New Jersey Administrative Code
Title 18 - TREASURY - TAXATION
Chapter 7 - CORPORATION BUSINESS TAX ACT
Subchapter 21 - COMBINED RETURNS
Section 18:7-21.17 - Affiliated group election

Universal Citation: NJ Admin Code 18:7-21.17

Current through Register Vol. 56, No. 18, September 16, 2024

(a) The managerial member of the combined group may make an election to treat all corporations that are members of its New Jersey affiliated group (as defined at N.J.S.A. 54:10A-4(x)) as the combined group filed on the New Jersey combined return. Once the affiliated group election is made, the election shall be binding for and applicable to the privilege period for which it is made and for the next five group privilege periods. If an affiliated group election is made, all of the corporations that are members of their New Jersey affiliated group shall be treated as the members of a single New Jersey combined group irrespective as to, whether:

1. The corporations are included in more than one Federal consolidated return filed by more than one Federal consolidated group;

2. The corporations are engaged in one or more unitary businesses; or

3. The corporations are not engaged in a unitary business with any other member of the affiliated group.

(b) The examples at (a)1, 2, and 3 above are not an exhaustive list.

(c) Upon making the election, the New Jersey affiliated group shall calculate the combined group's taxable income and the respective taxable income of the taxable members of the group, in accordance with N.J.A.C. 18:7-21.7 through 21.28. An election to file an affiliated group combined return shall be an election to treat all of the member's attributes and income as though they were from one unitary business pursuant to N.J.S.A. 54:10A-4.6.p. An affiliated group election can only be made if the New Jersey affiliated group to which the election is to apply in the first year of application includes one or more Federal affiliated groups filing a consolidated Federal income tax return.

(d) An affiliated group election and a worldwide election cannot be made together. An affiliated group election cannot be made for any period in which a worldwide election is in effect.

(e) The membership of a combined group as determined pursuant to an affiliated group election is not limited to those corporations that are members of one or more affiliated groups pursuant to I.R.C. § 1504 that are filing a Federal consolidated return. As the New Jersey affiliated group is broader pursuant to N.J.S.A. 54:10A-4(x), it shall also include corporations that meet the following standards:

1. A New Jersey affiliated group shall include a corporation that meets either of the following standards, even though such corporations would not be included in a Federal consolidated return:
i. Each member is incorporated in the United States, or formed pursuant to the laws of the United States, any state, or the District of Columbia.
(1) Each member, wherever incorporated or formed, that is treated as a U.S. domestic corporation pursuant to the provisions of the Internal Revenue Code; or

ii. Each member incorporated or formed under the laws of a foreign nation that are required to file Federal tax returns if such entities have effectively connected income within the meaning of the Internal Revenue Code.

2. With respect to (e)1 above, only the members that are treated as domestic corporations pursuant to the Federal I.R.C. and Federal S corporations that have not made a validly approved New Jersey S corporation election will be included. In instances in which a New Jersey S corporation also elects to be included in the combined return, the New Jersey S corporation will also be included and taxed in the same manner as a C corporation.

3. The New Jersey affiliated group shall be determined by including all U.S. domestic corporations, as defined at N.J.S.A. 54:10A-4(x), that are related by common ownership applying the commonly owned test described in this subchapter (that is, direct or indirect ownership of more than 50 percent of voting control), rather than applying the standard applicable for Federal consolidated return purposes that looks to 80 percent control of certain stock by vote and value. Further, control of members of the New Jersey affiliated group may be direct or indirect, and a common owner or owners may be corporate or non-corporate. Whether voting control is indirectly owned shall be determined in accordance with I.R.C. § 318. For example, two or more Federal consolidated groups would be combined in one New Jersey affiliated group filing, if both consolidated groups were commonly owned by a non-U.S. corporation.

(f) An affiliated group election shall be made by the managerial member of a combined group. The election shall be made on an original, timely filed return or as otherwise required, in writing, by the Director. A return shall be considered timely if it is filed by the managerial member on or before the original due date or extended due date for the filing of the combined group's combined return. No return filed after this date, whether filed with an application for abatement or otherwise, shall constitute a valid affiliated group election. To be valid, the election must indicate that every corporation that is a member of a New Jersey affiliated group has agreed to be bound by such election, including an agreement by each member of the group that such election shall apply to any member that subsequently enters the group and an agreement that each member continues to be bound by the election in the event that such member is subsequently the subject of a reverse acquisition, as described at U.S. Treas. Reg. § 1.1502-75(d)(3).

(g) An affiliated group election shall be binding for, and applicable to, the privilege period for which it is made and for the next five privilege periods. The election shall continue in place irrespective of whether a Federal consolidated group to which the combined group belongs discontinues the filing of a Federal consolidated return. Any corporation that enters a New Jersey affiliated group during the time that the affiliated group election is in effect shall be included in the New Jersey combined group beginning with the first group's tax reporting period after the corporation enters the group, and shall be considered to have consented to the application of the election and to have waived any objection to its inclusion in the combined group. Reverse acquisition rules based on the Federal rules set forth at U.S. Treas. Reg. § 1.1502-75(d)(3) shall be applied in determining whether a corporation is bound by an affiliated group election.

(h) When an election is made, it may be renewed after six privilege periods for another six privilege periods. The renewal of an election shall be made on an original, timely filed return by the managerial member of the New Jersey affiliated group or as otherwise required, in writing, by the Director. A renewal shall be effective for the first privilege period after the completion of the six privilege periods for which the prior election was in place.

(i) If the water's-edge group filing method or the worldwide group method was used to account for the combined group members' income and allocation data in the preceding privilege period and the affiliated group method is to be used for the combined group's combined return for the current privilege period, adjustments to the income and allocation data of the group members shall be made to prevent income and allocation data from being omitted or duplicated.

(j) An affiliated group election shall constitute consent to the production of documents or other information that the Director reasonably requires to support that the return was properly filed. Examples include, but are not limited to, verification of the inclusion of the appropriate members of the group, that the requirements of the affiliated group election have been met, that the tax computations and tax reporting are proper, and to determine the revenue implications of the affiliated group election.

(k) For changes in the composition of the combined group, the members shall notify the Director as set forth at N.J.A.C. 18:7-21.29.

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