Subsidiary is treated as joining its parent's consolidated return

Plain-English summary

A parent corporation acquired a subsidiary and included the subsidiary's income, gains, deductions, and losses on its return, but did not mark the return as consolidated or attach Forms 851 and 1122. The subsidiary intended to join the consolidated return and did not file a separate return for the post-acquisition period. Because the affiliated group did not qualify for automatic relief under Revenue Procedure 2014-24, it requested an IRS determination. Based on the facts and representations, the IRS applied Treasury Regulation § 1.1502-75(b)(2) and treated the subsidiary as though it had filed Form 1122. The group therefore satisfied the requirements for filing a consolidated return for the year at issue.

Ruling snapshot

• Question: May the subsidiary be treated as having consented to join the parent's consolidated return despite the missing Form 1122 and related filing omissions?
• Outcome: Approved. The subsidiary is treated as having filed Form 1122, and the group is treated as satisfying the consolidated-return filing requirements.
• Key authorities: IRC §§ 1501, 1502, and 1504; Treas. Reg. § 1.1502-75(a), (b), (d), and (h); Rev. Proc. 2014-24.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Large Business & International Washington, DC 20224
Western Compliance Practice Area

Third Party Communication: None
Date of Communication: NA

Release Number: 202637011 Person To Contact
Release Date: 9/11/26
UIL Code: 1502.75-00 Email:

Date
May 15, 2026

Legend:

Parent =
Sub 1 =

State 1 =
State 2 =
Date 1 =
Date 2 =
Date 3 =
Date 4 =
Date 5 =

Dear Taxpayer:

This letter responds to correspondence dated Date 1 submitted on behalf of Parent, and Sub 1 (the “Parent Affiliated Group” for purposes of this letter and to the extent these entities meet the definition provided by Internal Revenue Code (“IRC”) section 1504(a)), requesting that the Commissioner make a determination regarding the failure of Parent's wholly owned subsidiary Sub 1 to have consented to the filing of a consolidated return with Parent pursuant to, and in the manner provided by, Treas. Reg. § 1.1502-75(a)(1), (b)(1) and (h)(2) for the taxable year ending on Date 2.

The determination contained in this letter is based upon facts and representations submitted by the taxpayers and accompanied by a penalties of perjury statement executed by an appropriate party.

SUMMARY OF FACTS

Parent is a corporation organized under the laws of State 1. Parent operated as a standalone corporation until Date 3. Parent is a calendar year taxpayer with a December 31st year end. Sub 1 is a corporation organized under the laws of State 2. Sub 1 operated as a standalone corporation until Date 3. Sub 1 was a fiscal year taxpayer with a September 30th year end.

On Date 3 Parent entered into a transaction to acquire all shares of Sub 1 (the “Acquisition”). For the period from Date 5 through Date 2, Parent and Sub 1 together formed an affiliated group as defined under IRC section 1504(a)(1) (“the “Affiliated Group”).

Following the Acquisition, Sub 1 filed Form 1120 for the short period Date 4 through Date

3. Parent timely filed Form 1120 for the taxable year ended Date 2 and included Sub 1's
   tax activity for the period including Date 5 to Date 2. Sub 1 did not file its own Form 1120 for the period from Date 5 through Date 2.

On its tax return for the year ending on Date 2: (i) Parent did not check the “consolidated return” box; and (ii) Parent did not attach either a Form 851 (“Affiliations Schedule”) or a Form 1122 (“Authorization and Consent of Subsidiary Corporation to be Included in a Consolidated Income Tax Return”).

Nevertheless, Parent reported all items of income, gain, deduction, and loss of Sub 1 on Parent's tax return for its taxable year ending on Date 2 and on all of Parent’s subsequent tax returns to date. Sub 1 has not filed a separate tax return since becoming affiliated with Parent after Date 3.

In this case, the Parent Affiliated Group does not satisfy the requirements to obtain automatic relief under Rev. Proc. 2014-24. Consequently, Parent submitted a determination letter request.

REPRESENTATIONS

Parent represents that its tax return for the taxable year ending on Date 2 contains all the income and deductions of Sub 1.

Sub 1 has not filed a separate tax return since becoming affiliated with Parent after Date 3.

For the taxable year ending on Date 2, Sub 1 intended to consent to join in the making of a consolidated return.

LAW

Internal Revenue Code (“IRC”) section 1501 provides, (in part) that “An affiliated group of corporations shall. . . have the privilege of making a consolidated return with respect to the income tax imposed by chapter 1 for the taxable year in lieu of separate returns. The making of a consolidated return shall be upon the condition that all corporations which at any time during the taxable year have been members of the affiliated group consent to all the consolidated return regulations prescribed under section 1502 prior to the last day prescribed by law for the filing of such return. The making of a consolidated return shall be considered as such consent.

IRC section 1504(a) defines the term “affiliated group” as “one or more chains of includible corporations connected through stock ownership with a common Parent corporation which is an includible corporation, but only if (i) the common Parent owns directly 80 percent of the stock in at least one of the other includible corporations, and (ii) 80 percent of the stock in each of the includible corporations (except the common Parent) is owned directly by one or more of the other includible corporations.

Treas. Reg. § 1.1502-75(a)(1) provides (in part) that “A group which 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 which has been a member during any part of the taxable year for which the consolidated return is to be filed consents (in the manner provided in paragraph (b) of this section) to the regulations under section 1502.”

Treas. Reg. § 1.1502-75(b)(1) provides that “the consent of a corporation referred to in paragraph (a)(1) of this section 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 for such year if it files a Form 1122 in the manner specified in paragraph (h)(2) of this section.”

Treas. Reg. § 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 has joined in the making of a consolidated return by such group. The following circumstances, among others, will be considered in making this determination:

(i) Whether or not the income and deductions of the member were included in the consolidated return,

(ii) Whether or not a separate return was filed by the member for that tax year; and

(iii) Whether or not the member was included in the affiliations schedule, Form 851.”

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 Treas. Reg. § 1502-75(h)(2).

Treas. Reg. § 1.1502-75(b)(3) provides that “If any member has failed to join in the making of a consolidated return under either subparagraph (1) or (2) of this paragraph, then the tax liability of each member of the group shall be determined on the basis of separate returns unless the common Parent corporation establishes to the satisfaction of the Commissioner that the failure of such member to join in the making of the consolidated return was due to a mistake of law or fact, or to inadvertence. In such case, such member shall be treated as if it had filed a Form 1122 for such year for purposes of paragraph (h)(2) of this section and thus joined in the making of the consolidated return for such year.”

Treas. Reg. § 1.1502-75(h)(2) provides that “If, under the provisions of paragraph (a)(1) of this section, a group wishes to file a consolidated return for a taxable year, then a Form 1122 (“Authorization and Consent of Subsidiary Corporation to Be Included in a Consolidated Income Tax Return”) must be executed by each subsidiary . . . For taxable years beginning after December 31, 2002, the group must attach either executed Forms 1122 or unsigned copies of the completed Forms 1122 to the consolidated return. . . 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.”

Rev. Proc. 2014-24 allows an affiliated group that satisfies certain requirements to obtain an automatic determination to treat a subsidiary member of the affiliated group as if it filed a Form 1122, even though it failed to do so. Rev. Proc. 2014-24, Section 1.03 provides that if an affiliated group cannot satisfy such requirements, a determination by the Commissioner under Treas. Reg. § 1.1502-75(b) is available only pursuant to a determination letter issued by a Director.

In this case, the affiliated group does not satisfy the requirements to obtain automatic relief under Rev. Proc. 2014-24 to treat Subsidiary as having filed Form 1122 and thus as having joined in the making of a consolidated return by the affiliated group. However, the Service may act on behalf of the Commissioner to treat Subsidiary as if it had filed such Form 1122 for purposes of Treas. Reg. § 1.1502-75(h)(2) under the provisions of Treas. Reg. §§ 1.1502-75(b)(2) or (3).

Treas. Reg. § 1.1502-75(d)(1) provides, in relevant part:

(d) When a group remains in existence—(1) General rule. A 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.

Treas. Reg. § 1.1502-75(h) provides, in relevant part:

(h) Method of filing return and forms— (1) Consolidated return made by common

Parent or agent. The consolidated return shall be made on Form 1120 U.S. Corporation Income Tax Return (or any successor form) for the group by the common Parent. . . .

DETERMINATION

Based solely on the information submitted and the representations made in the determination letter request, it is determined that Treas. Reg. § 1.1502-75(b)(2) can be applied in this case. Accordingly, Sub 1 shall be treated as if it had filed a Form 1122 in the manner specified in Treas. Reg. § 1.1502-75(h)(2) for the taxable year ending on Date 2, and the Parent Affiliated Group shall be treated as satisfying the requirements for filing a consolidated return for the taxable year ending on Date 2.

CAVEATS

Except as expressly provided herein, no opinion is expressed or implied concerning the U.S. income tax consequences of any 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 determination.

The determination contained in this letter is based upon information and representations submitted by the taxpayers and accompanied by a penalty of perjury declaration executed by an appropriate party.

PROCEDURAL MATTERS

This determination is directed only to the taxpayers who requested it. I.R.C. § 6110(k)(3) provides that it may not be used or cited as precedent.

This office will associate a copy of this determination letter with the Parent's U.S. income tax returns. A copy of this determination letter should be kept in the Parent’s permanent records.

A copy of this determination 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 returns that provides the date and control number of the determination letter.

Sincerely,

Acting Director of Field Operations West
(acting)