Rhode Island Code of Regulations
Title 280 - Department of Revenue
Chapter 20 - Division of Taxation
Subchapter 25 - Business Corporation Tax
Part 10 - Combined Reporting (280-RICR-20-25-10)
Section 280-RICR-20-25-10.9 - Election to Use Federal Consolidated Group

Universal Citation: 280 RI Code of Rules 20 25 10.9

Current through September 18, 2024

A. An affiliated group of C corporations, as defined in IRC, 26 U.S.C. § 1504, may elect to be treated as a combined group with respect to the combined reporting requirement imposed by Rhode Island General Laws. When such an election is made, the entities that appear on the federal consolidated return shall be considered a combined group for Rhode Island corporate income tax purposes. To make the election, the affiliated group shall check the appropriate box on Form RI-1120C. The consolidated return can include entities that would not otherwise be subject to combination. The election shall be upon the condition that all entities which are included on the federal consolidated return for the taxable year consent to be included in the group for Rhode Island purposes. Checking the appropriate box on Form RI-1120C and filing the completed return shall be considered as such consent.

B. For purposes of this § 10.9 of this Part, an affiliated group is one or more chains of includible corporations connected through stock ownership with a common parent corporation - as further defined in IRC, 26 U.S.C. §§ 1504(a) and (b). The common parent must be an includible corporation and the following requirements must be met:

1. The common parent must own directly stock that represents at least eighty percent (80%) of the total voting power and at least eighty percent (80%) of the total value of the stock of at least one of the other includible corporations;

2. Stock that represents at least eighty percent (80%) of the total voting power, and at least eighty percent (80%) of the total value of the stock of each of the other corporations (except for the common parent), must be owned directly by one or more of the other includible corporations.

3. For this purpose, the term "stock" generally does not include any stock that:
a. is nonvoting;

b. is nonconvertible;

c. is limited and preferred as to dividends and does not participate significantly in corporate growth; and

d. has redemption and liquidation rights that do not exceed the issue price of the stock (except for a reasonable redemption or liquidation premium).

C. Thus, in place of the steps listed in this regulation for determining members of the combined group for purposes of filing a combined return for Rhode Island, an affiliated group of C corporations, as defined in IRC, 26 U.S.C. § 1504 and shown or reflected in the group's federal consolidated return, may instead use all of the members of its federal affiliated group.

D. Affiliated groups that make the federal consolidated election are nevertheless not allowed to carryback NOLs. Also, affiliated groups that make the federal consolidated election must follow the same tracing provisions as combined groups. (See § 10.13 of this Part.)

1 To avoid double taxation, an affiliated group that makes the federal consolidated election for purposes of Rhode Island combined reporting shall exclude from the group for Rhode Island purposes those C corporations which are taxed under R.I. Gen. Laws Chapter 44-13 ("Public Service Corporation Tax"), Chapter 44-13.1 ("Taxation of Railroad Corporations"), Chapter 44-14 ("Taxation of Banks"), Chapter 44-17 ("Taxation of Insurance Companies"), or Chapter 27-43 ("Captive Insurance Companies") - or which would be taxed under said chapters if they had Rhode Island nexus.
a. Example: Assume that all of the entities in the following table are C corporations and comprise a combined group engaged in a unitary business. The group elects to file a federal consolidated return and includes, in that federal consolidated return, all of the entities in the table. For purposes of Rhode Island combined reporting, a group typically must include all of the entities included in its federal consolidated return. However, in this example, the number of entities included for Rhode Island purposes is modified: Only A Corp. and B Corp. will be included. C Corp. and D Corp. will not be included because if they were located in Rhode Island they would be taxed under R.I. Gen. Laws Chapter 44-14 ("Taxation of Banks") Chapter 44-17 ("Taxation of Insurance Companies"), or Chapter 27-43 ("Captive Insurance Companies"). E Corp. is not included because it is taxed under R.I. Gen. Laws Chapter 44-14. F Corp. is not included because it is taxed under R.I. Gen. Laws Chapter 44-17.

Entities to be Counted for Rhode Island Combined Reporting Purposes

Entity Name:

Description:

In Rhode Island Combined Return?

A Corporation

Rhode Island Manufacturer

Yes

B Corporation

Massachusetts Retailer

Yes

C Corporation

Connecticut Bank

No

D Corporation

Pennsylvania Insurer

No

E Corporation

Rhode Island Bank

No

F Corporation

Rhode Island Insurer

No

2. For purposes of Rhode Island combined reporting, a taxpayer shall modify the federal consolidated group by including foreign corporations if such corporations would otherwise be included in a Rhode Island combined group based on the flow chart in § 10.7 of this Part.

E. Should the affiliated group make this election, the election shall be binding for purposes of Rhode Island combined reporting for five consecutive tax years beginning with the first tax year to which the election applies.

1. Example: X Corp., acting as designated agent for its affiliated group of C corporations, as defined in IRC, 26 U.S.C. § 1504, elects to have the affiliated group treated as a combined group with respect to Rhode Island's mandatory unitary combined reporting regime. The election is made for tax year 2015. Thus, the election applies for tax years 2015, 2016, 2017, 2018, and 2019. The first time the election may be revoked is for tax year 2020, assuming that the affiliated group has not petitioned the Tax Administrator for permission for earlier revocation and the Tax Administrator has not approved revocation.

F. Should the affiliated group seek to revoke the election before the five-year period ends, the group's designated agent may petition the Tax Administrator in writing, citing reasonable cause. Standards for "reasonable cause" may include, but are not limited to, a significant restructuring of the affiliated group. The final determination shall be made by the Tax Administrator.

G. Any entity entering the affiliated group after the year of the election shall be deemed to have consented to the application of the election.

H. The affiliated group making the election shall file, for the year concurrent with the filing of its Rhode Island combined return, a copy of the following:

1. its federal consolidated return;

2. any and all supporting documents, forms, schedules and statements filed with the federal consolidated return, including U.S. Form 851 ("Affiliations Schedule), and all U.S. Forms 1122 ("Authorization and Consent of Subsidiary Corporation to Be Included in a Consolidated Income Tax Return"); and

3. supporting statements for each corporation included on the federal consolidated return, including, for each such corporation, columns showing items of gross income and deduction, as well as a computation of taxable income.

I. An affiliated group shall be allowed to make the election described in this § 10.9 of this Part, but only if those entities in which it has an ownership stake of between fifty percent (50%) and eighty percent (80%) would not materially impact the combined return were they to be included in the combined return.

J. To help ensure that returns are prepared in such a way so as to clearly reflect income, the Tax Administrator may require an affiliated group to include in its Rhode Island combined return certain entities that are not included in its federal consolidated return. Also, the Tax Administrator may require an affiliated group to exclude from its Rhode Island combined return certain entities that are included in the its federal consolidated return, and to determine members of its combined return in accordance with the terms set forth in this regulation.

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