PLR 1020006: IRS treated omitted subsidiaries as having joined a consolidated return

Plain-English summary

The IRS ruled that three wholly owned subsidiaries could be treated as having joined their parent's initial consolidated federal income tax return even though Forms 1122 were not timely filed. The parent included the subsidiaries' income and deductions on the consolidated return and listed them on Form 851, no subsidiary filed a separate return, and the group otherwise qualified to file a consolidated return. Based on those facts and the applicable consolidated-return regulations, the IRS treated the subsidiaries as if they had filed the required Forms 1122.

Ruling snapshot

• Question: Could omitted subsidiaries be treated as having joined an initial consolidated return when the required Forms 1122 were not filed?
• Outcome: Approved
• Key authorities: IRC § 1502; Treas. Reg. §§ 1.1502-75(a)(1), 1.1502-75(b), 1.1502-75(b)(1), 1.1502-75(b)(2), and 1.1502-75(h)(2)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201020006 Third Party Communication: None
Release Date: 5/21/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1502.00-00, 1502.75-00 ----------------------, ID No. -----------------
Telephone Number:
----------------- --------------- ---------------------
---------------------- Refer Reply To:
-------------------------------- CC:CORP:03
-------------------------------------- PLR-140518-09

                                                            February 08, 2010

Parent = ----------------------

Sub1 = -------------------------------------------

Sub2 = ------------------------

Sub3 = --------------------------------------

Date 1 = -----------------------

Date 2 = --------------------------

Year 3 = -------

State X = -------------

Accounting Firm = -----------------------------

Dear -------------:

PLR-140518-09 2

We respond to your request for rulings dated August 28, 2009, submitted by your
authorized representative, requesting that the Commissioner make a determination
under § 1.1502-75(b)(2) of the Income Tax Regulations that Sub1, Sub2, and Sub3
(collectively, the Omitted Subs) have joined in the making of an initial consolidated
Federal income tax return filed by Parent for the taxable year ended Date 2. The
information submitted in that request and in later correspondence is summarized below.

                                     Facts

Parent is a corporation incorporated on Date 1 under the laws of State X. During the
taxable year ended Date 2, Parent acquired Omitted Subs. Parent wholly owns each of
the Omitted Subs. Parent retained Accounting Firm to undertake a due diligence review
of the companies in connection with seeking additional financing in Year 3. Accounting
Firm understood that Parent and its Omitted Subs (the Parent Group) intended to file a
consolidated Federal income tax return for the taxable year ended Date 2. Parent filed
Form 1120, including a Form 851 (Affiliation Schedule) identifying and including the
Omitted Subs, but inadvertently failed to file Forms 1122 (Authorization and Consent of
Subsidiary Corporation To Be Included in a Consolidated Return).

                               Representations

The taxpayers have made the following representations:

(a) All of the income and deductions for each member of the Parent Group was
included in the consolidated Federal income tax return for the taxable year ended
Date 2.

(b) A separate federal income tax return was not filed by any of the members of the
Parent Group for the taxable year ended Date 2.

(c) All of the members of the Parent Group were included on Parent's Affiliations
Schedule, Form 851, for the taxable year ended Date 2.

(d) Except for the failure to timely file Forms 1122, Parent and its Omitted Subs were
eligible to file a consolidated Federal income tax return, with Parent as the
common parent, for the taxable year ended Date 2.

(e) As of the date of this request, the Internal Revenue Service has not notified
Parent or Omitted Subs of the failures to file Forms 1122 with the consolidated
Federal income tax return for the taxable year ended Date 2.

                                      Law

Section 1.1502-75(a)(1) provides that a group that did not file a consolidated return for
the immediately preceding taxable year may file a consolidated return in lieu of separate

PLR-140518-09 3

returns for the taxable year, provided that each corporation that has been a member
during any part of the taxable year for which the consolidated return is to be filed
consents to the regulations under § 1502.

Section 1.1502-75(b)(1) provides that the consent of a corporation shall be made by
such corporation joining in the making of a consolidated return for such year. A
corporation shall be deemed to have joined in the making of such return for such year if
it files a Form 1122 in the manner specified in § 1.1502-75(h)(2).

Section 1.1502-75(h)(2) provides that if, under the provisions of § 1.1502-75(a)(1), a
group wishes to file a consolidated return for a taxable year, then a Form 1122 must be
executed by each subsidiary. The regulation provides rules for properly executing
Forms 1122 and attaching them to a consolidated return and also provides that a
Form 1122 is not required for a taxable year if a consolidated return was filed (or was
required to be filed) by the group for the immediately preceding taxable year..

Section 1.1502-75(b)(2) provides that, if a member of the group fails to file Form 1122,
the Commissioner may under the facts and circumstances determine that such member
nevertheless has joined in the making of a consolidated return by such group. Factors
that the Commissioner will take into account in making this determination include the
following: (i) Whether or not the income and deductions of the member for such taxable
year were included in the consolidated return; (ii) Whether or not a separate return was
filed by the member for that taxable year; and (iii) Whether or not the member was
included in the affiliations schedule, Form 851, for such taxable year.

                                      Ruling

Based solely on the information submitted and the representations made, we rule that,
pursuant to § 1.1502-75(b), Sub1, Sub2, and Sub3 are treated under § 1.1502-75(h)(2)
as if they had filed Forms 1122 with the consolidated Federal income tax return of the
Parent Group for the taxable year ended Date 2.

                                     Caveats

We express no opinion about the tax treatment of the facts described above under other
provisions of the Code or Regulations or the tax treatment of any conditions existing at
the time of, or effects resulting from, these facts that are not specifically covered by the
above ruling.

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. This office has not verified any of the materials submitted in
support of the taxpayer's ruling request. Verification of this material may be required as
part of the audit process.

PLR-140518-09 4

                             Procedural Statements

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                   Sincerely,


                                   _______________
                                   Filiz A. Serbes
                                   Chief, Branch 3
                                   Office of Associate Chief Counsel (Corporate)

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