The surviving company in a merger is the default agent that must sign consents extending the time to assess tax for a terminated consolidated group

Plain-English summary

When a group of related corporations files a single consolidated tax return, one entity, the "agent for the group," handles all dealings with the IRS for that year, including signing Form 872, the consent that extends the deadline for the IRS to assess additional tax. This Chief Counsel Advice addresses who plays that role after the group's parent has disappeared in a merger. Here the original common parent was acquired and then merged into a newly formed subsidiary, which survived and, under state merger law, became primarily liable for the parent's tax debts. The group later terminated. An IRS examiner asked who could now sign Forms 872 for the group's earlier years. Chief Counsel concluded that the surviving merger entity is the "default successor" to the former parent and therefore the agent for those closed years, because it is the sole successor with primary liability and no other agent had been designated or had resigned. As the agent, it is the correct party to execute and submit the Forms 872, and the advice spells out exactly how the consent forms should be captioned and signed.

Ruling snapshot

• Question: After the common parent merged into a surviving subsidiary and the consolidated group terminated, is that survivor the default agent that may execute Forms 872 for the group's earlier years?
• Outcome: Advice (Chief Counsel concluded the survivor is the default successor and agent)
• Key authorities: IRC §§ 1502, 6501; Treas. Reg. §§ 1.1502-77, 1.1502-75(d)

Full text (IRS public release)

          Office of Chief Counsel
          Internal Revenue Service
          memorandum
          Number: 202231014
          Release Date: 8/5/2022
          CC:CORP:B02: ------------------ -
          POSTU-122270-21

UILC:     1502.00-00, 1502.77-00, 6501.00-00

  date:   May 05, 2022

    to:   -------------------------------------
          (Large Business & International)

 from:    Richard M. Heinecke, Branch Chief, CC:CORP:B05


subject Agent for the Group for Purposes of Executing Form 872 (Consent to Extend the
      : Time to Assess Tax)

          This Chief Counsel Advice responds to your request for assistance. This advice may not
          be used or cited as precedent.

          LEGEND

          Corporation A                  =        ---------------------------------------------------------------

          Corporation B                  =        -------------------------------------------------------

          Corporation C                  =        -----------------------------------------------------

          Corporation D                  =        --------------------------------

          Corporation E                  =        -------------------------------------------------------

          State X                        =        ------

          State Y                        =        -------------

          Date M                         =        ---------------------

          Date N                         =        ----------------------

          Date O                         =        --------------------------
POSTU-122270-21                              2

H%                         =     ------

Year 1                     =     -------

Year 2                     =     -------

Year 3                     =     -------

Year 4                     =     -------

Short-Year 2               =     -------------------------------------------------------

The facts and representations set forth in this memo are those that were provided in
connection with your request and have not been verified for accuracy or completeness.
All section references are to the Internal Revenue Code of 1986. All references to the
regulations under Treas. Reg. § 1.1502-77 are to the regulations in effect for
consolidated return years beginning on or after April 1, 2015.

ISSUE

    1. Is Corporation A the default successor and agent for the Corporation B and
      Subsidiaries consolidated group for the Year 1 and Short-Year 2 tax years?

    2. Is Corporation A the proper party to execute and submit Form 872 (Consent to
      Extend the Time to Assess Tax) as the agent for the Corporation B and
      Subsidiaries consolidated group for the Year 1 and Short-Year 2 tax years?

CONCLUSIONS

    1. Corporation A is the default successor and agent for the Corporation B and
      Subsidiaries consolidated group for the Year 1 and Short-Year 2 tax years.

    2. As the default successor and agent for the Corporation B and Subsidiaries
      consolidated group for the Year 1 and Short-Year 2 tax years, Corporation A is
      the proper party to execute and submit the Form 872 for each of those years.

FACTS

Corporation B, a State X corporation, was the common parent of the Corporation B and
Subsidiaries consolidated group, an affiliated group of corporations that filed
consolidated federal income tax returns on a calendar year basis, including for Year 1.
Corporation C, a State Y corporation, was the common parent of the Corporation C and
Subsidiaries consolidated group.



Date M Transaction
POSTU-122270-21                               3


Corporation C sought to acquire Corporation B and entered into an agreement including
a plan comprised of two steps that were executed on Date M (a date within the Year 2
calendar year) (collectively the “Date M Transaction”). In anticipation of the Date M
Transaction, Corporation C formed two wholly owned State Y subsidiary corporations,
Corporation A and Corporation D. The two transaction steps occurring on Date M were
as follows:

    1. First, Corporation D merged under state law into Corporation B with the latter
      surviving as a wholly owned subsidiary of Corporation C. The former
      shareholders of Corporation B received cash consideration and newly issued
      shares of Corporation C common stock amounting to approximately H% of
      Corporation C’s outstanding shares of common stock (“Step 1”); and

    2. Second, Corporation B merged under state law into Corporation A with the latter
      surviving as a wholly owned subsidiary of Corporation C (“Step 2”). The Date M
      Transaction, comprised of Steps 1 and 2, was not a reverse acquisition within the
      meaning of Treas. Reg. § 1.1502-75(d)(3), and the Corporation B and
      Subsidiaries consolidated group terminated under Treas. Reg. § 1.1502-75(d)(1).

In connection with the Date M Transaction, a final federal income tax return for the
Corporation B and Subsidiaries consolidated group for the Short-Year 2 tax year was
filed on Date N (a date within the Year 3 calendar year).

In Year 4, Corporation C engaged in a corporate separation of Corporation A (the
“Distribution”). On Date O (a date within the Year 4 calendar year), Corporation C
contributed the stock of Corporation A to Corporation E in exchange for the Corporation
E stock, which was distributed by Corporation C to its shareholders.

State X’s and State Y’s corporate merger statutes provide that a surviving entity in a
merger succeeds to all of the liabilities of the merged corporation (including tax
liabilities) and the Date M Transaction did not limit Corporation A as being the
successor and primarily liable for Corporation B’s liabilities, including its federal tax
liabilities.

Corporation A remains a juridical entity in existence as of the date of this memo and has
not merged into any other entity, dissolved or ceased to exist under state law, and has
not converted to another type of entity, elected to change its entity classification, or
liquidated for federal income tax purposes.

With respect to the Corporation B and Subsidiaries consolidated group Year 1 and
Short-Year 2 tax years: i) the Commissioner, pursuant to Treas. Reg. § 1.1502-
77(f)(2)(i), has never dealt separately with any member of the Corporation B and
Subsidiaries consolidated group; ii) no other entity has been designated as the agent
under Treas. Reg. § 1.1502-77(c)(5) and (6) with respect to the Corporation B and
Subsidiaries consolidated group; and iii) Corporation A has not resigned as the agent
POSTU-122270-21                              4

for the Corporation B and Subsidiaries consolidated group pursuant to Treas. Reg.
§ 1.1502-77(c)(7).

LAW

Treas. Reg. § 1.1502-77(a)(1) sets forth the following basic rule:

      Except as provided in paragraphs (e) and (f)(2) of this section, one entity (the
      agent) is the sole agent that is authorized to act in its own name regarding all
      matters relating to the federal income tax liability for the consolidated return year
      for each member of the group and any successor or transferee of a member (and
      any subsequent successors and transferees thereof). The identity of that agent is
      determined under the rules of paragraph (c) of this section.

Treas. Reg. § 1.1502-77(a)(2) explains that the agent is established for each
consolidated return year:

      Agency for the group is established for each consolidated return year and is not
      affected by the status or membership of the group in later years. Thus, subject to
      the rules of paragraph (c) of this section, the agent will generally remain agent for
      that consolidated return year regardless of whether one or more subsidiaries
      later cease to be members of the group, whether the group files a consolidated
      return for any subsequent year, whether the agent ceases to be the agent or a
      member of the group in any subsequent year, or whether the group continues
      pursuant to § 1.1502-75(d) with a new common parent in any subsequent year.

Treas. Reg. § 1.1502-77(b)(1) provides the definition of a “successor” as follows:

      A successor is an individual or entity (including a disregarded entity as defined in
      paragraph (b)(3) of this section) that is primarily liable, pursuant to applicable law
      (including, for example, by operation of a state or federal merger statute), for the
      tax liability of a corporation that was a member of the group but is no longer in
      existence under applicable law. The determination of tax liability is made without
      regard to § 1.1502-1(f)(4) or § 1.1502-6(a). (For inclusion of a successor in
      references to a subsidiary or member, see paragraph (b)(5)(iii) of this section.)

Treas. Reg. § 1.1502-77(b)(2) describes the term “entity” in the following manner:

      The term entity includes any corporation, limited liability company, or partnership
      formed under any state, federal or foreign jurisdiction. The term entity includes a
      disregarded entity (as defined in paragraph (b)(3) of this section). The term entity
      does not include an entity that has terminated even if it is in a winding up period
      under the law under which it is organized.

Treas. Reg. § 1.1502-77(b)(4) provides the definition of a “default successor” as follows:
POSTU-122270-21                              5

       A successor to the agent is the default successor if it is an entity (whether
       domestic or foreign) that is the sole successor to the agent. A partnership is
       treated as a sole successor with primary liability notwithstanding that one or more
       partners may also be primarily liable by virtue of being partners.

Treas. Reg. § 1.1502-77(c)(1) explains the identity of the agent as follows:

       Except as otherwise provided in this section, the agent for a current year is the
       common parent and the agent for a completed year is the common parent at the
       close of the completed year or its default successor, if any. Except as specifically
       provided otherwise in this paragraph (c), any entity that is an agent pursuant to
       paragraph (c)(3) of this section (agent following group structure change),
       paragraph (c)(5) of this section (agent designated by agent terminating without
       default successor), paragraph (c)(6) of this section (agent designated by
       Commissioner), or paragraph (c)(7) of this section (agent designated by
       resigning agent), or any entity subsequently serving as agent following such
       agent, acts as an agent for and under the same terms and conditions that apply
       to a common parent. For example, such an agent would generally be able to
       designate an agent if it terminates without a default successor; however, an
       entity that became agent pursuant to a designation by the Commissioner under
       paragraphs (c)(6)(i)(A)(2), (3), or (4) of this section is not permitted to designate
       an agent if it terminates without a default successor. Other special rules
       described in this paragraph (c) apply.

Treas. Reg. § 1.1502-77(c)(3) describes the new common parent after a “group
structure change.” This is described in Treas. Reg. § 1.1502-77(c)(3), in part, as follows:

       If the group continues in existence after a group structure change (as described
       in § 1.1502-33(f)(1)), the former common parent is the agent until the group
       structure change, and the new common parent becomes the agent after the
       group structure change. Following the group structure change, the new common
       parent is the agent with respect to the entire current year (including the period
       before the group structure change) and the former common parent is no longer
       the agent for that year.

Treas. Reg. § 1.1502-75(d)(3)(i) contains the rule for a “reverse acquisition,” which is a
type of group structure change mentioned in § 1.1502-33(f)(1)). As stated in Treas. Reg.
§ 1.1502-75(d)(3)(i), in part, a reverse acquisition is described as follows:

       If a corporation (hereinafter referred to as the “first corporation”) or any member
       of a group of which the first corporation is the common parent acquires after
       October 1, 1965:

       (a) Stock of another corporation (hereinafter referred to as the second
           corporation), and as a result the second corporation becomes (or would
POSTU-122270-21                              6

          become but for the application of this subparagraph) a member of a group of
          which the first corporation is the common parent, or

       (b) Substantially all the assets of the second corporation,

       in exchange (in whole or in part) 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 percent of the fair market value of the outstanding
       stock of the first corporation, then any group of which the first corporation was
       the common parent immediately before the acquisition shall cease to exist as of
       the date of acquisition, and any group of which the second corporation was the
       common parent immediately before the acquisition shall be treated as remaining
       in existence (with the first corporation becoming the common parent of the
       group).

ANALYSIS

    1. Issue 1

          a. Corporation A is the default successor and agent for the Corporation B
             and Subsidiaries consolidated group for the Year 1 and Short-Year 2
             federal income tax years.

Treas. Reg. § 1.1502-77(c)(1) provides that the agent of a consolidated group for a
current year is the common parent and the agent for a completed year is the common
parent at the close of the completed year or its default successor, if any. Based on the
facts, Corporation B was the original common parent of the Corporation B and
Subsidiaries consolidated group for the Year 1 and Short-Year 2 tax years and therefore
was the original agent of the group.

In order to be the default successor to Corporation B for the Year 1 and Short-Year 2
consolidated group tax years, Corporation A must be an entity that is the sole successor
to Corporation B for the Year 1 and Short-Year 2 consolidated group tax years.
Therefore, the threshold question is whether Corporation A is a successor to
Corporation B under Treas. Reg. § 1.1502-77(b)(1).

Pursuant to Treas. Reg. § 1.1502-77(b)(1), “[a] successor is an individual or entity
(including a disregarded entity as defined in paragraph (b)(3) of this section) that is
primarily liable, pursuant to applicable law (including, for example, by operation of a
state or federal merger statute), for the tax liability of a corporation that was a member
of the group but is no longer in existence under applicable law.” Under the corporate
merger statutes of State X and State Y, the surviving entity in a merger succeeds to all
liabilities of the merged corporation (including federal tax liabilities). Therefore, as a
result of Step 2 of the Date M Transaction above, Corporation A ultimately succeeds to
and has primary liability for the federal tax liabilities of Corporation B as a matter of
POSTU-122270-21                             7

State X and State Y corporate merger laws. Corporation A should be treated as the
default successor within the meaning of Treas. Reg. § 1.1502-77(b)(4) as it is an entity
that is the sole successor to the former agent (i.e., Corporation B) with respect to the
Corporation B and Subsidiaries consolidated group for the Year 1 and Short-Year 2 tax
years.

According to the facts, the Date M Transaction did not result in a group structure
change, within the meaning of Treas. Reg. § 1.1502-77(c)(3), and the Corporation B
and Subsidiaries consolidated group terminated its existence on Date M. Corporation A
continues to exist as a juridical entity (it has not merged out of existence or dissolved).
Corporation A has not resigned and no other agent has been designated the agent for
the Corporation B and Subsidiaries consolidated group for the Year 1 and Short-Year 2
tax years. Furthermore, the Commissioner has never dealt separately with any member
of the Corporation B and Subsidiaries consolidated return with respect to the Year 1 and
Short-Year 2 consolidated group tax years pursuant to Treas. Reg. § 1.1502-77(f)(2)(i).
Therefore, Corporation A is the default successor and agent for the group for the
Corporation B and Subsidiaries consolidated group’s Year 1 and Short-Year 2 tax
years.

    2. Issue 2

          a. As the default successor, and therefore the agent for the Corporation B
             and Subsidiaries consolidated group for the Year 1 and Short-Year 2 tax
             years, Corporation A is the proper party to execute and submit the Forms
             872 for those years.

Corporation A is the default successor, and therefore agent, for the Corporation B and
Subsidiaries consolidated group for the Year 1 and Short-Year 2 tax years. Therefore,
as the agent for the Corporation B and Subsidiaries consolidated group for those years,
Corporation A is the correct entity to execute the Forms 872, Consent to Extend the
Time to Assess Tax.

With respect to completing the Forms 872 for the Year 1 and Short-Year 2 consolidated
group tax years, we recommend the following:

The name at the top of the first page of the Form 872 should read as follows:

“Corporation A (EIN: ##-#######), successor by merger to Corporation B (EIN ##-
#######), and as agent for the Corporation B (EIN ##-#######) and Subsidiaries
consolidated group*”

At the bottom of the consent, state the following: “*This is with respect to the
consolidated tax of the Corporation B (EIN ##-#######) and Subsidiaries consolidated
group.”
POSTU-122270-21                                 8

In the signature block on page 2 of the Form 872, Corporation A (EIN: ##-#######), the
name of the corporation that is the agent, must be typed on the “Corporate Name” line,
followed by the signature, date and title of a current officer of Corporation A who can
bind Corporation A.

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.

Please call -------------------- if you have any further questions.


                                                            Robert H. Wellen
                                                            Associate Chief Counsel
                                                            (Corporate)



                                                    By:     _______________________
                                                            Richard M. Heinecke
                                                            Branch Chief, Branch 5
                                                            (Corporate)