§1502 — Regulations
86 citing cases
Statute Text — 26 U.S.C. §1502
The Secretary shall prescribe such regulations as he may deem necessary in order that the tax liability of any affiliated group of corporations making a consolidated return and of each corporation in the group, both during and after the period of affiliation, may be returned, determined, computed, assessed, collected, and adjusted, in such manner as clearly to reflect the income-tax liability and the various factors necessary for the determination of such liability, and in order to prevent avoidance of such tax liability. In carrying out the preceding sentence, the Secretary may prescribe rules that are different from the provisions of chapter 1 that would apply if such corporations filed separate returns.
Treasury Regulations
-
Treas. Reg. §1.1502-0Effective/applicability dates
(a) In general. Except as provided in paragraph (b) of this section, the consolidated return regulations (as defined in § 1.1502-1(g)) are applicable to taxable years beginning after December 31, 1965.
(b) Exceptions. The applicability date described in paragraph (a) of this section does not apply to any provision of the consolidated return regulations with an applicability or effective date different than the date provided by paragraph (a) of this section.
-
Treas. Reg. §1.1502-0(a)In general.
In general. Except as provided in paragraph (b) of this section, the consolidated return regulations (as defined in § 1.1502-1(g)) are applicable to taxable years beginning after December 31, 1965.
-
Treas. Reg. §1.1502-0(b)Exceptions.
Exceptions. The applicability date described in paragraph (a) of this section does not apply to any provision of the consolidated return regulations with an applicability or effective date different than the date provided by paragraph (a) of this section.
-
Treas. Reg. §1.1502-1Definitions
For purposes of the consolidated return regulations (and any provision of this chapter that refers to the consolidated return regulations):
(a) Group. The term group means an affiliated group of corporations as defined in section 1504. See § 1.1502-75(d) as to when a group remains in existence. Except as the context otherwise requires, references to a group are references to a consolidated group (as defined in paragraph (h) of this section).
(b) Member. The term member means a corporation (including the common parent) that is included in the group, or as the context may require, a corporation that is included in a subgroup.
(c) Subsidiary. The term subsidiary means a corporation other than the common parent which is a member of such group.
(d) Consolidated return year. The term consolidated return year means a taxable year for which a consolidated return is filed or required to be filed by such group.
(e) Separate return year. The term separate return year means a taxable year of a corporation for which it files a separate return or for which it joins in the filing of a consolidated return by another group.
(f) Separate return limitation year—(1) In general. Except as provided in paragraphs (f)(2) and (3) of this section, the term separate return limitation year (or SRLY) means any separate return year of a member or of a predecessor of a member.
(2) Exceptions. The term separate return limitation year (or SRLY) does not include:
(i) A separate return year of the corporation which is the common parent for the consolidated return year to which the tax attribute is to be carried (except as provided in § 1.1502-75(d)(2)(ii) and paragraph (f)(3) of this section);
(ii) A separate return year of any corporation which was a member of the group for each day of such year; or
(iii) A separate return year of a predecessor of any member if such predecessor was a member of the group for each day of such year.
(3) Reverse acquisitions. In the event of an acquisition to which § 1.1502-75(d)(3) applies, all taxable years of the first corporation and of each of its subsidiaries ending on or before the date of the acquisition are treated as separate return limitation years, and the separate return years (if any) of the second corporation and each of its subsidiaries are not treated as separate return limitation years (unless they were so treated immediately before the acquisition). For example, if corporation P merges into corporation T, and the persons who were stockholders of P immediately before the merger, as a result of owning the stock of P, own more than 50 percent of the fair market value of the outstanding stock of T, then a loss incurred before the merger by T (even though it is the common parent), or by a subsidiary of T, is treated as having been incurred in a separate return limitation year. Conversely, a loss incurred before the merger by P, or by a subsidiary of P in a separate return year during all of which such subsidiary was a member of the group of which P was the common parent, is treated as having been incurred in a year which is not a separate return limitation year.
(4) Predecessor and successors. The term predecessor means a transferor or distributor of assets to a member (the successor) in a transaction—
(i) To which section 381(a) applies; or
(ii) That occurs on or after January 1, 1997, in which the successor's basis for the assets is determined, directly or indirectly, in whole or in part, by reference to the basis of the assets of the transferor or distributor, but in the case of a transaction that occurs before June 25, 1999, only if the amount by which basis differs from value, in the aggregate, is material. For a transaction that occurs before June 25, 1999, only one member may be considered a predecessor to or a successor of one other member.
(g) Consolidated return regulations. The term consolidated return regulations means the regulations issued under the authority of section 1502.
(h) Consolidated group. The term “consolidated group” means a group filing (or required to file) consolidated returns for the tax year.
(i) [Reserved]
(j) Affiliated. Corporations are affiliated if they are members of a group with each other.
(k) Nonlife insurance company. The term nonlife insurance company means a member that is an insurance company other than a life insurance company, each as defined in section 816(a).
(l) U.S. territory. The term U.S. territory means—
(1) American Samoa;
(2) The Commonwealth of the Northern Mariana Islands;
(3) The Commonwealth of Puerto Rico;
(4) Guam; and
(5) The U.S. Virgin Islands.
(m) Applicability date. Paragraph (k) of this section applies to taxable years beginning after December 31, 2020. However, a taxpayer may choose to apply paragraph (k) of this section to taxable years beginning on or before December 31, 2020.
-
Treas. Reg. §1.1502-1(a)Group.
Group. The term group means an affiliated group of corporations as defined in section 1504. See § 1.1502-75(d) as to when a group remains in existence. Except as the context otherwise requires, references to a group are references to a consolidated group (as defined in paragraph (h) of this section).
-
Treas. Reg. §1.1502-1(b)Member.
Member. The term member means a corporation (including the common parent) that is included in the group, or as the context may require, a corporation that is included in a subgroup.
-
Treas. Reg. §1.1502-1(c)Subsidiary.
Subsidiary. The term subsidiary means a corporation other than the common parent which is a member of such group.
-
Treas. Reg. §1.1502-1(d)Consolidated return year.
Consolidated return year. The term consolidated return year means a taxable year for which a consolidated return is filed or required to be filed by such group.
-
Treas. Reg. §1.1502-1(e)Separate return year.
Separate return year. The term separate return year means a taxable year of a corporation for which it files a separate return or for which it joins in the filing of a consolidated return by another group.
-
Treas. Reg. §1.1502-1(f)Separate return limitation year—(1) In general.
Separate return limitation year—(1) In general. Except as provided in paragraphs (f)(2) and (3) of this section, the term separate return limitation year (or SRLY) means any separate return year of a member or of a predecessor of a member.
(2) Exceptions. The term separate return limitation year (or SRLY) does not include:
-
Treas. Reg. §1.1502-1(g)Consolidated return regulations.
Consolidated return regulations. The term consolidated return regulations means the regulations issued under the authority of section 1502.
-
Treas. Reg. §1.1502-1(h)Consolidated group.
Consolidated group. The term “consolidated group” means a group filing (or required to file) consolidated returns for the tax year.
-
Treas. Reg. §1.1502-1(i)§1.1502-1(i)
[Reserved]
-
Treas. Reg. §1.1502-1(j)Affiliated.
Affiliated. Corporations are affiliated if they are members of a group with each other.
-
Treas. Reg. §1.1502-1(k)Nonlife insurance company.
Nonlife insurance company. The term nonlife insurance company means a member that is an insurance company other than a life insurance company, each as defined in section 816(a).
-
Treas. Reg. §1.1502-1(l)U.
U.S. territory. The term U.S. territory means—
(1) American Samoa;
(2) The Commonwealth of the Northern Mariana Islands;
(3) The Commonwealth of Puerto Rico;
(4) Guam; and
(5) The U.S. Virgin Islands.
-
Treas. Reg. §1.1502-1(m)Applicability date.
Applicability date. Paragraph (k) of this section applies to taxable years beginning after December 31, 2020. However, a taxpayer may choose to apply paragraph (k) of this section to taxable years beginning on or before December 31, 2020.
-
Treas. Reg. §1.1502-100Corporations exempt from tax
(a) In general—(1) Computation of tax liability. The tax liability for a consolidated return year of a group of two or more corporations described in section 1504(e) which are exempt from taxation under section 501 (hereinafter referred to in this section as “exempt group”) shall be determined on a consolidated basis by applying the provisions of subchapter F of chapter 1 of the code in the manner provided in this section. See section 1504(e) for tax-exempt corporations eligible to file a consolidated return.
(2) Applicability of other consolidated return provisions. The provisions of the consolidated return regulations are applicable to an exempt group to the extent they are not inconsistent with the provisions of this section or the provisions of subchapter F of chapter 1 of the Code. For purposes of applying the provisions of the consolidated return regulations to an exempt group, the following substitutions must be made—
(i) The term “exempt group” is substituted for the term “group”;
(ii) The terms “unrelated business taxable income”, “separate unrelated business taxable income”, and “consolidated unrelated business taxable income” are substituted for the terms “taxable income”, “separate taxable income”, and “consolidated taxable income”; and
(iii) The term consolidated liability for tax determined under § 1.1502-2 (or an equivalent term) means the consolidated liability for tax of an exempt group determined under paragraph (b) of this section.
(b) The tax liability for a consolidated return year of an exempt group is the tax imposed by section 511(a) on the consolidated unrelated taxable income for the year (determined under paragraph (c) of this section), and by allowing the credits provided in § 1.1502-2(b).
(c) Consolidated unrelated business taxable income. The consolidated unrelated business taxable income for a consolidated return year shall be determined by taking into account:
(1) The separate unrelated business taxable income of each member of the exempt group (determined under paragraph (d) of this section);
(2) Any consolidated net operating loss deduction (determined under § 1.1502-21) subject to the limitations provided in section 512(b)(6);
(3) Any consolidated charitable contribution deduction (determined under § 1.1502-24) subject to the limitations provided in section 512(b)(10); and
(4) Any consolidated net gain or net loss from the disposition of debt-financed property (as defined in section 514(b)) taken into account as provided by section 514(a), or from the cutting of timber to which section 631 applies.
(d) Separate unrelated business taxable income—(1) In general. The separate unrelated business taxable income of a member of an exempt group must be computed in accordance with the provisions of section 512 covering the determination of unrelated business taxable income of separate corporations, except that:
(i) The provisions of paragraphs (a) through (d), (f) through (k), and (o) of § 1.1502-12 apply; and
(ii) No charitable contributions deduction is taken into account under section 512(b)(10).
(2) Section 501(c)(2) organizations. See sections 511(c) and 512(a)(3)(C) for special rules applicable to organizations described in section 501(c)(2).
.
See sections 511(c) and 512(a)(3)(C) for special rules applicable to organizations described in section 501(c)(2).
-
Treas. Reg. §1.1502-100(a)In general—(1) Computation of tax liability.
In general—(1) Computation of tax liability. The tax liability for a consolidated return year of a group of two or more corporations described in section 1504(e) which are exempt from taxation under section 501 (hereinafter referred to in this section as “exempt group”) shall be determined on a consolidated basis by applying the provisions of subchapter F of chapter 1 of the code in the manner provided in this section. See section 1504(e) for tax-exempt corporations eligible to file a consolidated return.
(2) Applicability of other consolidated return provisions. The provisions of the consolidated return regulations are applicable to an exempt group to the extent they are not inconsistent with the provisions of this section or the provisions of subchapter F of chapter 1 of the Code. For purposes of applying the provisions of the consolidated return regulations to an exempt group, the following substitutions must be made—
-
Treas. Reg. §1.1502-100(b)The tax liability for a consolidated return year of an exempt group is the tax imposed by section 511(a) on the consolidated unrelated taxable income for the year (determined under paragraph (c) of this section), and by allowing the credits provided in § 1.
The tax liability for a consolidated return year of an exempt group is the tax imposed by section 511(a) on the consolidated unrelated taxable income for the year (determined under paragraph (c) of this section), and by allowing the credits provided in § 1.1502-2(b).
-
Treas. Reg. §1.1502-100(c)Consolidated unrelated business taxable income.
Consolidated unrelated business taxable income. The consolidated unrelated business taxable income for a consolidated return year shall be determined by taking into account:
(1) The separate unrelated business taxable income of each member of the exempt group (determined under paragraph (d) of this section);
(2) Any consolidated net operating loss deduction (determined under § 1.1502-21) subject to the limitations provided in section 512(b)(6);
(3) Any consolidated charitable contribution deduction (determined under § 1.1502-24) subject to the limitations provided in section 512(b)(10); and
(4) Any consolidated net gain or net loss from the disposition of debt-financed property (as defined in section 514(b)) taken into account as provided by section 514(a), or from the cutting of timber to which section 631 applies.
-
Treas. Reg. §1.1502-100(d)Separate unrelated business taxable income—(1) In general.
Separate unrelated business taxable income—(1) In general. The separate unrelated business taxable income of a member of an exempt group must be computed in accordance with the provisions of section 512 covering the determination of unrelated business taxable income of separate corporations, except that:
-
Treas. Reg. §1.1502-100(i)The provisions of paragraphs (a) through (d), (f) through (k), and (o) of § 1.
The provisions of paragraphs (a) through (d), (f) through (k), and (o) of § 1.1502-12 apply; and
(ii) No charitable contributions deduction is taken into account under section 512(b)(10).
(2) Section 501(c)(2) organizations. See sections 511(c) and 512(a)(3)(C) for special rules applicable to organizations described in section 501(c)(2).
.
See sections 511(c) and 512(a)(3)(C) for special rules applicable to organizations described in section 501(c)(2).
-
Treas. Reg. §1.1502-11Consolidated taxable income
(a) In general. The consolidated taxable income (CTI) for a consolidated return year is determined by taking into account:
(1) The separate taxable income of each member of the group (see § 1.1502-12 for the computation of separate taxable income);
(2) Any consolidated net operating loss (CNOL) deduction (see § 1.1502-21 for the computation of the CNOL deduction);
(3) Any consolidated capital gain net income (see § 1.1502-22 for the computation of consolidated capital gain net income);
(4) Any consolidated section 1231 net loss (see § 1.1502-23 for the computation of consolidated section 1231 net loss);
(5) Any consolidated charitable contributions deduction (see § 1.1502-24 for the computation of the consolidated charitable contributions deduction); and
(6) Any consolidated dividends received deduction (see § 1.1502-26 for the computation of the consolidated dividends received deduction).
(b) Elimination of circular stock basis adjustments when there is no excluded COD income—(1) In general. If one member (P) disposes of the stock of another member (S), this paragraph (b) limits the use of S's deductions and losses in the year of disposition and the carryback of items to prior years. The purpose of the limitation is to prevent P's income or gain from the disposition of S's stock from increasing the absorption of S's deductions and losses, because the increased absorption would reduce P's basis (or increase its excess loss account) in S's stock under § 1.1502-32 and, in turn, increase P's income or gain. See paragraph (b)(3) of this section for the application of these principles to P's deduction or loss from the disposition of S's stock, and paragraph (b)(4) of this section for the application of these principles to multiple stock dispositions. This paragraph (b) applies only when no member realizes discharge of indebtedness income that is excluded from gross income under section 108(a) (excluded COD income) during the taxable year of the disposition. See paragraph (c) of this section for rules that apply when a member realizes excluded COD income during the taxable year of the disposition. See § 1.1502-19(c) for the definition of disposition.
(2) Limitation on deductions and losses—(i) Determination of amount of limitation. If P disposes of one or more shares of S's stock, the extent to which S's deductions and losses for the tax year of the disposition (and its deductions and losses carried over from prior years) may offset income and gain is subject to limitation. The amount of S's deductions and losses that may offset income and gain is determined by tentatively computing taxable income (or loss) for the year of disposition (and any prior years to which the deductions or losses may be carried) without taking into account P's income and gain from the disposition.
(ii) Application of limitation. S's deductions and losses offset income and gain only to the extent of the amount determined under paragraph (b)(2)(i) of this section. To the extent S's deductions and losses in the year of disposition cannot offset income or gain because of the limitation under this paragraph (b), the items are carried to other years under the applicable provisions of the Internal Revenue Code and regulations as if they were the only items incurred by S in the year of disposition. For example, to the extent S incurs an operating loss in the year of disposition that is limited, the loss is treated as a separate net operating loss attributable to S arising in that year. The tentative computation does not affect the manner in which S's unlimited deductions and losses are absorbed or the manner in which deductions and losses of other members are absorbed. (If the amount of S's unlimited deductions and losses actually absorbed is less than the amount absorbed in the tentative computation, P's stock basis adjustments under § 1.1502-32 reflect only the amounts actually absorbed.)
(iii) Examples. For purposes of the examples in this paragraph (b), unless otherwise stated, P owns all of the only class of S's stock for the entire year, S owns no stock of lower-tier members, the tax year of all persons is the calendar year, all persons use the accrual method of accounting, the facts set forth the only corporate activity, all transactions are between unrelated persons, and tax liabilities are disregarded. The principles of this paragraph (b)(2) are illustrated by the following examples.
(A) Example 1. Limitation on losses with respect to stock gain.—
(1) P has a $500 basis in S's stock. For Year 1, P has ordinary income of $30 (determined without taking P's gain or loss from the disposition of S's stock into account) and S has an $80 ordinary loss. P sells S's stock for $520 at the close of Year 1.
(2) To determine the amount of the limitation on S's loss under paragraph (b)(2)(i) of this section, and the effect under § 1.1502-32(b) of the absorption of S's loss on P's basis in S's stock, P's gain or loss from the disposition of S's stock is not taken into account. The group is tentatively treated as having a consolidated net operating loss of $50 (P's $30 of income minus S's $80 loss). Thus, $50 of S's loss is limited under this paragraph (b).
(3) Because $30 of S's loss is absorbed in the determination of consolidated taxable income under paragraph (b)(2)(ii) of this section, P's basis in S's stock is reduced under § 1.1502-32(b) from $500 to $470 immediately before the disposition. Consequently, P recognizes a $50 gain from the sale of S's stock and the group has consolidated taxable income of $50 for Year 1 (P's $30 of ordinary income and $50 gain from the sale of S's stock, less the $30 of S's loss). In addition, S's limited loss of $50 is treated as a separate net operating loss attributable to S and, because S ceases to be a member, the loss is apportioned to S under § 1.1502-21 and carried to its first separate return year.
(B) Example 2. Carrybacks and carryovers.—
(1) For Year 1, the P group has consolidated taxable income of $30, and a consolidated net capital loss of $100 ($50 attributable to P and $50 to S). At the beginning of Year 2, P has a $300 basis in S's stock. For Year 2, P has ordinary income of $30, and a $20 capital gain (determined without taking the $100 consolidated net capital loss carryover or P's gain or loss from the disposition of S's stock into account), and S has a $100 ordinary loss. P sells S's stock for $280 at the close of Year 2.
(2) To determine the amount of the limitation under paragraph (b)(2)(i) of this section on S's losses, and the effect of the absorption of S's losses on P's basis in S's stock under § 1.1502-32(b), P's gain or loss from the disposition of S's stock is not taken into account. For Year 2, the P group is tentatively treated as having a $70 consolidated net operating loss (S's $100 ordinary loss, less P's $30 of ordinary income). The P group is also treated as having no consolidated net capital gain in Year 2, because P's $20 capital gain is reduced by $20 of the consolidated net capital loss carryover from Year 1 under section 1212(a) (the absorption of which is attributed equally to P and S). In addition, of the $70 consolidated net operating loss, $30 is carried back to Year 1 and offsets P's ordinary income in that year, and $40 is carried forward. Consequently, $40 of S's operating loss from Year 2, and $40 of the consolidated net capital loss carryover from Year 1 attributable to S, are limited under this paragraph (b).
(3) Under paragraph (b)(2)(ii) of this section, the limitation under this paragraph (b) does not affect the absorption of any deductions and losses attributable to P, $60 of S's operating loss from Year 2, and $10 of the consolidated net capital loss from Year 1 attributable to S. Consequently, P's basis in S's stock is reduced under § 1.1502-32(b) by $70, from $300 to $230, and P recognizes a $50 gain from the sale of S's stock in Year 2. Thus, the P group is treated as having a $20 unlimited net operating loss that is carried back to Year 1:
(4) Under paragraph (b)(2)(ii) of this section, S's $40 ordinary loss from Year 2 that is limited under this paragraph (b) is treated as a separate net operating loss arising in Year 2. Similarly, $40 of the consolidated net capital loss from Year 1 attributable to S is treated as a separate net capital loss carried over from Year 1. Because S ceases to be a member, the $40 net operating loss from Year 2 and the $40 consolidated net capital loss from Year 1 are allocated to S under §§ 1.1502-21 and 1.1502-22, respectively and are carried to S's first separate return year.
(C) Example 3. Allocation of basis adjustments.—
(1) For Year 1, the P group has consolidated taxable income of $100. At the beginning of Year 2, P has a $40 basis in each of the 10 shares of S's stock. For Year 2, P has an $80 ordinary loss (determined without taking into account P's gain or loss from the disposition of S's stock) and S has an $80 ordinary loss. P sells 2 shares of S's stock for $85 each at the close of Year 2.
(2) Under paragraph (b)(2)(i) of this section, the amount of the limitation on S's loss is determined by tentatively treating the P group as having a $160 consolidated net operating loss for Year 2. Of this amount, $100 is carried back under section 172 and absorbed in Year 1 ($50 attributable to S and $50 attributable to P). Consequently, $30 of S's loss is limited under this paragraph (b).
(3) Under paragraph (b)(2)(ii) of this section, the limitation under this paragraph (b) does not affect the absorption of P's $80 ordinary loss or $50 of S's ordinary loss. Consequently, P's basis in each share of S's stock is reduced from $40 to $35 under § 1.1502-32(b), and P recognizes a $100 gain from the sale of the 2 shares. Thus, the P group is treated as having a $30 unlimited net operating loss:
(4) A portion of the $130 of unlimited operating losses for Year 2 is fully absorbed in that year, and a portion is carried back to Year 1. Thus, $61.50 of P's $80 loss ($100 multiplied by $80/$130) and $38.50 of S's $50 unlimited loss ($100 multiplied by $50/$130) are absorbed in Year 2. P's remaining $18.50 of loss and S's remaining $11.50 of loss are not subject to limitation and are carried back and absorbed in Year 1.
(5) Under paragraph (b)(2)(ii) of this section, S's $30 of loss limited under this paragraph (b) is treated as a separate net operating loss.
(3) Loss dispositions—(i) General rule. The principles of paragraph (b)(2) of this section apply to the extent necessary to carry out the purposes of paragraph (b)(1) of this section if P recognizes a deduction or loss from the disposition of S's stock.
(ii) Example. The principles of this paragraph (b)(3) are illustrated by the following example.
(4) Multiple dispositions—(i) Stock of a member. To the extent income, gain, deduction, or loss from a prior disposition of S's stock is deferred under any rule of law, the limitation under paragraph (b)(2) of this section is determined by treating the year the deferred amount is taken into account as the year of the disposition.
(ii) Stock of different members. If S is a higher-tier corporation with respect to another member (T), and all of T's items of income, gain, deduction, and loss (including the absorption of T's deduction or loss) would be fully reflected in P's basis in S's stock under § 1.1502-32, the limitation under paragraph (b)(2)(i) of this section with respect to T's deductions and losses is determined without taking into account any income, gain, deduction, or loss from the disposition of the stock of S or T (or of the stock of members owned in the chain connecting S and T). However, this paragraph (b) does not otherwise limit the absorption of one member's deduction or loss with respect to the disposition of another member's stock.
(iii) Examples. The principles of this paragraph (b)(4) are illustrated by the following examples.
(5) Effective date. This paragraph (b) applies to stock dispositions occurring in consolidated return years beginning on or after January 1, 1995. For prior years, see § 1.1502-11(b) as contained in the 26 CFR part 1 edition revised as of April 1, 1994.
(c) Elimination of circular stock basis adjustments when there is excluded COD income—(1) In general. If one member (P) disposes of the stock of another member (S) in a year during which any member realizes excluded COD income, this paragraph (c) limits the use of S's deductions and losses in the year of disposition and the carryback of items to prior years, the amount of the attributes of certain members that can be reduced in respect of excluded COD income of certain other members, and the attributes that can be used to offset an excess loss account taken into account by reason of the application of § 1.1502-19(c)(1)(iii)(B). In addition to the purpose set forth in paragraph (b)(1) of this section, the purpose of these limitations is to prevent the reduction of tax attributes in respect of excluded COD income from affecting P's income, gain, or loss on the disposition of S stock (including a disposition of S stock that results from the application of § 1.1502-19(c)(1)(iii)(B)) and, in turn, affecting the attributes available for reduction pursuant to sections 108 and 1017 and § 1.1502-28. See § 1.1502-19(c) for the definition of disposition.
(2) Computation of tax liability, reduction of attributes, and computation of limits on absorption and reduction of attributes. If a member realizes excluded COD income in the taxable year during which P disposes of S stock, the steps used to compute tax liability, to effect the reduction of attributes, and to compute the limitations on the absorption and reduction of attributes are as follows. These steps also apply to determine whether and to what extent an excess loss account must be taken into account as a result of the application of § 1.1502-19(b)(1) and (c)(1)(iii)(B).
(i) Limitation on deductions and losses to offset income or gain. First, the determination of the extent to which S's deductions and losses for the tax year of the disposition (and its deductions and losses carried over from prior years) may offset income and gain is made pursuant to paragraphs (b)(2) and (3) of this section.
(ii) Tentative adjustment of stock basis. Second, § 1.1502-32 is tentatively applied to adjust the basis of the S stock to reflect the amount of S's income and gain included, and unlimited deductions and losses that are absorbed, in the tentative computation of taxable income or loss for the year of the disposition (and any prior years) that is made pursuant to paragraph (b)(2) of this section, but not to reflect the realization of excluded COD income and the reduction of attributes in respect thereof.
(iii) Tentative computation of stock gain or loss. Third, in the case of a disposition of S stock that does not result from the application of § 1.1502-19(c)(1)(iii)(B), P's income, gain, or loss from the disposition of S stock is computed. For this purpose, the result of the computation pursuant to paragraph (c)(2)(ii) of this section is treated as the basis of such stock.
(iv) Tentative computation of tax imposed. Fourth, the tax imposed by chapter 1 of the Internal Revenue Code for the year of disposition (and any prior years) is tentatively computed. For this purpose, in the case of a disposition of S stock that does not result from the application of § 1.1502-19(c)(1)(iii)(B), the tentative computation of tax imposed takes into account P's income, gain, or loss from the disposition of S stock computed pursuant to paragraph (c)(2)(iii) of this section. The tentative computation of tax imposed is made without regard to whether all or a portion of an excess loss account in a share of S stock is required to be taken into account pursuant to § 1.1502-19(b)(1) and (c)(1)(iii)(B).
(v) Tentative reduction of attributes. Fifth, the rules of sections 108 and 1017 and § 1.1502-28 are tentatively applied to reduce the attributes remaining after the tentative computation of tax imposed pursuant to paragraph (c)(2)(iv) of this section.
(vi) Actual adjustment of stock basis. Sixth, § 1.1502-32 is applied to reflect the amount of S's income and gain included, and unlimited deductions and losses that are absorbed, in the tentative computation of tax imposed for the year of the disposition (and any prior years) made pursuant to paragraph (c)(2)(iv) of this section, and the excluded COD income applied to reduce attributes and the attributes tentatively reduced in respect of the excluded COD income pursuant to paragraph (c)(2)(v) of this section.
(vii) Actual computation of stock gain or loss. Seventh, the group's actual gain or loss on the disposition of S stock (including a disposition that results from the application of § 1.1502-19(c)(1)(iii)(B)) is computed. The result of the computation pursuant to paragraph (c)(2)(vi) of this section is treated as the basis of such stock.
(viii) Actual computation of tax imposed. Eighth, the tax imposed by chapter 1 of the Internal Revenue Code for the year of the disposition (and any prior years) is computed. The actual tax imposed on the group for the year of the disposition is computed by applying the limitation computed pursuant to paragraph (c)(2)(i) of this section, and by including the gain or loss recognized on the disposition of S stock computed pursuant to paragraph (c)(2)(vii) of this section. However, attributes that were tentatively used in the computation of tax imposed pursuant to paragraph (c)(2)(iv) of this section and attributes that were tentatively reduced pursuant to paragraph (c)(2)(v) of this section cannot offset any excess loss account taken into account as a result of the application of § 1.1502-19(b)(1) and (c)(1)(iii)(B).
(ix) Actual reduction of attributes. Ninth, the rules of sections 108 and 1017 and § 1.1502-28 are actually applied to reduce the attributes remaining after the actual computation of tax imposed pursuant to paragraph (c)(2)(viii) of this section.
(A) S or a lower-tier corporation realizes excluded COD income. If S or a lower-tier corporation of S realizes excluded COD income, the aggregate amount of excluded COD income that is applied to reduce attributes attributable to members other than S and any lower-tier corporation of S pursuant to this paragraph (c)(2)(ix) shall not exceed the aggregate amount of excluded COD income that was tentatively applied to reduce attributes attributable to members other than S and any lower-tier corporation of S pursuant to paragraph (c)(2)(v) of this section. The amount of the actual reduction of attributes attributable to S and any lower-tier corporation of S that may be reduced in respect of the excluded COD income of S or a lower-tier corporation of S shall not be so limited.
(B) A member other than S or a lower-tier corporation realizes excluded COD income. If a member other than S or a lower-tier corporation of S realizes excluded COD income, the aggregate amount of excluded COD income that is applied to reduce attributes (other than credits) attributable to S and any lower-tier corporation of S pursuant to this paragraph (c)(2)(ix) shall not exceed the aggregate amount of excluded COD income that was tentatively applied to reduce attributes (other than credits) attributable to S and any lower-tier corporation of S pursuant to paragraph (c)(2)(v) of this section. The amount of the actual reduction of attributes attributable to any member other than S and any lower-tier corporation of S that may be reduced in respect of the excluded COD income of S or a lower-tier corporation of S shall not be so limited.
(3) Special rules. (i) If the reduction of attributes attributable to a member is prevented as a result of a limitation described in paragraph (c)(2)(ix)(B) of this section, the excluded COD income that would have otherwise been applied to reduce such attributes is applied to reduce the remaining attributes of the same type that are available for reduction under § 1.1502-28(a)(4), on a pro rata basis, prior to reducing attributes of a different type. The reduction of such remaining attributes, however, is subject to any applicable limitation described in paragraph (c)(2)(ix)(B) of this section.
(ii) To the extent S's deductions and losses in the year of disposition (or those of a lower-tier corporation of S) cannot offset income or gain because of the limitation under paragraph (b) of this section or this paragraph (c) and are not reduced pursuant to sections 108 and 1017 and § 1.1502-28, such items are carried to other years under the applicable provisions of the Internal Revenue Code and regulations as if they were the only items incurred by S (or a lower-tier corporation of S) in the year of disposition. For example, to the extent S incurs an operating loss in the year of disposition that is limited and is not reduced pursuant to section 108 and § 1.1502-28, the loss is treated as a separate net operating loss attributable to S arising in that year.
(4) Definition of lower-tier corporation. A corporation is a lower-tier corporation of S if all of its items of income, gain, deduction, and loss (including the absorption of deduction or loss and the reduction of attributes other than credits) would be fully reflected in P's basis in S's stock under § 1.1502-32.
(5) Examples. For purposes of the examples in this paragraph (c), unless otherwise stated, the tax year of all persons is the calendar year, all persons use the accrual method of accounting, the facts set forth the only corporate activity, all transactions are between unrelated persons, tax liabilities are disregarded, and no election under section 108(b)(5) is made. The principles of this paragraph (c) are illustrated by the following examples:
(6) Additional rules for multiple dispositions. [Reserved]
(7) Effective date. This paragraph (c) applies to dispositions of subsidiary stock that occur after March 22, 2005.
(d) Disallowance of loss attributable to pre-1966 distributions. No loss shall be allowed upon the sale or other disposition of stock, bonds, or other obligations of a member or former member to the extent that such loss is attributable to a distribution made in an affiliated year beginning before January 1, 1966, out of earnings and profits accumulated before the distributing corporation became a member.
-
Treas. Reg. §1.1502-11(a)In general.
In general. The consolidated taxable income (CTI) for a consolidated return year is determined by taking into account:
(1) The separate taxable income of each member of the group (see § 1.1502-12 for the computation of separate taxable income);
(2) Any consolidated net operating loss (CNOL) deduction (see § 1.1502-21 for the computation of the CNOL deduction);
(3) Any consolidated capital gain net income (see § 1.1502-22 for the computation of consolidated capital gain net income);
(4) Any consolidated section 1231 net loss (see § 1.1502-23 for the computation of consolidated section 1231 net loss);
(5) Any consolidated charitable contributions deduction (see § 1.1502-24 for the computation of the consolidated charitable contributions deduction); and
(6) Any consolidated dividends received deduction (see § 1.1502-26 for the computation of the consolidated dividends received deduction).
86 Citing Cases
at 1273-1274 (1968) (enacting 44 U.S.C. sec. 1502 (1982)). The National Archives Establishment was created in 1934. Act of June 19, 1934, ch. 668, secs. 2-3, 48 Stat. at 1122 (codified as amended at 44 U.S.C. secs. 300(a), 300(c) (1946)). In 1949, it became part of the General Services Administration and was renamed the National
n another record.” C. Investment Basis Adjustments and Excess Loss Accounts Section 1501 allows affiliated corporations to join together to file a single consolidated return. The mechanics of doing so are spelled out in regulations promulgated under section 1502. Although the consolidated return regulations endeavor, to the extent possible, to treat the members of a consolidated group as a single corporation, they often bow to the reality of the members’ separate existence. For example, the regu
1502 (providing that the Secretary shall prescribe regulations that are necessary to determine consolidated groups' tax liabilities). Petitioner argues that these consolidated return regulations "require the determination ofan individual member's share ofthe consolidated group's CNOL." The Code applies to a consolidated group to the extent tha
Section 1502 provides that the Secretary shall prescribe such regulations as he may deem necessary in orderthat the tax liability ofthe affiliated group, and ofeach ofits members, may be computed, assessed, and collected in such manner as to clearly reflect its income tax liability and to prevent avoidance oftax liabili
dated Federal income tax returns for both years involved as permitted by section 1501. Section 1503(a) provides that in any case in which a consolidated return is made, the tax shall be determined in accordance with the regulations promulgated under section 1502. Section 1502 provides that the Secretary shall prescribe such regulations as he may deem necessary in order that the tax liability of the affiliated group, and of each of its members, may be computed, assessed, and collected in such man
In section 1502, Congress delegatedto the Secretary ofthe Treasury (Secretary) authority to: prescribe such regulations as he may deem necessary in order that the tax liability ofany affiliated group ofcorporations making a consoli- dated return and ofeach corporation in the group, both during and after the period ofaffiliation, may be returned, deter
Accordingly, unlike TMBCI, Uniband is subject to Federal income tax. II. Consolidated return issue We now turn to Uniband's alternative claim that for tax years 1996, 1997, and 1998 it was entitled to and did properly file consolidated returns with its sister corporation TMMC. The filing ofa consolidated return is a "privilege", sec. 1501, as to which the Secretary is explicitly authorized to promulgate regulations,25 sec. 1502.
ommon parent corporation ofa consolidated group may be a partner when a subsidiary member ofthe group is a partner in the partnership, because the common parent and each subsidiary member ofthe common group is severally liable for tax computed under section 1502. Rev. Rul. 2006-11, 2006-1 C.B. 635.4 Indirect partners under section 6231(a)(10), which are "person[s] holding an interest in a partnership through 1 or more pass-thru partners", are also deemed partners under section 6231(a)(2)(B). PCM
on parent corporation of a consolidated group may be a partner when a subsidiary member of the group is a partner in the partnership, because the common parent and each subsidiary member of the common group is severally liable for tax computed under section 1502. Rev. Rul. 2006-11, 2006-1 C.B. 635. Indirect partners under section 6231(a)(10), which are “person[s] holding an interest in a partnership through 1 or more pass-thru partners”, are also deemed partners under section 6231(a)(2)(B). PCMG
, and 1998 it was entitled to and did properly file consolidated returns with its sister corporation TMMC. The filing of a consolidated return is a “privilege”, sec. 1501, as to which the Secretary is explicitly authorized to promulgate regulations, sec. 1502. To prevail with this claim, Uniband must show that Uniband and TMMC were part of an affiliated group of corporations and that the group filed valid consolidated returns for the years in issue. Uniband’s claim fails for multiple reasons. A.
The Taxpayers' wages reported on - 20 - their Form W2 would have been reduced . E" The fact that Keys Holdings is a disregarded entity should not change the result. Again, petitioners seek a tax treatment that is inconsistent with the structure that Carlos created for his business dealings . Petitioners received wages from Keys Granite,
It provides that if the nonlife subgroup has an NOL for the year, the NOL must first be carried back and used to offset income of the nonlife subgroup in prior years .
subgroup, whichever is less. The unused portion of the nonlife subgroup’s NOL is available as a carryover to future years. Section 1503(a) requires a taxpayer filing a consolidated return to determine its tax in accordance with the regulations under section 1502. Section 1.1502-47, Income Tax Regs., generally adopts a “subgroup method” for determining CTI of life-nonlife consolidated groups. Sec. 1.1502 — 47(a)(2)(i), Income Tax Regs. It divides the consolidated group into the “life subgroup”, w
1502(a) (Secretary may “establish and promulgate such rules and regulations not inconsistent with the law”)]; AT&T Corp. v. Ia. Util. Bd., 525 U.S. 366 (1999)[issued under 47 U.S.C. sec. 201(b) (“Commissioner may prescribe such rules and regulations as may be necessary”)]; United States v. O’Hagan, 521 U.S. 642 (1997)[issued under 15 U.S.C. se
er, 74 T.C. 836, 840 n.7 (1980). - 62 - The Internal Revenue Code contains numerous specific delegations of authority from Congress to the Secretary or the Commissioner to issue rules or regulations that have the force and effect of law. See, e.g., sec. 1502. These sections--that provide for issuing legislative regulations--would be superfluous if section 7805 were a delegation of authority from Congress to make rules or regulations carrying the force of law. It is a fundamental rule of statutor
1502(a) ((Secretary may “establish and promulgate such rules and regulations not inconsistent with the law”)); AT&T Corp. v. Ia. Util. Bd., 525 U.S. 366 (1999) (issued under 47 U.S.C. sec. 201(b) (“Commissioner may prescribe such rules and regulations as may be necessary”)); United States v. O’Hagan, 521 U.S. 642 (1997) (issued under 15 U.S.C.
mmissioner, 74 T.C. 836, 840 n.7 (1980). The Internal Revenue Code contains numerous specific delegations of authority from Congress to the Secretary or the Commissioner to issue rules or regulations that have the force and effect of law. See, e.g., sec. 1502. These sections— which provide for issuing legislative regulations — would be superfluous if section 7805 were a delegation of authority from Congress to make rules or regulations carrying the force of law. It is a fundamental rule of statu
(continued...) -291- provide no analysis of the partnership basis rules (specifically section 704(c)) but instead focus on the recognition or nonrecognition of gain or loss under section 351, the consolidated loss disallowance and separate return limitation year rules under section 1502, the built-in loss limitations of section 382, the section 384(a) pre-acquisition loss rules, and the section 269(a)(2) disallowance rules for tax-motivated corporate acquisitions.
(a) General Rule.--In any case in which a consolidated return is made or is required to be made, the tax shall be determined, computed, assessed, collected, and adjusted in accordance with the regulations under section 1502 [authorizing the Secretary to establish regulations regarding consolidated tax liability] prescribed before the last day prescribed by law for the filing of such return.
— In any case in which a consolidated return is made or is required to be made, the tax shall be determined, computed, assessed, collected, and adjusted in accordance with the regulations under section 1502 [authorizing the Secretary to establish regulations regarding consolidated tax liability] prescribed before the last day prescribed by law for the filing of such return.
ved in this case, we can readily understand petitioner’s confusion as to respondent’s true position * * *. * * * We cannot fault petitioner for not knowing what the law was in this area when the Commissioner, charged by Congress to announce the law (sec. 1502), never decided what it was himself. * * * Thus, we find that the Commissioner’s regulations regarding the manner in which the accumulated earnings tax was to be imposed on corporations making consolidated returns were ambiguous during the
oney, securities, and any other property; except that such term does not include stock in the corporation making the distribution (or rights to acquire such stock).” 11T.D. 6894, 1966-2 C.B. 362, promulgated new consolidated return regulations under sec. 1502 of the 1954 Code. The new (continued...) - 15 - T.C. Memo. 1966-273, modified and remanded on a different issue sub nom. Likins-Foster Honolulu Corp. v. Commissioner, 417 F.2d 285 (10th Cir. 1969). The 1966 regulations abandoned that rule i
As to petitioner’s economic substance argument, the consolidated return regulations were promulgated under the congressional mandate of section 1502 to regulate the privilege of filing consolidated returns.
ved in this case, we can readily understand petitioner’s confusion as to respondent’s true position * * *. * * * We cannot fault petitioner for not knowing what the law was in this area when the Commissioner, charged by Congress to announce the law (sec. 1502), never decided what it was himself. * * * Thus, we find that the Commissioner’s regulations regarding the manner in which the accumulated earnings tax was to be imposed on corporations making consolidated returns were ambiguous during the
All members of the affiliated group must consent to the consolidated return regulations prescribed under section 1502 prior to the last day prescribed by law for the filing of a consolidated return.
All members of the affiliated group must consent to the consolidated return regulations prescribed under section 1502 prior to the last day prescribed by law for the filing of a consolidated return.
In order to qualify for treatment as a consolidated group, all members must agree to be bound by the consolidated return - 16 - regulations as promulgated by the Commissioner. Sec. 1501. As we see it, petitioner's position ignores those regulations. Section 1.1502-21A(f), Income Tax Regs., provides the exclusive method for computing the
* * * Pursuant to section 1502, Congress has granted to the Secretary of the Treasury broad authority to prescribe such regulations as he may deem necessary with respect to the making of consolidated returns.
The making of a consolidated return shall be upon the condition that all corporations which at any time during the taxable year have been members of the affiliated group consent to all the consolidated return regulations prescribed under section 1502 prior to the last day prescribed by law for the filing of such return.
The making of a consolidated return shall be upon the condition that all corporations which at any time during the taxable year have been members of the affiliated group consent to all the consolidated return regulations prescribed under section 1502 prior to the last day prescribed by law for the filing of such return.
In order to qualify for treatment as a consolidated group, all members must agree to be bound by the consolidated return regulations as promulgated by the Commissioner. Sec. 1501. As we see it, petitioner’s position ignores those regulations. Section 1.1502-21A(f), Income Tax Regs., provides the exclusive method for computing the NOL of
Regulations substantially the same as section 1.1502- 77(c)(2), Income Tax Regs., were first issued as article 17(a)(2) of Regulations 7534 under the authority of section 141(b) of the 33 Section 1502 provides: The Secretary shall prescribe such regulations as he may deem necessary in order that the tax liability of any affiliated group of corporations making a consolidated return and of each corporation in the group, both during and after the period of affiliation, may be returned, determined,
e ruling (namely, Rev. Rul. 82-20, 1982-1 C.B. 6). The majority argues that the above Courts of Appeals, in the cited opinions, give undue weight to the revenue ruling and ignore what the majority regards as the clear mandate of the regulation under section 1502. The majority is correct in stating that revenue rulings do not generally constitute legal precedent or "other law". As the language quoted below, however, from each of the cited opinions indicates, neither the U.S. Courts of Appeals for
grants the authority for affiliated corporations to file consolidated income tax returns, provides that, upon filing a consolidated return, the members of the consolidated group consent to all of the consolidated return regulations prescribed under section 1502. Section 1502 provides that the Secretary shall prescribe such regulations as may be deemed necessary so that the tax liability of an affiliated group may be returned, determined, computed, assessed, collected, and adjusted in such a man
Petitioners counter that section 1.1502 — 77(c)(2), Income Tax Regs., “is an invalid exercise of the Secretary’s rule-making authority.” According to petitioners, Nothing in section 1502 authorizes the Secretary to promulgate regulations that create agency relationships between corporations that never were part of the affiliated group, yet this is precisely what the Secretary purports to have done in Treas.
e ruling (namely, Rev. Rui. 82-20, 1982-1 C.B. 6). The majority argues that the above Courts of Appeals, in the cited opinions, give undue weight to the revenue ruling and ignore what the majority regards as the clear mandate of the regulation under section 1502. The majority is correct in stating that revenue rulings do not generally constitute legal precedent or “other law”. As the language quoted below, however, from each of the cited opinions indicates, the U.S. Court of Appeals for neither