In general, Treas. Reg. § 1.1503-2(b)(1) provides that a “dual consolidated loss” of a “dual resident corporation” cannot offset the taxable income of any domestic affiliate in the taxable year in which such loss was recognized or in any other tax year. Pursuant to Treas. Reg. §§ 1.1503-2(c)(1) and (2), the same limitation applies to a dual consolidated loss of a “separate unit” of a domestic corporation as if the “separate unit” were a wholly owned subsidiary of such corporation.

Pursuant to Treas. Reg. § 1.1503-2(c)(4), the term “separate unit” includes a “hybrid entity separate unit,” i.e., an interest in an entity that was not taxable as an association for U.S. federal income tax purposes but is subject to income tax in a foreign country as a corporation (or otherwise at the entity level) either on its worldwide income or on a residence basis.

Treas. Reg. § 1.1503-2(c)(5)(i) provides that the term “dual consolidated loss” means the net operating loss (as defined in IRC § 172(c) and the regulations thereunder) of a domestic corporation incurred in a year in which the corporation is a dual resident corporation.