The application of Sec. 1.812-4 may be illustrated by the following example:
(a) Facts. The books of M, a life insurance company, organized in 1940, reveal the following facts: ------------------------------------------------------------------------
Taxable
Taxable year investment Gain from Loss from
income operations operations------------------------------------------------------------------------1958................................ $11,000 $15,000 ..........1959................................ 23,000 30,000 ..........1960................................ .......... .......... ($75,000)1961................................ 25,000 20,000 ..........1962................................ .......... .......... (150,000)1963................................ 22,000 30,000 ..........1964................................ 40,000 35,000 ..........1965................................ 62,000 75,000 ..........1966................................ 25,000 17,000 ..........1967................................ 39,000 53,000 ..........------------------------------------------------------------------------ The gain from operations thus shown is computed without regard to any operations loss deduction. The assumption is also made that none of the other modifications prescribed in paragraph (b) of Sec. 1.812-5 apply. There are no losses from operations for 1955, 1956, 1957, 1968, 1969, 1970.
(b) Loss sustained in 1960. The portions of the $75,000 loss from operations for 1960 which shall be used as carrybacks to 1958 and 1959 and as carryovers to 1961, 1962, 1963, 1964, and 1965 are computed as follows:
(1) Carryback to 1958. The carryback to this year is $75,000, that is, the amount of the loss from operations.
(2) Carryback to 1959. The carryback to this year is $60,000 (the excess of the loss for 1960 over the offset for 1958), computed as follows: Loss from operations........................................ $75,000Less:
Offset for 1958 (the $15,000 gain from operations for such 15,000
year computed without the deduction of the carryback from
1960)....................................................
-------------
Carryback............................................... 60,000
(3) Carryover to 1961. The carryover to this year is $30,000 (the excess, if any, of the loss for 1960 over the sum of the offsets for 1958 and 1959), computed as follows: Loss from operations........................................ $75,000Less:
Offset for 1958 (the $15,000 gain from $15,000
operations for such year computed without the
deduction of the carryback from 1960)........
Offset for 1959 (the $30,000 gain from 30,000
operations for such year computed without the
deduction of the carryback from 1960 or the
carryback from 1962).........................
------------
Sum of offsets.......................................... 45,000
-------------
Carryover............................................... 30,000
(4) Carryover to 1962. The carryover to this year is $10,000 (the excess, if any, of the loss for 1960 over the sum of the offsets for 1958, 1959, and 1961), computed as follows: Loss from operations........................................ $75,000Less:
Offset for 1958 (the $15,000 gain from $15,000
operations for such year computed without the
deduction of the carryback from 1960)........
Offset for 1959 (the $30,000 gain from 80,000
operations for such year computed without the
deduction of the carryback from 1960 or the
carryback from 1962).........................
Offset for 1961 (the $20,000 gain from 20,000
operations for such year computed without the
deduction of the carryover from 1960 or the
carryback from 1962).........................
------------
Sum of offsets.......................................... 65,000
-------------
Carryover............................................... 10,000
(5) Carryover to 1963. The carryover to this year is $10,000 (the excess, if any, of the loss for 1960 over the sum of the offsets for 1958, 1959, 1961, and 1962), computed as follows: Loss from operations........................................ $75,000Less:
Offset for 1958 (the $15,000 gain from $15,000
operations for such year computed without the
deduction of the carryback from 1960)........
Offset for 1959 (the $30,000 gain from 30,000
operations for such year computed without the
deduction of the carryback from 1960 or the
carryback from 1962).........................
Offset for 1961 (the $20,000 gain from 20,000
operations for such year computed without the
deduction of the carryover from 1960 or the
carryback from 1962).........................
Offset for 1962 (a year in which a loss from 0
operations was sustained)....................
------------
Sum of offsets.......................................... 65,000
-------------
Carryover............................................... 10,000
(6) Carryover to 1964. The carryover to this year is $0 (the excess, if any, of the loss from 1960 over the sum of the offsets for 1958, 1959, 1961, 1962, and 1963), computed as follows: Loss from operations........................................ $75,000Less:
Offset for 1958 (the $15,000 gain from $15,000
operations for such year computed without the
deduction of the carryback from 1960)........
Offset for 1959 (the $30,000 gain from 30,000
operations for such year computed without the
deduction of the carryback from 1960 or the
carryback from 1962).........................
Offset for 1961 (the $20,000 gain from 20,000
operations for such year computed without the
deduction of the carryover from 1960 or the
carryback from 1962).........................
Offset for 1962 (a year in which a loss from 0
operations was sustained)....................
Offset for 1963 (the $30,000 gain from 30,000
operations for such year computed without the
deduction of the carryover from 1960 or the
carryover from 1962).........................
------------
Sum of offsets.......................................... 95,000
-------------
Carryover............................................... 0
(7) Carryover to 1965. The carryover to this year is $0 (the excess, if any, of the loss from 1960 over the sum of the offsets for 1958, 1959, 1961, 1962, 1963, and 1964), computed as follows: Loss from operations........................................ $75,000Less:
Offset for 1958 (the $15,000 gain from $15,000
operations for such year computed without the
deduction of the carryback from 1960)........
Offset for 1959 (the $30,000 gain from 30,000
operations for such year computed without the
deduction for the carryback from 1960 or the
carryback from 1962).........................
Offset for 1961 (the $20,000 gain from 20,000
operations for such year computed without the
deduction for the carryover from 1960 or the
carryback from 1962).........................
Offset for 1962 (a year in which a loss from 0
operations was sustained)....................
Offset for 1963 (the $30,000 gain from 30,000
operations for such year computed without the
deduction for the carryover from 1960 or the
carryover from 1962).........................
Offset for 1964 (the $35,000 gain from 35,000
operations for such year computed without the
deduction of the carryover from 1960 or the
carryover from 1962).........................
------------
Sum of offsets.......................................... 130,000
-------------
Carryover............................................... 0
(c) Loss sustained in 1962. The portions of the $150,000 loss from operations for 1962 which shall be used as carrybacks to 1959, 1960, and 1961 and as carryovers to 1963, 1964, 1965, 1966, and 1967 are computed as follows:
(1) Carryback to 1959. The carryback to this year is $150,000, that is, the amount of the loss from operations.
(2) Carryback to 1960. The carryback to this year is $150,000 (the excess, if any, of the loss from 1962 over the offset for 1959), computed as follows: Loss from operations........................................ $150,000Less:
Offset for 1959 (the $30,000 gain from operations for such 0
year reduced by the carryback to such year of $60,000
from 1960, the carryback from 1962 to 1959 not being
taken into account)......................................
-------------
Carryback............................................... 150,000
(3) Carryback to 1961. The carryback to this year is $150,000 (the excess, if any, of the loss from 1962 over the sum of the offsets for 1959 and 1960), computed as follows: Loss from operations........................................ $150,000Less:
Offset for 1959 (the $30,000 gain from operations for such 0
year reduced by the carryback to such year of $60,000
from 1960, the carryback from 1962 to 1959 not being
taken into account)......................................
Offset for 1960 (a year in which a loss from operations 0
was sustained)...........................................
-------------
Sum of offsets.......................................... 0
-------------
Carryback............................................... 150,000
(4) Carryover to 1963. The carryover to this year is $150,000 (the excess, if any, of the loss from 1962 over the sum of the offsets for 1959, 1960, and 1961), computed as follows: Loss from operations........................................ $150,000Less:
Offset for 1959 (the $30,000 gain from 0
operations for such year reduced by the
carryback to such year of $60,000 from 1960,
the carryback from 1962 to 1959 not being
taken into account)..........................
Offset for 1960 (a year in which a loss from 0
operations was sustained)....................
Offset for 1961 (the $20,000 gain from 0
operations for such year reduced by the
carryover to such year of $30,000 from 1960,
the carryback from 1962 to 1961 not being
taken into account)..........................
------------
Sum of offsets.......................................... 0
-------------
Carryover............................................... 150,000
(5) Carryover to 1964. The carryover to this year is $130,000 (the excess, if any, of the loss from 1962 over the sum of the offsets for 1959, 1960, 1961, and 1963), computed as follows: Loss from operations........................................ $150,000Less:
Offset for 1959 (the $30,000 gain from 0
operations for such year reduced by the
carryback to such year of $60,000 from 1960,
the carryback from 1962 to 1959 not being
taken into account)..........................
Offset for 1960 (a year in which a loss from 0
operations was sustained)....................
Offset for 1961 (the $20,000 gain from 0
operations for such year reduced by the
carryover to such year of $30,000 from 1960,
the carryback from 1962 to 1961 not being
taken into account)..........................
Offset for 1963 (the $30,000 gain from 20,000
operations for such year reduced by the
carryover to such year of $10,000 from 1960,
the carryover from 1962 to 1963 not being
taken into account)..........................
------------
Sum of offsets............................................ 20,000
-------------
Carryover............................................... 130,000
(6) Carryover to 1965. The carryover to this year is $95,000 (the excess, if any, of the loss from 1962 over the sum of the offsets for 1959, 1960, 1961, 1963, and 1964), computed as follows: Loss from operations........................................ $150,000Less:
Offset for 1959 (the $30,000 gain from 0
operations for such year reduced by the
carryback to such year of $60,000 from 1960,
the carryback from 1962 to 1959 not being
taken into account)..........................
Offset for 1960 (a year in which a loss from 0
operations was sustained)....................
Offset for 1961 (the $20,000 gain from 0
operations for such year reduced by the
carryover to such year of $30,000 from 1960
the carryback from 1962 to 1961 not being
taken into account)..........................
Offset for 1963 (the $30,000 gain from 20,000
operations for such year reduced by the
carryover to such year of $10,000 from 1960,
the carryover from 1962 to 1963 not being
taken into account)..........................
Offset for 1964 (the $35,000 gain from 35,000
operations for such year reduced by the
carryover to such year of $0 from 1960, the
carryover from 1962 to 1964 not being taken
into account)................................
------------
Sum of offsets.......................................... 55,000
-------------
Carryover............................................... 95,000
(7) Carryover to 1966. The carryover to this year is $20,000 (the excess, if any, of the loss from 1962 over the sum of the offsets for 1959, 1960, 1961, 1963, 1964, and 1965), computed as follows: Loss from operations........................................ $150,000Less:
Offset for 1959 (the $30,000 gain from 0
operations for such year reduced by the
carryback to such year of $60,000 from 1960,
the carryback from 1962 to 1959 not being
taken into account)..........................
Offset for 1960 (a year in which a loss from 0
operations was sustained)....................
Offset for 1961 (the $20,000 gain from 0
operations for such year reduced by the
carryover to such year of $30,000 from 1960,
the carryback from 1962 to 1961 not being
taken into account)..........................
Offset for 1963 (the $30,000 gain from 20,000
operations for such year reduced by the
carryover for such year of $10,000 from 1960,
the carryover from 1962 to 1963 not being
taken into account)..........................
Offset for 1964 (the $35,000 gain from 35,000
operations for such year reduced by the
carryover to such year of $0 from 1960, the
carryover from 1962 to 1964 not being taken
into account)................................
Offset for 1965 (the $75,000 gain from $75,000
operations for such year reduced by the
carryover to such year of $0 to 1960, the
carryover from 1962 to 1965 not being taken
into account)................................
------------
Sum of offsets.......................................... $130,000
-------------
Carryover............................................... 20,000
(8) Carryover to 1967. The carryover to this year is $3,000 (the excess, if any, of the loss from 1962 over the sum of the offsets for 1959, 1960, 1961, 1963, 1964, 1965, and 1966), computed as follows: Loss from operations........................................ $150,000Less:
Offset for 1959 (the $30,000 gain from 0
operations for such year reduced by the
carryback to such year of $60,000 from 1960,
the carryback from 1962 to 1959 not being
taken into account)..........................
Offset for 1960 (a year in which a loss from 0
operations was sustained)....................
Offset for 1961 (the $20,000 gain from 0
operations for such year reduced by the
carryover to such year of $30,000 from 1960,
the carryback from 1962 to 1961 not being
taken into account)..........................
Offset for 1963 (the $30,000 gain from 20,000
operations for such year reduced by the
carryover to such year of $10,000 from 1960,
the carryover from 1962 to 1963 not being
taken into account)..........................
Offset for 1964 (the $35,000 gain from 35,000
operations for such year reduced by the
carryover to such year of $0 from 1960, the
carryover from 1962 to 1964 not being taken
into account)................................
Offset for 1965 (the $75,000 gain from 75,000
operations for such year reduced by the
carryover to such year of $0 from 1960, the
carryover from 1962 to 1965 not being taken
into account)................................
Offset for 1966 (the $17,000 gain from 17,000
operations for such year computed without the
deduction of the carryover from 1962)........
------------
Sum of offsets.......................................... 147,000
-------------
Carryover............................................... 3,000
(d) Determination of operations loss deduction for each year. The carryovers and carrybacks computed under paragraphs (b) and (c) of this section are used as a basis for the computation of the operations loss deduction in the following manner: ----------------------------------------------------------------------------------------------------------------
Carryover Carryback Operations
Taxable year -------------------------------------------- loss de-
From 1960 From 1962 From 1960 From 1962 ductions----------------------------------------------------------------------------------------------------------------1958.................................................... ......... ......... $75,000 ......... $75,0001959.................................................... ......... ......... 60,000 $150,000 210,0001961.................................................... $30,000 ......... ......... 150,000 180,0001963.................................................... 10,000 $150,000 ......... ......... 160,0001964.................................................... ......... 130,000 ......... ......... 130,0001965.................................................... ......... 95,000 ......... ......... 95,0001966.................................................... ......... 20,000 ......... ......... 20,0001967.................................................... ......... 3,000 ......... ......... 3,000---------------------------------------------------------------------------------------------------------------- [T.D. 6535, 26 FR 539, Jan. 20, 1961]