SECTION 5. TAX CONSOLIDATED

GROUPS

(i) Facts . The facts are the same as in section 4.04(6)(a)(i) of this notice ( Example 1 ), except that X emerges from bankruptcy in a transaction that is not a domestic covered asset transaction.

(ii) Analysis . X includes in its AFSI the $90x of gain reported on its AFS when X emerged from bankruptcy, and increases the AFS basis of its assets from $40x to their fair value of $130x.

.05 Application to investments in part- nerships .

(1) Scope . This section 4.05 provides interim guidance for applying section 4 of this notice to a CAMT entity that is a partner in a partnership if the partnership recognizes discharge of indebtedness income.

(2) Discharge of indebtedness income of a partnership .

(a) Calculation of partnership’s AFSI . Any discharge of indebtedness income reflected in a partnership’s FSI is disregarded for purposes of determining the partnership’s AFSI, and is instead taken into account by the CAMT entities that are partners in the partnership in accordance with sections 4.05(2)(b) and (c) of this notice.

(b) Exclusion from AFSI and attribute reduction at the partner level .

(i) In general . Subject to section 4.05(3) of this notice, the AFSI exclusions provided in sections 4.03(1) and (2) of this notice, and any resulting CAMT attribute reductions (as provided in sections 4.03(4) and (5) of this notice), are applied at the partner level in the same manner as the rules in § 108(a) and (b) are applied at the partner level for regular tax purposes. See § 108(d)(6) and § 1.108-9(b).

(ii) Covered property . For purposes of applying the CAMT attribute reduction interim guidance under sections 4.03(4) and (5) of this notice at the partner level, a CAMT entity partner treats its partnership investment as covered property to the extent the basis of covered property held by the partnership is reduced by the partnership for regular tax purposes under § 1.1017-1(g)(2). In addition, if a CAMT entity partner treats its partnership investment as covered property under the immediately preceding sentence, the basis adjustment rules under § 1.10171(g)(2) with respect to covered property held by the partnership apply for purposes of determining the CAMT entity’s distributive share amount under proposed § 1.56A-5.

(c) Discharge of indebtedness income separately stated to partners . Discharge of indebtedness income reflected in a partnership’s FSI is separately stated to the partners in accordance with their distributive share percentages for the taxable year in which the income is reflected in the partnership’s FSI. See also proposed § 1.56A-5(e)(4)(iii).

(3) Inclusion of partnership liabili- ties for purposes of determining insol- vency . In applying section 4.05(2) of this notice, a CAMT entity that is a partner in a partnership includes its share of the partnership’s liabilities under § 752 in determining whether it is insolvent in the same manner as its share of partnership liabilities would be included for regular tax purposes.

.06 Federal financial assistance . (1) In general . AFSI does not include any financial accounting gain attributable to FFA any earlier than when the gain is included in gross income for purposes of § 597 and the regulations under § 597.

(2) Example . The following example illustrates the application of the interim guidance in this section 4.06.

(i) Facts . X is an Institution, as defined in § 1.597-1(b), that uses the calendar year as its taxable year. On July 1, 2024, X acquires assets and assumes liabilities of an unrelated Institution under Agency Receivership, as defined in § 1.597-1(b), in a Taxable Transfer, as defined in § 1.597-5(a)(1)(i) (A), in exchange for an up-front payment from an Agency, as defined in § 1.597-1(b). The contractual terms of the acquisition by X involve a transfer of assets to X that gives rise to $10,000x of FSI that is attributable to FFA. Applicable financial accounting principles require X to include this $10,000x in FSI in 2024. Pursuant to § 597 and the regulations under § 597, the gain is not recognized for regular tax purposes in 2024. As a result of subsequent events, X includes $2,000x of gain attributable to that FFA in gross income for regular tax purposes in 2025.

(ii) Analysis . Under section 4.06(1) of this notice, X does not include the $10,000x of FSI in AFSI in 2024. Under section 4.06(1) of this notice, X includes FSI of $2,000x in AFSI in 2025.

.07 Cross-references . See section 3 of this notice for interim guidance for determining the CAMT consequences resulting from (i) the disposition of any property by a CAMT entity during the pendency of a title 11 case or while the CAMT entity is insolvent, or (ii) acquisitive reorganizations and “section 355 transactions” (as defined in proposed § 1.56A-18(b)(28)). See section 5 of this notice for interim

.01 Purpose . The Treasury Department and the IRS anticipate that the forthcoming proposed regulations will revise proposed § 1.1502-56A consistent with the interim guidance provided in this section 5 to allow a consolidated group to determine its AFSI by more closely following the consolidated return regulations, which is intended to reduce compliance burdens and costs associated with applying the rules of proposed § 1.1502-56A.

.02 Definitions . The definitions provided in this section 5.02 and section 3.02 of this notice and in § 1.1502-1 apply for purposes of this section 5.

(1) Tax consolidated group . The term “tax consolidated group” has the meaning given the term “consolidated group” in § 1.1502-1(h).

(2) Life-nonlife groups . For purposes of the CAMT Proposed Regulations and this notice, a group may apply the definition in section 5.02(1) of this notice without regard to the five-taxable-year limitation in § 1504(c)(2)(A) to determine the CAMT entities that are members of a tax consolidated group, provided that the group makes that determination consistently for purposes of all provisions in the CAMT Proposed Regulations and this notice that apply to tax consolidated groups.

.03 Determination of AFSI of tax con- solidated groups .

(1) In general . Except as provided in sections 5.03(3) and (4) of this notice, the consolidated return regulations apply to the determination of the AFSI of a tax consolidated group, with the modifications provided in section 5.03(2) of this notice.

(2) Modifications to consolidated return regulations . When applying the consolidated return regulations to the determination of AFSI, the following substitutions apply:

(a) AFSI in place of taxable income. (b) CAMT basis in place of adjusted basis.

(c) FSNOLs in place of NOLs.

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(3) Exceptions . The following provisions of the consolidated return regulations do not apply to the determination of the AFSI of a tax consolidated group:

(a) The separate return limitation year (SRLY) rules in §§ 1.1502-15 and 1.150221(c). (b) The § 382 rules in §§ 1.1502-90 through 1.1502-99.

(c) Any rule that is inapplicable under § 56A (for example, the rules for capital gain and loss in § 1.1502-22).

(4) Certain rules regarding foreign attributes . The rules in proposed § 1.150256A(h) (concerning consolidated CFC adjustment carryovers) and proposed § 1.1502-56A(i) (concerning consolidated unused CFC taxes)) are incorporated into the interim guidance provided in this section 5.