Regulations Revising Rules Regarding Agency for a Consolidated Group, 17314-17324 [2015-07182]

Download as PDF 17314 Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 602 [TD 9715] RIN 1545–BH31 Regulations Revising Rules Regarding Agency for a Consolidated Group Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. AGENCY: This document contains final regulations regarding the agent for an affiliated group of corporations that files a consolidated return (consolidated group). The final regulations provide guidance concerning the identity and authority of the agent for a consolidated group. These final regulations affect all corporations in consolidated groups. DATES: Effective Date: These regulations are effective on April 1, 2015. Applicability Date: For dates of applicability, see § 1.1502–77(j). FOR FURTHER INFORMATION CONTACT: Gerald B. Fleming at (202) 317–6975 or Richard M. Heinecke at (202) 317–6065 (not toll-free numbers). SUPPLEMENTARY INFORMATION: SUMMARY: rmajette on DSK2TPTVN1PROD with RULES Paperwork Reduction Act The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) under control number 1545–1699. The collection of information in these final regulations is in paragraphs (c)(4), (c)(5)(iii), (c)(6)(i)(B), (c)(6)(ii), (c)(6)(iv), (c)(7)(i)(A), (c)(7)(i)(B), (c)(7)(ii), and (f)(3) of § 1.1502–77. The collection of information is necessary to make certain that the Commissioner of Internal Revenue (Commissioner), agent for the consolidated group, and members of the group are each informed of the proper identity of the agent for any given period, and are able to timely exercise their privileges and fulfill their responsibilities with respect to the filing of a consolidated return. For more information, see Rev. Proc. 2015–26, IRB 2015–15, the revenue procedure published to accompany the final regulations that provides instructions with respect to all communications relating to the identification of an agent for a consolidated group. An agency may not conduct or sponsor, and a person is not required to VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and return information are confidential, as required by section 6103. Background and Explanation of Provisions 1. Introduction This Treasury Decision contains final regulations that amend 26 CFR part 1, under section 1502 of the Internal Revenue Code of 1986 (Code) (Final Regulations). Section 1502 authorizes the Secretary to prescribe regulations for corporations that join in filing consolidated returns and provides that such rules may be different from the provisions of chapter 1 of subtitle A of the Code that would apply if such corporations filed separate returns. These Final Regulations provide guidance under § 1.1502–77 with respect to the agent for a group of affiliated corporations that file a consolidated return (agent), including rules for identifying and communicating with the agent, and determining the scope of the agent’s authority. The Final Regulations apply to consolidated return years beginning on or after April 1, 2015. Regulations in effect before April 1, 2015 will continue to apply to consolidated tax years beginning before April 1, 2015. Contemporaneously with the publication of the Final Regulations in the Federal Register, the IRS is issuing Rev. Proc. 2015–26, IRB 2015–15, providing instructions regarding the manner of making all communications that relate to the identification of an agent under the Final Regulations. Rev. Proc. 2015–26, IRB 2015–15, will obsolete Rev. Proc. 2002–43, 2002–2 CB 99 (see § 601.601(d)(2)(ii)(b) of this chapter) (Determination of Substitute Agent for a Consolidated Group When the Common Parent Ceases to Exist) with respect to consolidated return years for which these Final Regulations apply. Thus, Rev. Proc. 2002–43 will continue to apply for consolidated return years subject to prior regulations. 2. Overview of Prior Guidance Regarding Agents On June 28, 2002, the IRS and the Treasury Department promulgated final regulations under § 1.1502–77 in TD 9002, 67 FR 43538, to provide rules PO 00000 Frm 00008 Fmt 4700 Sfmt 4700 concerning the identity and authority of the agent and the designation of a new agent. These regulations were amended by TD 9255 (71 FR 13001) (March 14, 2006) and TD 9343 (72 FR 40066) (July 23, 2007). (The June 28, 2002 regulations and amendments are collectively referred to in this preamble as the 2002 Regulations.) On June 29, 2002, the IRS released Rev. Proc. 2002–43 to prescribe instructions for all communications relating to the determination of a substitute agent and the designation of a substitute agent by a terminating common parent. On May 30, 2012, the IRS and the Treasury Department proposed regulations that would replace the 2002 Regulations (2012 Proposed Regulations). The 2012 Proposed Regulations were published in the Federal Register (77 FR 31786). No request for a hearing was received. One comment was received with respect to the 2012 Proposed Regulations, but it made no specific recommendations. No other comments were received, including with respect to the specific request for comments regarding the expansion of the circumstances in which the Commissioner could designate agents, and the ability of an agent to resign. 3. Summary of the 2002 Regulations Under the 2002 Regulations, the common parent of a group ceased to be the agent if its existence terminated under applicable law, if it became disregarded as an entity separate from its owner for federal tax purposes (a disregarded entity), or if it became an entity classified as a partnership for federal tax purposes. In such cases, the common parent could generally designate its successor, another member of the group, or a group member’s successor as the substitute agent for the group (provided such designee was a domestic corporation for federal tax purposes). However, any such designation required affirmative approval by the Commissioner. Although in general a common parent must be a domestic corporation, a common parent could be an entity created or organized under the laws of a foreign country and treated as a domestic corporation by reason of section 7874 (treating a foreign corporation as a domestic corporation as a result of certain outbound inversion transactions) or an election under section 953(d) to treat a foreign insurance company as a domestic corporation (foreign common parent). In recognition of the logistical problems this could create, the 2002 Regulations E:\FR\FM\01APR1.SGM 01APR1 Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations permitted the Commissioner to designate a domestic member of the group to act as the agent (domestic substitute agent) in the case of a foreign common parent. Finally, the 2002 Regulations provided certain rules relating to partnerships and partners subject to sections 6221 through 6234 of the Code, enacted by section 402 of the Tax Equity and Fiscal Responsibility Act of 1982 (96 Stat. 324) (TEFRA), generally providing that the Commissioner would deal directly with a member that was the tax matters partner (TMP) regarding specified matters for the partners in a TEFRA partnership even if the TMP is not the agent. rmajette on DSK2TPTVN1PROD with RULES 4. Overview of the 2012 Proposed Regulations The 2012 Proposed Regulations retained the general rules, concepts, and examples of the 2002 Regulations. However, the 2012 Proposed Regulations renumbered, restructured, and revised the 2002 Regulations to minimize the circumstances under which the identity of the agent would not be clear. The 2012 Proposed Regulations also increased the number of situations in which the identity of the agent would be determined without action by taxpayers or the Commissioner. The proposed changes are described in the following paragraphs 4.A. through 4.G. A. Default Successors The 2002 Regulations generally permitted a terminating agent to designate the substitute agent. However, the IRS observed that terminating agents, to the extent they designated at all, tended to designate their successors rather than another member of their group. To simplify the procedures and align them with taxpayers’ practices, the 2012 Proposed Regulations provided that if an agent had a sole successor (default successor), the default successor would automatically become the group’s agent when the prior agent ceased to exist, such as in a merger. The terminating agent would not be permitted to designate an agent unless there was no default successor, in which case the agent could only designate an entity that was a member of the group for the consolidated return year (or a successor of such a member). The 2012 Proposed Regulations also prescribed limited circumstances under which the Commissioner could replace a default successor. B. Entities Eligible To Be an Agent The 2012 Proposed Regulations included disregarded entities and VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 partnerships among the entities permitted to be agents for prior years in which they or their predecessors were not treated as disregarded. Thus, if a common parent converted or merged into a disregarded entity or partnership, whether by reason of a state law merger, a state law conversion, or a federal tax election, the continuing or successor juridical entity (whether a disregarded entity or partnership) would continue as the agent for the prior periods. C. TEFRA Partnerships In general, the Code and regulations governing the treatment of TEFRA partnerships provide that the Commissioner will deal with the TMP regarding specified matters for the partners in a TEFRA partnership. See generally, sections 6221 through 6234. The 2002 Regulations provided two TEFRA specific rules relating to members that were partners in a TEFRA partnership. Under the first rule, a subsidiary that was the TMP of a TEFRA partnership would act in its own name regarding partnership matters, without requiring any action by the agent. Under the second rule, the Commissioner would deal with a subsidiary that was a partner in a TEFRA partnership in the performance of an examination of the TEFRA partnership. This second rule, however, appeared to create some confusion in the context of other provisions of the 2002 Regulations. To provide more clarity with respect to the second rule, the 2012 Proposed Regulations provided that: (1) The agent will generally act as agent for a member that is a partner in a TEFRA partnership regarding all matters related to the partnership, including execution of a settlement agreement under section 6224(c) (as illustrated in Example 12 in § 1.1502–77(g) of the 2012 Proposed Regulations) and extension of the statute of limitations with respect to items other than the items of the TEFRA partnership (as illustrated in Example 11 in § 1.1502–77(g) of the 2012 Proposed Regulations); and (2) the Commissioner, without having to deal with each member separately by ‘‘breaking agency’’ pursuant to § 1.1502– 77(f)(2)(i) of the 2012 Proposed Regulations, may communicate directly with a subsidiary or a disregarded entity owned by a subsidiary that is a partner in a TEFRA partnership whenever the Commissioner determines that such direct communication will facilitate the conduct of an examination, appeal, or settlement with respect to the partnership. However, like the 2002 Regulations, the 2012 Proposed Regulations provided that any member of the group designated as the TMP of PO 00000 Frm 00009 Fmt 4700 Sfmt 4700 17315 a TEFRA partnership will act in its own name and perform its responsibilities with respect to the partnership without requiring any action by the agent. D. Commissioner’s Approval of Substitute Agent Although the 2002 Regulations required the Commissioner to approve any designation, in practice, designation approval requests were denied only rarely. To simplify procedures, and thereby conserve resources and enhance efficiency, the 2012 Proposed Regulations eliminated the requirement. However, to ensure that IRS records accurately reflect the identity of an agent, the 2012 Proposed Regulations provided that a default successor, or a terminating agent that has no default successor, must notify the IRS (in writing in the manner prescribed by the Commissioner) when the default successor or an entity designated by a terminating agent becomes the group’s new agent. E. Commissioner’s Authority To Designate Agent The 2012 Proposed Regulations provided several limited circumstances in which the Commissioner could designate or replace an agent, either on its own initiative or at the request of other members. Examples were included in the 2012 Proposed Regulations to illustrate the circumstances in which an agent may be designated. The 2012 Proposed Regulations did not provide the Commissioner with the ability to replace a domestic default successor under circumstances in which it could not replace the common parent. F. Foreign Entity as Agent As previously noted, the 2002 Regulations did not preclude foreign entities from acting as agent, but provided that the Commissioner could designate a domestic substitute agent. The IRS and the Treasury Department recognize that such an entity may have the best access to information, but also that these situations present unique logistical issues. Accordingly, the 2012 Proposed Regulations did not preclude a foreign entity from being the agent and preserved the Commissioner’s discretion to replace a foreign entity. G. Post-Dissolution Winding Up Period Questions arose under the 2002 Regulations with respect to the actions that could be performed by a terminating agent during the ‘‘winding up’’ period following its dissolution. Because winding up statutes vary widely among the states, the IRS and the E:\FR\FM\01APR1.SGM 01APR1 17316 Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations Treasury Department determined that no single rule for post-dissolution terminating agents would be appropriate in all cases. The 2012 Proposed Regulations resolved the issue by providing that an entity that has dissolved or otherwise ceased to exist under applicable law can no longer be the agent, irrespective of its powers under state or local law during its postdissolution winding up period. rmajette on DSK2TPTVN1PROD with RULES 5. Final Regulations The rules adopted in these Final Regulations are consistent with those set forth in the 2012 Proposed Regulations. The Final Regulations, however, make several revisions to the 2012 Proposed Regulations. First, as further described in section 5.A. of this preamble, the Final Regulations expand the circumstances under which the Commissioner may replace an agent on the Commissioner’s own accord. Second, the Final Regulations clarify that a terminating agent without a default successor may only designate an agent with respect to a completed year. See section 5.A.iii. of this preamble. Third, the Final Regulations organize the provisions that permit the Commissioner to designate an agent into two categories: (1) Those provisions that authorize the Commissioner to replace an agent on the Commissioner’s own accord, with or without a written request from a member; and (2) a provision described in section 5.B. of this preamble permitting the Commissioner to replace an agent pursuant to a member’s written request. Fourth, as described in section 5.C. of this preamble, the Final Regulations allow an agent to resign under certain circumstances. Fifth, the Final Regulations clarify that an agent other than the common parent generally serves as agent under the same terms and with the same rights as the common parent. A significant exception to this general rule discussed in section 5.A.iii. of this preamble applies in the case of an agent designated by the Commissioner, in that such an agent may not designate an agent upon its termination unless the Commissioner designated the agent solely because a prior agent terminated without a default successor and without designating an agent (other than in the case of a group structure change as defined in § 1.1502– 33(f)(1)). In addition, the Final Regulations contain clarifying and non-substantive changes to the text of the 2012 Proposed Regulations and redesignate the 2002 Regulations as § 1.1502–77B (§ 1.1502– 77A continues to apply for consolidated VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 return years beginning before June 28, 2002). A. Designation on Commissioner’s Own Accord The Final Regulations prescribe four circumstances in which the Commissioner may designate an agent on the Commissioner’s own accord. Three of the circumstances are adopted from the 2012 Proposed Regulations: The Commissioner may designate an agent if (1) a terminating agent has no default successor and fails to designate an agent; (2) the Commissioner believes that the agent or its default successor exists but such entity fails to timely respond to notices properly sent by the Commissioner; or (3) the agent is or becomes a foreign entity (for example, through the agent’s continuance into a foreign jurisdiction or certain transactions subject to the inversion rules of section 7874). The Final Regulations add an additional situation to the second circumstance so that the Commissioner may designate an agent where the agent either fails timely respond to notices or fails to perform its obligations as agent. Finally, the Final Regulations add a fourth circumstance: The Commissioner may designate a new agent for a current year if a previously designated agent ceases to be a member of the group. i. Replacing Agent That Fails To Perform Its Obligations The IRS and the Treasury Department recognize that there may be situations in which an agent is failing to perform its obligations as agent under the Code or regulations. Neither the 2002 Regulations nor the 2012 Proposed Regulations provided a remedy to designate an agent in such situations. As a result, members would not be able to accurately file a return, determine their federal tax liability, or obtain refunds, and the Commissioner might have to deal with each member separately by ‘‘breaking agency’’ pursuant to § 1.1502– 77(f)(2)(i) of the 2012 Proposed Regulations. This could, in turn, result in significant uncertainty and undue burden for group members as well as the Commissioner. For example, assume the Commissioner breaks agency for a consolidated return year that has ended (completed year) and then one or more members files a claim for refund of income taxes paid for that year. Because of the uncertainty as to which member(s) would be entitled to all or a portion of the refund, the Government would likely be forced to interplead all potential member-claimants in an ensuing refund case. PO 00000 Frm 00010 Fmt 4700 Sfmt 4700 The preamble to the 2012 Proposed Regulations requested comments with respect to this issue, but no comments were received. Nevertheless, the IRS and the Treasury Department have considered this issue and determined that the best interests of all concerned would be served by providing the Commissioner the authority to replace an agent that fails to perform its obligations as agent as prescribed by federal tax law. Accordingly, the Final Regulations provide that the Commissioner may, with or without a written request from a member, designate an agent to replace any agent that fails to perform its obligations as agent as prescribed by the Code or regulations promulgated thereunder. ii. Replacing Agent That Ceases To Be a Member for Current Year The 2012 Proposed Regulations did not provide guidance for situations in which an agent previously designated by the Commissioner ceases to be a member during a consolidated return year that is not a completed year (current year). Thus, under the 2012 Proposed Regulations, there could be situations in which a group would have a non-member agent or no agent at all. The Final Regulations address these issues by requiring that the agent for the current year be a member of the group. An agent designated by the Commissioner will generally continue as the agent in successive consolidated return years except in three circumstances: (1) If the Commissioner specifies a limited or specific period of agency in the designation; (2) if the agent ceases to be a member of the group; or (3) if the agent is replaced pursuant to the Final Regulations. The Final Regulations also provide an additional circumstance in which the Commissioner may designate an agent on the Commissioner’s own accord. Specifically, the Final Regulations permit the Commissioner, with or without a written request from a member, to designate an agent for the current year if an agent previously designated by the Commissioner ceases to be a member of the group without leaving a default successor in the group. In that situation, a member of the group should request that the Commissioner designate an agent. iii. Effect of Certain Designations on the Commissioner’s Own Accord The Proposed Regulations permitted an agent that terminates without a default successor to designate an agent. If a terminating agent had no default successor and failed to designate an agent, the Commissioner could E:\FR\FM\01APR1.SGM 01APR1 Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations rmajette on DSK2TPTVN1PROD with RULES designate an agent with or without the request of any member. The Final Regulations generally adopt these rules with one significant modification. If a terminating agent was itself designated by the Commissioner on the Commissioner’s own accord and the terminating agent does not have a default successor, the Final Regulations provide that the terminating agent is not permitted to designate an agent if it was designated because the agent it replaced (1) ceased to be a member of the group in a current year; (2) failed to timely respond to notices or failed to fulfill its obligations under the Code or regulations; or (3) became a foreign entity. Because the Commissioner’s ability to administer the tax law is impaired under these circumstances, the IRS and the Treasury Department determined that the interests of tax administration would be best served by monitoring of designated agents and groups in these limited cases. Accordingly, the IRS and the Treasury Department determined that the Commissioner, rather than the terminating agent, should designate the agent in these situations. In such cases, any member (including the terminating agent) of the group is permitted to request that the Commissioner designate a new agent. The Final Regulations permit other categories of agents previously designated by the Commissioner to designate an agent upon termination provided the terminating agent does not (1) have a default successor or (2) terminate in a group structure change. The Final Regulations clarify that a terminating agent that is permitted to designate an agent may only do so with respect to completed years. Finally, to prevent groups from nullifying a designation made by the Commissioner, the Final Regulations provide that a designating agent may not designate as an agent any entity that the Commissioner previously replaced as agent. The designating agent may, however, submit a request that the Commissioner designate as agent the entity previously replaced as agent. B. Designation Upon Written Request by a Member The 2002 Regulations and the 2012 Proposed Regulations provided a mechanism whereby upon the written request from a member, the Commissioner could, but was not required to, replace an agent previously designated by the Commissioner. The Final Regulations retain this provision to permit a member to request that the Commissioner designate a new agent in circumstances other than the VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 specifically enumerated circumstances in which the Commissioner may designate an agent on the Commissioner’s own accord. C. Resignation of Agent Under the 2002 Regulations, a common parent remained the agent for any year for which it was the common parent, with only a termination of the common parent terminating that agency. However, the IRS and the Treasury Department recognize that there could be circumstances in which an agent would want to resign and have another entity take its place as agent. For example, assume P, the common parent of the P consolidated group, becomes a subsidiary of the group in a transaction under § 1.1502–75(d) (resulting in a group structure change described in § 1.1502–33(f)(1)), and the group continues with N as the new common parent and agent. If unrelated X acquires the stock of P, P would leave the group but would still be the agent for the years during which it was the group’s common parent. In that situation, it might be more efficient for all concerned if P were to resign as agent in favor of another member. Although the 2012 Proposed Regulations did not include a mechanism for an existing agent to resign, the preamble to the 2012 Proposed Regulations requested comments with respect to this issue. No comments were received. Nevertheless, the IRS and the Treasury Department have considered the issue and determined that it would be in the best interests of all concerned and sound tax administration for agents to have the ability to resign, at least in limited situations. Accordingly, the Final Regulations provide a mechanism for agents to resign with respect to completed years. However, there are four conditions that must be met. First, the agent must provide written notice to the Commissioner that it no longer intends to be the agent for a completed year. Second, an entity that could have been designated by the resigning agent upon its termination must consent, in writing, to be the agent for that year. Third, immediately after its resignation takes effect, the resigning agent must not be the agent for the current year. Fourth, the Commissioner must not object to the agent’s resignation. If these conditions are satisfied, the new agent must notify each member of the group that it has become the agent. Effective/Applicability Date The Final Regulations apply to consolidated return years beginning on or after April 1, 2015. The 2002 PO 00000 Frm 00011 Fmt 4700 Sfmt 4700 17317 Regulations, redesignated as § 1.1502– 77B, and Rev. Proc. 2002–43 continue to apply with respect to consolidated return years beginning on or after June 28, 2002, and before April 1, 2015. However, the new rules permitting the resignation of agents may be relied upon for completed years otherwise governed by the 2002 Regulations (or any predecessor regulations). Special Analyses It has been determined that this Treasury Decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these regulations will affect affiliated groups of corporations that have elected to file consolidated returns, which tend to be larger entities. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the proposed regulations preceding these final regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received. Drafting Information The principal author of these final regulations is Richard M. Heinecke, Office of Associate Chief Counsel (Corporate). However, other personnel from the IRS and the Treasury Department participated in their development. List of Subjects 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. 26 CFR Part 602 Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by adding an entry in numerical order to read in part as follows: ■ E:\FR\FM\01APR1.SGM 01APR1 17318 Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations Authority: 26 U.S.C. 7805 * * * * * * * * Section 1.1502–77B also issued under 26 U.S.C. 1502 and 6402(j). * * § 1.338–1 * * * [Amended] Par. 2. Section 1.338–1 is amended by removing the language ‘‘§ 1.1502– 77(e)(4)’’ in the last sentence of paragraph (b)(2)(viii) and adding the language ‘‘§ 1.1502–77(c)(8)’’ in its place. ■ Par. 3. Section 1.1502–77A is amended as follows: ■ 1. Paragraph (e)(2) is amended by removing every occurrence of the language ‘‘(a)(4)’’ and adding ‘‘(e)(4)’’ in its place. ■ 2. In paragraph (e)(2), the first sentence is amended by removing the language ‘‘§ 1.1502–77’’ and adding ‘‘§ 1.1502–77A’’ in its place. ■ 3. In paragraph (e)(2), the second sentence is amended by removing the language ‘‘§ 1.1502–77(d)’’ and adding ‘‘§ 1.1502–77A(d)’’ in its place. ■ 4. Paragraph (e)(3) is amended by removing the language ‘‘(a)(4)’’ and adding ‘‘(e)(4)’’ in its place. ■ 5. Paragraph (e)(4) is amended by removing the language ‘‘(a)(2)’’ and adding ‘‘(e)(2)’’ in its place. ■ 6. Paragraph (e)(4)(iii) is amended by removing the language ‘‘§ 1.1502–77(d)’’ and adding ‘‘§ 1.1502–77A(d)’’ in its place. ■ 7. The heading for paragraph (g) is revised. The revision reads as follows: ■ § 1.1502–77A Common parent agent for subsidiaries applicable for consolidated return years beginning before June 28, 2002. * * * * * (g) Effective/applicability dates. * * * § 1.1502.77 77B] [Redesignated as § 1.1502– Par. 4. Add an undesignated center heading under § 1.1502.77A, redesignate § 1.1502–77 as § 1.1502–77B and, in newly redesignated § 1.1502–77B, revise the section heading and paragraph (h)(1)(i) to read as follows: ■ rmajette on DSK2TPTVN1PROD with RULES Regulations Applicable to Taxable Years Beginning on or After June 28, 2002, and Before April 1, 2015 § 1.1502–77B Agent for the group applicable for consolidated return years beginning on or after June 28, 2002, and before April 1, 2015. * * * * * (h) Effective/applicability date—(1) Application—(i) In general. This section VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 applies to consolidated return years beginning on or after June 28, 2002, and before April 1, 2015. For instructions regarding communications relating to the determination of a substitute agent and other matters under this section, see Rev. Proc. 2002–43, 2002–2 CB 99 (see § 601.601(d)(2)(ii)(b) of this chapter). For rules governing the resignation of certain agents for the group subject to this section, see § 1.1502–77(c)(7) and (j)(2). * * * * * ■ Par. 5. Section 1.1502–77 is added to read as follows: § 1.1502–77 Agent for the group. (a) Agent for the group—(1) Sole agent. Except as provided in paragraphs (e) and (f)(2) of this section, one entity (the agent) is the sole agent that is authorized to act in its own name regarding all matters relating to the federal income tax liability for the consolidated return year for each member of the group and any successor or transferee of a member (and any subsequent successors and transferees thereof). The identity of that agent is determined under the rules of paragraph (c) of this section. (2) Agent for each consolidated return year. Agency for the group is established for each consolidated return year and is not affected by the status or membership of the group in later years. Thus, subject to the rules of paragraph (c) of this section, the agent will generally remain agent for that consolidated return year regardless of whether one or more subsidiaries later cease to be members of the group, whether the group files a consolidated return for any subsequent year, whether the agent ceases to be the agent or a member of the group in any subsequent year, or whether the group continues pursuant to § 1.1502–75(d) with a new common parent in any subsequent year. (3) Communications under this section. Any designation, notification, objection, request, or other communication made to or by the Commissioner pursuant to paragraphs (c) and (f)(2) of this section must be made in accordance with procedures prescribed by the Commissioner in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii) of this chapter), forms, instructions, or other appropriate guidance. (b) Definitions. The following definitions apply for purposes of this section only— (1) Successor. A successor is an individual or entity (including a disregarded entity as defined in paragraph (b)(3) of this section) that is PO 00000 Frm 00012 Fmt 4700 Sfmt 4700 primarily liable, pursuant to applicable law (including, for example, by operation of a state or federal merger statute), for the tax liability of a corporation that was a member of the group but is no longer in existence under applicable law. The determination of tax liability is made without regard to § 1.1502–1(f)(4) or § 1.1502–6(a). (For inclusion of a successor in references to a subsidiary or member, see paragraph (b)(5)(iii) of this section.) (2) Entity. The term entity includes any corporation, limited liability company, or partnership formed under any state, federal, or foreign jurisdiction. The term entity includes a disregarded entity (as defined in paragraph (b)(3) of this section). The term entity does not include an entity that has terminated even if it is in a winding up period under the law under which it is organized. (3) Disregarded entity. The term disregarded entity includes any of the following types of entities that are disregarded as separate from their owners— (i) Qualified real estate investment trust subsidiaries (within the meaning of section 856(i)(2)); (ii) Qualified subchapter S subsidiaries (within the meaning of section 1361(b)(3)(B)); and (iii) Eligible entities with a single owner (within the meaning of § 301.7701–3 of this chapter). (4) Default successor. A successor to the agent is the default successor if it is an entity (whether domestic or foreign) that is the sole successor to the agent. A partnership is treated as a sole successor with primary liability notwithstanding that one or more partners may also be primarily liable by virtue of being partners. (5) Member or subsidiary. All references to a member or subsidiary for a consolidated return year include— (i) Each corporation that was a member of the group during any part of such year (except that any reference to a subsidiary does not include the common parent); (ii) Each corporation whose income was included in the consolidated return for such year, notwithstanding that the tax liability of such corporation should have been computed on the basis of a separate return, or as a member of another consolidated group, under the provisions of § 1.1502–75; and (iii) Except as indicated otherwise, a successor of any of the foregoing corporations. (6) Completed year. A completed year is a consolidated return year that has E:\FR\FM\01APR1.SGM 01APR1 rmajette on DSK2TPTVN1PROD with RULES Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations ended, or will end at the time of the referenced event. (7) Current year. A current year is a consolidated return year that is not a completed year. (c) Identity of the agent—(1) In general. Except as otherwise provided in this section, the agent for a current year is the common parent and the agent for a completed year is the common parent at the close of the completed year or its default successor, if any. Except as specifically provided otherwise in this paragraph (c), any entity that is an agent pursuant to paragraph (c)(3) of this section (agent following group structure change), paragraph (c)(5) of this section (agent designated by agent terminating without default successor), paragraph (c)(6) of this section (agent designated by Commissioner), or paragraph (c)(7) of this section (agent designated by resigning agent) of this section (and any entity that subsequently serves as agent) acts as an agent for and under the same terms and conditions that apply to a common parent. For example, such an agent would generally be able to designate an agent if it terminates without a default successor; however, an entity that became agent pursuant to a designation by the Commissioner under paragraphs (c)(6)(i)(A)(2), (3), or (4) of this section is not permitted to designate an agent if it terminates without a default successor. Other special rules described in this paragraph (c) apply. (2) Purported agent. If any entity files a consolidated return, or takes any other action related to the tax liability for the consolidated return year, purporting to be the agent but is subsequently determined not to have been the agent with respect to the claimed group, that entity is treated, to the extent necessary to avoid prejudice to the Commissioner, as if it were the agent. (3) New common parent after a group structure change. If the group continues in existence after a group structure change (as described in § 1.1502– 33(f)(1)), the former common parent is the agent until the group structure change, and the new common parent becomes the agent after the group structure change. Following the group structure change, the new common parent is the agent with respect to the entire current year (including the period before the group structure change) and the former common parent is no longer the agent for that year. However, actions taken by the former common parent as the agent before the group structure change are not nullified when the new common parent becomes the agent with respect to the entire consolidated return year. Following the group structure VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 change, the new common parent continues as the agent for succeeding years subject to the rules of this section. (4) Notification by default successor— (i) In general. Failure to provide notice to the Commissioner pursuant to this paragraph (c)(4)(i) does not invalidate an entity’s status as the default successor. However, until the Commissioner receives notification in writing that an entity is the default successor— (A) Any notice of deficiency or other communication mailed to the predecessor agent, even if no longer in existence, is considered as having been properly mailed to the agent; and (B) The Commissioner is not required to act on any communication (including, for example, a claim for refund) submitted on behalf of the group by any person (including the default successor) other than the predecessor agent. (ii) Conversions and continuances. For purposes of the notice requirements under paragraph (c)(4)(i) of this section, any entity that results from the agent’s conversion or continuance by operation of state law and that qualifies as a default successor under paragraph (b)(4) of this section is treated as a default successor for purposes of the notice provisions of paragraph (c)(4)(i) of this section, even if applicable state or local law may treat the converted or continued entity as not ceasing to exist. (5) Designation by terminating agent—(i) In general. Prior to the termination of its existence without a default successor, an agent may designate an entity described in paragraph (c)(5)(ii) of this section to act as agent for any completed year. This designation is effective upon the termination of the designating agent’s existence. However, this paragraph (c)(5) does not apply to, and no designation can be made by, an agent that was designated by the Commissioner under paragraphs (c)(6)(i)(A)(2), (3), or (4) of this section, or any successor of such an agent; in such a case, the terminating agent should request that the Commissioner designate an agent pursuant to paragraph (c)(6)(i)(B) of this section. (ii) Permissible agents—(A) The terminating agent may designate as agent a member of the group during any part of the completed year, or an entity (whether domestic or foreign) that is a successor of such a member, including an entity that will become a successor at the time the agent’s existence terminates. (B) The terminating agent may not designate as agent any entity that was previously replaced as agent by the PO 00000 Frm 00013 Fmt 4700 Sfmt 4700 17319 Commissioner pursuant to paragraphs (c)(6)(i)(A)(2), (3), or (4) of this section, or any successor of such an agent. However, the terminating agent may submit a request pursuant to paragraph (c)(6)(i)(B) of this section that the Commissioner designate such an entity as agent. (iii) Notification of designation. The terminating agent must notify the Commissioner in writing of its designation of an entity as agent pursuant to paragraph (c)(5)(i) of this section and provide a statement executed by the designated entity acknowledging that it will serve as the agent for each specified completed year for which it is designated as the agent. If the designated entity was not itself a member of the group during any specified year (because it is a successor of a member), the notification must include a statement acknowledging that the designated entity is or will be primarily liable for the tax liability for the specified completed year as a successor of a member. (iv) Failure to designate an agent. If the agent terminates without a default successor, and no agent is designated pursuant to this paragraph (c)(5)— (A) Any notice of deficiency or other communication mailed to the agent, even if no longer in existence, is considered as having been properly mailed to the agent; and (B) The Commissioner is not required to act on any communication (including, for example, a claim for refund) submitted on behalf of the group by any person. (6) Designation by the Commissioner—(i) In general. The Commissioner has the authority to designate an entity to act as the agent under the circumstances prescribed in this paragraph (c)(6)(i). The designated agent for a completed year must be an entity described in paragraph (c)(5)(ii)(A) of this section when the designation becomes effective. The designated agent for a current year must be a member of the group when the designation becomes effective. If, pursuant to this paragraph (c)(6), the Commissioner replaces the common parent or another entity as the agent, the common parent or other entity, or any successor thereof, may not later act as the agent unless so designated by the Commissioner. (A) On Commissioner’s own accord. With or without a request from any member of the group, the Commissioner may designate an entity to act as the agent if— (1) The agent’s existence terminates, other than in a group structure change, without there being a default successor E:\FR\FM\01APR1.SGM 01APR1 rmajette on DSK2TPTVN1PROD with RULES 17320 Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations and without any designation made under paragraph (c)(5)(i) of this section; (2) An agent previously designated by the Commissioner is no longer a member of the group in the current year and does not have a default successor that is a member of the group; (3) The Commissioner believes that the agent or its default successor exists but such entity has either not timely responded to the Commissioner’s notices (sent to the last known address on file for the entity or left at the usual place of business for such entity) or has failed to perform its obligations as agent as prescribed by the Internal Revenue Code (Code) or regulations promulgated thereunder; or (4) The agent is or becomes a foreign entity as a result of any action or transaction (including, for example, a continuance into a foreign jurisdiction or certain inversion transactions subject to section 7874 in which a foreign parent is treated as a domestic corporation). (B) Written request from any member. At the request of any member, in a circumstance not described in paragraph (c)(6)(i)(A) of this section, the Commissioner may, but is not required to, replace an agent previously designated under this paragraph (c)(6). (ii) Notification by Commissioner. The Commissioner will notify the designated entity in writing of the Commissioner’s designation of the entity as agent pursuant to paragraph (c)(6)(i) of this section, and the designation will be effective as prescribed by the Commissioner. The designated entity should give notice of the designation by the Commissioner pursuant to paragraph (c)(6)(i) of this section to each member of the group during any part of the consolidated return year. However, a failure by the designated entity to notify any such member of the group does not invalidate the designation by the Commissioner. (iii) Term and effect of designation. Unless otherwise provided by the Commissioner in the designation, any agent designated by the Commissioner pursuant to paragraph (c)(6)(i) of this section (new agent) is the agent with respect to the entire consolidated return year for which it is designated and successive years, subject to the rules of this section. An agent immediately preceding a new agent (former agent) ceases to be the agent for a particular consolidated return year once the new agent has been designated for that year, but the designation of the new agent does not nullify actions taken on behalf of the group by the former agent while it was agent. If there is more than one new agent designated by the VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 Commissioner for a consolidated return year, the new agent that is designated last in time by the Commissioner is the agent with respect to the entire consolidated return year. A designation pursuant to this paragraph (c)(6) is effective as prescribed by the Commissioner in such designation or the Internal Revenue Bulletin (see § 601.601(d)(2)(ii) of this chapter), forms, instructions, or other appropriate guidance. (iv) Request by member of the group where agent previously designated by the Commissioner is no longer a member. If an agent at any time after it is designated as agent by the Commissioner pursuant to paragraph (c)(6)(i) of this section is no longer a member of the group for any current year, and its default successor, if any, is not a member of the group at that time, a member of the group, including the agent that will cease to be a member, should request, in writing, that the Commissioner designate a member of the group to be the new agent pursuant to paragraph (c)(6)(i)(A)(2) of this section. Until such a request is made— (A) Any notice of deficiency or other communication mailed to the agent, even if no longer a member, is considered as having been properly mailed to the agent; and (B) The Commissioner is not required to act on any communication (including, for example, a claim for refund) submitted on behalf of the group by any person. (7) Agent resigns—(i) In general. The agent may resign for a completed year if— (A) It provides written notice to the Commissioner that it no longer intends to be the agent for that completed year; (B) An entity described in paragraph (c)(5)(ii)(A) of this section consents, in writing, to be the agent with respect to that completed year; (C) Immediately after its resignation takes effect, the resigning agent will not be the agent for the current year; and (D) The Commissioner does not object to the agent’s resignation. (ii) Notification by agent that replaces agent that resigns. If the Commissioner does not object to the agent’s resignation, the agent that replaces the agent that resigns should give written notice that it is the new agent to each member of the group for any part of the completed year for which it is designated the agent. (8) Transactions under the Code. Notwithstanding section 338(a)(2), a target corporation for which an election is made under section 338 is not deemed to terminate for purposes of this section. PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 (d) Examples of matters subject to agency. With respect to any consolidated return year for which it is the agent— (1) The agent makes any election (or similar choice of a permissible option) that is available to a subsidiary in the computation of its separate taxable income, and any change in an election (or similar choice of a permissible option) previously made by or for a subsidiary, including, for example, a request to change a subsidiary’s method or period of accounting; (2) All correspondence concerning the income tax liability for the consolidated return year is carried on directly with the agent; (3) The agent files for all extensions of time, including extensions of time for payment of tax under section 6164, and any extension so filed is considered as having been filed by each member; (4) The agent gives waivers, gives bonds, and executes closing agreements, offers in compromise, and all other documents, and any waiver or bond so given, or agreement, offer in compromise, or any other document so executed, is considered as having also been given or executed by each member; (5) The agent files claims for refund, and any refund is made directly to and in the name of the agent and discharges any liability of the Government to any member with respect to such refund; (6) The agent takes any action on behalf of a member of the group with respect to a foreign corporation including, for example, elections by, and changes to the method of accounting of, a controlled foreign corporation in accordance with § 1.964– 1(c)(3); (7) Notices of claim disallowance are mailed only to the agent, and the mailing to the agent is considered as a mailing to each member; (8) Notices of deficiencies are mailed only to the agent (except as provided in paragraph (f)(3) of this section), and the mailing to the agent is considered as a mailing to each member; (9) Notices of final partnership administrative adjustment under section 6223 with respect to any partnership in which a member of the group is a partner may be mailed to the agent, and, if so, the mailing to the agent is considered as a mailing to each member that is a partner entitled to receive such notice (for other rules regarding partnership proceedings, see paragraph (f)(2)(iii) of this section); (10) The agent files petitions and conducts proceedings before the United States Tax Court, and any such petition is considered as also having been filed by each member; E:\FR\FM\01APR1.SGM 01APR1 rmajette on DSK2TPTVN1PROD with RULES Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations (11) Any assessment of tax may be made in the name of the agent, and an assessment naming the agent is considered as an assessment with respect to each member; and (12) Notice and demand for payment of taxes is given only to the agent, and such notice and demand is considered as a notice and demand to each member. (e) Matters reserved to subsidiaries. Except as provided in this paragraph (e) and paragraph (f)(2) of this section, no subsidiary (unless it is or becomes an agent pursuant to paragraph (c) of this section) has authority to act for or to represent itself in any matter related to the tax liability for the consolidated return year. The following matters, however, are reserved exclusively to each subsidiary— (1) The making of the consent required by § 1.1502–75(a)(1); (2) Any action with respect to the subsidiary’s liability for a federal tax other than the income tax imposed by chapter 1 of the Code (including, for example, employment taxes under chapters 21 through 25 of the Code, and miscellaneous excise taxes under chapters 31 through 47 of the Code); and (3) The making of an election to be treated as a Domestic International Sales Corporation under § 1.992–2. (f) Dealings with members—(1) Identifying members in notice of a lien. Notwithstanding any other provisions of this section, any notice of a lien, any levy, or any other proceeding to collect the amount of any assessment, after the assessment has been made, must name the entity from which such collection is to be made. (2) Direct dealing with a member—(i) Several liability. The Commissioner may, upon issuing to the agent written notice that expressly invokes the authority of this provision, deal directly with any member of the group with respect to its liability under § 1.1502–6 for the consolidated tax of the group, in which event such member has sole authority to act for itself with respect to that liability. However, if the Commissioner believes or has reason to believe that the existence of the agent has terminated without an agent being identified under this section, the Commissioner may, if the Commissioner deems it advisable, deal directly with any member with respect to that member’s liability under § 1.1502–6 without issuing notice to any other entity. (ii) Information requests. The Commissioner may, upon issuing to the agent written notice, request information relevant to the consolidated tax liability from any member of the group. However, if the Commissioner VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 believes or has reason to believe that the existence of the agent has terminated without an agent being identified under this section, the Commissioner may request such information from any member of the group without issuing notice to any other entity. (iii) Members as partners in partnerships subject to the provisions of the Code. Except as otherwise provided in this paragraph (f)(2)(iii), the general rule of paragraph (a)(1) of this section applies so that the agent is the agent for any subsidiary member that for any part of the consolidated return year is a partner in a partnership subject to the provisions of sections 6221 through 6234 of the Code (as originally enacted by the Tax Equity and Fiscal Responsibility Act of 1982 and subsequently amended) and the accompanying regulations (TEFRA partnership). However— (A) Any subsidiary or any disregarded entity owned by a subsidiary that is designated as tax matters partner of a TEFRA partnership will act in its own name and perform its responsibilities under sections 6221 through 6234 and the accompanying regulations without requiring any action by the agent (but see paragraph (d)(9) of this section regarding the mailing of a final partnership administrative adjustment to the agent); and (B) The Commissioner may at any time communicate directly with a subsidiary or a disregarded entity owned by a subsidiary that is a partner in a TEFRA partnership, without having to deal with each member separately pursuant to paragraph (f)(2)(i) of this section, whenever the Commissioner determines that such direct communication will facilitate the conduct of an examination, appeal, or settlement with respect to the partnership. (3) Copy of notice of deficiency to entity that has ceased to be a member of the group. A subsidiary that ceases to be a member of the group during or after a consolidated return year may file a written notice of that fact with the Commissioner and request a copy of any notice of deficiency with respect to the tax for a consolidated return year during which it was a member, or a copy of any notice and demand for payment of such deficiency, or both. Such filing does not limit the scope of the agency of the agent provided for in this section. Any failure by the Commissioner to comply with such request does not limit the subsidiary’s tax liability under § 1.1502– 6. (g) Examples. Unless otherwise indicated, all entities are domestic and have a calendar year taxable year, and PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 17321 each of P, S, S–1, S–2, S–3, T, V, W, W–1, Y, Z, and Z–1 is a corporation. For none of the consolidated return years at issue does the Commissioner exercise the authority under paragraph (f)(2) of this section to deal with any member separately. Any surviving entity in a merger is either a successor as described in paragraph (b)(1) of this section, or a default successor as described in paragraph (b)(4) of this section, as the case may be. Except as otherwise indicated, no agent will be replaced under paragraph (c)(6) of this section or will resign under paragraph (c)(7) of this section, and all communications to and from the Commissioner are made in accordance with procedures prescribed by the Commissioner. Example 1. Disposition of all group members where the agent remains the agent. (i) Facts. As of January 1 of Year 1, P is the common parent and agent for the P consolidated group, consisting of P and its two subsidiaries, S and S–1. P files consolidated returns for the P group in Years 1 and 2. On December 31 of Year 1, P sells all the stock of S–1 to X. On December 31 of Year 2, P distributes all the stock of S to P’s shareholders. P files a separate return for Year 3. (ii) Analysis. Although the consolidated group terminates after Year 2 under § 1.1502– 75(d)(1) and P is no longer the common parent nor the agent for years after Year 2, P remains the agent for the P group for Years 1 and 2 under paragraph (a)(2) of this section. Accordingly, for as long as P remains in existence, P is the agent for the P group under paragraphs (a)(1) and (2) and (c)(1) of this section for Years 1 and 2. Example 2. Acquisition of the agent by another group where the agent remains the agent. (i) Facts. The facts are the same as in Example 1, except on January 1 of Year 3, all of the outstanding stock of P is acquired by Y, which is the common parent and agent of the Y consolidated group. P thereafter joins in the Y group’s consolidated return as a member of the Y group. (ii) Analysis. Although P is a member of the Y group in Year 3 and succeeding years, P remains the agent for the P group for Years 1 and 2 under paragraph (a)(2) of this section. Accordingly, for as long as P remains in existence, P is the agent for the P group under paragraphs (a)(1) and (2) and (c)(1) of this section for Years 1 and 2. Example 3. Reverse triangular merger of the agent where the agent remains the agent. (i) Facts. As of January 1 of Year 1, P is the common parent and agent for the P consolidated group consisting of P and its two subsidiaries, S and S–1. P files consolidated returns for the P group in Years 1 and 2. On March 1 of Year 3, W–1, a subsidiary of W, merges into P in a reverse triangular merger qualifying as a reorganization under section 368(a)(1)(A) and (a)(2)(E). P survives the merger with W–1. The transaction constitutes a reverse acquisition under § 1.1502–75(d)(3)(i) because P’s shareholders receive more than 50 percent of W’s stock in exchange for all E:\FR\FM\01APR1.SGM 01APR1 rmajette on DSK2TPTVN1PROD with RULES 17322 Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations of P’s stock. The transaction is therefore a group structure change as described in paragraph (c)(3) of this section. (ii) Analysis. Because the transaction constitutes a reverse acquisition that results in a group structure change, the P group is treated as remaining in existence with W as its common parent and agent. Under paragraphs (a)(1) and (2) and (c)(1) of this section, P remains the agent for the P group for Years 1 and 2 for as long as P remains in existence, even though the P group continues with W as its new common parent pursuant to § 1.1502–75(d)(3)(i). Until the merger of W–1 and P on March 1 of Year 3, P is the agent for the P group for Year 3. From the time of that merger, W, as common parent of the P group, becomes the agent for the P group with respect to all of Year 3 (including the period through March 1) and succeeding consolidated return years. The actions taken by P before the merger as agent for the P group for Year 3 are not nullified by the fact that W becomes the agent for all of Year 3. Example 4. Reverse triangular merger of the agent—subsequent distribution of agent where the agent remains the agent. (i) Facts. The facts are the same as in Example 3, except that on April 1 of Year 4, in a transaction unrelated to the March 1, Year 3 reverse acquisition, P distributes the stock of its subsidiaries S and S–1 to W, and W then distributes the stock of P to the W shareholders. (ii) Analysis. Although P is no longer a member of the P group after the Year 4 distribution, P remains the agent for the P group under paragraphs (a)(1) and (2) and (c)(1) of this section for Years 1 and 2 for as long as P remains in existence. Example 5. Agent Resigns. (i) Facts. The facts are the same as in Example 4, except that on August 1 of Year 4, P provides written notice to the Commissioner that it resigns as the agent for Years 1 and 2. Included with the written notice is a statement executed by either S or S–1 consenting to be the agent for the P group for Years 1 and 2. (ii) Analysis. Pursuant to paragraph (c)(7) of this section, because P is not the agent in Year 4, the current year, it will not be the agent immediately after its resignation takes effect. Accordingly, if the Commissioner does not object to P’s resignation, P may resign with respect to Years 1 and 2, both of which are completed years, and either S or S–1, each an entity described in paragraph (c)(5)(ii)(A) of this section, can be the agent for the P group for Years 1 and 2 if it consents in writing. W cannot be the agent for the P group for Years 1 and 2 because it is not an entity described in paragraph (c)(5)(ii)(A) of this section with respect to the P group for Years 1 and 2. Example 6. Qualified stock purchase and section 338 election where the agent remains the agent. (i) Facts. As of January 1 of Year 1, P is the common parent and agent for the P consolidated group consisting of P and its two subsidiaries, S and S–1. P files consolidated returns for the P group in Years 1 and 2. On March 31 of Year 2, V purchases the stock of P in a qualified stock purchase (within the meaning of section 338(d)(3)), and V makes a timely election pursuant to section 338(g) with respect to P. VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 (ii) Analysis. Although section 338(a)(2) provides that P is treated as a new corporation as of the beginning of the day after the acquisition date for purposes of subtitle A, paragraph (c)(8) of this section provides that P’s existence is not deemed to terminate for purposes of this section notwithstanding the general rule of section 338(a)(2). Accordingly, new P is the agent for the P group for Year 1 and the period ending March 31 of Year 2 regardless of the election under section 338(g). Example 7. Change in the agent’s federal income tax classification to a partnership and the resulting partnership continues as the agent. (i) Facts. P, a State M limited liability partnership with two partners that is formed on January 1 of Year 1, elects pursuant to § 301.7701–3(c) of this chapter to be an association taxable as a corporation for federal income tax purposes effective on the date of formation. P is the common parent and agent for the P consolidated group consisting of P and its two subsidiaries, S and S–1. P files consolidated returns for the P group in Years 1 through 6. On January 1 of Year 7, P elects pursuant to § 301.7701– 3(c) of this chapter to be treated as a partnership. P remains in existence under applicable law. (ii) Analysis. The P group terminates and P is no longer the common parent of a consolidated group after its election to be treated as a partnership for federal income tax purposes. Because P remains in existence under applicable law, P is the agent for the P group under paragraphs (a)(1) and (2) and (c)(1) of this section for Years 1 through 6. If P merged into a foreign partnership instead of converting to a partnership, the foreign partnership would be P’s default successor and agent for the P group for Years 1 through 6. See paragraphs (b)(4) and (c)(1) of this section. Example 8. Forward triangular merger of agent—successor as default successor. (i) Facts. As of January 1 of Year 1, P is the common parent and agent for the P consolidated group consisting of P and its two subsidiaries, S and S–1. P files a consolidated return for the P group for Year 1. On January 1 of Year 3, P merges with and into Z–1, a subsidiary of Z, in a forward triangular merger qualifying as a reorganization under section 368(a)(1)(A) and (a)(2)(D). The transaction constitutes a reverse acquisition under § 1.1502–75(d)(3)(i) resulting in a group structure change as described in paragraph (c)(3) of this section because P’s shareholders receive more than 50 percent of Z’s stock in exchange for all of P’s stock. Z–1, the corporation that survives the merger and the successor of P, is the default successor for the P group for Years 1 and 2. (ii) Analysis. Although Z is the new common parent for the P group (which continues pursuant to § 1.1502–75(d)(3)(i)) for consolidated return years after the merger, and, as a consequence, Z is the new agent as a result of this group structure change, P may not designate an agent for Years 1 or 2 because Z–1 is P’s default successor and the agent for the P group for Years 1 and 2. Z–1 must file the P group’s consolidated return for Year 2. See paragraphs (b)(4) and (c)(1) of this section. PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 Example 9. Merger of the agent into a disregarded entity in exchange for stock of owner in a transaction qualifying as a reorganization under the Code where successor is the default successor. (i) Facts. As of January 1 of Year 1, P is the common parent and agent for the P consolidated group consisting of P and its two subsidiaries, S and S–1. P files a consolidated return for the P group in Year 1. On January 1 of Year 2, the shareholders of P form Y, a State M corporation. On the same date, Y forms Y– 1, a State M limited liability company that is a disregarded entity (as defined in paragraph (b)(3) of this section) for federal income tax purposes, and P merges into Y–1 under State M law. In the merger, the P shareholders receive all of the Y stock. Y (through Y–1) is treated as acquiring the assets of P in a transaction qualifying as a reorganization of P into Y under section 368(a)(1)(F), and the P group continues under § 1.1502–75(d)(2) with Y as the common parent and, as a consequence, the transaction is treated as a group structure change as described in paragraph (c)(3) with Y as the P group’s agent for Year 2. In Year 4, the Commissioner seeks to extend the period of limitations on assessment with respect to Year 1 of the P group. In Year 5, the Commissioner seeks to extend the period of limitations on assessment with respect to Year 2 of the Y group (formerly the P group). (ii) Analysis. (A) Year 1 extension. As a result of the January 1, Year 2 merger, Y–1 is the default successor of P, and the agent for the P group for Year 1. See paragraphs (b)(4) and (c)(1) of this section. Therefore, Y– 1 is the only party that can sign the extension with respect to the P group for Year 1. (B) Year 2 extension. Because the January 1, Year 2 merger qualified as a reorganization under section 368(a)(1)(F), the P group remains in existence with Y as the common parent. Therefore, Y, the common parent of the P group after the merger, is the P group’s agent for all of Year 2 (see paragraph (c)(3) of this section) and is the only party that can sign the extension with respect to the P group for that year and in succeeding years. See paragraphs (a)(1) and (2) and (c)(1) of this section. Example 10. Designation of agent where there is no default successor. (i) Facts. P is incorporated under the laws of State X. Fifty percent of its stock is owned at all times by A, an individual, and 50 percent by BCD, a partnership. On January 1 of Year 1, P forms two subsidiaries, S and T, and becomes the common parent of the P group. P files consolidated returns for the P group beginning in Year 1 and is the agent for the P consolidated group beginning on January 1 of Year 1. On November 30 of Year 3, P dissolves under X law. Under X law, A and BCD are primarily liable for the federal income tax liability of dissolved corporation P. State X law allows the officers of a dissolved corporation to perform certain actions incident to the winding up of its affairs after its dissolution, including the filing of tax returns. (ii) Analysis. Upon P’s dissolution, there is no default successor to P, pursuant to paragraph (b)(4) of this section, because there are two successors. Prior to its dissolution on E:\FR\FM\01APR1.SGM 01APR1 rmajette on DSK2TPTVN1PROD with RULES Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations November 30 of Year 3, pursuant to paragraph (c)(5)(i) of this section, P may designate an agent for the P group for Years 1 and 2 and the short taxable year ending on November 30 of Year 3, to be effective upon P’s dissolution. P may designate S or T, pursuant to paragraph (c)(5)(ii)(A) of this section (because they are members of the former group), or BCD (because it is an entity that is a successor to P pursuant to paragraph (b)(1) of this section). P cannot designate A pursuant to paragraph (c)(5)(ii) of this section, because A is not an entity. Under paragraph (b)(2) of this section, the officers of P cannot designate an agent for the P group after P dissolves on November 30 of Year 3, notwithstanding the winding up provisions of State X law. Accordingly, P should designate an agent prior to its dissolution to ensure that there is an agent authorized to file the short Year 3 consolidated return. If P does not designate an agent prior to dissolution under paragraph (c)(5)(i) of this section, the Commissioner may designate an agent under paragraph (c)(6)(i)(A)(1) of this section from among S, T, or BCD, upon their request or otherwise. If any of S, T, A, or BCD realizes that P has dissolved without designating an agent, it should request, in writing, a designation of an agent by the Commissioner as soon as possible. Example 11. Commissioner designates a new agent. (i) Agent fails to fulfill its obligations. (A) Facts. P is the common parent and agent for the P consolidated group consisting of P and its two subsidiaries, S–1 and S–2, each a State Y corporation. P files a consolidated return for the P group in Year 1. In Year 2, S–3, also a State Y corporation, joins the P group. The P group continues as a consolidated group in Years 2, 3, and 4. As of Year 4, P has failed to file the P group consolidated returns for Years 2 and 3. (B) Analysis. (1) Scope of designation. Because P failed to perform its obligations as agent as prescribed by federal tax law, the Commissioner may, under the authority of paragraph (c)(6)(i)(A)(3) of this section, on his own accord, with or without a written request from a member, designate another entity described in paragraph (c)(6)(i) of this section to act as the agent for not just Years 2 and 3, but any of Years 1 through 4. (2) Year 1 designation. The Commissioner may designate either S–1 or S–2, both of which are entities described in paragraphs (c)(6)(i) and (c)(5)(ii)(A) of this section, to act as the agent for the P group for Year 1. Because S–3 was not a member of the group in Year 1, it is not an entity described in paragraphs (c)(6)(i) and (c)(5)(ii)(A) of this section for Year 1 and therefore cannot be the agent for Year 1. Unless otherwise provided in the designation, the designation of either S–1 or S–2 will also be effective for Years 2, 3, and 4 and all succeeding consolidated return years of the group. (3) Year 2 designation. The Commissioner may designate either S–1, S–2, or S–3, all of which are entities described in paragraph (c)(5)(ii)(A) of this section, to act as the agent for the P group for Year 2. Unless otherwise provided in the designation, the designation of either S–1, S–2, or S–3 will also be effective for Years 3 and 4 and all succeeding consolidated return years of the group. VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 (4) Year 3 designation. The Commissioner may designate any of S–1, S–2, or S–3 as the agent for Year 3. Unless otherwise provided in the designation, the designation of either S–1, S–2, or S–3 will also be effective for Year 4 and all succeeding consolidated return years of the group. (5) Year 4 designation. The Commissioner may designate any of S–1, S–2, or S–3 as the agent for Year 4. Unless otherwise provided in the designation, the designation of either S–1, S–2, or S–3 will also be effective for all succeeding consolidated return years of the group. (ii) Member requests replacement of designated agent. (A) Facts. The facts are the same as in paragraph (i)(A) of this Example 11, except that in Year 4 the Commissioner designates S–1 as agent for Years 1 and succeeding years to replace P for P’s failure to fulfill its obligations. After receiving notification that S–1 has been designated, S–3 submits a request in Year 4, pursuant to paragraph (c)(6)(i)(B) of this section, that the Commissioner designate S–2 as the agent because S–1 does not have ready access to the group’s books and records, which are located in another state and are in the possession of S–2. (B) Analysis. In light of S–3’s request, the Commissioner may, under the authority of paragraph (c)(6)(i)(B) of this section, designate either S–2 (for all or any years) or S–3 (for any year or years other than Year 1) as agent in lieu of the previously designated agent, S–1. However, notwithstanding S–3’s request, the Commissioner is not required to replace S–1 as agent for any of the consolidated return years for which S–1 was designated. Example 12. Designated agent ceases to be a member of the group. (i) Facts. The facts are the same as in paragraph (ii)(A) of Example 11, except that in Year 4 no member requests that the Commissioner replace S–1, which accordingly continues to be the agent for the P group in Year 5 pursuant to paragraph (c)(6)(iii) of this section. On May 2 of Year 5, S–1 converts under State Y law into S–1 LLC, a limited liability company that is an entity that is treated as a disregarded entity (as defined in paragraph (b)(3) of this section) and, as a consequence, is no longer a member of the P group after the conversion. (ii) Analysis for completed years. S–1 LLC, the disregarded entity resulting from the conversion, becomes S–1’s default successor. As such, S–1 LLC is the agent for Years 1–4. (iii) Analysis for current and succeeding years. S–1 is an agent designated by the Commissioner pursuant to paragraph (c)(6)(i)(A)(3) of this section. Because S–1 is no longer a member of the P group after May 2 of Year 5, S–1 is the agent for the P group for Year 5 only while it remains a member (see paragraphs (c)(6)(i) and (iii) of this section). According to paragraph (c)(6)(i) of this section, although S–1 LLC is S–1’s default successor, it is not a member of the group for the current year and therefore cannot be its agent. Furthermore, S–1 cannot designate an agent for Year 5 under paragraph (c)(5)(i) of this section because that paragraph pertains only to designations for PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 17323 completed years for which there is no default successor. In addition, S–1 cannot designate an agent for Year 5 under paragraph (c)(5)(i) of this section because S–1 was previously designated by the Commissioner under paragraph (c)(6)(i)(A)(3) of this section. (iv) Member’s notice to Commissioner for Commissioner to designate a member of the group for a current year. A member of the group in Year 5 should request that the Commissioner designate, pursuant to paragraphs (c)(6)(i)(A)(2) and (c)(6)(iv) of this section, another member of the P group to be the agent of the group for Year 5. The Commissioner may then, pursuant to paragraph (c)(6)(i)(A)(2) of this section, designate either S–2, S–3, or P to be the agent for the P group and, once so designated, that member will be, effective on May 3 of Year 5, the agent for all of Year 5 and for succeeding years (subject to the rules of this section) pursuant to paragraph (c)(6)(iii) of this section. No actions taken by S–1 on behalf of the P group through May 2, Year 5, are nullified by the Commissioner’s designation of another agent even though the agent so designated will be the agent for all of Year 5. Example 13. Fraudulent conveyance of assets. (i) Facts. As of January 1 of Year 1, P is the common parent and agent for the P consolidated group consisting of P and its two subsidiaries, S and S–1. On March 15 of Year 2, P files a consolidated return that includes the income of S and S–1 for Year 1. On December 1 of Year 2, S–1 transfers assets having a fair market value of $100x to U in exchange for $10x. This transfer of assets for less than fair market value constitutes a fraudulent conveyance under applicable state law. On March 1 of Year 5, P executes a waiver extending to December 31 of Year 6 the period of limitations on assessment with respect to the P group’s Year 1 consolidated return. On February 1 of Year 6, the Commissioner issues a notice of deficiency to P asserting a deficiency of $30x for the P group’s Year 1 consolidated tax liability. P does not file a petition for redetermination in the Tax Court, and the Commissioner makes a timely assessment against the P group. P, S, and S–1 are all insolvent and are unable to pay the deficiency. On February 1 of Year 8, the Commissioner sends a notice of transferee liability to U, which does not file a petition in the Tax Court. On August 1 of Year 8, the Commissioner assesses the amount of the P group’s deficiency against U. Under section 6901(c), the Commissioner may assess U’s transferee liability within one year after the expiration of the period of limitations against the transferor, S–1. By operation of section 6213(a) and 6503(a), the issuance of the notice of deficiency to P and the expiration of the 90-day period for filing a petition in the Tax Court have the effect of further extending by 150 days the P group’s limitations period on assessment from the previously extended date of December 31 of Year 6 to May 30 of Year 7. (ii) Analysis. Pursuant to paragraph (a)(1) of this section, the waiver executed by P on March 1 of Year 5 to extend the period of limitations on assessment to December 31 of Year 6 and the further extension of the P E:\FR\FM\01APR1.SGM 01APR1 rmajette on DSK2TPTVN1PROD with RULES 17324 Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations group’s limitations period to May 30 of Year 7 (by operation of sections 6213(a) and 6503(a)) have the derivative effect of extending the period of limitations on assessment of U’s transferee liability to May 30 of Year 8. By operation of section 6901(f), the issuance of the notice of transferee liability to U and the expiration of the 90-day period for filing a petition in the Tax Court have the effect of further extending the limitations period on assessment of U’s liability as a transferee by 150 days, from May 30 of Year 8 to October 27 of Year 8. Accordingly, the Commissioner may send a notice of transferee liability to U at any time on or before May 30 of Year 8 and assess the unpaid liability against U at any time on or before October 27 of Year 8. The result would be the same even if S–1 ceased to exist before March 1 of Year 5, the date P executed the waiver. Example 14. Consent to extend the statute of limitations for a partnership where a member of the consolidated group is a partner of such partnership subject to the provisions of the Code and the tax matters partner is not a member of the group. (i) Facts. P is the common parent and agent for the P consolidated group consisting of P and its two subsidiaries, S and S–1. The P group has a November 30 fiscal year end and P files consolidated returns for the P group for the years ending November 30, Year 1 and November 30, Year 2. S–1 is a partner in the PRS partnership, which is subject to the provisions of sections 6221 through 6234. PRS has a calendar year end and A, an individual, is the tax matters partner of the PRS partnership. PRS files a partnership return for the year ending December 31, Year 1. On January 10, Year 5, A, as the tax matters partner for the PRS partnership, executes a consent to extend the period for assessment of partnership items of PRS for all partners, and the Commissioner co-executes the consent on the same day for the year ending December 31, Year 1. (ii) Analysis. A’s consent to extend the statute of limitations for the partnership items of PRS partnership for the year ending December 31, Year 1, extends the statute of limitations with respect to the partnership items for all members of the P group, including P, S, and S–1 for the consolidated return year ending November 30, Year 2. This is because S–1 is a partner in the PRS partnership for which A, the tax matters partner for the PRS partnership, consents, pursuant to section 6229(b)(1)(B), to extend the statute of limitations for the year ending December 31, Year 1. However, under paragraph (f)(2)(iii) of this section, such agreement with respect to the statute of limitations for the PRS partnership for the year ending December 31, Year 1 does not obviate the need to obtain a consent from P, the agent for the P consolidated group, to extend the statute of limitations for the P consolidated group for the P group’s consolidated return years ending November 30, Year 1 and November 30, Year 2 regarding any items other than partnership items or affected items of the PRS partnership. Example 15. Contacting subsidiary member in order to facilitate the conduct of an VerDate Sep<11>2014 15:06 Mar 31, 2015 Jkt 235001 examination, appeal, or settlement where a member of the consolidated group is a partner of a partnership subject to the provisions of the Code. (i) Facts. P is the common parent and agent for the P consolidated group consisting of P and its two subsidiaries, S and S–1. The P group has a November 30 fiscal year end, and P files consolidated returns for the P group for the years ending November 30, Year 1 and November 30, Year 2. S–1 is a partner in the PRS partnership, which is subject to the provisions of sections 6221 through 6234. PRS has a calendar year end and A, an individual, is the tax matters partner of the PRS partnership. PRS files a partnership return for the year ending December 31, Year 1. The Commissioner, on January 10, Year 4, in the course of an examination of the PRS partnership for the year ending December 31, Year 1, seeks to obtain information in the course of that examination to resolve the audit. (ii) Analysis. Because the direct contact with a subsidiary member of a consolidated group that is a partner in a partnership subject to the provisions under sections 6221 through 6234 may facilitate the conduct of an examination, appeal, or settlement, the Commissioner, under paragraph (f)(2)(iii) of this section, may communicate directly with either S–1, P, or A regarding the PRS partnership without breaking agency pursuant to paragraph (f)(2)(i) of this section. However, if the Commissioner were instead seeking to execute a settlement agreement with respect to S–1 as a partner with respect to its liability as a partner in PRS partnership, P would need to execute such settlement agreement for all members of the group including the partner subsidiary. (h) Cross-reference. For further rules applicable to groups that include insolvent financial institutions, see § 301.6402–7 of this chapter. (i) [Reserved] (j) Effective/applicability date—(1) In general. The rules of this section apply to consolidated return years beginning on or after April 1, 2015. For prior years beginning before June 28, 2002, see § 1.1502–77A. For prior years beginning on or after June 28, 2002, and before April 1, 2015, see § 1.1502–77B. (2) Application of this section to prior years. Notwithstanding paragraph (j)(1) of this section, an agent may apply the rules of paragraph (c)(7) of this section to resign as agent for a completed year that began before April 1, 2015. § 1.1502–78 Par. 6. Section 1.1502–78 is amended as follows: ■ 1. Paragraph (a) is amended by removing every occurrence of the language ‘‘(or substitute agent designated under § 1.1502–77(d) for the carryback year)’’ and adding ‘‘(or the agent determined under § 1.1502–77(c) or § 1.1502–77B(d) for the carryback year)’’ in its place. Frm 00018 PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT Par. 7. The authority citation for part 602 continues to read as follows: ■ Authority: 26 U.S.C. 7805. Par. 8. In § 602.101, revise paragraph (b) by adding an entry in numerical order to the table to read as follows: ■ § 602.101 * OMB Control numbers. * * (b) * * * * * CFR part or section where identified and described * * * 1.1502–77B .......................... * * * Current OMB control No. * * 1545–1699 * John Dalrymple, Deputy Commissioner for Services and Enforcement. Approved: February 23, 2015. Mark D. Mazur, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2015–07182 Filed 3–31–15; 8:45 am] BILLING CODE 4830–01–P DEPARTMENT OF HOMELAND SECURITY Coast Guard [Amended] ■ PO 00000 2. Paragraph (b)(1) is amended by removing the language ‘‘(or substitute agent designated under § 1.1502–77(d) for the carryback year)’’ and adding ‘‘(or the agent determined under § 1.1502– 77(c) or § 1.1502–77B(d) for the carryback year)’’ in its place. ■ 3. Paragraph (c) is amended by removing each occurrence of the language ‘‘1966’’ and adding ‘‘2003’’ in its place; removing the language ‘‘1967’’ and adding ‘‘2004’’ in its place; removing each occurrence of the language ‘‘1968’’ and adding ‘‘2005’’ in its place; and removing each occurrence of the language ‘‘1969’’ and adding ‘‘2006’’ in its place. ■ Fmt 4700 Sfmt 4700 33 CFR Part 117 [Docket No. USCG–2015–0082] RIN 1625–AA09 Drawbridge Operation Regulation; Ontonagon River, Ontonagon, MI Coast Guard, DHS. Final rule. AGENCY: ACTION: E:\FR\FM\01APR1.SGM 01APR1 *

Agencies

[Federal Register Volume 80, Number 62 (Wednesday, April 1, 2015)]
[Rules and Regulations]
[Pages 17314-17324]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-07182]



[[Page 17314]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9715]
RIN 1545-BH31


Regulations Revising Rules Regarding Agency for a Consolidated 
Group

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations regarding the agent 
for an affiliated group of corporations that files a consolidated 
return (consolidated group). The final regulations provide guidance 
concerning the identity and authority of the agent for a consolidated 
group. These final regulations affect all corporations in consolidated 
groups.

DATES: 
    Effective Date: These regulations are effective on April 1, 2015.
    Applicability Date: For dates of applicability, see Sec.  1.1502-
77(j).

FOR FURTHER INFORMATION CONTACT: Gerald B. Fleming at (202) 317-6975 or 
Richard M. Heinecke at (202) 317-6065 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) 
under control number 1545-1699. The collection of information in these 
final regulations is in paragraphs (c)(4), (c)(5)(iii), (c)(6)(i)(B), 
(c)(6)(ii), (c)(6)(iv), (c)(7)(i)(A), (c)(7)(i)(B), (c)(7)(ii), and 
(f)(3) of Sec.  1.1502-77. The collection of information is necessary 
to make certain that the Commissioner of Internal Revenue 
(Commissioner), agent for the consolidated group, and members of the 
group are each informed of the proper identity of the agent for any 
given period, and are able to timely exercise their privileges and 
fulfill their responsibilities with respect to the filing of a 
consolidated return.
    For more information, see Rev. Proc. 2015-26, IRB 2015-15, the 
revenue procedure published to accompany the final regulations that 
provides instructions with respect to all communications relating to 
the identification of an agent for a consolidated group.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
return information are confidential, as required by section 6103.

Background and Explanation of Provisions

1. Introduction

    This Treasury Decision contains final regulations that amend 26 CFR 
part 1, under section 1502 of the Internal Revenue Code of 1986 (Code) 
(Final Regulations). Section 1502 authorizes the Secretary to prescribe 
regulations for corporations that join in filing consolidated returns 
and provides that such rules may be different from the provisions of 
chapter 1 of subtitle A of the Code that would apply if such 
corporations filed separate returns. These Final Regulations provide 
guidance under Sec.  1.1502-77 with respect to the agent for a group of 
affiliated corporations that file a consolidated return (agent), 
including rules for identifying and communicating with the agent, and 
determining the scope of the agent's authority.
    The Final Regulations apply to consolidated return years beginning 
on or after April 1, 2015. Regulations in effect before April 1, 2015 
will continue to apply to consolidated tax years beginning before April 
1, 2015.
    Contemporaneously with the publication of the Final Regulations in 
the Federal Register, the IRS is issuing Rev. Proc. 2015-26, IRB 2015-
15, providing instructions regarding the manner of making all 
communications that relate to the identification of an agent under the 
Final Regulations. Rev. Proc. 2015-26, IRB 2015-15, will obsolete Rev. 
Proc. 2002-43, 2002-2 CB 99 (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter) (Determination of Substitute Agent for a Consolidated Group 
When the Common Parent Ceases to Exist) with respect to consolidated 
return years for which these Final Regulations apply. Thus, Rev. Proc. 
2002-43 will continue to apply for consolidated return years subject to 
prior regulations.

2. Overview of Prior Guidance Regarding Agents

    On June 28, 2002, the IRS and the Treasury Department promulgated 
final regulations under Sec.  1.1502-77 in TD 9002, 67 FR 43538, to 
provide rules concerning the identity and authority of the agent and 
the designation of a new agent. These regulations were amended by TD 
9255 (71 FR 13001) (March 14, 2006) and TD 9343 (72 FR 40066) (July 23, 
2007). (The June 28, 2002 regulations and amendments are collectively 
referred to in this preamble as the 2002 Regulations.)
    On June 29, 2002, the IRS released Rev. Proc. 2002-43 to prescribe 
instructions for all communications relating to the determination of a 
substitute agent and the designation of a substitute agent by a 
terminating common parent.
    On May 30, 2012, the IRS and the Treasury Department proposed 
regulations that would replace the 2002 Regulations (2012 Proposed 
Regulations). The 2012 Proposed Regulations were published in the 
Federal Register (77 FR 31786). No request for a hearing was received. 
One comment was received with respect to the 2012 Proposed Regulations, 
but it made no specific recommendations. No other comments were 
received, including with respect to the specific request for comments 
regarding the expansion of the circumstances in which the Commissioner 
could designate agents, and the ability of an agent to resign.

3. Summary of the 2002 Regulations

    Under the 2002 Regulations, the common parent of a group ceased to 
be the agent if its existence terminated under applicable law, if it 
became disregarded as an entity separate from its owner for federal tax 
purposes (a disregarded entity), or if it became an entity classified 
as a partnership for federal tax purposes. In such cases, the common 
parent could generally designate its successor, another member of the 
group, or a group member's successor as the substitute agent for the 
group (provided such designee was a domestic corporation for federal 
tax purposes). However, any such designation required affirmative 
approval by the Commissioner.
    Although in general a common parent must be a domestic corporation, 
a common parent could be an entity created or organized under the laws 
of a foreign country and treated as a domestic corporation by reason of 
section 7874 (treating a foreign corporation as a domestic corporation 
as a result of certain outbound inversion transactions) or an election 
under section 953(d) to treat a foreign insurance company as a domestic 
corporation (foreign common parent). In recognition of the logistical 
problems this could create, the 2002 Regulations

[[Page 17315]]

permitted the Commissioner to designate a domestic member of the group 
to act as the agent (domestic substitute agent) in the case of a 
foreign common parent.
    Finally, the 2002 Regulations provided certain rules relating to 
partnerships and partners subject to sections 6221 through 6234 of the 
Code, enacted by section 402 of the Tax Equity and Fiscal 
Responsibility Act of 1982 (96 Stat. 324) (TEFRA), generally providing 
that the Commissioner would deal directly with a member that was the 
tax matters partner (TMP) regarding specified matters for the partners 
in a TEFRA partnership even if the TMP is not the agent.

4. Overview of the 2012 Proposed Regulations

    The 2012 Proposed Regulations retained the general rules, concepts, 
and examples of the 2002 Regulations. However, the 2012 Proposed 
Regulations renumbered, restructured, and revised the 2002 Regulations 
to minimize the circumstances under which the identity of the agent 
would not be clear. The 2012 Proposed Regulations also increased the 
number of situations in which the identity of the agent would be 
determined without action by taxpayers or the Commissioner. The 
proposed changes are described in the following paragraphs 4.A. through 
4.G.
A. Default Successors
    The 2002 Regulations generally permitted a terminating agent to 
designate the substitute agent. However, the IRS observed that 
terminating agents, to the extent they designated at all, tended to 
designate their successors rather than another member of their group. 
To simplify the procedures and align them with taxpayers' practices, 
the 2012 Proposed Regulations provided that if an agent had a sole 
successor (default successor), the default successor would 
automatically become the group's agent when the prior agent ceased to 
exist, such as in a merger. The terminating agent would not be 
permitted to designate an agent unless there was no default successor, 
in which case the agent could only designate an entity that was a 
member of the group for the consolidated return year (or a successor of 
such a member). The 2012 Proposed Regulations also prescribed limited 
circumstances under which the Commissioner could replace a default 
successor.
B. Entities Eligible To Be an Agent
    The 2012 Proposed Regulations included disregarded entities and 
partnerships among the entities permitted to be agents for prior years 
in which they or their predecessors were not treated as disregarded. 
Thus, if a common parent converted or merged into a disregarded entity 
or partnership, whether by reason of a state law merger, a state law 
conversion, or a federal tax election, the continuing or successor 
juridical entity (whether a disregarded entity or partnership) would 
continue as the agent for the prior periods.
C. TEFRA Partnerships
    In general, the Code and regulations governing the treatment of 
TEFRA partnerships provide that the Commissioner will deal with the TMP 
regarding specified matters for the partners in a TEFRA partnership. 
See generally, sections 6221 through 6234. The 2002 Regulations 
provided two TEFRA specific rules relating to members that were 
partners in a TEFRA partnership. Under the first rule, a subsidiary 
that was the TMP of a TEFRA partnership would act in its own name 
regarding partnership matters, without requiring any action by the 
agent. Under the second rule, the Commissioner would deal with a 
subsidiary that was a partner in a TEFRA partnership in the performance 
of an examination of the TEFRA partnership. This second rule, however, 
appeared to create some confusion in the context of other provisions of 
the 2002 Regulations.
    To provide more clarity with respect to the second rule, the 2012 
Proposed Regulations provided that: (1) The agent will generally act as 
agent for a member that is a partner in a TEFRA partnership regarding 
all matters related to the partnership, including execution of a 
settlement agreement under section 6224(c) (as illustrated in Example 
12 in Sec.  1.1502-77(g) of the 2012 Proposed Regulations) and 
extension of the statute of limitations with respect to items other 
than the items of the TEFRA partnership (as illustrated in Example 11 
in Sec.  1.1502-77(g) of the 2012 Proposed Regulations); and (2) the 
Commissioner, without having to deal with each member separately by 
``breaking agency'' pursuant to Sec.  1.1502-77(f)(2)(i) of the 2012 
Proposed Regulations, may communicate directly with a subsidiary or a 
disregarded entity owned by a subsidiary that is a partner in a TEFRA 
partnership whenever the Commissioner determines that such direct 
communication will facilitate the conduct of an examination, appeal, or 
settlement with respect to the partnership. However, like the 2002 
Regulations, the 2012 Proposed Regulations provided that any member of 
the group designated as the TMP of a TEFRA partnership will act in its 
own name and perform its responsibilities with respect to the 
partnership without requiring any action by the agent.
D. Commissioner's Approval of Substitute Agent
    Although the 2002 Regulations required the Commissioner to approve 
any designation, in practice, designation approval requests were denied 
only rarely. To simplify procedures, and thereby conserve resources and 
enhance efficiency, the 2012 Proposed Regulations eliminated the 
requirement. However, to ensure that IRS records accurately reflect the 
identity of an agent, the 2012 Proposed Regulations provided that a 
default successor, or a terminating agent that has no default 
successor, must notify the IRS (in writing in the manner prescribed by 
the Commissioner) when the default successor or an entity designated by 
a terminating agent becomes the group's new agent.
E. Commissioner's Authority To Designate Agent
    The 2012 Proposed Regulations provided several limited 
circumstances in which the Commissioner could designate or replace an 
agent, either on its own initiative or at the request of other members. 
Examples were included in the 2012 Proposed Regulations to illustrate 
the circumstances in which an agent may be designated.
    The 2012 Proposed Regulations did not provide the Commissioner with 
the ability to replace a domestic default successor under circumstances 
in which it could not replace the common parent.
F. Foreign Entity as Agent
    As previously noted, the 2002 Regulations did not preclude foreign 
entities from acting as agent, but provided that the Commissioner could 
designate a domestic substitute agent. The IRS and the Treasury 
Department recognize that such an entity may have the best access to 
information, but also that these situations present unique logistical 
issues. Accordingly, the 2012 Proposed Regulations did not preclude a 
foreign entity from being the agent and preserved the Commissioner's 
discretion to replace a foreign entity.
G. Post-Dissolution Winding Up Period
    Questions arose under the 2002 Regulations with respect to the 
actions that could be performed by a terminating agent during the 
``winding up'' period following its dissolution. Because winding up 
statutes vary widely among the states, the IRS and the

[[Page 17316]]

Treasury Department determined that no single rule for post-dissolution 
terminating agents would be appropriate in all cases. The 2012 Proposed 
Regulations resolved the issue by providing that an entity that has 
dissolved or otherwise ceased to exist under applicable law can no 
longer be the agent, irrespective of its powers under state or local 
law during its post-dissolution winding up period.
5. Final Regulations
    The rules adopted in these Final Regulations are consistent with 
those set forth in the 2012 Proposed Regulations. The Final 
Regulations, however, make several revisions to the 2012 Proposed 
Regulations. First, as further described in section 5.A. of this 
preamble, the Final Regulations expand the circumstances under which 
the Commissioner may replace an agent on the Commissioner's own accord. 
Second, the Final Regulations clarify that a terminating agent without 
a default successor may only designate an agent with respect to a 
completed year. See section 5.A.iii. of this preamble. Third, the Final 
Regulations organize the provisions that permit the Commissioner to 
designate an agent into two categories: (1) Those provisions that 
authorize the Commissioner to replace an agent on the Commissioner's 
own accord, with or without a written request from a member; and (2) a 
provision described in section 5.B. of this preamble permitting the 
Commissioner to replace an agent pursuant to a member's written 
request. Fourth, as described in section 5.C. of this preamble, the 
Final Regulations allow an agent to resign under certain circumstances. 
Fifth, the Final Regulations clarify that an agent other than the 
common parent generally serves as agent under the same terms and with 
the same rights as the common parent. A significant exception to this 
general rule discussed in section 5.A.iii. of this preamble applies in 
the case of an agent designated by the Commissioner, in that such an 
agent may not designate an agent upon its termination unless the 
Commissioner designated the agent solely because a prior agent 
terminated without a default successor and without designating an agent 
(other than in the case of a group structure change as defined in Sec.  
1.1502-33(f)(1)).
    In addition, the Final Regulations contain clarifying and non-
substantive changes to the text of the 2012 Proposed Regulations and 
redesignate the 2002 Regulations as Sec.  1.1502-77B (Sec.  1.1502-77A 
continues to apply for consolidated return years beginning before June 
28, 2002).
A. Designation on Commissioner's Own Accord
    The Final Regulations prescribe four circumstances in which the 
Commissioner may designate an agent on the Commissioner's own accord. 
Three of the circumstances are adopted from the 2012 Proposed 
Regulations: The Commissioner may designate an agent if (1) a 
terminating agent has no default successor and fails to designate an 
agent; (2) the Commissioner believes that the agent or its default 
successor exists but such entity fails to timely respond to notices 
properly sent by the Commissioner; or (3) the agent is or becomes a 
foreign entity (for example, through the agent's continuance into a 
foreign jurisdiction or certain transactions subject to the inversion 
rules of section 7874). The Final Regulations add an additional 
situation to the second circumstance so that the Commissioner may 
designate an agent where the agent either fails timely respond to 
notices or fails to perform its obligations as agent. Finally, the 
Final Regulations add a fourth circumstance: The Commissioner may 
designate a new agent for a current year if a previously designated 
agent ceases to be a member of the group.
i. Replacing Agent That Fails To Perform Its Obligations
    The IRS and the Treasury Department recognize that there may be 
situations in which an agent is failing to perform its obligations as 
agent under the Code or regulations. Neither the 2002 Regulations nor 
the 2012 Proposed Regulations provided a remedy to designate an agent 
in such situations. As a result, members would not be able to 
accurately file a return, determine their federal tax liability, or 
obtain refunds, and the Commissioner might have to deal with each 
member separately by ``breaking agency'' pursuant to Sec.  1.1502-
77(f)(2)(i) of the 2012 Proposed Regulations. This could, in turn, 
result in significant uncertainty and undue burden for group members as 
well as the Commissioner. For example, assume the Commissioner breaks 
agency for a consolidated return year that has ended (completed year) 
and then one or more members files a claim for refund of income taxes 
paid for that year. Because of the uncertainty as to which member(s) 
would be entitled to all or a portion of the refund, the Government 
would likely be forced to interplead all potential member-claimants in 
an ensuing refund case.
    The preamble to the 2012 Proposed Regulations requested comments 
with respect to this issue, but no comments were received. 
Nevertheless, the IRS and the Treasury Department have considered this 
issue and determined that the best interests of all concerned would be 
served by providing the Commissioner the authority to replace an agent 
that fails to perform its obligations as agent as prescribed by federal 
tax law. Accordingly, the Final Regulations provide that the 
Commissioner may, with or without a written request from a member, 
designate an agent to replace any agent that fails to perform its 
obligations as agent as prescribed by the Code or regulations 
promulgated thereunder.
ii. Replacing Agent That Ceases To Be a Member for Current Year
    The 2012 Proposed Regulations did not provide guidance for 
situations in which an agent previously designated by the Commissioner 
ceases to be a member during a consolidated return year that is not a 
completed year (current year). Thus, under the 2012 Proposed 
Regulations, there could be situations in which a group would have a 
non-member agent or no agent at all. The Final Regulations address 
these issues by requiring that the agent for the current year be a 
member of the group. An agent designated by the Commissioner will 
generally continue as the agent in successive consolidated return years 
except in three circumstances: (1) If the Commissioner specifies a 
limited or specific period of agency in the designation; (2) if the 
agent ceases to be a member of the group; or (3) if the agent is 
replaced pursuant to the Final Regulations.
    The Final Regulations also provide an additional circumstance in 
which the Commissioner may designate an agent on the Commissioner's own 
accord. Specifically, the Final Regulations permit the Commissioner, 
with or without a written request from a member, to designate an agent 
for the current year if an agent previously designated by the 
Commissioner ceases to be a member of the group without leaving a 
default successor in the group. In that situation, a member of the 
group should request that the Commissioner designate an agent.
iii. Effect of Certain Designations on the Commissioner's Own Accord
    The Proposed Regulations permitted an agent that terminates without 
a default successor to designate an agent. If a terminating agent had 
no default successor and failed to designate an agent, the Commissioner 
could

[[Page 17317]]

designate an agent with or without the request of any member. The Final 
Regulations generally adopt these rules with one significant 
modification. If a terminating agent was itself designated by the 
Commissioner on the Commissioner's own accord and the terminating agent 
does not have a default successor, the Final Regulations provide that 
the terminating agent is not permitted to designate an agent if it was 
designated because the agent it replaced (1) ceased to be a member of 
the group in a current year; (2) failed to timely respond to notices or 
failed to fulfill its obligations under the Code or regulations; or (3) 
became a foreign entity. Because the Commissioner's ability to 
administer the tax law is impaired under these circumstances, the IRS 
and the Treasury Department determined that the interests of tax 
administration would be best served by monitoring of designated agents 
and groups in these limited cases. Accordingly, the IRS and the 
Treasury Department determined that the Commissioner, rather than the 
terminating agent, should designate the agent in these situations. In 
such cases, any member (including the terminating agent) of the group 
is permitted to request that the Commissioner designate a new agent. 
The Final Regulations permit other categories of agents previously 
designated by the Commissioner to designate an agent upon termination 
provided the terminating agent does not (1) have a default successor or 
(2) terminate in a group structure change. The Final Regulations 
clarify that a terminating agent that is permitted to designate an 
agent may only do so with respect to completed years.
    Finally, to prevent groups from nullifying a designation made by 
the Commissioner, the Final Regulations provide that a designating 
agent may not designate as an agent any entity that the Commissioner 
previously replaced as agent. The designating agent may, however, 
submit a request that the Commissioner designate as agent the entity 
previously replaced as agent.
B. Designation Upon Written Request by a Member
    The 2002 Regulations and the 2012 Proposed Regulations provided a 
mechanism whereby upon the written request from a member, the 
Commissioner could, but was not required to, replace an agent 
previously designated by the Commissioner. The Final Regulations retain 
this provision to permit a member to request that the Commissioner 
designate a new agent in circumstances other than the specifically 
enumerated circumstances in which the Commissioner may designate an 
agent on the Commissioner's own accord.
C. Resignation of Agent
    Under the 2002 Regulations, a common parent remained the agent for 
any year for which it was the common parent, with only a termination of 
the common parent terminating that agency. However, the IRS and the 
Treasury Department recognize that there could be circumstances in 
which an agent would want to resign and have another entity take its 
place as agent. For example, assume P, the common parent of the P 
consolidated group, becomes a subsidiary of the group in a transaction 
under Sec.  1.1502-75(d) (resulting in a group structure change 
described in Sec.  1.1502-33(f)(1)), and the group continues with N as 
the new common parent and agent. If unrelated X acquires the stock of 
P, P would leave the group but would still be the agent for the years 
during which it was the group's common parent. In that situation, it 
might be more efficient for all concerned if P were to resign as agent 
in favor of another member. Although the 2012 Proposed Regulations did 
not include a mechanism for an existing agent to resign, the preamble 
to the 2012 Proposed Regulations requested comments with respect to 
this issue. No comments were received. Nevertheless, the IRS and the 
Treasury Department have considered the issue and determined that it 
would be in the best interests of all concerned and sound tax 
administration for agents to have the ability to resign, at least in 
limited situations.
    Accordingly, the Final Regulations provide a mechanism for agents 
to resign with respect to completed years. However, there are four 
conditions that must be met. First, the agent must provide written 
notice to the Commissioner that it no longer intends to be the agent 
for a completed year. Second, an entity that could have been designated 
by the resigning agent upon its termination must consent, in writing, 
to be the agent for that year. Third, immediately after its resignation 
takes effect, the resigning agent must not be the agent for the current 
year. Fourth, the Commissioner must not object to the agent's 
resignation. If these conditions are satisfied, the new agent must 
notify each member of the group that it has become the agent.

Effective/Applicability Date

    The Final Regulations apply to consolidated return years beginning 
on or after April 1, 2015. The 2002 Regulations, redesignated as Sec.  
1.1502-77B, and Rev. Proc. 2002-43 continue to apply with respect to 
consolidated return years beginning on or after June 28, 2002, and 
before April 1, 2015. However, the new rules permitting the resignation 
of agents may be relied upon for completed years otherwise governed by 
the 2002 Regulations (or any predecessor regulations).

Special Analyses

    It has been determined that this Treasury Decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It is hereby certified that these 
regulations will not have a significant economic impact on a 
substantial number of small entities. This certification is based on 
the fact that these regulations will affect affiliated groups of 
corporations that have elected to file consolidated returns, which tend 
to be larger entities. Therefore, a Regulatory Flexibility Analysis 
under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not 
required. Pursuant to section 7805(f) of the Code, the proposed 
regulations preceding these final regulations were submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business, and no comments were received.

Drafting Information

    The principal author of these final regulations is Richard M. 
Heinecke, Office of Associate Chief Counsel (Corporate). However, other 
personnel from the IRS and the Treasury Department participated in 
their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry in numerical order to read in part as follows:


[[Page 17318]]


    Authority:  26 U.S.C. 7805 * * *

* * * * *
    Section 1.1502-77B also issued under 26 U.S.C. 1502 and 6402(j).
* * * * *


Sec.  1.338-1  [Amended]

0
Par. 2. Section 1.338-1 is amended by removing the language ``Sec.  
1.1502-77(e)(4)'' in the last sentence of paragraph (b)(2)(viii) and 
adding the language ``Sec.  1.1502-77(c)(8)'' in its place.

0
Par. 3. Section 1.1502-77A is amended as follows:

0
1. Paragraph (e)(2) is amended by removing every occurrence of the 
language ``(a)(4)'' and adding ``(e)(4)'' in its place.

0
2. In paragraph (e)(2), the first sentence is amended by removing the 
language ``Sec.  1.1502-77'' and adding ``Sec.  1.1502-77A'' in its 
place.

0
3. In paragraph (e)(2), the second sentence is amended by removing the 
language ``Sec.  1.1502-77(d)'' and adding ``Sec.  1.1502-77A(d)'' in 
its place.

0
4. Paragraph (e)(3) is amended by removing the language ``(a)(4)'' and 
adding ``(e)(4)'' in its place.

0
5. Paragraph (e)(4) is amended by removing the language ``(a)(2)'' and 
adding ``(e)(2)'' in its place.

0
6. Paragraph (e)(4)(iii) is amended by removing the language ``Sec.  
1.1502-77(d)'' and adding ``Sec.  1.1502-77A(d)'' in its place.

0
7. The heading for paragraph (g) is revised.
    The revision reads as follows:


Sec.  1.1502-77A  Common parent agent for subsidiaries applicable for 
consolidated return years beginning before June 28, 2002.

* * * * *
    (g) Effective/applicability dates. * * *


Sec.  1.1502.77  [Redesignated as Sec.  1.1502-77B]

0
Par. 4. Add an undesignated center heading under Sec.  1.1502.77A, 
redesignate Sec.  1.1502-77 as Sec.  1.1502-77B and, in newly 
redesignated Sec.  1.1502-77B, revise the section heading and paragraph 
(h)(1)(i) to read as follows:

Regulations Applicable to Taxable Years Beginning on or After June 28, 
2002, and Before April 1, 2015


Sec.  1.1502-77B  Agent for the group applicable for consolidated 
return years beginning on or after June 28, 2002, and before April 1, 
2015.

* * * * *
    (h) Effective/applicability date--(1) Application--(i) In general. 
This section applies to consolidated return years beginning on or after 
June 28, 2002, and before April 1, 2015. For instructions regarding 
communications relating to the determination of a substitute agent and 
other matters under this section, see Rev. Proc. 2002-43, 2002-2 CB 99 
(see Sec.  601.601(d)(2)(ii)(b) of this chapter). For rules governing 
the resignation of certain agents for the group subject to this 
section, see Sec.  1.1502-77(c)(7) and (j)(2).
* * * * *

0
Par. 5. Section 1.1502-77 is added to read as follows:


Sec.  1.1502-77  Agent for the group.

    (a) Agent for the group--(1) Sole agent. Except as provided in 
paragraphs (e) and (f)(2) of this section, one entity (the agent) is 
the sole agent that is authorized to act in its own name regarding all 
matters relating to the federal income tax liability for the 
consolidated return year for each member of the group and any successor 
or transferee of a member (and any subsequent successors and 
transferees thereof). The identity of that agent is determined under 
the rules of paragraph (c) of this section.
    (2) Agent for each consolidated return year. Agency for the group 
is established for each consolidated return year and is not affected by 
the status or membership of the group in later years. Thus, subject to 
the rules of paragraph (c) of this section, the agent will generally 
remain agent for that consolidated return year regardless of whether 
one or more subsidiaries later cease to be members of the group, 
whether the group files a consolidated return for any subsequent year, 
whether the agent ceases to be the agent or a member of the group in 
any subsequent year, or whether the group continues pursuant to Sec.  
1.1502-75(d) with a new common parent in any subsequent year.
    (3) Communications under this section. Any designation, 
notification, objection, request, or other communication made to or by 
the Commissioner pursuant to paragraphs (c) and (f)(2) of this section 
must be made in accordance with procedures prescribed by the 
Commissioner in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2)(ii) of this chapter), forms, instructions, or other 
appropriate guidance.
    (b) Definitions. The following definitions apply for purposes of 
this section only--
    (1) Successor. A successor is an individual or entity (including a 
disregarded entity as defined in paragraph (b)(3) of this section) that 
is primarily liable, pursuant to applicable law (including, for 
example, by operation of a state or federal merger statute), for the 
tax liability of a corporation that was a member of the group but is no 
longer in existence under applicable law. The determination of tax 
liability is made without regard to Sec.  1.1502-1(f)(4) or Sec.  
1.1502-6(a). (For inclusion of a successor in references to a 
subsidiary or member, see paragraph (b)(5)(iii) of this section.)
    (2) Entity. The term entity includes any corporation, limited 
liability company, or partnership formed under any state, federal, or 
foreign jurisdiction. The term entity includes a disregarded entity (as 
defined in paragraph (b)(3) of this section). The term entity does not 
include an entity that has terminated even if it is in a winding up 
period under the law under which it is organized.
    (3) Disregarded entity. The term disregarded entity includes any of 
the following types of entities that are disregarded as separate from 
their owners--
    (i) Qualified real estate investment trust subsidiaries (within the 
meaning of section 856(i)(2));
    (ii) Qualified subchapter S subsidiaries (within the meaning of 
section 1361(b)(3)(B)); and
    (iii) Eligible entities with a single owner (within the meaning of 
Sec.  301.7701-3 of this chapter).
    (4) Default successor. A successor to the agent is the default 
successor if it is an entity (whether domestic or foreign) that is the 
sole successor to the agent. A partnership is treated as a sole 
successor with primary liability notwithstanding that one or more 
partners may also be primarily liable by virtue of being partners.
    (5) Member or subsidiary. All references to a member or subsidiary 
for a consolidated return year include--
    (i) Each corporation that was a member of the group during any part 
of such year (except that any reference to a subsidiary does not 
include the common parent);
    (ii) Each corporation whose income was included in the consolidated 
return for such year, notwithstanding that the tax liability of such 
corporation should have been computed on the basis of a separate 
return, or as a member of another consolidated group, under the 
provisions of Sec.  1.1502-75; and
    (iii) Except as indicated otherwise, a successor of any of the 
foregoing corporations.
    (6) Completed year. A completed year is a consolidated return year 
that has

[[Page 17319]]

ended, or will end at the time of the referenced event.
    (7) Current year. A current year is a consolidated return year that 
is not a completed year.
    (c) Identity of the agent--(1) In general. Except as otherwise 
provided in this section, the agent for a current year is the common 
parent and the agent for a completed year is the common parent at the 
close of the completed year or its default successor, if any. Except as 
specifically provided otherwise in this paragraph (c), any entity that 
is an agent pursuant to paragraph (c)(3) of this section (agent 
following group structure change), paragraph (c)(5) of this section 
(agent designated by agent terminating without default successor), 
paragraph (c)(6) of this section (agent designated by Commissioner), or 
paragraph (c)(7) of this section (agent designated by resigning agent) 
of this section (and any entity that subsequently serves as agent) acts 
as an agent for and under the same terms and conditions that apply to a 
common parent. For example, such an agent would generally be able to 
designate an agent if it terminates without a default successor; 
however, an entity that became agent pursuant to a designation by the 
Commissioner under paragraphs (c)(6)(i)(A)(2), (3), or (4) of this 
section is not permitted to designate an agent if it terminates without 
a default successor. Other special rules described in this paragraph 
(c) apply.
    (2) Purported agent. If any entity files a consolidated return, or 
takes any other action related to the tax liability for the 
consolidated return year, purporting to be the agent but is 
subsequently determined not to have been the agent with respect to the 
claimed group, that entity is treated, to the extent necessary to avoid 
prejudice to the Commissioner, as if it were the agent.
    (3) New common parent after a group structure change. If the group 
continues in existence after a group structure change (as described in 
Sec.  1.1502-33(f)(1)), the former common parent is the agent until the 
group structure change, and the new common parent becomes the agent 
after the group structure change. Following the group structure change, 
the new common parent is the agent with respect to the entire current 
year (including the period before the group structure change) and the 
former common parent is no longer the agent for that year. However, 
actions taken by the former common parent as the agent before the group 
structure change are not nullified when the new common parent becomes 
the agent with respect to the entire consolidated return year. 
Following the group structure change, the new common parent continues 
as the agent for succeeding years subject to the rules of this section.
    (4) Notification by default successor--(i) In general. Failure to 
provide notice to the Commissioner pursuant to this paragraph (c)(4)(i) 
does not invalidate an entity's status as the default successor. 
However, until the Commissioner receives notification in writing that 
an entity is the default successor--
    (A) Any notice of deficiency or other communication mailed to the 
predecessor agent, even if no longer in existence, is considered as 
having been properly mailed to the agent; and
    (B) The Commissioner is not required to act on any communication 
(including, for example, a claim for refund) submitted on behalf of the 
group by any person (including the default successor) other than the 
predecessor agent.
    (ii) Conversions and continuances. For purposes of the notice 
requirements under paragraph (c)(4)(i) of this section, any entity that 
results from the agent's conversion or continuance by operation of 
state law and that qualifies as a default successor under paragraph 
(b)(4) of this section is treated as a default successor for purposes 
of the notice provisions of paragraph (c)(4)(i) of this section, even 
if applicable state or local law may treat the converted or continued 
entity as not ceasing to exist.
    (5) Designation by terminating agent--(i) In general. Prior to the 
termination of its existence without a default successor, an agent may 
designate an entity described in paragraph (c)(5)(ii) of this section 
to act as agent for any completed year. This designation is effective 
upon the termination of the designating agent's existence. However, 
this paragraph (c)(5) does not apply to, and no designation can be made 
by, an agent that was designated by the Commissioner under paragraphs 
(c)(6)(i)(A)(2), (3), or (4) of this section, or any successor of such 
an agent; in such a case, the terminating agent should request that the 
Commissioner designate an agent pursuant to paragraph (c)(6)(i)(B) of 
this section.
    (ii) Permissible agents--(A) The terminating agent may designate as 
agent a member of the group during any part of the completed year, or 
an entity (whether domestic or foreign) that is a successor of such a 
member, including an entity that will become a successor at the time 
the agent's existence terminates.
    (B) The terminating agent may not designate as agent any entity 
that was previously replaced as agent by the Commissioner pursuant to 
paragraphs (c)(6)(i)(A)(2), (3), or (4) of this section, or any 
successor of such an agent. However, the terminating agent may submit a 
request pursuant to paragraph (c)(6)(i)(B) of this section that the 
Commissioner designate such an entity as agent.
    (iii) Notification of designation. The terminating agent must 
notify the Commissioner in writing of its designation of an entity as 
agent pursuant to paragraph (c)(5)(i) of this section and provide a 
statement executed by the designated entity acknowledging that it will 
serve as the agent for each specified completed year for which it is 
designated as the agent. If the designated entity was not itself a 
member of the group during any specified year (because it is a 
successor of a member), the notification must include a statement 
acknowledging that the designated entity is or will be primarily liable 
for the tax liability for the specified completed year as a successor 
of a member.
    (iv) Failure to designate an agent. If the agent terminates without 
a default successor, and no agent is designated pursuant to this 
paragraph (c)(5)--
    (A) Any notice of deficiency or other communication mailed to the 
agent, even if no longer in existence, is considered as having been 
properly mailed to the agent; and
    (B) The Commissioner is not required to act on any communication 
(including, for example, a claim for refund) submitted on behalf of the 
group by any person.
    (6) Designation by the Commissioner--(i) In general. The 
Commissioner has the authority to designate an entity to act as the 
agent under the circumstances prescribed in this paragraph (c)(6)(i). 
The designated agent for a completed year must be an entity described 
in paragraph (c)(5)(ii)(A) of this section when the designation becomes 
effective. The designated agent for a current year must be a member of 
the group when the designation becomes effective. If, pursuant to this 
paragraph (c)(6), the Commissioner replaces the common parent or 
another entity as the agent, the common parent or other entity, or any 
successor thereof, may not later act as the agent unless so designated 
by the Commissioner.
    (A) On Commissioner's own accord. With or without a request from 
any member of the group, the Commissioner may designate an entity to 
act as the agent if--
    (1) The agent's existence terminates, other than in a group 
structure change, without there being a default successor

[[Page 17320]]

and without any designation made under paragraph (c)(5)(i) of this 
section;
    (2) An agent previously designated by the Commissioner is no longer 
a member of the group in the current year and does not have a default 
successor that is a member of the group;
    (3) The Commissioner believes that the agent or its default 
successor exists but such entity has either not timely responded to the 
Commissioner's notices (sent to the last known address on file for the 
entity or left at the usual place of business for such entity) or has 
failed to perform its obligations as agent as prescribed by the 
Internal Revenue Code (Code) or regulations promulgated thereunder; or
    (4) The agent is or becomes a foreign entity as a result of any 
action or transaction (including, for example, a continuance into a 
foreign jurisdiction or certain inversion transactions subject to 
section 7874 in which a foreign parent is treated as a domestic 
corporation).
    (B) Written request from any member. At the request of any member, 
in a circumstance not described in paragraph (c)(6)(i)(A) of this 
section, the Commissioner may, but is not required to, replace an agent 
previously designated under this paragraph (c)(6).
    (ii) Notification by Commissioner. The Commissioner will notify the 
designated entity in writing of the Commissioner's designation of the 
entity as agent pursuant to paragraph (c)(6)(i) of this section, and 
the designation will be effective as prescribed by the Commissioner. 
The designated entity should give notice of the designation by the 
Commissioner pursuant to paragraph (c)(6)(i) of this section to each 
member of the group during any part of the consolidated return year. 
However, a failure by the designated entity to notify any such member 
of the group does not invalidate the designation by the Commissioner.
    (iii) Term and effect of designation. Unless otherwise provided by 
the Commissioner in the designation, any agent designated by the 
Commissioner pursuant to paragraph (c)(6)(i) of this section (new 
agent) is the agent with respect to the entire consolidated return year 
for which it is designated and successive years, subject to the rules 
of this section. An agent immediately preceding a new agent (former 
agent) ceases to be the agent for a particular consolidated return year 
once the new agent has been designated for that year, but the 
designation of the new agent does not nullify actions taken on behalf 
of the group by the former agent while it was agent. If there is more 
than one new agent designated by the Commissioner for a consolidated 
return year, the new agent that is designated last in time by the 
Commissioner is the agent with respect to the entire consolidated 
return year. A designation pursuant to this paragraph (c)(6) is 
effective as prescribed by the Commissioner in such designation or the 
Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii) of this 
chapter), forms, instructions, or other appropriate guidance.
    (iv) Request by member of the group where agent previously 
designated by the Commissioner is no longer a member. If an agent at 
any time after it is designated as agent by the Commissioner pursuant 
to paragraph (c)(6)(i) of this section is no longer a member of the 
group for any current year, and its default successor, if any, is not a 
member of the group at that time, a member of the group, including the 
agent that will cease to be a member, should request, in writing, that 
the Commissioner designate a member of the group to be the new agent 
pursuant to paragraph (c)(6)(i)(A)(2) of this section. Until such a 
request is made--
    (A) Any notice of deficiency or other communication mailed to the 
agent, even if no longer a member, is considered as having been 
properly mailed to the agent; and
    (B) The Commissioner is not required to act on any communication 
(including, for example, a claim for refund) submitted on behalf of the 
group by any person.
    (7) Agent resigns--(i) In general. The agent may resign for a 
completed year if--
    (A) It provides written notice to the Commissioner that it no 
longer intends to be the agent for that completed year;
    (B) An entity described in paragraph (c)(5)(ii)(A) of this section 
consents, in writing, to be the agent with respect to that completed 
year;
    (C) Immediately after its resignation takes effect, the resigning 
agent will not be the agent for the current year; and
    (D) The Commissioner does not object to the agent's resignation.
    (ii) Notification by agent that replaces agent that resigns. If the 
Commissioner does not object to the agent's resignation, the agent that 
replaces the agent that resigns should give written notice that it is 
the new agent to each member of the group for any part of the completed 
year for which it is designated the agent.
    (8) Transactions under the Code. Notwithstanding section 338(a)(2), 
a target corporation for which an election is made under section 338 is 
not deemed to terminate for purposes of this section.
    (d) Examples of matters subject to agency. With respect to any 
consolidated return year for which it is the agent--
    (1) The agent makes any election (or similar choice of a 
permissible option) that is available to a subsidiary in the 
computation of its separate taxable income, and any change in an 
election (or similar choice of a permissible option) previously made by 
or for a subsidiary, including, for example, a request to change a 
subsidiary's method or period of accounting;
    (2) All correspondence concerning the income tax liability for the 
consolidated return year is carried on directly with the agent;
    (3) The agent files for all extensions of time, including 
extensions of time for payment of tax under section 6164, and any 
extension so filed is considered as having been filed by each member;
    (4) The agent gives waivers, gives bonds, and executes closing 
agreements, offers in compromise, and all other documents, and any 
waiver or bond so given, or agreement, offer in compromise, or any 
other document so executed, is considered as having also been given or 
executed by each member;
    (5) The agent files claims for refund, and any refund is made 
directly to and in the name of the agent and discharges any liability 
of the Government to any member with respect to such refund;
    (6) The agent takes any action on behalf of a member of the group 
with respect to a foreign corporation including, for example, elections 
by, and changes to the method of accounting of, a controlled foreign 
corporation in accordance with Sec.  1.964-1(c)(3);
    (7) Notices of claim disallowance are mailed only to the agent, and 
the mailing to the agent is considered as a mailing to each member;
    (8) Notices of deficiencies are mailed only to the agent (except as 
provided in paragraph (f)(3) of this section), and the mailing to the 
agent is considered as a mailing to each member;
    (9) Notices of final partnership administrative adjustment under 
section 6223 with respect to any partnership in which a member of the 
group is a partner may be mailed to the agent, and, if so, the mailing 
to the agent is considered as a mailing to each member that is a 
partner entitled to receive such notice (for other rules regarding 
partnership proceedings, see paragraph (f)(2)(iii) of this section);
    (10) The agent files petitions and conducts proceedings before the 
United States Tax Court, and any such petition is considered as also 
having been filed by each member;

[[Page 17321]]

    (11) Any assessment of tax may be made in the name of the agent, 
and an assessment naming the agent is considered as an assessment with 
respect to each member; and
    (12) Notice and demand for payment of taxes is given only to the 
agent, and such notice and demand is considered as a notice and demand 
to each member.
    (e) Matters reserved to subsidiaries. Except as provided in this 
paragraph (e) and paragraph (f)(2) of this section, no subsidiary 
(unless it is or becomes an agent pursuant to paragraph (c) of this 
section) has authority to act for or to represent itself in any matter 
related to the tax liability for the consolidated return year. The 
following matters, however, are reserved exclusively to each 
subsidiary--
    (1) The making of the consent required by Sec.  1.1502-75(a)(1);
    (2) Any action with respect to the subsidiary's liability for a 
federal tax other than the income tax imposed by chapter 1 of the Code 
(including, for example, employment taxes under chapters 21 through 25 
of the Code, and miscellaneous excise taxes under chapters 31 through 
47 of the Code); and
    (3) The making of an election to be treated as a Domestic 
International Sales Corporation under Sec.  1.992-2.
    (f) Dealings with members--(1) Identifying members in notice of a 
lien. Notwithstanding any other provisions of this section, any notice 
of a lien, any levy, or any other proceeding to collect the amount of 
any assessment, after the assessment has been made, must name the 
entity from which such collection is to be made.
    (2) Direct dealing with a member--(i) Several liability. The 
Commissioner may, upon issuing to the agent written notice that 
expressly invokes the authority of this provision, deal directly with 
any member of the group with respect to its liability under Sec.  
1.1502-6 for the consolidated tax of the group, in which event such 
member has sole authority to act for itself with respect to that 
liability. However, if the Commissioner believes or has reason to 
believe that the existence of the agent has terminated without an agent 
being identified under this section, the Commissioner may, if the 
Commissioner deems it advisable, deal directly with any member with 
respect to that member's liability under Sec.  1.1502-6 without issuing 
notice to any other entity.
    (ii) Information requests. The Commissioner may, upon issuing to 
the agent written notice, request information relevant to the 
consolidated tax liability from any member of the group. However, if 
the Commissioner believes or has reason to believe that the existence 
of the agent has terminated without an agent being identified under 
this section, the Commissioner may request such information from any 
member of the group without issuing notice to any other entity.
    (iii) Members as partners in partnerships subject to the provisions 
of the Code. Except as otherwise provided in this paragraph 
(f)(2)(iii), the general rule of paragraph (a)(1) of this section 
applies so that the agent is the agent for any subsidiary member that 
for any part of the consolidated return year is a partner in a 
partnership subject to the provisions of sections 6221 through 6234 of 
the Code (as originally enacted by the Tax Equity and Fiscal 
Responsibility Act of 1982 and subsequently amended) and the 
accompanying regulations (TEFRA partnership). However--
    (A) Any subsidiary or any disregarded entity owned by a subsidiary 
that is designated as tax matters partner of a TEFRA partnership will 
act in its own name and perform its responsibilities under sections 
6221 through 6234 and the accompanying regulations without requiring 
any action by the agent (but see paragraph (d)(9) of this section 
regarding the mailing of a final partnership administrative adjustment 
to the agent); and
    (B) The Commissioner may at any time communicate directly with a 
subsidiary or a disregarded entity owned by a subsidiary that is a 
partner in a TEFRA partnership, without having to deal with each member 
separately pursuant to paragraph (f)(2)(i) of this section, whenever 
the Commissioner determines that such direct communication will 
facilitate the conduct of an examination, appeal, or settlement with 
respect to the partnership.
    (3) Copy of notice of deficiency to entity that has ceased to be a 
member of the group. A subsidiary that ceases to be a member of the 
group during or after a consolidated return year may file a written 
notice of that fact with the Commissioner and request a copy of any 
notice of deficiency with respect to the tax for a consolidated return 
year during which it was a member, or a copy of any notice and demand 
for payment of such deficiency, or both. Such filing does not limit the 
scope of the agency of the agent provided for in this section. Any 
failure by the Commissioner to comply with such request does not limit 
the subsidiary's tax liability under Sec.  1.1502-6.
    (g) Examples. Unless otherwise indicated, all entities are domestic 
and have a calendar year taxable year, and each of P, S, S-1, S-2, S-3, 
T, V, W, W-1, Y, Z, and Z-1 is a corporation. For none of the 
consolidated return years at issue does the Commissioner exercise the 
authority under paragraph (f)(2) of this section to deal with any 
member separately. Any surviving entity in a merger is either a 
successor as described in paragraph (b)(1) of this section, or a 
default successor as described in paragraph (b)(4) of this section, as 
the case may be. Except as otherwise indicated, no agent will be 
replaced under paragraph (c)(6) of this section or will resign under 
paragraph (c)(7) of this section, and all communications to and from 
the Commissioner are made in accordance with procedures prescribed by 
the Commissioner.

    Example 1. Disposition of all group members where the agent 
remains the agent. (i) Facts. As of January 1 of Year 1, P is the 
common parent and agent for the P consolidated group, consisting of 
P and its two subsidiaries, S and S-1. P files consolidated returns 
for the P group in Years 1 and 2. On December 31 of Year 1, P sells 
all the stock of S-1 to X. On December 31 of Year 2, P distributes 
all the stock of S to P's shareholders. P files a separate return 
for Year 3.
    (ii) Analysis. Although the consolidated group terminates after 
Year 2 under Sec.  1.1502-75(d)(1) and P is no longer the common 
parent nor the agent for years after Year 2, P remains the agent for 
the P group for Years 1 and 2 under paragraph (a)(2) of this 
section. Accordingly, for as long as P remains in existence, P is 
the agent for the P group under paragraphs (a)(1) and (2) and (c)(1) 
of this section for Years 1 and 2.
    Example 2. Acquisition of the agent by another group where the 
agent remains the agent. (i) Facts. The facts are the same as in 
Example 1, except on January 1 of Year 3, all of the outstanding 
stock of P is acquired by Y, which is the common parent and agent of 
the Y consolidated group. P thereafter joins in the Y group's 
consolidated return as a member of the Y group.
    (ii) Analysis. Although P is a member of the Y group in Year 3 
and succeeding years, P remains the agent for the P group for Years 
1 and 2 under paragraph (a)(2) of this section. Accordingly, for as 
long as P remains in existence, P is the agent for the P group under 
paragraphs (a)(1) and (2) and (c)(1) of this section for Years 1 and 
2.
    Example 3. Reverse triangular merger of the agent where the 
agent remains the agent. (i) Facts. As of January 1 of Year 1, P is 
the common parent and agent for the P consolidated group consisting 
of P and its two subsidiaries, S and S-1. P files consolidated 
returns for the P group in Years 1 and 2. On March 1 of Year 3, W-1, 
a subsidiary of W, merges into P in a reverse triangular merger 
qualifying as a reorganization under section 368(a)(1)(A) and 
(a)(2)(E). P survives the merger with W-1. The transaction 
constitutes a reverse acquisition under Sec.  1.1502-75(d)(3)(i) 
because P's shareholders receive more than 50 percent of W's stock 
in exchange for all

[[Page 17322]]

of P's stock. The transaction is therefore a group structure change 
as described in paragraph (c)(3) of this section.
    (ii) Analysis. Because the transaction constitutes a reverse 
acquisition that results in a group structure change, the P group is 
treated as remaining in existence with W as its common parent and 
agent. Under paragraphs (a)(1) and (2) and (c)(1) of this section, P 
remains the agent for the P group for Years 1 and 2 for as long as P 
remains in existence, even though the P group continues with W as 
its new common parent pursuant to Sec.  1.1502-75(d)(3)(i). Until 
the merger of W-1 and P on March 1 of Year 3, P is the agent for the 
P group for Year 3. From the time of that merger, W, as common 
parent of the P group, becomes the agent for the P group with 
respect to all of Year 3 (including the period through March 1) and 
succeeding consolidated return years. The actions taken by P before 
the merger as agent for the P group for Year 3 are not nullified by 
the fact that W becomes the agent for all of Year 3.
    Example 4. Reverse triangular merger of the agent--subsequent 
distribution of agent where the agent remains the agent. (i) Facts. 
The facts are the same as in Example 3, except that on April 1 of 
Year 4, in a transaction unrelated to the March 1, Year 3 reverse 
acquisition, P distributes the stock of its subsidiaries S and S-1 
to W, and W then distributes the stock of P to the W shareholders.
    (ii) Analysis. Although P is no longer a member of the P group 
after the Year 4 distribution, P remains the agent for the P group 
under paragraphs (a)(1) and (2) and (c)(1) of this section for Years 
1 and 2 for as long as P remains in existence.
    Example 5. Agent Resigns. (i) Facts. The facts are the same as 
in Example 4, except that on August 1 of Year 4, P provides written 
notice to the Commissioner that it resigns as the agent for Years 1 
and 2. Included with the written notice is a statement executed by 
either S or S-1 consenting to be the agent for the P group for Years 
1 and 2.
    (ii) Analysis. Pursuant to paragraph (c)(7) of this section, 
because P is not the agent in Year 4, the current year, it will not 
be the agent immediately after its resignation takes effect. 
Accordingly, if the Commissioner does not object to P's resignation, 
P may resign with respect to Years 1 and 2, both of which are 
completed years, and either S or S-1, each an entity described in 
paragraph (c)(5)(ii)(A) of this section, can be the agent for the P 
group for Years 1 and 2 if it consents in writing. W cannot be the 
agent for the P group for Years 1 and 2 because it is not an entity 
described in paragraph (c)(5)(ii)(A) of this section with respect to 
the P group for Years 1 and 2.
    Example 6. Qualified stock purchase and section 338 election 
where the agent remains the agent. (i) Facts. As of January 1 of 
Year 1, P is the common parent and agent for the P consolidated 
group consisting of P and its two subsidiaries, S and S-1. P files 
consolidated returns for the P group in Years 1 and 2. On March 31 
of Year 2, V purchases the stock of P in a qualified stock purchase 
(within the meaning of section 338(d)(3)), and V makes a timely 
election pursuant to section 338(g) with respect to P.
    (ii) Analysis. Although section 338(a)(2) provides that P is 
treated as a new corporation as of the beginning of the day after 
the acquisition date for purposes of subtitle A, paragraph (c)(8) of 
this section provides that P's existence is not deemed to terminate 
for purposes of this section notwithstanding the general rule of 
section 338(a)(2). Accordingly, new P is the agent for the P group 
for Year 1 and the period ending March 31 of Year 2 regardless of 
the election under section 338(g).
    Example 7. Change in the agent's federal income tax 
classification to a partnership and the resulting partnership 
continues as the agent. (i) Facts. P, a State M limited liability 
partnership with two partners that is formed on January 1 of Year 1, 
elects pursuant to Sec.  301.7701-3(c) of this chapter to be an 
association taxable as a corporation for federal income tax purposes 
effective on the date of formation. P is the common parent and agent 
for the P consolidated group consisting of P and its two 
subsidiaries, S and S-1. P files consolidated returns for the P 
group in Years 1 through 6. On January 1 of Year 7, P elects 
pursuant to Sec.  301.7701-3(c) of this chapter to be treated as a 
partnership. P remains in existence under applicable law.
    (ii) Analysis. The P group terminates and P is no longer the 
common parent of a consolidated group after its election to be 
treated as a partnership for federal income tax purposes. Because P 
remains in existence under applicable law, P is the agent for the P 
group under paragraphs (a)(1) and (2) and (c)(1) of this section for 
Years 1 through 6. If P merged into a foreign partnership instead of 
converting to a partnership, the foreign partnership would be P's 
default successor and agent for the P group for Years 1 through 6. 
See paragraphs (b)(4) and (c)(1) of this section.
    Example 8. Forward triangular merger of agent--successor as 
default successor. (i) Facts. As of January 1 of Year 1, P is the 
common parent and agent for the P consolidated group consisting of P 
and its two subsidiaries, S and S-1. P files a consolidated return 
for the P group for Year 1. On January 1 of Year 3, P merges with 
and into Z-1, a subsidiary of Z, in a forward triangular merger 
qualifying as a reorganization under section 368(a)(1)(A) and 
(a)(2)(D). The transaction constitutes a reverse acquisition under 
Sec.  1.1502-75(d)(3)(i) resulting in a group structure change as 
described in paragraph (c)(3) of this section because P's 
shareholders receive more than 50 percent of Z's stock in exchange 
for all of P's stock. Z-1, the corporation that survives the merger 
and the successor of P, is the default successor for the P group for 
Years 1 and 2.
    (ii) Analysis. Although Z is the new common parent for the P 
group (which continues pursuant to Sec.  1.1502-75(d)(3)(i)) for 
consolidated return years after the merger, and, as a consequence, Z 
is the new agent as a result of this group structure change, P may 
not designate an agent for Years 1 or 2 because Z-1 is P's default 
successor and the agent for the P group for Years 1 and 2. Z-1 must 
file the P group's consolidated return for Year 2. See paragraphs 
(b)(4) and (c)(1) of this section.
    Example 9. Merger of the agent into a disregarded entity in 
exchange for stock of owner in a transaction qualifying as a 
reorganization under the Code where successor is the default 
successor. (i) Facts. As of January 1 of Year 1, P is the common 
parent and agent for the P consolidated group consisting of P and 
its two subsidiaries, S and S-1. P files a consolidated return for 
the P group in Year 1. On January 1 of Year 2, the shareholders of P 
form Y, a State M corporation. On the same date, Y forms Y-1, a 
State M limited liability company that is a disregarded entity (as 
defined in paragraph (b)(3) of this section) for federal income tax 
purposes, and P merges into Y-1 under State M law. In the merger, 
the P shareholders receive all of the Y stock. Y (through Y-1) is 
treated as acquiring the assets of P in a transaction qualifying as 
a reorganization of P into Y under section 368(a)(1)(F), and the P 
group continues under Sec.  1.1502-75(d)(2) with Y as the common 
parent and, as a consequence, the transaction is treated as a group 
structure change as described in paragraph (c)(3) with Y as the P 
group's agent for Year 2. In Year 4, the Commissioner seeks to 
extend the period of limitations on assessment with respect to Year 
1 of the P group. In Year 5, the Commissioner seeks to extend the 
period of limitations on assessment with respect to Year 2 of the Y 
group (formerly the P group).
    (ii) Analysis. (A) Year 1 extension. As a result of the January 
1, Year 2 merger, Y-1 is the default successor of P, and the agent 
for the P group for Year 1. See paragraphs (b)(4) and (c)(1) of this 
section. Therefore, Y-1 is the only party that can sign the 
extension with respect to the P group for Year 1.
    (B) Year 2 extension. Because the January 1, Year 2 merger 
qualified as a reorganization under section 368(a)(1)(F), the P 
group remains in existence with Y as the common parent. Therefore, 
Y, the common parent of the P group after the merger, is the P 
group's agent for all of Year 2 (see paragraph (c)(3) of this 
section) and is the only party that can sign the extension with 
respect to the P group for that year and in succeeding years. See 
paragraphs (a)(1) and (2) and (c)(1) of this section.
    Example 10. Designation of agent where there is no default 
successor. (i) Facts. P is incorporated under the laws of State X. 
Fifty percent of its stock is owned at all times by A, an 
individual, and 50 percent by BCD, a partnership. On January 1 of 
Year 1, P forms two subsidiaries, S and T, and becomes the common 
parent of the P group. P files consolidated returns for the P group 
beginning in Year 1 and is the agent for the P consolidated group 
beginning on January 1 of Year 1. On November 30 of Year 3, P 
dissolves under X law. Under X law, A and BCD are primarily liable 
for the federal income tax liability of dissolved corporation P. 
State X law allows the officers of a dissolved corporation to 
perform certain actions incident to the winding up of its affairs 
after its dissolution, including the filing of tax returns.
    (ii) Analysis. Upon P's dissolution, there is no default 
successor to P, pursuant to paragraph (b)(4) of this section, 
because there are two successors. Prior to its dissolution on

[[Page 17323]]

November 30 of Year 3, pursuant to paragraph (c)(5)(i) of this 
section, P may designate an agent for the P group for Years 1 and 2 
and the short taxable year ending on November 30 of Year 3, to be 
effective upon P's dissolution. P may designate S or T, pursuant to 
paragraph (c)(5)(ii)(A) of this section (because they are members of 
the former group), or BCD (because it is an entity that is a 
successor to P pursuant to paragraph (b)(1) of this section). P 
cannot designate A pursuant to paragraph (c)(5)(ii) of this section, 
because A is not an entity. Under paragraph (b)(2) of this section, 
the officers of P cannot designate an agent for the P group after P 
dissolves on November 30 of Year 3, notwithstanding the winding up 
provisions of State X law. Accordingly, P should designate an agent 
prior to its dissolution to ensure that there is an agent authorized 
to file the short Year 3 consolidated return. If P does not 
designate an agent prior to dissolution under paragraph (c)(5)(i) of 
this section, the Commissioner may designate an agent under 
paragraph (c)(6)(i)(A)(1) of this section from among S, T, or BCD, 
upon their request or otherwise. If any of S, T, A, or BCD realizes 
that P has dissolved without designating an agent, it should 
request, in writing, a designation of an agent by the Commissioner 
as soon as possible.
    Example 11. Commissioner designates a new agent. (i) Agent fails 
to fulfill its obligations. (A) Facts. P is the common parent and 
agent for the P consolidated group consisting of P and its two 
subsidiaries, S-1 and S-2, each a State Y corporation. P files a 
consolidated return for the P group in Year 1. In Year 2, S-3, also 
a State Y corporation, joins the P group. The P group continues as a 
consolidated group in Years 2, 3, and 4. As of Year 4, P has failed 
to file the P group consolidated returns for Years 2 and 3.
    (B) Analysis. (1) Scope of designation. Because P failed to 
perform its obligations as agent as prescribed by federal tax law, 
the Commissioner may, under the authority of paragraph 
(c)(6)(i)(A)(3) of this section, on his own accord, with or without 
a written request from a member, designate another entity described 
in paragraph (c)(6)(i) of this section to act as the agent for not 
just Years 2 and 3, but any of Years 1 through 4.
    (2) Year 1 designation. The Commissioner may designate either S-
1 or S-2, both of which are entities described in paragraphs 
(c)(6)(i) and (c)(5)(ii)(A) of this section, to act as the agent for 
the P group for Year 1. Because S-3 was not a member of the group in 
Year 1, it is not an entity described in paragraphs (c)(6)(i) and 
(c)(5)(ii)(A) of this section for Year 1 and therefore cannot be the 
agent for Year 1. Unless otherwise provided in the designation, the 
designation of either S-1 or S-2 will also be effective for Years 2, 
3, and 4 and all succeeding consolidated return years of the group.
    (3) Year 2 designation. The Commissioner may designate either S-
1, S-2, or S-3, all of which are entities described in paragraph 
(c)(5)(ii)(A) of this section, to act as the agent for the P group 
for Year 2. Unless otherwise provided in the designation, the 
designation of either S-1, S-2, or S-3 will also be effective for 
Years 3 and 4 and all succeeding consolidated return years of the 
group.
    (4) Year 3 designation. The Commissioner may designate any of S-
1, S-2, or S-3 as the agent for Year 3. Unless otherwise provided in 
the designation, the designation of either S-1, S-2, or S-3 will 
also be effective for Year 4 and all succeeding consolidated return 
years of the group.
    (5) Year 4 designation. The Commissioner may designate any of S-
1, S-2, or S-3 as the agent for Year 4. Unless otherwise provided in 
the designation, the designation of either S-1, S-2, or S-3 will 
also be effective for all succeeding consolidated return years of 
the group.
    (ii) Member requests replacement of designated agent. (A) Facts. 
The facts are the same as in paragraph (i)(A) of this Example 11, 
except that in Year 4 the Commissioner designates S-1 as agent for 
Years 1 and succeeding years to replace P for P's failure to fulfill 
its obligations. After receiving notification that S-1 has been 
designated, S-3 submits a request in Year 4, pursuant to paragraph 
(c)(6)(i)(B) of this section, that the Commissioner designate S-2 as 
the agent because S-1 does not have ready access to the group's 
books and records, which are located in another state and are in the 
possession of S-2.
    (B) Analysis. In light of S-3's request, the Commissioner may, 
under the authority of paragraph (c)(6)(i)(B) of this section, 
designate either S-2 (for all or any years) or S-3 (for any year or 
years other than Year 1) as agent in lieu of the previously 
designated agent, S-1. However, notwithstanding S-3's request, the 
Commissioner is not required to replace S-1 as agent for any of the 
consolidated return years for which S-1 was designated.
    Example 12. Designated agent ceases to be a member of the group. 
(i) Facts. The facts are the same as in paragraph (ii)(A) of Example 
11, except that in Year 4 no member requests that the Commissioner 
replace S-1, which accordingly continues to be the agent for the P 
group in Year 5 pursuant to paragraph (c)(6)(iii) of this section. 
On May 2 of Year 5, S-1 converts under State Y law into S-1 LLC, a 
limited liability company that is an entity that is treated as a 
disregarded entity (as defined in paragraph (b)(3) of this section) 
and, as a consequence, is no longer a member of the P group after 
the conversion.
    (ii) Analysis for completed years. S-1 LLC, the disregarded 
entity resulting from the conversion, becomes S-1's default 
successor. As such, S-1 LLC is the agent for Years 1-4.
    (iii) Analysis for current and succeeding years. S-1 is an agent 
designated by the Commissioner pursuant to paragraph (c)(6)(i)(A)(3) 
of this section. Because S-1 is no longer a member of the P group 
after May 2 of Year 5, S-1 is the agent for the P group for Year 5 
only while it remains a member (see paragraphs (c)(6)(i) and (iii) 
of this section). According to paragraph (c)(6)(i) of this section, 
although S-1 LLC is S-1's default successor, it is not a member of 
the group for the current year and therefore cannot be its agent. 
Furthermore, S-1 cannot designate an agent for Year 5 under 
paragraph (c)(5)(i) of this section because that paragraph pertains 
only to designations for completed years for which there is no 
default successor. In addition, S-1 cannot designate an agent for 
Year 5 under paragraph (c)(5)(i) of this section because S-1 was 
previously designated by the Commissioner under paragraph 
(c)(6)(i)(A)(3) of this section.
    (iv) Member's notice to Commissioner for Commissioner to 
designate a member of the group for a current year. A member of the 
group in Year 5 should request that the Commissioner designate, 
pursuant to paragraphs (c)(6)(i)(A)(2) and (c)(6)(iv) of this 
section, another member of the P group to be the agent of the group 
for Year 5. The Commissioner may then, pursuant to paragraph 
(c)(6)(i)(A)(2) of this section, designate either S-2, S-3, or P to 
be the agent for the P group and, once so designated, that member 
will be, effective on May 3 of Year 5, the agent for all of Year 5 
and for succeeding years (subject to the rules of this section) 
pursuant to paragraph (c)(6)(iii) of this section. No actions taken 
by S-1 on behalf of the P group through May 2, Year 5, are nullified 
by the Commissioner's designation of another agent even though the 
agent so designated will be the agent for all of Year 5.
    Example 13. Fraudulent conveyance of assets. (i) Facts. As of 
January 1 of Year 1, P is the common parent and agent for the P 
consolidated group consisting of P and its two subsidiaries, S and 
S-1. On March 15 of Year 2, P files a consolidated return that 
includes the income of S and S-1 for Year 1. On December 1 of Year 
2, S-1 transfers assets having a fair market value of $100x to U in 
exchange for $10x. This transfer of assets for less than fair market 
value constitutes a fraudulent conveyance under applicable state 
law. On March 1 of Year 5, P executes a waiver extending to December 
31 of Year 6 the period of limitations on assessment with respect to 
the P group's Year 1 consolidated return. On February 1 of Year 6, 
the Commissioner issues a notice of deficiency to P asserting a 
deficiency of $30x for the P group's Year 1 consolidated tax 
liability. P does not file a petition for redetermination in the Tax 
Court, and the Commissioner makes a timely assessment against the P 
group. P, S, and S-1 are all insolvent and are unable to pay the 
deficiency. On February 1 of Year 8, the Commissioner sends a notice 
of transferee liability to U, which does not file a petition in the 
Tax Court. On August 1 of Year 8, the Commissioner assesses the 
amount of the P group's deficiency against U. Under section 6901(c), 
the Commissioner may assess U's transferee liability within one year 
after the expiration of the period of limitations against the 
transferor, S-1. By operation of section 6213(a) and 6503(a), the 
issuance of the notice of deficiency to P and the expiration of the 
90-day period for filing a petition in the Tax Court have the effect 
of further extending by 150 days the P group's limitations period on 
assessment from the previously extended date of December 31 of Year 
6 to May 30 of Year 7.
    (ii) Analysis. Pursuant to paragraph (a)(1) of this section, the 
waiver executed by P on March 1 of Year 5 to extend the period of 
limitations on assessment to December 31 of Year 6 and the further 
extension of the P

[[Page 17324]]

group's limitations period to May 30 of Year 7 (by operation of 
sections 6213(a) and 6503(a)) have the derivative effect of 
extending the period of limitations on assessment of U's transferee 
liability to May 30 of Year 8. By operation of section 6901(f), the 
issuance of the notice of transferee liability to U and the 
expiration of the 90-day period for filing a petition in the Tax 
Court have the effect of further extending the limitations period on 
assessment of U's liability as a transferee by 150 days, from May 30 
of Year 8 to October 27 of Year 8. Accordingly, the Commissioner may 
send a notice of transferee liability to U at any time on or before 
May 30 of Year 8 and assess the unpaid liability against U at any 
time on or before October 27 of Year 8. The result would be the same 
even if S-1 ceased to exist before March 1 of Year 5, the date P 
executed the waiver.
    Example 14. Consent to extend the statute of limitations for a 
partnership where a member of the consolidated group is a partner of 
such partnership subject to the provisions of the Code and the tax 
matters partner is not a member of the group. (i) Facts. P is the 
common parent and agent for the P consolidated group consisting of P 
and its two subsidiaries, S and S-1. The P group has a November 30 
fiscal year end and P files consolidated returns for the P group for 
the years ending November 30, Year 1 and November 30, Year 2. S-1 is 
a partner in the PRS partnership, which is subject to the provisions 
of sections 6221 through 6234. PRS has a calendar year end and A, an 
individual, is the tax matters partner of the PRS partnership. PRS 
files a partnership return for the year ending December 31, Year 1. 
On January 10, Year 5, A, as the tax matters partner for the PRS 
partnership, executes a consent to extend the period for assessment 
of partnership items of PRS for all partners, and the Commissioner 
co-executes the consent on the same day for the year ending December 
31, Year 1.
    (ii) Analysis. A's consent to extend the statute of limitations 
for the partnership items of PRS partnership for the year ending 
December 31, Year 1, extends the statute of limitations with respect 
to the partnership items for all members of the P group, including 
P, S, and S-1 for the consolidated return year ending November 30, 
Year 2. This is because S-1 is a partner in the PRS partnership for 
which A, the tax matters partner for the PRS partnership, consents, 
pursuant to section 6229(b)(1)(B), to extend the statute of 
limitations for the year ending December 31, Year 1. However, under 
paragraph (f)(2)(iii) of this section, such agreement with respect 
to the statute of limitations for the PRS partnership for the year 
ending December 31, Year 1 does not obviate the need to obtain a 
consent from P, the agent for the P consolidated group, to extend 
the statute of limitations for the P consolidated group for the P 
group's consolidated return years ending November 30, Year 1 and 
November 30, Year 2 regarding any items other than partnership items 
or affected items of the PRS partnership.
    Example 15. Contacting subsidiary member in order to facilitate 
the conduct of an examination, appeal, or settlement where a member 
of the consolidated group is a partner of a partnership subject to 
the provisions of the Code. (i) Facts. P is the common parent and 
agent for the P consolidated group consisting of P and its two 
subsidiaries, S and S-1. The P group has a November 30 fiscal year 
end, and P files consolidated returns for the P group for the years 
ending November 30, Year 1 and November 30, Year 2. S-1 is a partner 
in the PRS partnership, which is subject to the provisions of 
sections 6221 through 6234. PRS has a calendar year end and A, an 
individual, is the tax matters partner of the PRS partnership. PRS 
files a partnership return for the year ending December 31, Year 1. 
The Commissioner, on January 10, Year 4, in the course of an 
examination of the PRS partnership for the year ending December 31, 
Year 1, seeks to obtain information in the course of that 
examination to resolve the audit.
    (ii) Analysis. Because the direct contact with a subsidiary 
member of a consolidated group that is a partner in a partnership 
subject to the provisions under sections 6221 through 6234 may 
facilitate the conduct of an examination, appeal, or settlement, the 
Commissioner, under paragraph (f)(2)(iii) of this section, may 
communicate directly with either S-1, P, or A regarding the PRS 
partnership without breaking agency pursuant to paragraph (f)(2)(i) 
of this section. However, if the Commissioner were instead seeking 
to execute a settlement agreement with respect to S-1 as a partner 
with respect to its liability as a partner in PRS partnership, P 
would need to execute such settlement agreement for all members of 
the group including the partner subsidiary.

    (h) Cross-reference. For further rules applicable to groups that 
include insolvent financial institutions, see Sec.  301.6402-7 of this 
chapter.
    (i) [Reserved]
    (j) Effective/applicability date--(1) In general. The rules of this 
section apply to consolidated return years beginning on or after April 
1, 2015. For prior years beginning before June 28, 2002, see Sec.  
1.1502-77A. For prior years beginning on or after June 28, 2002, and 
before April 1, 2015, see Sec.  1.1502-77B.
    (2) Application of this section to prior years. Notwithstanding 
paragraph (j)(1) of this section, an agent may apply the rules of 
paragraph (c)(7) of this section to resign as agent for a completed 
year that began before April 1, 2015.


Sec.  1.1502-78  [Amended]

0
Par. 6. Section 1.1502-78 is amended as follows:

0
1. Paragraph (a) is amended by removing every occurrence of the 
language ``(or substitute agent designated under Sec.  1.1502-77(d) for 
the carryback year)'' and adding ``(or the agent determined under Sec.  
1.1502-77(c) or Sec.  1.1502-77B(d) for the carryback year)'' in its 
place.

0
2. Paragraph (b)(1) is amended by removing the language ``(or 
substitute agent designated under Sec.  1.1502-77(d) for the carryback 
year)'' and adding ``(or the agent determined under Sec.  1.1502-77(c) 
or Sec.  1.1502-77B(d) for the carryback year)'' in its place.

0
3. Paragraph (c) is amended by removing each occurrence of the language 
``1966'' and adding ``2003'' in its place; removing the language 
``1967'' and adding ``2004'' in its place; removing each occurrence of 
the language ``1968'' and adding ``2005'' in its place; and removing 
each occurrence of the language ``1969'' and adding ``2006'' in its 
place.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 7. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

0
Par. 8. In Sec.  602.101, revise paragraph (b) by adding an entry in 
numerical order to the table to read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                                * * * * *
1.1502-77B..............................................       1545-1699
 
                                * * * * *
------------------------------------------------------------------------


John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: February 23, 2015.
Mark D. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2015-07182 Filed 3-31-15; 8:45 am]
BILLING CODE 4830-01-P