Since Jones' losses in respect of which certifications were filed (813,000) are greater than 50 percent of his net operating loss ($19,000), Jones' net operating loss is eligible for the five-year carryback. Since the special rule applicable in the case of partners of a partnership, or shareholders of an electing small business corporation, is satisfied, Jones shall carry his entire net operating loss back to his fifth taxable year preceding his taxable year 1963 if he satisfies the consent requirement of section 172(b) (3)(A)(11) and paragraph (d) of this section.

Example (2). Assume the same facts as in example (1), except that no certification was issued under section 317(a) of the Trade Act for X Corporation's net operating loss. In this case, Jones' losses in respect of which certifications were filled is $8,000. Since $8,000 is not greater than 50 percent of Jones' net operating loss (819,000), Jones may not carry back any part of his net operating loss to the fifth and fourth taxable years preceding his taxable year 1963. The fact that Jones has not satisfied the requirements of section 172(b) (3) (B) and this paragraph has no effect on whether any other partner of the ABC partnership may carry back a net operating loss to each of his five preceding taxable years.

(c) Filing requirements—(1) In general. Section 172(b)(3)(A)(i) provides that the five-year carryback does not apply with respect to a certified net operating loss unless there has been filled, at such time and in such manner as may be prescribed by the Secretary or his delegate, a notice that a timely application has been filed with the Secretary of Commerce for tax assistance with respect to such loss under section 317(a) of the Trade Act and, after its issuance, a copy of the certification under such section.

(2) Notice; contents. The notice shall be filed by the firm applying for tax assistance under section 317(a) of the Trade Act. If the firm applying for tax assistance is not the taxpayer who would

take into account the loss with respect to which a certification is sought (for example, a partnership or an electing small business corporation), a separate notice shall also be filed by each taxpayer who would take any part of such loss into account and who desires to make use of the five-year carryback. The notice shall be in the form of a written statement, in duplicate, signed by the firm or taxpayer, or its duly authorized representative. The notice shall contain the following information:

(i) A statement that the firm has applied to the Secretary of Commerce for tax assistance under section 317(a) of the Trade Act and the date the application was filed.

(ii) The amount of the net operating loss designated in the application for tax assistance and the taxable year of the firm in which such loss was sustained.

(iii) In the case of a notice which is filed by the firm, the name, address, and taxpayer account number of the firm, and the internal revenue district in which the firm filed its income tax return for the taxable year of the net operating loss.

(iv) In the case of a separate notice which is filed by a taxpayer who is not the firm, the name, address, and taxpayer account number of both the taxpayer and the firm; the amount of such taxpayer's net operating loss for his taxable year with or within which the taxable year of the firm ends; and the internal revenue district in which his income tax return for such taxable year is filed.

(3) Notice; time and place for filing. The notice shall be filed within 90 days after the date on which the firm applies to the Secretary of Commerce for tax assistance under section 317(a) of the Trade Act. The notice of the firm shall be filed in the internal revenue district in which its income tax return was filed for the fifth and fourth taxable years preceding the taxable year of the net operating loss, except that a firm which is a partnership or an electing small business corporation shall file the notice in the internal revenue district in which its income tax return was filed for the taxable year of the loss. The notice of a taxpayer who is not the firm shall be filed in the internal revenue district in which such taxpayer filed his income tax return for the fifth and fourth taxable years preceding his taxable year with or within which the taxable year of the firm ends. If a notice is not filed or, if

filed, is not timely filed or does not contain all of the information required by this subparagraph, the district director may extend the period of time within which a timely and proper notice may be filed if he is satisfied that the examination and processing of claims for refund or an application for tentative carry back adjustment for the fifth and fourth preceding taxable years will not be adversely affected.

(4) Copy of certification. A copy of the certification issued by the Secretary of Commerce under section 317(a) of the Trade Act shall be attached to all claims for credit or refund of income tax and to all applications for tentative carryback adjustment filed for the fifth and fourth taxable years preceding the taxable year of the net operating loss or, in the case of a taxpayer who is not the firm, for the fifth and fourth taxable years preceding such taxpayer's year with or within which the taxable year of the firm ends.

(d) Consent requirement. The fiveyear carryback provision of section 172 (b) (1) (A) (ii) shall not apply with respect to a certified net operating loss unless the taxpayer, in a signed statement, consents to the assessment, within such period as may be determined by the district director, of any deficiency for any year to the extent attributable to the disallowance of a deduction previously allowed with respect to such net operating loss. The consent shall be valid with respect to the assessment of any such deficiency notwithstanding that at the time such consent is filed such assessment would otherwise be prevented by the operation of any law or rule of law. [T.D. 6862, 30 F.R. 14429, Nov. 18, 1965]

§ 1.172-10 Net operating loss carryovers for regulated transportation corporations.

(a) In general. A net operating loss sustained in a taxable year ending after December 31, 1955, shall be a carryover to the seven succeeding taxable years if the taxpayer is a regulated transportation corporation (as defined in paragraph (b) of this section) for the loss year and for the sixth and seventh succeeding taxable years. If, however, the taxpayer is a regulated transportation corporation for the loss year and for the sixth succeeding taxable year but not for the seventh succeeding taxable year, then the loss shall be a carryover to the six succeeding taxable years. If the tax

payer is not a regulated transportation corporation for the sixth succeeding taxable year then this section shall not apply. If the net operating loss was sustained in a taxable year beginning in 1955 and ending in 1956, see paragraph (d) of this section for a limitation on the amount of the loss which may be carried over to the sixth and seventh succeeding taxable years.

(b) Regulated transportation corporations. A corporation is a "regulated transportation corporation" for a taxable year if it is included within one or more of the following categories:

(1) Eighty percent or more of the corporation's gross income (computed without regard to dividends and capital gains and losses) for such taxable year is income from transportation sources described in paragraph (c) of this section.

(2) The corporation is a railroad corporation, subject to Part I of the Interstate Commerce Act, which is either a lessor railroad corporation described in section 7701(a) (33) (G) or a common parent railroad corporation described in section 7701(a) (33) (H).

(3) The corporation is a member of a regulated transportation system for the taxable year. For purposes of this section, a member of a regulated transportation system for a taxable year means a member of an affiliated group of corporations making a consolidated return for such year, if 80 percent or more of the sum of the gross incomes of the members of the affiliated group for such year (computed without regard to dividends, capital gains and losses, or eliminations for intercompany transactions) is derived from transportation sources described in paragraph (c) of this section. For purposes of this subparagraph, income derived by a corporation described in subparagraph (2) of this paragraph from leases described in section 7701(a) (33) (G) shall be considered as income from transportation sources described in paragraph (c) of this section.

(c) Transportation sources. For purposes of this section, income from "transportation sources" means income received directly in consideration for transportation services, and income from the furnishing or sale of essential facilities, products, and other services which are directly necessary and incidental to the furnishing of transportation services. For purposes of the preceding sentence, the term "transportation services"

means

(1) Transportation by railroad as a common carrier subject to the jurisdiction of the Interstate Commerce Commission;

(2) (1) Transportation, which is not included in subparagraph (1) of this paragraph

(a) On an intrastate, suburban, muInicipal, or interurban electric railroad,

(b) On an intrastate, municipal, or suburban trackless trolley system,

(c) On a municipal or suburban bus -system, or

(d) By motor vehicle not otherwise included in this subparagraph,

if the rates for the furnishing or sale of such transportation are established or approved by a regulatory body described in section 7701(a) (33) (A);

(ii) In the case of a corporation which establishes to the satisfaction of the district director that

(a) Its revenue from regulated rates from transportation services described in subdivision (i) of this subparagraph and its revenue derived from unregulated rates are derived from its operation of a single interconnected and coordinated system or from the operation of more than one such system, and

(b) The unregulated rates have been and are substantially as favorable to users and consumers as are the regulated rates,

transportation, which is not included in subparagraph (1) of this paragraph, from which such revenue from unregulated rates is derived.

(3) Transportation by air as a common carrier subject to the jurisdiction of the Civil Aeronautics Board; and

(4) Transportation by water by common carrier subject to the jurisdiction of either the Interstate Commerce Commission under Part III of the Interstate Commerce Act (54 Stat. 929), or the Federal Maritime Board under the Intercoastal Shipping Act, 1933 (52 Stat. 965).

(d) Taxable years beginning in 1955 and ending in 1956. In the case of a net operating loss sustained in a taxable year which begins in 1955 and ends in 1956, the amount of such loss which shall be carried over

(1) To the sixth succeeding taxable year shall be the amount which bears the same ratio to the amount (computed under paragraph (a)(3) of § 1.172-4) of such loss which (but for this paragraph) would be carried over to such sixth succeeding taxable year as the number of

days in such loss year after December 31, 1955, bears to the total number of days in such loss year; and

(2) To the seventh succeeding taxable year shall be the excess of the amount of such loss which was carried over to the sixth succeeding taxable year (as determined under subparagraph (1) of this paragraph) over the taxable income (computed as provided in § 1.172-5) for the sixth succeeding taxable year.

(e) Corporate acquisitions. This section shall apply to a carryover of a net operating loss sustained by a regulated transportation corporation (as defined in paragraph (b) of this section) to which an acquiring corporation succeeds under section 381(a) only if the acquiring corporation is a regulated transportation corporation (as defined in paragraph (b) of this section)

(1) For the sixth succeeding taxable year in the case of a carryover to the sixth succeeding taxable year, and

(2) For the sixth and seventh succeeding taxable years in the case of a carryover to the seventh succeeding taxable year.

[T.D. 6862, 30 F.R. 14430, Nov. 18, 1965]

§ 1.172-11 Election with respect to portion of net operating loss attributable to foreign expropriation loss. (a) In general. If a taxpayer has a net operating loss for a taxable year ending after December 31, 1958, and if the foreign expropriation loss for such year (as defined in paragraph (b)(1) of this section) equals or exceeds 50 percent of the net operating loss for such year, then the taxpayer may elect (at the time and in the manner provided in paragraph (c) (1) or (2) of this section, whichever is applicable) to have the provisions of this section apply. If the taxpayer so elects, the portion of the net operating loss for such taxable year attributable (under paragraph (b) (2) of this section) to such foreign expropriation loss shall not be a net operating loss carryback to any taxable year preceding the taxable year of such loss and shall be a net operating loss carryover to each of the ten taxable years following the taxable year of such loss. In such case, the portion, if any, of the net operating loss not attributable to a foreign expropriation loss shall be carried back or carried over as provided in paragraph (a) (1) (ii) of § 1.172-4.

(b) Determination of "foreign expropriation loss"—(1) Definition of "for

eign expropriation loss”. The term "foreign expropriation loss" means, for any taxable year, the sum of the losses allowable as deductions under section 165 (other than losses from, or which under section 165(g) or 1231(a) are treated or considered as losses from, sales or exchanges of capital assets and other than losses described in section 165 (1) (1)) sustained by reason of the expropriation, intervention, seizure, or similar taking of property by the government of any foreign country, any political subdivision thereof, or any agency or instrumentality of the foregoing. For purposes of the preceding sentence, a debt which becomes worthless in whole or in part, shall, to the extent of any deduction allowed under section 166(a), be treated as a loss allowable as a deduction under section 165.

(2) Portion of the net operating loss attributable to a foreign expropriation loss. (1) Except as provided in subdivision (ii) of this subparagraph, the portion of the net operating loss for any taxable year attributable to a foreign expropriation loss is the amount of the foreign expropriation loss for such taxable year (determined under subparagraph (1) of this paragraph).

(ii) The portion of the net operating loss for a taxable year attributable to a foreign expropriation loss shall not exceed the amount of the net operating loss, computed under section 172 (c), for such year.

(3) Examples. The application of this paragraph may be illustrated by the following examples:

Example (1). M Corporation, a domestic calendar year corporation manufacturing cigars in the United States, owns, in country X, a tobacco plantation having an adjusted basis of $400,000 and farm equipment having an adjusted basis of $300,000. On January 15, 1961, country X expropriates the plantation and equipment without any allowance for compensation. For the taxable year 1961, M Corporation sustains a loss from the operation of its business (not including losses from the seizure of its plantation and equipment in country X) of $200,000, which loss would not have been sustained in the absence of the seizure. Accordingly, M has a net operating loss of $900,000 (the sum of $400,000, $300,000, and $200,000). For purposes of section 172(k) (1), M Corporation has a foreign expropriation loss for 1961 of $700,000 (the sum of $400,000 and $300,000, the losses directly sustained by reason of the seizure of its property by country X). Since the foreign expropriation loss for 1961, $700,000, equals or exceeds 50 percent of the

net operating loss for such year, or $450,000 (i.e., 50 percent of $900,000), M Corporation may make the election under paragraph (c) (2) of this section with respect to $700,000, the portion of the net operating loss attributable to the foreign expropriation loss.

Example (2). Assume the same facts as in example (1) except that for 1961, M Corporation has operating profits of $300,000 (not including losses from the seizure of its plantation and equipment in country X) so that its net operating loss (as defined in section 172(c)) is only $400,000. Under the provisions of section 172(k) (2) and paragraph (b)(2) of this section, the portion of the net operating loss for 1961 attributable to a foreign expropriation loss is limited to $400,000, the amount of the net operating loss.

(c) Time and manner of making election (1) Taxable years ending after December 31, 1963. In the case of a taxpayer who has a foreign expropriation loss for a taxable year ending after December 31, 1963, the election referred to in paragraph (a) of this section shall be made by attaching to the taxpayer's income tax return (filed within the time prescribed by law, including extensions of time) for the taxable year of such foreign expropriation loss a statement containing the information required by subparagraph (3) of this paragraph. Such election shall be irrevocable after the due date (including extensions of time) of such return.

(2) Taxable years ending after December 31, 1958, and before January 1, 1964. In the case of a taxpayer who has a foreign expropriation loss for a taxable year ending after December 31, 1958, and before January 1, 1964, the election referred to in paragraph (a) of this section shall be made by filing on or before December 31, 1965, with the district director for the district in which the taxpayer filed his income tax return for the taxable year of such foreign expropriation loss, a statement containing the information required in subparagraph (3) of this paragraph. Such election shall be irrevocable after December 31, 1965. See paragraph (d) of this section for special rules relating to taxable years affected by an election under this subparagraph.

(3) Information required. The statement referred to in subparagraphs (1) and (2) of this paragraph shall contain the following information:

(i) The name, address, and taxpayer account number of the taxpayer;

(ii) A statement that the taxpayer elects under section 172(b) (3) (C) (11)

or (iii), whichever is applicable, to have section 172(b) (1) (D) of the Code apply; (iii) The amount of the net operating loss for the taxable year; and

(iv) The amount of the foreign expropriation loss for the taxable year, including a schedule showing the computation of such foreign expropriation loss.

In addition, if a taxpayer makes the election under subparagraph (2) of this paragraph, the taxpayer shall specify the internal revenue district in which he filed his return for the three taxable years immediately preceding the taxable year of the foreign expropriation loss. If there is an increase or decrease in tax attributable to the election under subparagraph (2) of this paragraph for any taxable year preceding or succeeding the taxable year of the foreign expropriation loss, amended returns or claims for refund should be filed with the office of the district director with whom the taxpayer files his income tax return for the taxable year in which such election is made.

(d) Rules relating to elections for taxable years ending after December 31, 1958, and before January 1, 1964. If a taxpayer makes an election under paragraph (c) (2) of this section, then (notwithstanding any law or rule of law) with respect to any taxable year ending before January 1, 1964, which is affected by the election the following rules shall apply:

(1) The time for making or changing a choice to claim the credit for foreign taxes allowed by section 901, or for making or changing an election under section 904 (relating to the limitation on such credit), shall not expire before January 1, 1966.

(2) Any deficiency attributable to the election under paragraph (c) (2) of this section or to the application of subparagraph (1) of this paragraph may be assessed at any time before January 1, 1969. However, if the period within which a deficiency may be assessed under section 6501 of the Code would expire on a date after December 31, 1968, then such later date shall apply.

(3) Refund or credit of any overpayment attributable to the election under paragraph (c) (2) of this section or to the application of subparagraph (1) of this paragraph may be made or allowed if claim therefor is filed before January 1, 1969. However, if the period within

which a claim for refund or credit may be filed under section 6511 of the Code would expire on a date after December 31, 1968, then such later date shall apply.

(e) Amount of foreign expropriation loss which is a carryover to the taxable year in issue—(1) General. If a portion of a net operating loss for the taxable year is attributable to a foreign expropriation loss and if an election under paragraph (c) of this section has been made with respect to such portion of the net operating loss, then such portion shall be considered to be a separate net operating loss for such year, and, for the purpose of determining the amount of such separate loss which may be carried over to other taxable years, such portion shall be applied after the other portion (if any) of such net operating loss. Such separate loss shall be carried to the earliest of the several taxable years to which such separate loss is allowable as a carryover under the provisions of paragraph (a) (1) (v) of § 1.172-4, and the amount of such separate loss which shall be carried over to any taxable year subsequent to such earliest year is an amount (not exceeding such separate loss) equal to the excess of

(i) The sum of (a) such separate loss and (b) the other portion (if any) of the net operating loss (i.e., that portion not attributable to a foreign expropriation loss) to the extent such other portion is a carryover to such earliest taxable year, over

(ii) The sum of the aggregate of the taxable incomes (computed as provided in § 1.172-5) for all of such several taxable years preceding such subsequent taxable year.

(2) Cross reference. The portion of a net operating loss which is not attributable to a foreign expropriation loss shall be carried back or carried over, in accordance with the rules provided in paragraph (b) (1) of § 1.172-4, as if such portion were the only net operating loss for such year.

(3) Examples. The application of this paragraph may be illustrated by the following examples:

Example (1). Corporation A, organized in 1960 and whose return is made on the basis of the calendar year, incurs for 1960 a net operating loss of $10,000, of which 87,500 attributable to a foreign expropriation loss. With respect to such $7,500, A makes the election described in paragraph (c) (2) of this section. In each of the years 1961, 1962, 1963, 1964, and 1965, A has taxable income in the amount of $600 (computed without