Subsidiary treated as joining a consolidated return without Form 1122

Plain-English summary

The IRS ruled that a subsidiary was treated as having joined its parent’s consolidated federal income tax return even though Form 1122 was not filed with the return. The parent and subsidiary were otherwise eligible to file a consolidated return, the subsidiary’s income and deductions were included, no separate return was filed, and the subsidiary appeared on Form 851. Based on those facts, the Commissioner treated the subsidiary as if it had filed Form 1122 under the consolidated-return regulations.

Ruling snapshot

• Question: Could the subsidiary be treated as joining the consolidated return despite the missing Form 1122?
• Outcome: approved
• Key authorities: IRC § 1502; Treas. Reg. §§ 1.1502-75(a)(1), 1.1502-75(b)(1)-(2), and 1.1502-75(h)(2).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201149020
Third Party Communication: None
Release Date: 12/9/2011
Date of Communication: Not Applicable
Index Number: 1502.75-00
Person To Contact:
------------------
---------------, ID No. -----------------
-------------------------------
Telephone Number:
--------------------------
---------------------
----------------------------------
Refer Reply To:
--------------------------------------
CC:CORP:B03
PLR-136080-11
Date:
September 06, 2011

Legend

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

Subsidiary = ----------------------------------------
--------------------------------------------------------------

LLC = -------------------------------------------------------------
--------------------------------------------------------------

Date = --------------------------

Year = -------

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

This is in response to a letter dated August 25, 2011, submitted on behalf of Parent, requesting a ruling that the Commissioner determine under § 1.1502-75(b)(2) of the Income Tax Regulations that Subsidiary joined in the making of a consolidated return filed by Parent for the taxable year ending Date. The material information submitted for consideration is summarized below.

Parent was incorporated in Year. Parent owns all the stock of Subsidiary.
Subsidiary owns all the stock of LLC, an entity disregarded as separate from its owner for Federal tax purposes. Parent filed a Form 1120 for the taxable year ending Date that included Subsidiary. The Form 1120 indicated that the return was a consolidated return. However, a Form 1122, Authorization and Consent of Subsidiary Corporation To
PLR-136080-11
2

Be Included in a Consolidated Income Tax Return, with respect to Subsidiary, was not included with the Form 1120.

Parent has made the following representations:

1. Except for the failure to file Form 1122, Parent and Subsidiary were eligible to file a consolidated Federal income tax return for the initial taxable year ending Date.

2. The income and deductions of Parent and Subsidiary were included in the timely filed consolidated Federal income tax return for the initial taxable year ending Date.

3. Neither Parent nor Subsidiary filed a separate Federal income tax return for the taxable year ending Date.

4. Subsidiary was included on Parent’s Form 851, Affiliations Schedule, for the taxable year ending Date.

Section 1.1502-75(a)(1) provides, in part, that an affiliated group of corporations that did not file a consolidated return for the immediately preceding taxable year may file a consolidated return in lieu of separate returns for the taxable year, provided that each corporation that has been a member of the group during any part of the taxable year for which the consolidated return is to be filed consents to the regulations under § 1502, in accordance with § 1.1502-75(b). If a group wishes to exercise its privilege of filing a consolidated return, such return must be filed not later than the last day prescribed by law (including extensions of time) for the filing of the common parent's tax return.

With regard to a corporation's consent for a group's first consolidated year, § 1.1502-75(b)(1) provides, as a general rule, that the corporation's consent shall be made by such corporation joining in the making of the consolidated return for such year. A corporation shall be deemed to have joined in the making of such return 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 a group wishes to file a consolidated return for a taxable year, a Form 1122 must be executed by each subsidiary. For the taxable year relevant to this ruling request, the group must attach to the consolidated return for the taxable year either executed Forms 1122 or unsigned copies of the completed Forms 1122 (and retain the signed originals in its records in the manner required by § 1.6001-1(e)). 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
PLR-136080-11
3

member 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:
(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. If the Commissioner determines that the member has joined in the making of the consolidated return, such member shall be treated as if it had filed a Form 1122 for such year for purposes of § 1.1502-75(h)(2).

Based solely on the information submitted and the representations made, we rule that for purposes of § 1.1502-75(h)(2), Subsidiary shall be treated as if it had filed a Form 1122 with Parent’s consolidated Federal income tax return for the taxable year ending on Date, and thus shall be treated as having joined in the making of the consolidated return for such year. Section 1.1502-75(b)(2).

Except as expressly provided herein, no opinion is expressed or implied concerning the tax treatment of any other aspect of any transaction or item discussed or referenced in this letter, or about the tax treatment of any condition existing at the time of, or effects resulting from, any transaction or item that is not specifically covered by the above ruling.

The ruling contained in this letter is based upon facts 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 the information, representations, and other data may be required as part of the audit process.

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

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

Pursuant to the power of attorney on file in this office, copies of this letter are being sent to your authorized representatives.

Sincerely,

_Ken Cohen______
Ken Cohen
PLR-136080-11 4

Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel (Corporate)