statements must be signed and dated by the taxpayer, the taxpayer’s authorized representative, or other person authorized to bind the taxpayer with respect to federal income tax matters.

(i) Election to apply Modified Carry- back Term and Condition of section 4.01 :

“ELECTION UNDER REVENUE PROCEDURE 2003–34. By this statement,

[insert taxpayer name and EIN or SSN] elects to apply the Modified Carryback Term and Condition of section 4.01 of Rev. Proc. 2003–34 to any net operating loss and capital loss arising in a short taxable year ending [insert date short taxable year ended]. Under the Modified Carryback Term and Condition, net operating losses and capital losses arising in the short taxable year must be carried back and carried over in accordance with the applicable provisions of sections 172 and 1212 of the Code.”; or

(ii) Election to apply Alternative Car- ryback Term and Condition of section 5.03:

“ELECTION UNDER REVENUE PROCEDURE 2003–34. By this statement,

[insert taxpayer name and EIN or SSN] elects to apply the Alternative Carryback Term and Condition of section 5.03 of Rev. Proc. 2003–34 to any net operating loss and capital loss arising in a short taxable year

.03 Alternative Carryback Term and Condition .

(1) In general . If a taxpayer described in section 3.02 of this revenue procedure has a short period that ends in 2001 or 2002, the taxpayer may elect to apply the Alternative Carryback Term and Condition of this section 5.03, in lieu of either the Original Carryback Term and Condition or the Modified Term and Condition, by following the procedures set forth in section 6 of this revenue procedure.

(2) Alternative Carryback Term and Condition . If the taxpayer generates an NOL or CL in the short period required to effect a change in annual accounting period, and the short period ends in 2001 or 2002, the taxpayer may not carry the NOL or CL back, but must carry it over in accordance with the provisions of §§ 172 and 1212, respectively, beginning with the first taxable year after the short period. However, if the short period NOL or CL is either: (a) $50,000 or less; or (b) less than the NOL or CL, respectively, generated for the full 12-month period beginning with the first day of the short period, such short period NOL must be carried back to each of the 2 taxable years preceding the short period (and any remaining NOL must be carried over in accordance with the provisions of § 172) and any short period CL must be carried back or carried over in accordance with § 1212. The taxpayer must wait until the 12-month period has expired to determine whether the taxpayer qualifies for the exception in (b) above.

(3) Other limitations . The Alternative Carryback Term and Condition is not available to a taxpayer whose NOL for the short period is subject to the provisions of:

(a) § 172(b)(1)(B) (regarding NOLs of real estate investment trusts);

(b) § 172(b)(1)(C) (regarding specified liability losses);

(c) § 172(b)(1)(E) (regarding certain excess interest losses);

(d) § 172(b)(1)(F) (regarding a certain 3-year carryback in certain cases); or (e) § 172(b)(1)(G) (regarding farming losses).

.04 Special Elections for Consolidated Groups . This paragraph 5.04 applies to a taxpayer that is a consolidated group that:

(1) is described in section 3.02 of this revenue procedure;

(2) includes a member that was a member of another group immediately before it

became a member of the consolidated group (acquired member); and

(3) elects either the Modified Carryback Term and Condition of section 4.01 of this revenue procedure, or the Alternative Carryback Term and Condition of section 5.03 of this revenue procedure.

A consolidated group to which this paragraph applies may make an irrevocable election to relinquish, with respect to all consolidated net operating losses for the short period attributable to the acquired member, the portion of the carryback period for such loss for which the acquired member was a member of another group to the extent such portion of the carryback period includes one or more taxable years that are prior to the taxable year that is 2 taxable years preceding the taxable year of the loss. Additionally, if an acquired member became a member of the consolidated group to which this paragraph applies after June 25, 1999, the consolidated group may make an irrevocable election to relinquish, with respect to all consolidated net operating losses for the short period attributable to the acquired member, the entire portion of the carryback period for which the acquired member was a member of another group. The elections described in the prior 2 sentences may be made only if any other corporation joining the consolidated group that was affiliated with the acquired member immediately before it joined the consolidated group is also included in the election. The elections are made by following the procedures set forth in section 6 of this revenue procedure.