Chief Counsel Advice
201933009
Released August 16, 2019
Advice
Consolidated group continued after new-parent transactions
Apply this to your situation
This page covers one taxpayer's ruling from 2019, which can't be cited as precedent. Ezel answers your situation under the current Code and IRS guidance, with citations.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)
Plain-English summary
A consolidated corporate group underwent a series of transactions involving a newly formed parent, merger subsidiary, and entity-classification elections. Chief Counsel concluded that the original consolidated group remained in existence under the consolidated-return regulations, with the new parent serving as common parent of the continuing group. A member’s transitory departure during a day did not change its status when it was still a member at the end of that day. The group’s taxable year therefore did not terminate during the transactions and continued through its normal closing date.
Ruling snapshot
- Question: Did the transactions terminate the existing consolidated group or its taxable year?
- Outcome: advice given that the group continued with the new common parent and its taxable year did not terminate
- Key authorities: IRC §§ 1502, 1504; Treas. Reg. §§ 1.1502-75(d), 1.1502-76(b), 301.7701-3
Full text (IRS public release)
Office of Chief Counsel
Internal Revenue Service
Memorandum
Number: 201933009
Release Date: 8/16/2019
CC:CORP:4: JPStemwedel
POSTF-123011-18
UILC: 1502.75-00, 1502.75-10, 1502.76-00
date: November 08, 2018
to: Jack J. Boyle
Senior Attorney
(Large Business & International)
from: John P. Stemwedel
Assistant to the Branch Chief
(Corporate)
Douglas C. Bates
Branch Chief
(Corporate)
subject: ------------------------------------------------------------------------------------------------------------------
------------------
This Chief Counsel Advice responds to your request for assistance dated August
13, 2018. This advice may not be used or cited as precedent.
LEGEND
Parent = ------------------------------------------------
New Parent = --------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Merger Sub = -----------------------------------------------------------------------------------------
--------------------
LLC 1 = ---------------------------------------------------------------------------------------
-------------
POSTF-123011-18 2
Sub 1 = ------------------------------------------------------------
-------- = -------------------------------------------------------------------
---------------- = -----------------
-------------- = ------------------
Date 1 = --------------
Date 2 = -------------------
---------- = ---------------------------
---------- = ------------------------
---------- = --------------------------
Date 6 = --------------------------
Date 7 = --------------------------
Date 8 = ---------------------------
ISSUES
-----------------------------------------------------------------------------------------did the Parent
Group remain in existence after the transactions described under Treas. Reg. § 1.1502-
75(d), or did the Parent Group’s taxable year terminate?
CONCLUSIONS
-----------------------------------------------------------------------------------------the Parent
Group remained in existence with New Parent as the common parent of the continuing
Parent Group. The Parent Group’s taxable year did not terminate as a result of the
transactions at issue but continued until the year closed on Date 8.
FACTS
On Date 1, Parent was the common parent of an affiliated group of corporations
filing a consolidated return (“the Parent Group”).1 On Date 1, Parent formed New
1
The Parent Group included a large number of members that are not identified in this advice and whose direct or
indirect ownership by Parent remained unchanged through the course of the transactions described herein.
POSTF-123011-18 3
Parent, a Country A entity that made an initial election to be treated as an entity
disregarded as separate from its owner for federal income tax purposes (a “DRE”) at the
time of its formation.2 Prior to Date 2, New Parent formed Merger Sub; for federal
income tax purposes, Parent was treated as directly owning Merger Sub.
On Date 2, Parent, New Parent, and Merger Sub entered into a -----------------------
----------------------------------------- (the “Agreement”) with Third Party ----------------------------
---------------------------------------------------------------------------------------------------------------------
-------------------------------------------------
------------------------------------------------------------------------------------------------------------
-----------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-------------------------------------------------
New Parent elected under Treas. Reg. § 301.7701-3(c)(1)(i) to be treated as an
association for federal income tax purposes, effective Date 6 (the “New Parent
Formation”). ---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-----------------
LLC 1 elected under Treas. Reg. § 301.7701-3(c)(1)(i) to be treated as an
association for federal income tax purposes (“Sub 1”), effective Date 7 (the “Sub 1
Formation”). --------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
2
Certain transactions that were disregarded for federal income tax purposes and certain transactions that were
regarded for federal income tax purposes but that are not germane to this advice are omitted.
POSTF-123011-18 4
---------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
LAW
Section 1504(a)(1) provides that the term “affiliated group” means one or more
chains of includible corporations connected through stock ownership with a common
parent corporation that is an includible corporation, but only if—(i) the common parent
owns directly stock meeting the requirements of § 1504(a)(2) in at least one of the other
includible corporations, and (ii) stock meeting the requirements of § 1504(a)(2) in each
of the includible corporations (except the common parent) is owned directly by one or
more of the other includible corporations.
Section 1504(a)(2) provides that the ownership of stock of any corporation meets
the affiliation requirements of § 1504(a)(2) if it possesses at least 80 percent of the total
voting power of the stock of such corporation, and has a value equal to at least 80
percent of the total value of the stock of such corporation.
Section 1504(a)(5)(E) of the Code provides that transfers of stock within an
affiliated group shall not be taken into account in determining whether a corporation
ceases to be a member of an affiliated group.
Section 1504(b) defines includible corporations to mean any corporation except
for certain types of corporations such as foreign corporations.
Treas. Reg. § 1.1502-75(a)(2) provides that a group that filed or was required to
file a consolidated return for the immediately preceding taxable year is required to file a
consolidated return for the taxable year unless it has an election to discontinue filing
consolidated returns under § 1.1502-75(c).
Treas. Reg. § 1.1502-75(d)(1) provides that a consolidated group remains in
existence for a tax year if the common parent remains as the common parent and at
least one subsidiary that was affiliated with it at the end of the prior year remains
affiliated with it at the beginning of the year, whether or not one or more corporations
have ceased to be subsidiaries at any time after the group was formed.
POSTF-123011-18 5
Treas. Reg. § 1.1502-75(d)(2)(ii) provides, in part, that the consolidated group
shall be considered as remaining in existence notwithstanding that the common parent
is no longer in existence if the members of the affiliated group succeed to and become
the owners of substantially all of the assets of such former parent and there remains
one or more chains of includible corporations connected through stock ownership with a
common parent corporation that is an includible corporation and that was a member of
the group prior to the date such former parent ceases to exist.
Treas. Reg. § 1.1502-75(d)(3) (the “reverse acquisition rule”) provides, in part,
that when a corporation (the first corporation) or any member of a group of which the
first corporation is the common parent acquires stock of another corporation (the
second corporation) and as a result the second corporation would become a member of
the group of which the first corporation is common parent in exchange for stock of the
first corporation and the stockholders (immediately before the acquisition) of the second
corporation, as a result of owning stock of the second corporation, own (immediately
after the acquisition) more than 50% of the fair market value of the stock of the first
corporation, then any group of which the second corporation was the common parent
immediately before the acquisition will be treated as remaining in existence with the first
corporation becoming the common parent of the group.
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------
Treas. Reg. § 1.1502-76(b)(1)(ii)(A)(1) (the “end-of-the-day rule”) provides, in
relevant part, that if a corporation becomes or ceases to be a member during a
consolidated return year, it becomes or ceases to be a member at the end of the day on
which its status as a member changes, and its tax year ends for all Federal income tax
purposes at the end of that day.
Treas. Reg. § 301.7701-3(g)(3)(i) provides that an election under Treas. Reg.
301-7701-3(c)(1)(i) that changes the classification of an eligible entity for federal tax
purposes is treated as occurring at the start of the day for which the election is effective.
POSTF-123011-18 6
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
ANALYSIS
New Parent Formation
Pursuant to Treas. Reg. § 301.7701-3(g)(3)(i), the New Parent Formation is
treated as being effective at the beginning of the day on Date 6. ------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
POSTF-123011-18 7
---------------------------------------------------------------------------------------------------------------------
----------------------------------------------------
A member’s status changes, if at all, at the end of the day under Treas. Reg.
§ 1.1502-76(b)(1)(ii)(A)(1). Accordingly, a transitory departure of a member during a
day on which it will still be a member at the end of the day will not change the member’s
status.3 ---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------
------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-----------------------
-----------------------
----------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-------------------------------------------
A member’s status changes, if at all, at the end of the day under Treas. Reg.
§ 1.1502-76(b)(1)(ii)(A)(1). Accordingly, a transitory departure of a member during a
3
Proposed regulations published in 80 F.R. 12097 (March 6, 2015) that would revise Treas. Reg. 1.1502-76 are not
applicable to these transactions.
POSTF-123011-18 8
day on which it will still be a member at the end of the day will not change the member’s
status. ----------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-----------------------------------
-----------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-------------------------------------------
--------------------------------------------------------
Under Treas. Reg. § 1.1502-75(d)(1), a consolidated group remains in existence
when the common parent remains as common parent and a subsidiary that was
affiliated with it at the end of the prior year remains affiliated with it at the beginning of
the year. -------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------
Treas. Reg. § 1.1502-75(d)(2)(ii) provides that a consolidated group will remain
in existence notwithstanding that the common parent is no longer in existence if the
members of the affiliated group succeed to or become the owners of substantially all of
the assets of the former parent and there remains one or more chains of includible
corporations connected through stock ownership with a common parent corporation that
is an includible corporation and that was a member of the group before the former
common parent ceased to exist. ------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
POSTF-123011-18 9
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-----------------------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
POSTF-123011-18 10
---------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-----------------------------------------
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
Summary
Taking into account the application of the consolidated return rules, the Parent
Group remained in existence after the described transactions. ---------------------------------
---------------------------------------------------------------------------------------------------------------------
-------------------------------
CASE DEVELOPMENT, HAZARDS AND OTHER CONSIDERATIONS
POSTF-123011-18 11
This writing may contain privileged information. Any unauthorized disclosure of
this writing may undermine our ability to protect the privileged information. If disclosure
is determined to be necessary, please contact this office for our views.
POSTF-123011-18 12
Please call 202-317-5024 if you have any further questions.
DOUGLAS C. BATES
Branch Chief
(Corporate)
By: _____________________________
Douglas C. Bates
Branch Chief
(Corporate)
Get today's answer for your situation
You just read what the IRS ruled for one taxpayer in 2019, and it can't be cited as precedent. Ezel checks the current Internal Revenue Code and IRS guidance and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the authority it relies on.