Apportionment of Tax Items Among the Members of a Controlled Group of Corporations, 18686-18687 [2012-7533]
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Federal Register / Vol. 77, No. 60 / Wednesday, March 28, 2012 / Rules and Regulations
of the active pharmaceutical ingredient
of the drug.
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[FR Doc. 2012–7532 Filed 3–27–12; 8:45 am]
BILLING CODE 1505–01–D
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Apportionment of Tax Items Among
the Members of a Controlled Group of
Corporations
CFR Correction
In Title 26 of the Code of Federal
Regulations, Part 1(§ 1.1551 to End of
Part 1), revised as of April 1, 2011, on
page 24, in § 1.1561–2, paragraphs (c)
through (f) are added to read as follows:
§ 1.1561–2 Special rules for allocating
reductions of certain section 1561(a) taxbenefit items.
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(c) Accumulated earnings credit. The
component members of a controlled
group of corporations are permitted to
allocate the amount of the accumulated
earnings credit unequally if they have
an apportionment plan in effect.
(d) [Reserved]
(e) Short taxable years not including
a December 31st date—(1) General rule.
If a corporation has a short taxable year
not including a December 31st date and,
after applying the rules of section
1561(b) and paragraph (e)(2)(i) of this
section, it qualifies as a component
member of the group with respect to its
short taxable year (short-year member),
then, for purposes of subtitle A of the
Internal Revenue Code, the amount of
any tax-benefit item described in section
1561(b) allocated to that component
member’s short taxable year shall be the
amount specified in section 1561(a) for
that item, divided by the number of
corporations which are component
members of that group on the last day
of that component member’s short
taxable year. The component members
of such group may not apportion, by an
apportionment plan, an amount of such
tax-benefit item to any short-year
member that differs from equal
apportionment of that item.
(2) Additional rules. For purposes of
paragraph (e)(1) of this section—
(i) Section 1563(b) shall be applied as
if the last day of the taxable year of a
short-year member were substituted for
December 31st; and
(ii) The term short taxable year does
not refer to any portion of a tax year of
a corporation for which its income is
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required to be included in a
consolidated return pursuant to
§ 1.1502–76(b).
(3) Calculation of the additional tax.
A short-year member (as defined in
paragraph (e)(1) of this section) for its
short taxable year calculates its
additional tax liability imposed by
section 11(b)(1) only on its own income,
and therefore the subsequent calculation
of the additional tax liability with
regard to the remaining members of the
group will not include the income of
this short-year member.
(4) Calculation of the alternative
minimum tax. If a component member
has a tax year of less than 12 months,
whether or not such tax year includes a
December 31st date, see section 443(d)
for the annualization method required
for calculating the alternative minimum
tax.
(5) Examples. The provisions of this
paragraph (e) may be illustrated by the
following examples:
Example 1. Formation of a new member of
a controlled group— (i) Facts. On January 2,
2007, corporation X transfers cash to newly
formed corporation Y (which begins business
on that date) and receives all of the stock of
Y in return. X also owns all of the stock of
corporation Z on each day of 2006 and 2007.
X, Y and Z have an apportionment plan in
effect, apportioning the 15 percent taxbracket
amount as follows: 40% ($20,000) to each of
X and Y and 20% ($10,000) to Z. X, Y and
Z each file a separate return with respect to
the group’s December 31st, 2007 testing date.
X is on a calendar tax year and Z is on a
fiscal tax year ending on March 31. Y adopts
a fiscal year ending on June 30 and timely
files a tax return for its short taxable year
beginning on January 2, 2007, and ending on
June 30, 2007.
(ii) Y’s short taxable year. On June 30,
2007, Y is a component member of a
parentsubsidiary controlled group of
corporations composed of X, Y and Z.
Pursuant to paragraph (e)(1) of this section,
the group may not apportion any amount of
the 15 percent tax bracket to Y’s short taxable
year ending on June 30, 2007. Rather, Y is
entitled to exactly 1⁄3 of such bracket amount,
or $16,667.
(iii) The members’ subsequent tax years.
On December 31st, 2007, X, Y and Z are
component members of a parent-subsidiary
controlled group of corporations. For their
tax years that include December 31st, 2007
(X’s calendar year ending December 31st,
2007, Z’s fiscal year ending March 31, 2008
and Y’s fiscal year ending June 30, 2008), X,
Y and Z apportion among themselves the full
amount of all of the applicable tax brackets
pursuant to their apportionment plan. For
example, 40% of the 15 percent tax-bracket
amount, or $20,000, was apportioned to each
of X and Y, and the remaining 10%, or
$10,000, was apportioned to Z.
Example 2. Allocating a tax bracket to the
short taxable year of a liquidated member of
a controlled group— (i) Facts. On January 1,
2007, corporation P owns all of the stock of
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corporations S1, S2 and S3 (the P group). Each
of these four component members of the P
group, with respect to the group’s December
31st, 2007 testing date, files its separate
return on a calendar year basis. These
members have an apportionment plan in
effect (the P group plan) under which S1 and
S2 are each entitled to 40% of the 15 percent
tax-bracket amount ($20,000), and P and S3
are each entitled to 10% of the 15 percent
tax-bracket amount ($5,000). On May 31,
2007, S1 liquidates and therefore files a
return for the short taxable year beginning on
January 1, 2007, and ending on May 31, 2007.
On July 31, 2007, S2 liquidates and therefore
files a return for the short taxable year
beginning on January 1, 2007 and ending on
July 31, 2007. P and S3 each file a return for
their 2007 calendar tax years.
(ii) Apportionment of the 15 percent tax
bracket to S1 for its short taxable year. On
May 31, 2007, S1 is a component member of
the P group composed of P, S1, S2 and S3.
Pursuant to paragraph (e)(1) of this section,
the group may not apportion any amount of
the 15 percent tax bracket to S1’s short
taxable year ending on June 30, 2007. Rather,
S1 is entitled to exactly 1⁄4 of such bracket
amount, or $12,500.
(iii) Apportionment of the 15 percent tax
bracket to S2 for its short taxable year. On
July 31, 2007, S2 is a component member of
the P group composed of P, S2 and S3.
Pursuant to paragraph (e)(1) of this section,
the group may not apportion any amount of
the 15 percent tax bracket to S2’s short
taxable year ending on June 30, 2007. Rather,
S2 is entitled to exactly 1⁄4 of such bracket
amount, or $16,667.
(iv) Apportionment of the 15 percent tax
bracket to P and S3 for each of their calendar
tax years. On December 31st, 2007, P and S3
are component members of the P group.
Accordingly, for P and S3’s 2007 calendar tax
year, they are each apportioned $25,000 of
the 15 percent tax bracket, pursuant to the
applicable P group plan.
Example 3. Liquidation of member after its
transfer to another controlled group— (i)
Facts. The facts are the same as in Example
2, except that P, on April 30, 2007, sold all
of the stock of S2 to the M–N controlled
group. At the time of the sale, M and N are
both unrelated to any members of the P
group. As in Example 2, S2 liquidates on July
31, 2007, and therefore files a tax return for
its short taxable year beginning on January 1,
2007, and ending on July 31, 2007. Pursuant
to the sales agreement, the N–M group timely
notified P that S2 had liquidated.
(ii) Controlled group analysis. On April 30,
2007, the date of the sale of S2, the P group
reasonably expected that S2 would be treated
as an excluded member with respect to its
December 31st, 2007 testing date. On that
April 30th date, S2 had been a member of the
P group for less than one-half the number of
days of what it expected would be a full 2007
calendar tax year preceding December 31st,
2007 (120 days (January 1–April 30) out of
364 days (January 1–December 30)). Yet, as
a result of S2’s subsequent liquidation by the
M–N group prior to December 31st, 2007, S2
became a component member of the P group
with respect to the P group’s December 31st,
2007 testing date. With respect to that
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Federal Register / Vol. 77, No. 60 / Wednesday, March 28, 2012 / Rules and Regulations
December 31st testing date, S2 thus was a
member of the P group for more than one-half
of the number of days of its tax year ending
on July 31, 2007, which days proceeded
December 31st, 2007 (120 days (January 1–
April 30 of 2007) out of 211 days (January 1–
July 30 of 2007)). The allocation of the 15
percent tax-bracket amount to the P group
members is determined in the same manner
as in Example 2 and, therefore, the bracket
amounts allocated to P, S1, S2 and S3 are the
same as determined in Example 2. The
allocation of the bracket amounts would be
the same if, at the time P sold all of the S2
stock, the parties had made a section
338(h)(10) election.
Example 4. Short tax year including a
December 31st date. Corporation X owns all
of the stock of corporations Y and Z. X, Y and
Z each file separate returns. X and Y are on
a calendar tax year and Z is on a fiscal tax
year beginning October 1 and ending
September 30. On January 2, 2007, Z
liquidates. Because Z’s final tax year
(beginning on October 1, 2006 and ending on
January 2, 2007) includes a December 31st
date, that is, December 31, 2006, it is
therefore not subject to the short taxable year
rule provided by section 1561(b) and
paragraph (e) of this section. Accordingly, Z
is a component member of the X–Y–Z group,
for the group’s December 31st, 2006 testing
date. Thus, the rules of this paragraph (e) do
not limit the amount of any of the tax-benefit
items of section 1561(a) available to Z or to
this controlled group.
(f) Effective/applicability date. This section
applies to any tax year beginning on or after
December 21, 2009. However, taxpayers may
apply this section to any Federal income tax
return filed on or after December 21, 2009.
For tax years beginning before December 21,
2009, see § 1.1561–2T as contained in 26 CFR
part 1 in effect on April 1, 2009.
[FR Doc. 2012–7533 Filed 3–27–12; 8:45 am]
BILLING CODE 1505–01–D
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9564]
Merrill D. Feldstein (202) 622–4950 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The temporary regulations that are the
subject of these corrections are under
sections 162, 167, 168, and 263 of the
Internal Revenue Code.
1. In paragraph (e)(3)(ii)(B),
redesignating Example 2(iii) as Example
2(ii).
■ 2. Adding a new sentence at the end
of paragraph (m)(2).
The addition reads as follows:
§ 1.168(i)–1T
(temporary).
FOR FURTHER INFORMATION CONTACT:
Need for Correction
As published on December 27, 2011
(76 FR 81060), the temporary
regulations (TD 9564), contain errors
which may prove to be misleading and
are in need of clarification.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Accordingly, 26 CFR Part 1 is
corrected by making the following
correcting amendments:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
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Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.162–3 is revised to
read as follows:
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§ 1.162–3
Materials and Supplies
(a) through (k) [Reserved]. For further
guidance, see § 1.163–3T(a) through (k).
Par. 2. Section 1.162–3T is amended
by:
■ 1. Revising the third sentence of
paragraph (d)(3).
■ 2. Redesignating paragraphs (i) and (j)
as (j) and (k), respectively.
■ 3. Redesignating the second paragraph
(h), ‘‘Accounting method changes’’ as
paragraph (i).
■ 4. In newly redesignated paragraph (j)
the second sentence is revised.
The revisions read as follows:
■
RIN 1545–BJ93
§ 1.162–3T Materials and supplies
(temporary).
Guidance Regarding Deduction and
Capitalization of Expenditures Related
to Tangible Property: Correction
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Internal Revenue Service (IRS),
Treasury.
ACTION: Temporary regulations;
correcting amendment.
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AGENCY:
This document contains
correcting amendments to temporary
regulations (TD 9564), which were
published in the Federal Register
relating to guidance regarding deduction
and capitalization of expenditures
related to tangible property.
DATES: Effective Date: March 28, 2012.
SUMMARY:
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(d) * * *
(3) * * * See § 1.263(a)–2T for the
treatment of amounts paid to acquire or
produce real or personal tangible
property. * * *
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(j) * * * However, a taxpayer may
apply § 1.162–3T(e) (the optional
method of accounting for rotable and
temporary spare parts) to taxable years
beginning on or after January 1, 2012.
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■ Par. 3. Section 1.168(i)–1T is
amended by:
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■
General asset accounts
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(m) * * *
(2) * * * This paragraph (m)(2) does
not apply to a change to comply with
paragraph (e)(3)(ii), (e)(3)(iii) or
paragraph (l) of this section.
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■ Par. 4. Section 1.168(i)–8T is
amended by:
■ 1. Redesignating the second paragraph
(c)(4)(ii)(E) as paragraph (c)(4)(ii)(F).
■ 2. Revising the first sentence of
paragraph (g)(3).
The revision reads as follows:
§ 1.168(i)–8T Dispositions of MACRS
property (temporary).
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(g) * * *
(3) * * * This paragraph (g)(3)
applies only to a taxpayer that uses a
reasonable, consistent method to treat
each of the asset’s components as the
asset in accordance with paragraph
(c)(4)(ii)(F) of this section. * * *
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■ Par. 5. Section 1.263(a)–2T is
amended by:
■ 1. Revising the eighth sentence of
paragraph (g)(8) Example 2.
■ 2. Revising the last sentence of
paragraph (k).
The revisions read as follows:
§ 1.263(a)–2T Amounts paid to improve
tangible property (temporary).
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(8) Examples. * * *
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Example 2. * * * Thus, in order to meet
the criteria of paragraph (g)(1)(iv) of this
section for Year 1, the total aggregate
amounts paid and not capitalized by X under
paragraphs (g)(1)(i), (ii), and (iii) of this
section must be less than or equal to the
greater of $125,000 (0.1 percent of X’s total
gross receipts of $125,000,000) or $140,000 (2
percent of X’s total depreciation and
amortization of $7,000,000). * * *
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(k) * * * For the applicability of
regulations to taxable years beginning
before January 1, 2012, see § 1.263(a)–2
in effect prior to January 1, 2012
(§ 1.263(a)–2 as contained in 26 CFR
part 1 edition revised as of April 1,
2011).
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]]>Agencies
[Federal Register Volume 77, Number 60 (Wednesday, March 28, 2012)]
[Rules and Regulations]
[Pages 18686-18687]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-7533]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Apportionment of Tax Items Among the Members of a Controlled
Group of Corporations
CFR Correction
In Title 26 of the Code of Federal Regulations, Part 1(Sec. 1.1551
to End of Part 1), revised as of April 1, 2011, on page 24, in Sec.
1.1561-2, paragraphs (c) through (f) are added to read as follows:
Sec. 1.1561-2 Special rules for allocating reductions of certain
section 1561(a) tax-benefit items.
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(c) Accumulated earnings credit. The component members of a
controlled group of corporations are permitted to allocate the amount
of the accumulated earnings credit unequally if they have an
apportionment plan in effect.
(d) [Reserved]
(e) Short taxable years not including a December 31st date--(1)
General rule. If a corporation has a short taxable year not including a
December 31st date and, after applying the rules of section 1561(b) and
paragraph (e)(2)(i) of this section, it qualifies as a component member
of the group with respect to its short taxable year (short-year
member), then, for purposes of subtitle A of the Internal Revenue Code,
the amount of any tax-benefit item described in section 1561(b)
allocated to that component member's short taxable year shall be the
amount specified in section 1561(a) for that item, divided by the
number of corporations which are component members of that group on the
last day of that component member's short taxable year. The component
members of such group may not apportion, by an apportionment plan, an
amount of such tax-benefit item to any short-year member that differs
from equal apportionment of that item.
(2) Additional rules. For purposes of paragraph (e)(1) of this
section--
(i) Section 1563(b) shall be applied as if the last day of the
taxable year of a short-year member were substituted for December 31st;
and
(ii) The term short taxable year does not refer to any portion of a
tax year of a corporation for which its income is required to be
included in a consolidated return pursuant to Sec. 1.1502-76(b).
(3) Calculation of the additional tax. A short-year member (as
defined in paragraph (e)(1) of this section) for its short taxable year
calculates its additional tax liability imposed by section 11(b)(1)
only on its own income, and therefore the subsequent calculation of the
additional tax liability with regard to the remaining members of the
group will not include the income of this short-year member.
(4) Calculation of the alternative minimum tax. If a component
member has a tax year of less than 12 months, whether or not such tax
year includes a December 31st date, see section 443(d) for the
annualization method required for calculating the alternative minimum
tax.
(5) Examples. The provisions of this paragraph (e) may be
illustrated by the following examples:
Example 1. Formation of a new member of a controlled group-- (i)
Facts. On January 2, 2007, corporation X transfers cash to newly
formed corporation Y (which begins business on that date) and
receives all of the stock of Y in return. X also owns all of the
stock of corporation Z on each day of 2006 and 2007. X, Y and Z have
an apportionment plan in effect, apportioning the 15 percent
taxbracket amount as follows: 40% ($20,000) to each of X and Y and
20% ($10,000) to Z. X, Y and Z each file a separate return with
respect to the group's December 31st, 2007 testing date. X is on a
calendar tax year and Z is on a fiscal tax year ending on March 31.
Y adopts a fiscal year ending on June 30 and timely files a tax
return for its short taxable year beginning on January 2, 2007, and
ending on June 30, 2007.
(ii) Y's short taxable year. On June 30, 2007, Y is a component
member of a parentsubsidiary controlled group of corporations
composed of X, Y and Z. Pursuant to paragraph (e)(1) of this
section, the group may not apportion any amount of the 15 percent
tax bracket to Y's short taxable year ending on June 30, 2007.
Rather, Y is entitled to exactly \1/3\ of such bracket amount, or
$16,667.
(iii) The members' subsequent tax years. On December 31st, 2007,
X, Y and Z are component members of a parent-subsidiary controlled
group of corporations. For their tax years that include December
31st, 2007 (X's calendar year ending December 31st, 2007, Z's fiscal
year ending March 31, 2008 and Y's fiscal year ending June 30,
2008), X, Y and Z apportion among themselves the full amount of all
of the applicable tax brackets pursuant to their apportionment plan.
For example, 40% of the 15 percent tax-bracket amount, or $20,000,
was apportioned to each of X and Y, and the remaining 10%, or
$10,000, was apportioned to Z.
Example 2. Allocating a tax bracket to the short taxable year of
a liquidated member of a controlled group-- (i) Facts. On January 1,
2007, corporation P owns all of the stock of corporations
S1, S2 and S3 (the P group). Each
of these four component members of the P group, with respect to the
group's December 31st, 2007 testing date, files its separate return
on a calendar year basis. These members have an apportionment plan
in effect (the P group plan) under which S1 and
S2 are each entitled to 40% of the 15 percent tax-bracket
amount ($20,000), and P and S3 are each entitled to 10%
of the 15 percent tax-bracket amount ($5,000). On May 31, 2007,
S1 liquidates and therefore files a return for the short
taxable year beginning on January 1, 2007, and ending on May 31,
2007. On July 31, 2007, S2 liquidates and therefore files
a return for the short taxable year beginning on January 1, 2007 and
ending on July 31, 2007. P and S3 each file a return for
their 2007 calendar tax years.
(ii) Apportionment of the 15 percent tax bracket to
S1 for its short taxable year. On May 31, 2007,
S1 is a component member of the P group composed of P,
S1, S2 and S3. Pursuant to
paragraph (e)(1) of this section, the group may not apportion any
amount of the 15 percent tax bracket to S1's short
taxable year ending on June 30, 2007. Rather, S1 is
entitled to exactly \1/4\ of such bracket amount, or $12,500.
(iii) Apportionment of the 15 percent tax bracket to
S2 for its short taxable year. On July 31, 2007,
S2 is a component member of the P group composed of P,
S2 and S3. Pursuant to paragraph (e)(1) of
this section, the group may not apportion any amount of the 15
percent tax bracket to S2's short taxable year ending on
June 30, 2007. Rather, S2 is entitled to exactly \1/4\ of
such bracket amount, or $16,667.
(iv) Apportionment of the 15 percent tax bracket to P and
S3 for each of their calendar tax years. On December
31st, 2007, P and S3 are component members of the P
group. Accordingly, for P and S3's 2007 calendar tax
year, they are each apportioned $25,000 of the 15 percent tax
bracket, pursuant to the applicable P group plan.
Example 3. Liquidation of member after its transfer to another
controlled group-- (i) Facts. The facts are the same as in Example
2, except that P, on April 30, 2007, sold all of the stock of
S2 to the M-N controlled group. At the time of the sale,
M and N are both unrelated to any members of the P group. As in
Example 2, S2 liquidates on July 31, 2007, and therefore
files a tax return for its short taxable year beginning on January
1, 2007, and ending on July 31, 2007. Pursuant to the sales
agreement, the N-M group timely notified P that S2 had
liquidated.
(ii) Controlled group analysis. On April 30, 2007, the date of
the sale of S2, the P group reasonably expected that
S2 would be treated as an excluded member with respect to
its December 31st, 2007 testing date. On that April 30th date,
S2 had been a member of the P group for less than one-
half the number of days of what it expected would be a full 2007
calendar tax year preceding December 31st, 2007 (120 days (January
1-April 30) out of 364 days (January 1-December 30)). Yet, as a
result of S2's subsequent liquidation by the M-N group
prior to December 31st, 2007, S2 became a component
member of the P group with respect to the P group's December 31st,
2007 testing date. With respect to that
[[Page 18687]]
December 31st testing date, S2 thus was a member of the P
group for more than one-half of the number of days of its tax year
ending on July 31, 2007, which days proceeded December 31st, 2007
(120 days (January 1-April 30 of 2007) out of 211 days (January 1-
July 30 of 2007)). The allocation of the 15 percent tax-bracket
amount to the P group members is determined in the same manner as in
Example 2 and, therefore, the bracket amounts allocated to P,
S1, S2 and S3 are the same as
determined in Example 2. The allocation of the bracket amounts would
be the same if, at the time P sold all of the S2 stock,
the parties had made a section 338(h)(10) election.
Example 4. Short tax year including a December 31st date.
Corporation X owns all of the stock of corporations Y and Z. X, Y
and Z each file separate returns. X and Y are on a calendar tax year
and Z is on a fiscal tax year beginning October 1 and ending
September 30. On January 2, 2007, Z liquidates. Because Z's final
tax year (beginning on October 1, 2006 and ending on January 2,
2007) includes a December 31st date, that is, December 31, 2006, it
is therefore not subject to the short taxable year rule provided by
section 1561(b) and paragraph (e) of this section. Accordingly, Z is
a component member of the X-Y-Z group, for the group's December
31st, 2006 testing date. Thus, the rules of this paragraph (e) do
not limit the amount of any of the tax-benefit items of section
1561(a) available to Z or to this controlled group.
(f) Effective/applicability date. This section applies to any
tax year beginning on or after December 21, 2009. However, taxpayers
may apply this section to any Federal income tax return filed on or
after December 21, 2009. For tax years beginning before December 21,
2009, see Sec. 1.1561-2T as contained in 26 CFR part 1 in effect on
April 1, 2009.
[FR Doc. 2012-7533 Filed 3-27-12; 8:45 am]
BILLING CODE 1505-01-D
