(a) Scope and definitions—(1) Scope. This section provides rules regarding the Federal income tax treatment of QOFs owned by members of a consolidated group (as defined in §1.1502-1(b) and (h), respectively). Rules in the section 1400Z-2 regulations (as defined in §1.1400Z2(a)-1(b)(41)) apply to consolidated groups except as modified in this section. Paragraph (b) of this section generally provides rules regarding the effects of an election under §1.1504-3(b)(2) to treat a subsidiary QOF C corporation as a member of a consolidated group. Paragraph (c) of this section provides rules regarding qualifying investments made by members of a consolidated group (including an election to treat the investment by one member as a qualifying investment by another member) and the application of §1.1502-13 to intercompany transfers of a qualifying investment. Paragraph (d) of this section provides coordinating rules for basis adjustments within a consolidated group. Paragraph (e) of this section provides coordinating rules for §1.1502-36(d). Paragraph (f) of this section provides elective transition relief to taxpayers that consolidated a subsidiary QOF C corporation prior to May 1, 2019. Paragraph (g) of this section provides rules regarding the consequences of a deconsolidation of a QOF C corporation. Paragraph (h) of this section provides instructions for making the elections provided by paragraphs (c) and (f) of this section. Paragraph (i) of this section is reserved. Paragraph (j) of this section provides examples. Paragraph (k) of this section provides the applicability dates.

(2) Definitions—(i) In general. The definitions provided in §§1.1400Z2(a)-1(b) and 1.1400Z2(d)-1 apply for purposes of this section.

(ii) Definitions for consolidated groups—(A) Day one. The term day one means the date members of the consolidated group formed or acquired section 1504 control of the pre-existing QOF sub. If a pre-existing QOF sub was a member of the consolidated group prior to becoming a QOF C corporation, day one is the first day of the first month in which the member self-certified as, or is treated as, a QOF C corporation, whichever is earlier.

(B) Election date. The term election date means the date on which an election under paragraph (c) or (f) of this section is made.

(C) Pre-existing QOF sub. The term pre-existing QOF sub means a subsidiary QOF C corporation that meets the affiliation requirements in section 1504 (without regard to §1.1504-3(b)(1)) as of May 1, 2019.

(D) QOF investor member. The term QOF investor member means any member holding a qualifying investment in the QOF member.

(E) QOF member. The term QOF member means a subsidiary QOF C corporation that is treated as a member of a consolidated group pursuant to an election in §1.1504-3(b)(2).

(F) QOF member stock. The term QOF member stock means the QOF stock of a QOF member.

(G) QOF SAG. The term QOF SAG means, with respect to a QOF member, the affiliated group that would be determined under section 1504(a) if the QOF member were the common parent.

(H) Subsidiary QOF C corporation. The term subsidiary QOF C corporation means a QOF C corporation that meets the requirements to be a member of an affiliated group (as defined in section 1504(a)(1), and without regard to §1.1504-3(b)(1)) other than the common parent of such consolidated group.

(b) Subsidiary QOF C corporation treated as member of the consolidated group—(1) Effects of election to treat a subsidiary QOF C corporation as a member—(i) Determining whether a distribution is an inclusion event. A distribution of property with respect to qualifying QOF stock by a QOF member to a QOF investor member is an inclusion event to the extent the distribution would create or increase an excess loss account (ELA) in the qualifying QOF stock, without regard to any inclusion resulting from application of this paragraph (b)(1)(i). Solely for purposes of determining whether a distribution creates or increases an ELA during a taxable year, investment adjustments pertaining to a distribution on qualifying QOF stock by a QOF member are made after all other investment adjustments under §1.1502-32 for that year.

(ii) Determining the amount of deferred gain includible by the QOF investor member. The amount of gain included in gross income of a QOF investor member under section 1400Z-2(a)(1)(B) on a date described in §1.1400Z2(b)-1(b) (modified by paragraph (c)(3) of this section, as applicable) is determined under this paragraph (b)(1)(ii). The amount of gain included in gross income of the QOF investor member is the lesser of:

(A) The product of:

(1) The percentage of the qualifying investment that gave rise to the inclusion event; and

(2) The remaining deferred gain (see §1.1400Z2(a)-1(b)(40)), less any basis adjustments pursuant to section 1400Z-2(b)(2)(B)(iii) and (iv); or

(B) The gain that would be recognized on a fully taxable disposition of the qualifying investment that gave rise to the inclusion event.

(iii) Application of ELA rules on the disposition of QOF member stock. When a QOF investor member disposes of a share of qualifying QOF member stock, any ELA in the share is taken into account as income or gain from the disposition under §1.1502-19(b)(1) before the basis of the share is increased under section 1400Z-2(c), if applicable. See paragraph (g)(3)(i) of this section for the general rule regarding the treatment of an ELA upon the deconsolidation of a QOF member.

(iv) Transactions between the QOF member and other members of the consolidated group—(A) In general. This paragraph (b)(1)(iv) governs transactions between a member of a QOF SAG and other members of the consolidated group.

(B) Sale or exchange of property. A sale or exchange of property between a member of a QOF SAG and a member of the consolidated group that is not a member of a single QOF SAG is not treated as an intercompany transaction (as defined in §1.1502-13(b)(1)) and is not subject to the rules in §1.1502-13. In contrast, a sale or exchange of property between members of the QOF SAG is an intercompany transaction that is subject to the rules in §1.1502-13.

(C) Other transactions. Any transaction between a member of a QOF SAG and a member of the consolidated group that is not a member of that QOF SAG that is not a sale or exchange of property is an intercompany transaction subject to the rules in §1.1502-13.

(v) Separate-entity application of QOF qualifying rules to QOF member. A consolidated group is not treated as a single entity for purposes of determining whether a QOF member or a qualified opportunity zone business that is a consolidated group member satisfies the investment standard rules in section 1400Z-2(d) and (f) and §§1.1400Z2(d)-1 and 1.1400Z2(f)-1. Instead, those investment standard rules apply on a separate-entity basis. Therefore, for example, the QOF member's satisfaction of the requirements under section 1400Z-2(d) is determined by taking into account only property (including qualified opportunity zone stock or qualified opportunity zone partnership interests) held by the QOF member, without regard to property transferred by the QOF member to other members of the consolidated group.

(2) Anti-avoidance rule. The purposes of section 1400Z-2 and the section 1400Z-2 regulations are to provide specified tax benefits to owners of QOFs to encourage the making of longer-term investments, through QOFs and qualified opportunity zone businesses, of new capital in one or more qualified opportunity zones and to increase the economic growth of such qualified opportunity zones. If a transaction is engaged in or structured with a view to avoid the application of the rules of section 1400Z-2, the section 1400Z-2 regulations, or the regulations in this part under section 1502 of the Code (including this section), appropriate adjustments will be made to carry out the purposes of section 1400Z-2 and the section 1400Z-2 regulations. For example, if a consolidated group engages in a restructuring (such as a distribution described in section 355) with a view to using stock basis adjustments under §1.1502-32 resulting from increases in the basis of stock under section 1400Z-2(b) in a sale or exchange transaction without disposing of any part of the consolidated group's direct ownership of the relevant qualifying investment, the transaction will be treated as an inclusion event with regard to an appropriate amount of deferred gain.

(c) Qualifying investments by members of a consolidated group—(1) In general. Except as otherwise provided in this section or in §1.1400Z2(b)-1 (see, for example, §1.1400Z2(b)-1(c)(9)(i)(B)(1)), section 1400Z-2 applies separately to each member of a consolidated group. Therefore, for example, the same member of the consolidated group generally must both engage in the sale of a capital asset giving rise to eligible gain and timely invest an amount equal to some or all of such gain in a QOF (as provided in section 1400Z-2(a)(1)) in order to qualify for deferral of such gain under section 1400Z-2.

(2) Election to treat investment of one member as a qualifying investment by another member—(i) Availability of election. If members of a consolidated group satisfy the requirements of this paragraph (c)(2), the consolidated group may elect to treat an investment by one member as a qualifying investment by another member. The election provided by this paragraph (c)(2) is available when a member of a consolidated group (M1) has eligible gain and a second member (M2) makes an investment in a QOF that would be a qualifying investment if M1, rather than M2, had made the investment. For example, if M1 has $100x of eligible gain but M2 has none, and M2 makes a $120x investment in a QOF C corporation, only $100x of M2's investment in the QOF C corporation is eligible for the election under this paragraph (c)(2). See paragraph (h)(2) of this section for the form and manner of making this election. If M2 has its own eligible gain, M2 may make a qualifying investment on its own behalf and defer such eligible gain under section 1400Z-2(a)(1)(A) and §1.1400Z2(a)-1.

(ii) Effect of election. If a consolidated group makes an election under this paragraph (c)(2), then M1 is treated as having made the investment in the QOF that is actually made by M2. M1 is then treated as having immediately sold such investment to M2 for fair market value. The deemed sale by M1 is subject to the rules in paragraph (c)(3) of this section. The consolidated group must treat the deemed investment by M1 and the deemed sale by M1 to M2 as having occurred for all Federal income tax purposes.

(3) Intercompany transfers of a qualifying investment—(i) In general. Except as otherwise provided in this paragraph (c)(3), when one member (S) transfers its qualifying investment to another member (B), the transaction is not treated as an intercompany transaction within the meaning of §1.1502-13(b)(1) for purposes of applying the rules of section 1400Z-2 and the section 1400Z-2 regulations. Therefore, §1.1502-13(c) does not apply to treat S and B as divisions of a single entity for purposes of section 1400Z-2. For example, if S transfers its qualifying investment to B in a section 351 transaction, the transfer is an inclusion event for S under §1.1400Z2(b)-1(c). In addition, because the transfer is not an intercompany transaction for purposes of section 1400Z-2, §1.1502-13 does not apply to continue S's deferral under §1.1400Z2(a)-1(a)(1).

(ii) Application of §1.1502-13 to fully taxable intercompany transfers of a qualifying investment—(A) Applicable transactions. Notwithstanding paragraph (c)(3)(i) of this section, if S transfers its qualifying investment to B in a fully taxable transaction, the transaction is treated as an intercompany transaction, and §1.1502-13(c) applies to treat S and B as divisions of a single entity for purposes of applying section 1400Z-2.

(B) Treatment of S's intercompany gain on its qualifying investment. If a transaction is described in paragraph (c)(3)(ii)(A) of this section, §1.1502-13(c)(6)(ii) is inapplicable in determining the excludability of S's gain (or the treatment of such gain as tax-exempt income) on the application of section 1400Z-2(b) and (c) to S and B as a single entity. Thus, S's gain on the qualifying investment (including the amount includible under §1.1400Z2(b)-1(e)) may be redetermined to be excluded from gross income (or treated as tax-exempt income), as appropriate, to achieve single-entity treatment between S and B with regard to the ownership and disposal of the qualifying investment. To qualify for benefits under section 1400Z-2, S and B must otherwise satisfy the requirements of section 1400Z-2. See also §1.1502-13(j)(4) (concerning multiple or successive intercompany transactions).

(C) Investment adjustments and adjustments to earnings and profits. Income of S excluded under section 1400Z-2 by application of paragraphs (c)(3)(ii)(A) and (B) of this section and §1.1502-13 results in adjustments to S's earnings and profits and is treated as tax-exempt income to S for purposes of §1.1502-32(b)(2)(ii).

(D) Election under section 1400Z-2(c). To the extent paragraph (c)(3)(ii)(A) of this section applies to S's transfer of its qualifying investment to B, B (and not S) is entitled to make the election under section 1400Z-2(c) at the time when, treating S and B as divisions of a single entity, the single entity would be entitled to make such an election. For example, pursuant to §1.1502-13(c)(1)(ii), B takes S's holding period into account in determining whether B is treated as holding the transferred qualifying investment for 10 years. In addition, the attributes of S's intercompany item on the transfer of the qualifying investment may be redetermined based on B's election.

(4) Intercompany transfer as qualifying investment in a QOF member. A transfer by a consolidated group member with an eligible gain to a QOF member before January 1, 2027, is not treated as an intercompany transaction within the meaning of §1.1502-13 and may constitute a qualifying investment. But see §1.1504-3(b)(2) regarding conditions for consolidating a QOF C corporation.

(5) Intercompany gain as eligible gain. When S sells property to B, §1.1502-13 applies to determine if, and when, S's intercompany gain and B's corresponding gain constitute eligible gain. S's gain and B's gain are treated as eligible gain only to the extent such gain would be eligible gain if S and B were divisions of a single entity. For example, if S sells a piece of property to B at a gain, B subsequently sells that property to an unrelated party at a further gain, and the gains are treated as capital gain under §1.1502-13(c)(1) and (4), then both S's gain and B's gain are eligible gains at the time B sells the property to the unrelated party. In contrast, if S sells a piece of property to B at a loss, and B subsequently sells that property to an unrelated party at a gain, then B's corresponding gain on the property is eligible gain only to the extent that S and B, if treated as divisions of a single entity, would have eligible gain on the sale of property to the unrelated party. See §1.1502-13(a)(1).

(d) Tiering-up of investment adjustments provided by section 1400Z-2. Basis increases in a qualifying investment in a QOF under sections 1400Z-2(b)(2)(B)(iii), 1400Z-2(b)(2)(B)(iv), and 1400Z-2(c) are treated as satisfying the requirements of §1.1502-32(b)(3)(ii)(A) and thus qualify as tax-exempt income to the QOF owner. Therefore, if the QOF owner is a member of a consolidated group and is owned by other members of the same consolidated group (upper-tier members), the upper-tier members increase their bases in the shares of the QOF owner under §1.1502-32(b)(2)(ii). However, there is no basis adjustment under §1.1502-32(b)(2)(ii) or (iii) in shares of upper-tier members with regard to a basis adjustment under section 1400Z-2(c) and §1.1400Z2(c)-1 unless and until the basis of the qualifying investment is adjusted to its fair market value, as provided in section 1400Z-2(c) and §1.1400Z2(c)-1.

(e) Application of §1.1502-36(d). This paragraph (e) clarifies how §1.1502-36(d) applies if a member (M) transfers a loss share of another member (S) that is a QOF owner that owns a qualifying investment. To determine S's attribute reduction amount under §1.1502-36(d)(3), S's basis in its qualifying investment is included in S's net inside attribute amount to compute S's aggregate inside loss under §1.1502-36(d)(3)(iii)(A). However, S's basis in the qualifying investment is not included in S's Category D attributes available for attribute reduction under §1.1502-36(d)(4). Thus, S's basis in the qualifying investment cannot be reduced under §1.1502-36(d). If S's attribute reduction amount exceeds S's attributes available for reduction, then to the extent of the lesser of S's basis in the qualifying investment or the remaining attribute reduction amount, the common parent is treated as making the election under §1.1502-36(d)(6) to reduce M's basis in the transferred loss S shares.

(f) Transition relief—(1) Overview. This paragraph (f) provides options for elective relief to pre-existing QOF subs. An election under this paragraph (f) is made in the manner provided in paragraph (h)(3) of this section. If a timely election under this paragraph (f) is not made, the pre-existing QOF sub is treated as deconsolidating on March 13, 2020.

(2) Reclassification election—(i) In general. For each pre-existing QOF sub of a consolidated group, the consolidated group may make one of the alternative, irrevocable elections provided in paragraphs (f)(2)(ii) through (iv) of this section. All elective relief provided in this paragraph (f)(2) is effective on day one.

(ii) Treatment as a QOF partnership—(A) Election. A consolidated group may elect to treat a pre-existing QOF sub as a QOF partnership (electing QOF partnership). To be eligible for the election in this paragraph (f)(2)(ii)(A), a pre-existing QOF sub must have converted to an entity treated as a partnership for Federal income tax purposes as of the election date.

(B) Effect of the QOF partnership election. As a result of making the election under this paragraph (f)(2)(ii), the pre-existing QOF sub is treated as a QOF partnership from day one. Consequently, the consolidated group must file amended or superseding returns, as applicable, to account for the electing QOF partnership's income, gain, deduction, and loss; the electing QOF partnership also must file its own partnership returns for taxable periods beginning on day one, as applicable. The electing QOF partnership must include its self-certification under §1.1400Z2(d)-1(a) with its own returns, and the self-certification will be treated as timely so long as the consolidated group filed a timely self-certification under §1.1400Z2(d)-1(a) for the pre-existing QOF sub. In addition, appropriate adjustments must be made to account for the change in status of the electing QOF partnership from day one, including modifications to investment adjustments to the basis in members' stock made under §1.1502-32 and adjustments to members' earnings and profits made under §1.1502-33.

(C) Pre-existing QOF sub with single owner. If a pre-existing QOF sub is wholly owned by one member of a consolidated group, then for purposes of making the election under this paragraph (f)(2)(ii), the electing QOF partnership is deemed to have had a nominal partner from day one until the date the electing QOF partnership is treated as a partnership for Federal income tax purposes without regard to this paragraph (f)(2)(ii).

(D) Example. The following example illustrates the election under this paragraph (f)(2)(ii).

(1) Facts. P, the common parent of a consolidated group (P group), wholly owns M1 and M2. On July 1, 2018, M1 and M2 each sell an asset to an unrelated party and realize $70x and $30x of eligible gain, respectively. On August 13, 2018, M1 and M2 form Q12 (a QOF C corporation that was formed as a corporation under state law). Also on August 13, 2018, M1 and M2 contribute $70x and $30x, respectively, to Q12 in exchange for stock of Q12 and properly elect to defer their respective eligible gains under section 1400Z-2(a) and §1.1400Z2(a)-1. The P group also makes a timely self-certification under §1.1400Z2(d)-(1)(a) for Q12. Following March 13, 2020, the P group intends to timely elect under this paragraph (f)(2)(ii) to treat Q12 as a QOF partnership.

(2) Analysis—(i) Eligibility to elect. For the P group to elect to treat Q12 as a QOF partnership under this paragraph (f)(2)(ii), by the date of the election, Q12 must either convert to a state law partnership or another entity treated as a partnership for Federal income tax purposes.

(ii) Consequences of the election. As a result of making the election under this paragraph (f)(2)(ii), Q12 is treated as a QOF partnership from August 13, 2018 (day one). The P group must file amended or superseding returns, as applicable and as necessary, to account for Q12's income, gain, deduction, and loss. In addition, Q12 must file its own returns for the taxable period beginning on August 13, 2018, as applicable. The returns must be filed within the time frame provided in paragraph (h)(3)(iii) of this section. Finally, because the P group filed a timely self-certification under §1.1400Z2(d)-(1)(a) for Q12 as a QOF C corporation, Q12's self-certification as a QOF partnership would be is considered timely filed.

(3) Deemed nominal partner—(i) Facts. The facts are the same as in paragraph (f)(2)(iii)(D)(1) of this section, except that on July 1, 2018, only M1 sells an asset to an unrelated party and realizes $70x of eligible gain. On August 13, 2018, M1 contributes cash of $70x to Q12 in exchange for stock of Q12 and properly elects to defer the eligible gain under section 1400Z-2(a) and §1.1400Z2(a)-1. As of the date the election is made to treat Q12 as a partnership from day one, a second party invests in Q12, and Q12 is an entity treated as a partnership for Federal income tax purposes.

(ii) Analysis. The analysis is generally the same as in paragraph (f)(2)(iii)(D)(2) of this section. In addition, because Q12 is wholly owned by M1, solely for purposes of treating Q12 as a QOF partnership from August 13, 2018, Q12 is deemed to have a nominal partner from August 13, 2018 until the election date or the date Q12 qualifies as a partnership, if earlier.

(iii) Treatment as a non-member QOF C corporation—(A) Election. A consolidated group may elect to treat a pre-existing QOF sub as a QOF C corporation that is not a member of the consolidated group.

(B) Effect of the non-member QOF C corporation election. As a result of making the election under this paragraph (f)(2)(iii), the pre-existing QOF sub is treated as not being a member of the consolidated group from day one. Consequently, the consolidated group must file amended or superseding returns, as applicable, to exclude all of the pre-existing QOF sub's income, gain, deduction, and loss from the consolidated returns; the pre-existing QOF sub also must file its own returns for taxable periods beginning on day one, as applicable. In addition, all adjustments resulting from the pre-existing QOF sub's operations must be eliminated from the consolidated group, including investment adjustments made under §1.1502-32 to basis in members' stock (as well as stock in the pre-existing QOF sub) and adjustments made under §1.1502-33 to members' earnings and profits.

(iv) Treatment as a non-QOF C corporation—(A) Election. A consolidated group may elect to treat a pre-existing QOF sub as if it never self-certified to be a QOF pursuant to §1.1400Z2(d)-1.

(B) Effect of the non-QOF C corporation election. As a result of making the election under this paragraph (f)(2)(iv), the pre-existing QOF sub is treated from day one as a member of the consolidated group and not as a QOF. Therefore, section 1400Z-2 is not applicable, and amended returns or superseding returns must be filed, as applicable, to account for the eligible gain that was invested in the pre-existing QOF sub. In addition, appropriate adjustments must be made to account for the non-applicability of section 1400Z-2, including adjustments to members' stock basis and earnings and profits under §§1.1502-32 and 1.1502-33, respectively.

(3) Election to continue treating pre-existing QOF sub as a member of the consolidated group—(i) Election. A consolidated group may elect to have a pre-existing QOF sub retain its QOF status and remain a member of the consolidated group.

(ii) Effects of electing to remain a QOF and a member of the consolidated group. As a result of making the election under this paragraph (f)(3), the conditions and effects provided in §1.1504-3(b)(2) and paragraph (b)(1) of this section will apply to the pre-existing QOF sub and the consolidated group as of the effective date of this election. See paragraph (h)(1) of this section for the effective date of this election, and see paragraph (h)(3)(iii) of this section regarding the timing for meeting the requirements in §1.1504-3(b)(2)(ii).

(g) Deconsolidation rules—(1) In general. This paragraph (g) provides rules applicable on any deconsolidation of a QOF C corporation (deconsolidating QOF).

(2) Deconsolidation and inclusion event. A deconsolidation event is not an inclusion event unless the deconsolidation is the result of an actual transfer of the QOF member stock or a worthlessness event within the meaning of §1.1502-80(c). For example, when a consolidated group fails to meet the conditions in §1.1504-3(b)(2) of this section and causes a QOF member to deconsolidate, the deconsolidation event is not an inclusion event solely as a result of the consolidated group's failure to meet the requirements in §1.1504-3(b)(2) of this section.

(3) Basis in the deconsolidating QOF at time of deconsolidation—(i) ELA in a deconsolidating QOF. Any ELA in stock of the deconsolidating QOF at the time of the deconsolidation is taken into account under the rules of §1.1502-19. See paragraph (b)(1)(iii) of this section for rules coordinating the application of section 1400Z-2(c) with §1.1502-19.

(ii) Positive basis in the deconsolidating QOF resulting from §1.1502-32. Consolidated group members retain any positive basis in the deconsolidating QOF resulting from investment adjustments under §1.1502-32 following its deconsolidation. However, following the deconsolidation, for purposes of determining the amount includible under §1.1400Z2(b)-1(e), the amount of basis referred to in section 1400Z-2(b)(2)(A)(ii) is computed by applying only those rules applicable to corporations that do not file a consolidated return (that is, the basis rules under subchapter C and section 1400Z-2). Therefore, any positive basis resulting from §1.1502-32 adjustments is not taken into account in computing the amount includable under §1.1400Z2(b)-1(e).

(4) Deconsolidating QOF's earnings and profits—(i) Deconsolidation on or before December 31, 2026. Notwithstanding §1.1502-33(e)(1), if a deconsolidating QOF deconsolidates before December 31, 2026, the deconsolidating QOF retains its earnings and profits under this paragraph (g)(4)(i). Any earnings and profits of the deconsolidating QOF that were taken into account by any other members under §1.1502-33 are eliminated from those members as of the end of the day on which the deconsolidating QOF deconsolidates.

(ii) Deconsolidation after December 31, 2026. If the deconsolidating QOF deconsolidates after December 31, 2026, the rules under §1.1502-33(e) apply.

(5) Consequences under §1.1502-36. See §1.1502-36(f)(10)(i)(B) for the treatment of a deconsolidation as a transfer of all of the stock in the deconsolidating member held by other members of the consolidated group.

(h) Form and manner of making an election under this section—(1) In general. The elections provided in this section are irrevocable. The information required for each election is provided in this paragraph (h). A reclassification election under paragraph (f)(2) of this section is effective as of day one. All other elections are effective on the election date.

(2) Election under paragraph (c)(2) of this section to treat investment by M2 as qualifying investment by M1—(i) Form of election. The election under paragraph (c)(2) of this section must be made in the form of a statement titled “THIS IS AN ELECTION UNDER §1.1502-14Z(c)(2) TO TREAT AN INVESTMENT BY [insert name and employer identification number (E.I.N.) of M2] AS A QUALIFYING INVESTMENT BY [insert name and E.I.N. of M1].” The statement must be included with the consolidated group's timely filed return (original, superseding, or amended return, as applicable, including extensions). In addition, the statement must include the information required under paragraph (h)(2)(ii) of this section.

(ii) Required information.

(A) The amount of M1's eligible gain;

(B) The amount of the investment M2 has made in a QOF, including identification of the amount of the investment that is eligible for treatment as a qualifying investment under paragraph (c)(2) of this section and the amount (if any) that is not eligible for such treatment; and

(C) The date on which M1 recognized its eligible gain, and the date on which M2 made the investment in the QOF.

(3) Elections under paragraph (f) of this section for transition relief—(i) Form of election. The elections under paragraph (f) of this section must be made in the form of a statement titled “THIS IS AN ELECTION UNDER §1.1502-14Z(f) FOR [insert name and E.I.N. of pre-existing QOF sub].” All actions necessary to make these elections, including the filing of an amended return (or superseding return, as applicable), or filing an original return, as applicable, must be completed within the time designated in paragraph (h)(3)(iii) of this section. The statement must be included on or with any amended prior-year consolidated return (or superseding or original return, as applicable) and on or with the consolidated group's timely filed return (original or amended if filed by the due date for the return, including extensions) for the election year. In addition, the statement must include the information required in paragraph (h)(3)(ii) of this section.

(ii) Required information—(A) Reclassification election under paragraph (f)(2)(ii) of this section.

(1) A statement that the pre-existing QOF sub is electing to be a QOF partnership;

(2) The election date;

(3) The effective date of the election;

(4) Specification of the appropriate adjustments required under paragraph (f)(2)(ii) of this section made by the pre-existing QOF sub and the consolidated group; and

(5) Certification that the appropriate change under state law or the entity classification election under §301.7701-3 of this chapter (as applicable) has been made, and the date of the change or entity classification election.

(B) Reclassification election under paragraph (f)(2)(iii) or (iv) of this section.

(1) A statement that the pre-existing QOF sub is changing its status;

(2) The pre-existing QOF sub's new status (either a non-member QOF C corporation, under paragraph (f)(2)(iii) of this section, or a non-QOF C corporation, under paragraph (f)(2)(iv) of this section);

(3) The election date;

(4) The effective date of the election; and

(5) Specification of the appropriate adjustments made the by pre-existing QOF sub and the consolidated group pursuant to paragraph (f)(2)(iii) or (iv) of this section, as applicable.

(C) Election to continue treating the pre-existing QOF sub as a subsidiary member of the consolidated group under paragraph (f)(3) of this section.

(1) A statement that the pre-existing QOF sub is electing to retain its status as a QOF C corporation and remain a member of the consolidated group;

(2) The election date; and

(3) Certification that the pre-existing QOF sub and the consolidated group are in compliance with the conditions under §1.1504-3(b)(2)(ii) as of the date that the pre-existing QOF sub and the consolidated group are in compliance with the conditions under §1.1504-3(b)(2)(ii).

(iii) Time for completing the elections under paragraph (f) of this section.

(A) If the pre-existing QOF sub is making an election under paragraph (f)(2)(ii) or (f)(3) of this section, all actions necessary to make such election must be completed by April 13, 2020. Specifically, if the pre-existing QOF sub is making the election under paragraph (f)(3) of this section, the conditions in §1.1504-3(b)(2)(ii) must be met by April 13, 2020. In addition, the consolidated group's amended return (or superseding return, as applicable), taking into account the relevant changes, if applicable, must be filed by May 12, 2020. Moreover, if the electing QOF partnership had been a QOF partnership on day one and the electing QOF partnership's return would have been due, then such return also must be filed by May 12, 2020.

(B) If the pre-existing QOF sub is making a reclassification election under paragraph (f)(2)(iii) or (iv) of this section, all actions necessary to make such election, including the filing of the pre-existing QOF sub's own return (if the return would have been due had the pre-existing QOF sub not been included in the consolidated group on day one), and the consolidated group's amended return (or superseding return, as applicable), if applicable, must be completed by April 13, 2020.

(iv) Extension of statute of limitations. If, as a result of making a reclassification election in paragraph (f)(2) of this section, the consolidated group is required to file an amended return, and the electing QOF partnership is required to file a return by May 12, 2020 or the pre-existing QOF sub is required to file a return by April 13, 2020 (collectively, the related returns), then the consolidated group (and the pre-existing QOF sub, if an election under paragraph (f)(2)(iii) of this section is made) also must consent to extend the period of limitations on assessment with respect to any issues arising under section 1400Z-2 in the related returns of the consolidated group (and the pre-existing QOF sub, if applicable). This consent must be effected at such time and in such form and manner as may be prescribed by the Commissioner of Internal Revenue in Internal Revenue Service forms or instructions or in publications or guidance published in the Internal Revenue Bulletin (see §§601.601(d)(2) and 601.602 of this chapter).

(i) [Reserved]

(j) Examples. The following examples illustrate the rules of this section. For purposes of these examples, and unless otherwise stated: P is the common parent of the P consolidated group (P group); S, B, and M are members of the P group; Q is a QOF C corporation that is not a member of the P group; and X is an unrelated party.

(1) Example 1: Distribution by a QOF member and inclusion events—(i) Facts. P wholly owns S. In 2018, S sells an asset to an unrelated party and realizes $500x of eligible gain. S forms a new QOF C corporation Q2, contributes $500x to Q2 in exchange for stock of Q2, and properly elects to defer the eligible gain under section 1400Z-2(a) and §1.1400Z2(a)-1. The P group elects under §1.1504-3(b)(2) to consolidate Q2. In 2024, Q2 distributes $20x to S when S's basis in Q2 is $50x, the value of Q2 exceeds $500x, and Q2 has no earnings and profits. There are no other events in 2024 that result in investment adjustments to Q2 stock.

(ii) Analysis. Under §§1.1502-13(f)(2) and 1.1502-32, the intercompany distribution from Q2 to S of $20x reduces S's basis in Q2 to $30x ($50x−$20x). Under paragraph (b)(1)(i) of this section, because the distribution does not create or increase an ELA in Q2 stock, the distribution is not an inclusion event.

(iii) Distribution that creates an ELA. The facts are the same as in paragraph (j)(1)(i) of this section except that in 2024 Q2 distributes $70x to S. Under §§1.1502-13(f)(2) and 1.1502-32, the intercompany distribution from Q2 to S of $70x reduces S's basis in Q2 to $0 and creates an ELA of $20x ($50x−$70x). Under paragraph (b)(1)(i) of this section, because an ELA is created in Q2's stock, the distribution is an inclusion event to the extent of the increase in the ELA. S therefore includes $20x of its deferred gain into income in 2024. See §1.1400Z2(b)-1(e)(2). In addition, under §1.1400Z2(b)-1(g)(1)(ii), the adjustment to S's basis in Q2 under section 1400Z-2(b)(2)(B)(ii) is applied before determining the other Federal income tax consequences of the distribution. Therefore, as a result of the inclusion event, S's basis in Q2 is first increased to $70x ($50x + $20x), and then S's basis in Q2 is reduced by $70x (the amount of the distribution) to $0 under §1.1502-32.

(2) Example 2: Basis adjustment when member owns qualifying QOF stock—(i) Facts. P wholly owns S. In 2018, S sells an asset to an unrelated party and realizes $500x of eligible gain. S contributes $500x to Q in exchange for stock of Q and properly elects to defer the eligible gain under section 1400Z-2(a) and §1.1400Z2(a)-1. S does not otherwise own stock in Q. In 2026, the fair market value of S's qualifying investment in Q exceeds $500x. In 2029, when S still owns its qualifying investment in Q, P sells all of the stock of S to X. S retains its stock in Q.

(ii) Analysis—(A) Five-year and seven-year basis increase and §1.1502-32 tier-up. In 2023, when S has held the stock of Q for five years, under section 1400Z-2(b)(2)(B)(iii), S increases its basis in its Q stock by $50x (10 percent of $500x, the amount of gain deferred by reason of section 1400Z-2(a)(1)(A)). The 10-percent basis increase qualifies as tax-exempt income to S under paragraph (d) of this section. Thus, P (an upper-tier member) increases its basis in S's stock by $50x under §1.1502-32(b)(2)(ii). Similarly, in 2025, when S has held the stock of Q for seven years, under section 1400Z-2(b)(2)(B)(iv), S increases its basis in its Q stock by an additional $25x (5 percent of $500x). The 5-percent basis increase also qualifies as tax-exempt income to S under paragraph (d) of this section, and P increases its basis in S's stock by an additional $25x under §1.1502-32(b)(2)(ii).

(B) S's recognition of deferred capital gain in 2026. S did not dispose of its Q stock prior to December 31, 2026. Therefore, under section 1400Z-2(b)(1)(B) and §1.1400Z2(b)-1(b)(2), S's remaining deferred gain is included in S's income on December 31, 2026. The amount of gain included under section 1400Z-2(b)(2)(A) and §1.1400Z2(b)-1(e)(3) is $425x ($500x of remaining deferred gain less S's $75x basis in Q). S's basis in Q is increased by $425x to $500x, and P's basis in S also is increased by $425x under §1.1502-32(b)(2)(i).

(C) P's disposition of S. P's sale of S stock in 2029 results in the deconsolidation of S. S retains its Q stock, and S is not treated as selling or exchanging its Q stock for purposes of section 1400Z-2(c). Therefore, no basis adjustments under section 1400Z-2 are made as a result of P's sale of S stock.

(iii) S sells the stock of Q after 10 years. The facts are the same as in paragraph (j)(2)(i) of this section, except that in 2029, instead of P selling all of the stock of S, S sells all of the stock of Q to X for its fair market value of $800x. At the time of the sale, S has owned the Q stock for over 10 years, and S elects under section 1400Z-2(c) to adjust its stock basis in Q from $500x (see the analysis in paragraph (j)(2)(ii)(B) of this section) to $800x, the fair market value of Q on the date of the sale. As a result of the election, S has no gain on the sale of Q stock. Additionally, the $300x basis increase in Q is treated as tax-exempt income to S pursuant to paragraph (d) of this section. Thus, P increases its basis in P's S stock by $300x under §1.1502-32(b)(2)(ii).

(3) Example 3: Intercompany sale of qualifying investment—(i) Facts. In 2018, S sells an asset to an unrelated party and realizes $100x of eligible gain. Also in 2018, S contributes $100x to Q in exchange for Q stock and properly elects to defer the eligible gain under section 1400Z-2(a) and §1.1400Z2(a)-1. S does not otherwise own stock in Q. In 2021, S sells all of its Q stock to B for $250x in a fully taxable transaction. In 2026, the fair market value of Q is $300x. In 2030, B sells the Q stock to X for $800x.

(ii) Analysis—(A) Intercompany sale treated as an inclusion event. In 2021, S's sale of its Q stock to B is an inclusion event under section 1400Z-2(b)(1) and §1.1400Z2(b)-1(c). The amount includible pursuant to §1.1400Z2(b)-1(e)(1) is $100x (the lesser of the remaining deferred gain of $100x and the fair market value of the qualifying investment of $250x, over S's basis in Q, $0). As a result of the inclusion, S's basis in Q increases from $0 to $100x and S also realizes a capital gain of $150x ($250x of amount realized less its $100x basis in the Q stock) from the intercompany sale of Q to B. Because S's sale of its Q stock to B is a fully taxable transaction, paragraph (c)(3)(ii) of this section applies to treat the sale as an intercompany transaction and S's intercompany gains are taken into account under §1.1502-13(c)(2)(ii). Thus, S defers the inclusion of its $100x of remaining deferred gain and its $150x of capital gain in 2021. B has a $250x basis in its Q stock.

(B) Five-year basis increase in 2023. Pursuant to paragraph (c)(3)(ii) of this section, S and B are treated as divisions of a single entity for purposes of applying section 1400Z-2. In 2023, the single entity would have held the QOF investment for five years and its basis in Q would be increased to $10x ($100x × 10%) under section 1400Z-2(b)(2)(B)(iii). To achieve this single entity result, $10x of S's $100x of remaining deferred gain is redetermined to be tax-exempt income. See §1.1502-13(c)(1); see also paragraph (c)(3)(ii)(B) of this section making §1.1502-13(c)(6)(ii) inapplicable in determining the excludability of S's intercompany gain. Therefore, in 2023, S is treated as having $10x of tax-exempt income, S's remaining deferred gain is $90x ($100x−$10x), while B's basis in Q remains $250x.

(C) Seven-year basis increase in 2025. The same analysis in paragraph (j)(3)(ii)(B) of this section applies for the year 2025. Therefore, in 2025, S is treated as having $5x ($100x × 5%) of tax-exempt income, S's remaining deferred gain is $85x ($90x−$5x), and B's basis in Q remains $250x.

(D) Inclusion of S's remaining deferred gain in 2026. B continues to own the Q stock through 2026, and, treating S and B as divisions of a single entity for purposes of section 1400Z-2, the single entity would include its remaining deferred gain in income on December 31, 2026. See section 1400Z-2(b)(1), §1.1400Z2(b)-1(b). On a single-entity basis, the amount includible pursuant to §1.1400Z2(b)-1(e) is $85x (the lesser of the remaining deferred gain of $100x and the fair market value of the qualifying investment of $300x, over the single entity's basis in Q, $15x). B does not otherwise have an income event with respect to its Q stock in 2026. Therefore, under §1.1502-13(c), all $85x of S's remaining deferred gain is taken into account in 2026. In addition, S's $150x of capital gain on its Q stock sale continues to be deferred, and B's basis in Q remains $250x.

(E) B sells the Q stock in 2030. In 2030, B sells all its Q stock to X for $800x. Under paragraph (c)(3)(ii)(D) of this section, B is entitled to make the election under section 1400Z-2(c) if, treating S and B as a single entity, the single entity would be eligible to make the election. Taking into account S's holding period, B has held Q for over 10 years, and B is eligible for the election when it sells Q to X in 2030. B makes the section 1400Z-2(c) election at the time of sale. Following the election, if S and B were divisions of a single entity, the single entity's basis in Q would increase from $100x to its fair market value of $800x, causing to be excluded the $700x of gain on the sale of Q stock. To achieve this single entity result, §1.1502-13(c)(1) redetermines B's $550x ($800x−$250x) of gain and S's deferred $150x of capital gain to be tax-exempt income. See paragraph (c)(3)(ii)(B) of this section making §1.1502-13(c)(6)(ii) inapplicable in determining the excludability of S's intercompany gain. Therefore, as a result of the sale of the Q stock and B making the section 1400Z-2(c) election, S has $150x of tax-exempt income, and B has $550x of tax-exempt income.

(4) Example 4: Intercompany sale of qualifying investment followed by sale of QOF at a loss outside of the consolidated group—(i) Facts. The facts are the same as in paragraph (j)(3)(i) of this section, except that in 2030, B sells the stock of Q for $225x to X.

(ii) Analysis. The analysis for tax years prior to 2030 is the same as in paragraphs (j)(3)(ii)(A) through (D) of this section. In addition, applying the analysis in paragraph (j)(3)(ii)(E) of this section, B is entitled to make the election under section 1400Z-2(c) and B makes the election. Following the election, if S and B were divisions of a single entity, the single entity's basis in Q would increase from $100x to $225x, causing to be excluded the $125x of gain on the sale of Q stock. To achieve this single entity result, §1.1502-13(c)(1) redetermines B's $25x ($225x−$250x) of loss to be a noncapital, nondeductible expense and S's deferred $150x of capital gain to be tax-exempt income. Therefore, as a result of the sale of Q stock and B making the section 1400Z-2 election, S has $150x of tax-exempt income, and B has $25x of noncapital, nondeductible expense.

(5) Example 5: Intercompany section 351 transfer of qualifying investment—(i) Facts. In 2018, M sells an asset to an unrelated party and realizes $100x of eligible gain. Also in 2018, M contributes $100x to Q in exchange for Q stock and properly elects to defer the eligible gain under section 1400Z-2(a) and §1.1400Z2(a)-1. M does not otherwise own stock in Q. In 2021, when the value of Q is $200x, M contributes all of its Q stock to S in exchange for S stock in a transaction that qualifies under section 351.

(ii) Analysis. In 2021, M's contribution of its Q stock to S is an inclusion event under section 1400Z-2(b)(1) and §1.1400Z2(b)-1(c). The amount includible pursuant to §1.1400Z2(b)-1(e) is $100x (the lesser of the remaining deferred gain of $100x and the fair market value of the qualifying investment of $200x, over S's basis in Q, $0). Because M's contribution of its Q stock to S is not a fully taxable transaction, the general rule in paragraph (c)(3)(i) of this section applies to treat the contribution as not an intercompany transaction for purposes of applying section 1400Z-2, and §1.1502-13 does not apply to treat M and S as a single entity for purposes of section 1400Z-2. Thus, as a result of the transfer, M takes its $100x of remaining deferred gain into account, M's basis in S is $100x, and S's basis in Q is $100x.

(6) Example 6: Intercompany sale of qualifying investment followed by a tax-free transfer of the qualifying investment—(i) Section 351 transfer to another member of the consolidated group—(A) Facts. In 2018, S sells an asset to an unrelated party and realizes $100x of eligible gain. Also in 2018, S contributes $100x to Q in exchange for Q stock and properly elects to defer the eligible gain under section 1400Z-2(a) and §1.1400Z2(a)-1. S does not otherwise own stock in Q. In 2021, when the fair market value of the Q stock is $250, S sells all of its Q stock to B for $250x in a fully taxable transaction. In 2024, B transfers all its Q stock to another member of the P group, B2, in a section 351 transaction. At such time, the fair market value of the Q stock is $300x.

(B) Analysis—(1) Intercompany sale in 2021. In 2021, S's sale of its Q stock to B is an inclusion event under section 1400Z-2(b)(1) and §1.1400Z2(b)-1(c). The amount includible pursuant to §1.1400Z2(b)-1(e) is $100x (the lesser of the remaining deferred gain of $100x and the fair market value of the qualifying investment of $250x, over S's basis in Q, $0). As a result of the inclusion, S's basis in its Q stock increases from $0 to $100x and S also realizes a capital gain of $150x ($250x of amount realized less its $100x basis in the Q stock) from the intercompany sale of the Q stock to B. Because S's sale of its Q stock to B is a fully taxable transaction, paragraph (c)(3)(ii) of this section applies to treat the sale as an intercompany transaction. Therefore, S's intercompany gains are taken into account under §1.1502-13(c) and (d). Thus, S defers the inclusion of its $100x of remaining deferred gain and its $150x of capital gain in 2021. B has a $250x basis in its Q stock.

(2) Five-year basis increase in 2023. Pursuant to paragraph (c)(3)(ii) of this section, S and B are treated as divisions of a single entity for purposes of applying section 1400Z-2. In 2023, the single entity has held the QOF investment for five years and its basis in the Q stock would be increased to $10x ($100x × 10%) under section 1400Z-2(b)(2)(B)(iii). To achieve this single entity result, $10x of S's $100x of remaining deferred gain is redetermined to be tax-exempt income. See §1.1502-13(c)(1); see also paragraph (c)(3)(ii)(B) of this section making §1.1502-13(c)(6)(ii) inapplicable in determining the excludability of S's intercompany gain. Therefore, in 2023, S is treated as having $10x of tax-exempt income, S's remaining deferred gain is $90x ($100x−$10x), and B's basis in the Q stock remains $250x.

(3) Intercompany transfer in a section 351 transaction. In 2024, B's contribution of its Q stock to B2, a member of the P group, is an inclusion event under section 1400Z-2(b)(1) and §1.1400Z2(b)-1(c). The amount includible pursuant to §1.1400Z2(b)-1(e) is $90x (the remaining deferred gain as determined in paragraph (j)(6)(i)(B) of this section). Because B's contribution of its Q stock to B2 is not a fully taxable transaction, the general rule in paragraph (c)(3)(i) of this section applies to prevent the contribution from being treated as an intercompany transaction for purposes of section 1400Z-2. As a result, for purposes of section 1400Z-2, §1.1502-13 does not apply to treat B and B2 as a single entity, and the application of §1.1502-13(j) is adjusted accordingly. As a result of the section 351 transfer, S takes its $90x of remaining deferred gain into account. B's basis in its B2 stock is $250x, and B's basis in its Q stock is $250x. However, because S's $150x of capital gain from the intercompany sale of its Q stock to B in 2021 is not an item related to section 1400Z-2, it continues to be deferred under §1.1502-13 because B2 is a member of the P group. See §1.1502-13(j)(4) regarding successive intercompany transactions.

(ii) Section 351 transfer to a non-member—(A) Facts. The facts are the same as in paragraph (j)(6)(i)(A) of this section, except that B2 is not a member of the P group, and B contributes all its Q stock to B2 in a transaction that qualifies under section 351.

(B) Analysis—(1) Intercompany sale in 2021 and five-year basis increase in 2023. The analysis for the 2021 and 2023 tax years are the same as in paragraphs (j)(6)(i)(B)(1) and (2) of this section.

(2) Transfer of Q to a non-member in a section 351 transaction. In 2024, B's contribution of its Q stock to B2, a non-member of the P group, is an inclusion event under section 1400Z-2(b)(1) and §1.1400Z2(b)-1(c). The amount includible pursuant to §1.1400Z2(b)-1(e) is $90x (the remaining deferred gain as determined in paragraph (j)(6)(ii)(B)(1) of this section). S's deferred capital gain of $150x is taken into account in 2024 under the acceleration rule of §1.1502-13(d) because the Q stock has left the P group. B2's holding period for the qualifying investment does not include the time during which B and S held the qualifying investment.

(iii) Section 721(a) transfer to a partnership—(A) Facts. The facts are the same as in paragraph (j)(6)(i)(A) of this section, except that B2 is a partnership, and an unrelated party is the other partner in B2. B's transfer of all of its Q stock to B2 qualifies for non-recognition treatment under section 721(a). In 2026, the fair market value of Q is $330x.

(B) Analysis—(1) Intercompany sale in 2021 and five-year basis increase in 2023. The analysis for the 2021 and 2023 tax years are the same as in paragraphs (j)(6)(i)(B)(1) and (2) of this section.

(2) Transfer of Q stock to a partnership in a section 721(a) transaction. In 2024, B transfers its Q stock to B2, a partnership, in a section 721(a) transaction. Although a section 721(a) transaction is not an inclusion event under §1.1400Z2(b)-1(c)(7), under the acceleration rule of §1.1502-13(d), S must take into account its $90x of remaining deferred gain because B2 has benefited from an increased basis in the Q stock as a result of the intercompany sale between S and B such that this is the appropriate time to take the remaining deferred gain into account. S's deferred capital gain of $150x is taken into account in 2024 for the same reason.

(7) Example 7: Computation and application of the attribute reduction amount under §1.1502-36(d) when S owns a QOF—(i) Facts. In 2018, S sells an asset to an unrelated party and realizes $5,000x of eligible gain. S contributes $5,000x to Q in exchange for stock of Q and properly elects to defer the eligible gain under section 1400Z-2(a) and §1.1400Z2(a)-1. In 2024, M sells all of its S stock to X for its fair market value of $100x, and M's basis in the stock of S is $300x. At the time of sale, S owns the Q stock with a basis of $500x (S's basis in its Q stock was increased under section 1400Z-2(b)(2)(B)(iii) to $500x in 2023), and S has a net operating loss carryover of $50x. M's transfer of the S shares is a transfer of loss shares under §1.1502-36. Assume that no basis redetermination is required under §1.1502-36(b) and no basis reduction is required under §1.1502-36(c).

(ii) Attribute reduction under §1.1502-36(d). Under §1.1502-36(d), S's attributes are reduced by S's attribute reduction amount. Section 1.1502-36(d)(3) provides that S's attribute reduction amount is the lesser of the net stock loss and S's aggregate inside loss. The net stock loss is the excess of the $300x aggregate basis of the transferred S shares over the $100x aggregate value of those shares, or $200x. S's aggregate inside loss, which includes the basis of the stock of Q as provided by paragraph (e) of this section, is the excess of S's net inside attribute amount over the value of the S share. S's net inside attribute amount is $550x, computed as the sum of S's $50x loss carryover and its $500x basis in Q. S's aggregate inside loss is therefore $450x ($550x net inside attribute amount over the $100x value of the S share). Accordingly, S's attribute reduction amount is the lesser of the $200x net stock loss and the $450x aggregate inside loss, or $200x. Under §1.1502-36(d)(4), S's $200x attribute reduction is first allocated and applied to reduce S's $50x loss carryover to $0. Under §1.1502-36(d)(4)(i)(D), S generally would be able to reduce the basis of its category D assets (including stock in other corporations) by the remaining attribute reduction amount ($150x). However, paragraph (e) of this section provides that S's basis in the stock of Q is not included in S's Category D attributes that are available for reduction under §1.1502-36(d)(4), and the remaining $150x of attribute reduction amount cannot be used to reduce the basis of Q shares under §1.1502-36(d). Rather, under paragraph (e) of this section, P is treated as making the election under §1.1502-36(d)(6) to reduce M's basis in the transferred loss S shares by $150x. As a result, P's basis in its M stock is also reduced by $150x.

(k) Applicability dates—(1) In general. This section applies for taxable years beginning after March 13, 2020.

(2) Prior periods. With respect to the portion of a consolidated group's first taxable year ending after December 21, 2017, and for taxable years beginning after December 21, 2017, and on or before March 13, 2020, a consolidated group may choose either—

(i) To apply the section 1400Z-2 regulations, if applied in a consistent manner for all such taxable years; or

(ii) To rely on the rules in proposed §1.1400Z2(g)-1 contained in the notice of proposed rulemaking (REG-120186-18) published on May 1, 2019, but only if applied in a consistent manner for all such taxable years.

[T.D. 9889, 85 FR 1993, Jan. 13, 2020; 85 FR 19086, Apr. 6, 2020]