CCA 201013051: IRS explains when merged subsidiaries join a consolidated group

Plain-English summary

Chief Counsel advice considered whether subsidiaries of one corporation became members of another corporation’s consolidated group on the date of a merger occurring one minute before midnight. The advice applied Treas. Reg. § 1.1502-76(b)(1)(ii), which treats a departing or joining member as leaving or joining at the close of the day of the event. It concluded that the former subsidiaries should be treated as joining the acquiring corporation’s group on the following January 1, not during the merger date. Accordingly, they should not be listed with the acquiring group’s members in a statutory notice for the earlier consolidated return year.

Ruling snapshot

• Question: When did subsidiaries join the acquiring corporation’s consolidated group after a merger just before midnight?
• Outcome: Advice given
• Key authorities: Treas. Reg. § 1.1502-76(b)(1)(ii); IRC § 6110(k)(3) not-precedent notice

Full text (IRS public release)

ID: CCA-122330-08 Number: 201013051
Office: ---------------------
Release Date: 4/2/2010

UILC: 1502.76-00

From: -------------------------
Sent: Tuesday, December 2, 2008 3:30 pm
To: ---------------
Cc: -----------------
Subject: The answer to your question

We understand the facts to be as follows:
As of the close of business on December 30- ------- , Corp A and Corp B were the common parents of their respective consolidated groups for the ------- consolidated tax year. At 11:59 PM, on December 31- ------- , Corp A merged into Corp B. You asked whether the Corp A subsidiaries are members of the Corp B and Subsidiaries consolidated group at any time on December 31- ------- , for purposes of including them in a statutory notice of deficiency for the Corp B and Subsidiaries consolidated group with respect to the group's consolidated return year ended on December 31- ------- . The governing authority is Treas. Reg. § 1.1502-76(b)(1)(ii), which provides, in part, that a departing or joining member is deemed to have departed or joined a consolidated group as of the close of the day during which the event that causes the departure or entry occurs. Therefore, the first day of a joining member's consolidated return year is the day after the day on which the event causing the entry of the new member occurs. This current rule might be called the "midnight rule." Here, Corp A's merger into Corp B is the event that caused the entry of the former members of the Corp A consolidated group into the Corp B and Subsidiaries consolidated group. Although Corp A merged out of existence 1 minute before midnight, the consolidated return regulations ignore this one minute prior to midnight and deem the Corp A consolidated group members as joining in the filing of a consolidated return with Corp B on January 1- ------- . Answer: No former members of the Corp A and Subsidiaries consolidated group should be listed with the members of the Corp B and Subsidiaries consolidated group in the statutory notice of deficiency with respect to the latter's ------- consolidated return year.