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fact patterns. The following example was $100 million of RBIG on the sale “attributable to RBIG” in the context
illustrates one of the difficulties in of Property 3, then all income of the of RBIG triggered by a consolidated
interpreting Sec. 384(a) when gain on combined corporation up to $100 mil- group member, where different mem-
the built-in gain property exceeds total lion is attributable to the RBIG. Under bers of the group generate income
income of the corporation during the this interpretation, the combined and loss.
year and some of the gain on the sale corporation would not be permitted While it does not directly relate to
of the property is attributable to post- to use any Corp C NOLs to offset the the issue of post-acquisition apprecia-
acquisition appreciation: $60 million of income; therefore, only tion, and the example is in the context
the $25 million of Corp D NOLs are of the consolidated return rules, the
Example 2: On Dec. 31, 2021, permitted to be used, and the com- commenter appears to interpret the
Corp C and Corp D each have bined corporation must recognize $35 Sec. 384 rules to require a proration of
NOLs of $25 million. On the same million of income. losses from another subsidiary in the
date, Corp D merges into Corp C A second interpretation could be group between the income that was
in a transaction that qualifies as a that since $50 million of gain was at- “attributable to RBIG” and the rest
tax-free reorganization under tributable to post-acquisition apprecia- of the income of the group (see the
Sec. 368(a)(1)(A). At the time of tion, then $50 million of the total $60 example in Dubroff, Federal Income
the transaction, Corp C had one asset million of income is not attributable Taxation of Corporations Filing Con-
with an FMV of $100 million and to RBIG of Property 3. Therefore, the solidated Returns (Matthew Bender, 2d
basis of $100 million (Property 2), combined corporation would not be ed.), in Chapter 42.06[1], where P is
and Corp D had one asset with an limited under Sec. 384 from using any the parent of a consolidated group that
FMV of $100 million, and a basis of its NOLs, thus recognizing only $10 includes S1, S2, and T, where S1 had
of $0 (Property 3). During the tax million of gain. $100 of income, S2 had a $100 loss,
year ended Dec. 31, 2022, the new A third interpretation is that, of T had $100 of income attributable to
combined corporation sells Proper- the $150 million of gain on the sale RBIG, and Sec. 384 treats only $50 of
ty 2 for $10 million, recognizing a of Property 3, $100 million was at- the $100 net income of the consoli-
loss of $90 million, and Property 3 tributable to RBIG and $50 million dated group as being attributable to the
for $150 million, recognizing a gain was attributable to post-acquisition ap- RBIG of T).
of $150 million. The combined preciation so that two-thirds of the $60
corporation had $0 net income and million of net income ($40 million) Complications with multiple
loss in the year other than the sale was attributable to RBIG and one- Sec. 384 limitations
of the properties so that the com- third of the $60 million ($20 million) Example 2 simply illustrates one issue
bined corporation had $60 million was attributable to post-acquisition that arises in interpreting “to the extent
of gain in the year (this example as- appreciation. Therefore, the combined attributable to recognized built-in gain,”
sumes that no Sec. 382 limit applies corporation would be permitted to use that of post-acquisition appreciation on
to the use of any of the NOLs). up to $20 million of Corp C’s NOLs the built-in gain property. Another issue
(and the entire $25 million of Corp arises when two separate Sec. 384 limits
Sec. 384 provides that the gain (to D’s NOLs). Thus, the combined cor- apply to different assets sold in the same
the extent attributable to RBIG) is not poration would recognize $15 million tax year. See the following example:
offset by any preacquisition loss other of income in the tax year ended Dec.
than the preacquisition loss of the 31, 2022. Example 3: On Dec. 31, 2020, Corp
gain corporation (i.e., the corporation The IRS has not indicated whether E has $50 million of NOLs, and
that held the built-in gain property). post-acquisition appreciation on the Corp F has $10 million of NOLs.
There was a $150 million gain on built-in gain property that is subject On Dec. 31, 2020, Corp F merges into
the sale of Property 3 but only a $60 to Sec. 384 should be considered when Corp E in a transaction that qualifies
million total gain in the tax year from determining the amount of income as a tax-free reorganization under
the combined corporation that can be “attributable to” RBIG and whether Sec. 368(a)(1)(A). At the time of
offset by NOLs. An issue of interpreta- it is appropriate to allocate some of the transaction, Corp E had one
tion arises in determining whether the the corporation’s income to that post- asset with an FMV of $100 mil-
$60 million of income is “attributable acquisition appreciation. One com- lion and a basis of $0 (Property 4),
to” the RBIG of Property 3. One in- mentor has briefly discussed a related and Corp F had one asset with an
terpretation would be that since there issue regarding what it means to be FMV of $150 million and a basis

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