Treas. Reg. § 1.1503(d)-7 — ExamplesPresumed Facts1Facts 1–72Facts 8–15(1) Each entity has only a single class of equity outstanding, all ofwhich is held by a single owner.(2) P, a domestic corporation and the common parent of the Pconsolidated group, owns S, a domestic corporation and a member of theP consolidated group.(3) DRCx, a domestic corporation, is subject to Country X tax on itsworldwide income or on a residence basis, and is a dual residentcorporation.(4) DE1x and DE2x are both Country X entities, subject to Country Xtax on their worldwide income or on a residence basis, and disregardedas entities separate from their owners for U.S. tax purposes. DE3y isa Country Y entity, subject to Country Y tax on its worldwide incomeor on a residence basis, and disregarded as an entity separate fromits owner for U.S. tax purposes. All the interests in DE1x, DE2x, andDE3y constitute hybrid entity separate units.(5) FBx is a Country X business operation that, if carried on by aU.S. person, would constitute a foreign branch, as defined in §1.367(a)-6T(g)(1), and is a Country X foreign branch separate unit.(6) Neither the assets nor the activities of an entity constitute aforeign branch separate unit.(7) FSx is a Country X entity that is subject to Country X tax on itsworldwide income or on a residence basis and is classified as aforeign corporation for U.S. tax purposes.(8) The applicable foreign country has a consolidation regime that—(i) Includes as members of a consolidated group any commonlycontrolled branches and permanent establishments in suchjurisdiction, and entities that are subject to tax in suchjurisdiction on their worldwide income or on a residence basis; and(ii) Allows the losses of members of consolidated groups to offsetincome of other members.(9) There is no mirror legislation, within the meaning of §1.1503(d)-3(e)(1), in the applicable foreign country.(10) There is no elective agreement described in § 1.1503(d)-6(b)between the United States and the applicable foreign country.(11) There is no income tax convention between the United States andthe applicable foreign country.(12) If a domestic use election, within the meaning of §1.1503(d)-6(d), is made, all the necessary filings related to suchelection are properly completed on a timely basis.(13) If there is a triggering event requiring recapture of a dualconsolidated loss, the amount of recapture is not reduced pursuant to§ 1.1503(d)-6(h)(2).(14) There are no other items of income, gain, deduction, and loss. Inaddition, the United States and the applicable foreign countryrecognize the same items of income, gain, deduction, and loss in eachtaxable year.(15) All taxpayers use the calendar year as their taxable year.

Presumed Facts Explained

Treas. Reg. § 1.1503(d)-7 illustrates the dual consolidated loss (DCL) rules through a long series of examples. Rather than restate the common background in each one, the regulation opens with fifteen “presumed facts” that apply throughout. This chart reproduces that list verbatim.

The facts establish the parties and their U.S. and foreign tax characterization: each entity has a single class of equity held by a single owner; P is a domestic corporation and common parent of the P consolidated group that owns S, also a domestic group member; DRCx is a domestic corporation subject to Country X tax and thus a dual resident corporation; DE1x, DE2x, and DE3y are disregarded entities whose interests are hybrid entity separate units; FBx is a Country X foreign branch separate unit; and FSx is a Country X entity classified as a foreign corporation for U.S. tax purposes.

The remaining facts fix the legal environment so each example turns on a single variable. The applicable foreign country has a consolidation regime that both includes commonly controlled branches, permanent establishments, and residence-taxed entities as group members and allows members’ losses to offset other members’ income. There is no mirror legislation under § 1.1503(d)-3(e)(1), no elective agreement under § 1.1503(d)-6(b), and no income tax convention between the United States and the applicable foreign country. Any domestic use election under § 1.1503(d)-6(d) is assumed to be properly and timely filed, recapture of a DCL is not reduced under § 1.1503(d)-6(h)(2), the United States and the foreign country recognize the same items in each year, and all taxpayers use the calendar year.

Key Takeaways

One shared fact pattern

The fifteen presumed facts are the common baseline for every example in Treas. Reg. § 1.1503(d)-7, so each example varies only its own facts against this fixed background.

The entities are pre-characterized

DRCx is a dual resident corporation, DE1x/DE2x/DE3y are hybrid entity separate units, FBx is a foreign branch separate unit, and FSx is a foreign corporation — their U.S. and Country X status is assumed, not analyzed.

Foreign regime enables a foreign use

The applicable foreign country runs a consolidation regime that lets members’ losses offset other members’ income, the condition that makes a foreign use of a dual consolidated loss possible.

No mirror, no election, no treaty

The facts presume no mirror legislation under § 1.1503(d)-3(e)(1), no § 1.1503(d)-6(b) elective agreement, and no income tax convention, removing the main exceptions so the DCL rules apply on their own terms.

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