Cases: Burke Concrete Accessories v. Commissioner, 56 T.C. 588 (1971)
Final rules 4
(a) Affiliated group defined For purposes of this subtitle—
Amended 1976, 1978, 1980, 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 60(a), in amending subsec. (a), generally, revised existing provisions of subsec. (a) into pars. (1), (2), and (4), added pars. (3) and (5), revised definition of “affiliated group”, and expanded the enumeration of securities not included under term “stock”.
- 1980 Pub. L. 96-222 Pub. L. 96–222 substituted “a tax credit employee stock ownership plan” for “an ESOP” and “employee” for “leveraged employee”.
- 1978 Pub. L. 95-600 Pub. L. 95–600 substituted “(within the meaning for section 409A(l)) while such securities are held under an ESOP, or qualifying employer securities (within the meaning of section 4975(e)(8)) while such securities are held under a leveraged employee stock ownership plan which meets the requirements of section 4975(e)(7)” for “within the meaning of section 301(d)(9)(A) of the Tax Reduction Act of 1975, or qualifying employer securities within the meaning of section 4975(e)(8) while such securities are held under an employee stock ownership plan which meets the requirements of section 301(d) of such Act or section 4975(e)(7), respectively”.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 803(b)(3), substituted “dividends, employer securities within the meaning of section 301(d)(9)(A) of the Tax Reduction Act of 1976, or qualifying employer securities within the meaning of section 4975(e)(8) while such securities are held under an employee stock ownership plan which meets the requirements of section 301(d) of such Act or section 4975(e)(7), respectively” for “dividends” after “preferred as to”.
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(1) In general The term “affiliated group” means—
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(A) 1 or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation, but only if—
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(i) the common parent owns directly stock meeting the requirements of paragraph (2) in at least 1 of the other includible corporations, and needs § 1504(a)(2)
(ii) stock meeting the requirements of paragraph (2) in each of the includible corporations (except the common parent) is owned directly by 1 or more of the other includible corporations. needs § 1504(a)(2)
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(2) 80-percent voting and value test The ownership of stock of any corporation meets the requirements of this paragraph if it—
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(3) 5 years must elapse before reconsolidation
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(A) In general If—
(i) a corporation is included (or required to be included) in a consolidated return filed by an affiliated group, and
(ii) such corporation ceases to be a member of such group,
with respect to periods after such cessation, such corporation (and any successor of such corporation) may not be included in any consolidated return filed by the affiliated group (or by another affiliated group with the same common parent or a successor of such common parent) before the 61st month beginning after its first taxable year in which it ceased to be a member of such affiliated group.
Amended 2014
- 2014 Pub. L. 113-295 Pub. L. 113–295 struck out “for a taxable year which includes any period after December 31, 1984” after “affiliated group” in cl. (i) and struck out “in a taxable year beginning after December 31, 1984” after “such group” in cl. (ii).
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(B) Secretary may waive application of subparagraph (A) The Secretary may waive the application of subparagraph (A) to any corporation for any period subject to such conditions as the Secretary may prescribe.
(4) Stock not to include certain preferred stock For purposes of this subsection, the term “stock” does not include any stock which—
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(A) is not entitled to vote,
(B) is limited and preferred as to dividends and does not participate in corporate growth to any significant extent,
(C) has redemption and liquidation rights which do not exceed the issue price of such stock (except for a reasonable redemption or liquidation premium), and
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1804(e)(1), amended subpar. (C) generally. Prior to amendment, subpar. (C) read as follows: “has redemption and liquidation rights which do not exceed the paid-in capital or par value represented by such stock (except for a reasonable redemption premium in excess of such paid-in capital or par value), and”.
(D) is not convertible into another class of stock.
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(5) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including (but not limited to) regulations—
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(A) which treat warrants, obligations convertible into stock, and other similar interests as stock, and stock as not stock,
(B) which treat options to acquire or sell stock as having been exercised,
(C) which provide that the requirements of paragraph (2)(B) shall be treated as met if the affiliated group, in reliance on a good faith determination of value, treated such requirements as met,
(D) which disregard an inadvertent ceasing to meet the requirements of paragraph (2)(B) by reason of changes in relative values of different classes of stock,
(E) which provide that transfers of stock within the group shall not be taken into account in determining whether a corporation ceases to be a member of an affiliated group, and
(F) which disregard changes in voting power to the extent such changes are disproportionate to related changes in value.
(b) Definition of “includible corporation” As used in this chapter, the term “includible corporation” means any corporation except—
Amended 1958, 1959, 1966, 1971, 1986, 1988, 1996, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141 redesignated pars. (6) to (8) as (4) to (6), respectively, and struck out former par. (4) which read as follows: “Corporations with respect to which an election under section 936 (relating to possession tax credit) is in effect for the taxable year.”
- 1996 Pub. L. 104-188 Pub. L. 104–188, § 1308(d)(2), added par. (8).
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1018(d)(10)(A), amended par. (7) generally, striking out “, or any other corporation which has accumulated DISC income which is derived after December 31, 1984” after “in section 992(a)(1))”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1804(e)(10), amended par. (7) generally. Prior to amendment, par. (7) read as follows: “A DISC or former DISC (as defined in section 992(a)).”
- 1971 Pub. L. 92-178 Pub. L. 92–178 added par. (7).
- 1966 Pub. L. 89-389 Pub. L. 89–389 struck out par. (7) exception to definition of “includible corporation” of unincorporated business enterprises subject to tax as corporations under section 1361 of this title.
- 1959 Pub. L. 86-376 Pub. L. 86–376 struck out par. (8) which excepted an electing small business corporation from term “includible corporation”.
- 1958 Pub. L. 85-866 Pub. L. 85–866 added par. (8).
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(1) Corporations exempt from taxation under section 501.
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(2) Insurance companies subject to taxation under section 801.
Amended 1956, 1959, 1984, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1024(c)(15), struck out “or 821” after “section 802”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 211(b)(20), substituted “section 801” for “section 802”.
- 1959 Pub. L. 86-69 Pub. L. 86–69 struck out reference to section 811.
- 1956 13, 1956, inserted reference to section 811.
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(3) Foreign corporations.
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(4) Regulated investment companies and real estate investment trusts subject to tax under subchapter M of chapter 1.
Amended 1976, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141 redesignated pars. (6) to (8) as (4) to (6), respectively, and struck out former par. (4) which read as follows: “Corporations with respect to which an election under section 936 (relating to possession tax credit) is in effect for the taxable year.”
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1051(g), substituted “Corporations with respect to which an election under section 936 (relating to possession tax credit) is in effect for the taxable year” for “Corporations entitled to the benefits of section 931, by reason of receiving a large percentage of their income from sources within possessions of the United States” in par. (4).
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(5) A DISC (as defined in section 992(a)(1)).
Amended 1976, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141 redesignated pars. (6) to (8) as (4) to (6), respectively, and struck out former par. (4) which read as follows: “Corporations with respect to which an election under section 936 (relating to possession tax credit) is in effect for the taxable year.”
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1053(d)(2), struck out par. (5) which included corporations organized under the China Trade Act, 1922, within term “includible corporation”.
(6) An S corporation.
Amended 1960, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141 redesignated pars. (6) to (8) as (4) to (6), respectively, and struck out former par. (4) which read as follows: “Corporations with respect to which an election under section 936 (relating to possession tax credit) is in effect for the taxable year.”
- 1960 Pub. L. 86-779 Pub. L. 86–779 inserted “and real estate investment trusts” after “Regulated investment companies”.
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(c) Includible insurance companies Notwithstanding the provisions of paragraph (2) of subsection (b)—
Amended 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1507(a), designated existing provisions as provision preceding par. (1) and par. (1), in provision preceding par. (1) as so designated, substituted “Notwithstanding the provisions” for “Despite the provisions”, in par. (1) as so designated, substituted “tax under section 802 shall be treated” for “taxation under the same section of this subtitle shall be considered” and added par. (2).
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(1) Two or more domestic insurance companies each of which is subject to tax under section 801 shall be treated as includible corporations for purposes of applying subsection (a) to such insurance companies alone.
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 211(b)(20), substituted “section 801” for “section 802”.
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(A) If an affiliated group (determined without regard to subsection (b)(2)) includes one or more domestic insurance companies taxed under section 801, the common parent of such group may elect (pursuant to regulations prescribed by the Secretary) to treat all such companies as includible corporations for purposes of applying subsection (a) except that no such company shall be so treated until it has been a member of the affiliated group for the 5 taxable years immediately preceding the taxable year for which the consolidated return is filed.
Amended 1984, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1899A(35), struck out “or 821” after “section 801”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1024(c)(16), substituted “subsection (b)(2)) includes” for “subsection (b)(2) includes”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 211(b)(20), substituted “section 801” for “section 802”.
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(B) If an election under this paragraph is in effect for a taxable year—
(i) section 243(b)(3) and the exception provided under section 243(b)(2) with respect to subsections (b)(2) and (c) of this section,
Amended 1990, 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188, § 1702(h)(6), inserted “section” before “243(b)(2)”.
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11814(b), substituted “section 243(b)(3)” for “section 243(b)(6)” and “243(b)(2)” for “section 243(b)(5)”.
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(ii) section 542(b)(5), and
(iii) subsection (a)(4) and (b)(2)(D) of section 1563, and the reference to section 1563(b)(2)(D) contained in section 1563(b)(3)(C),
shall not be effective for such taxable year.
(d) Subsidiary formed to comply with foreign law In the case of a domestic corporation owning or controlling, directly or indirectly, 100 percent of the capital stock (exclusive of directors’ qualifying shares) of a corporation organized under the laws of a contiguous foreign country and maintained solely for the purpose of complying with the laws of such country as to title and operation of property, such foreign corporation may, at the option of the domestic corporation, be treated for the purpose of this subtitle as a domestic corporation.
Cases: Kohler Co. v. United States, 124 F.3d 1451 (Fed. Cir. 1997)
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(e) Includible tax-exempt organizations Despite the provisions of paragraph (1) of subsection (b), two or more organizations exempt from taxation under section 501, one or more of which is described in section 501(c)(2) and the others of which derive income from such 501(c)(2) organizations, shall be considered as includible corporations for the purpose of the application of subsection (a) to such organizations alone.
Amended 1969
- 1969 Pub. L. 91-172 Pub. L. 91–172 added subsec. (e).
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(f) Special rule for certain amounts derived from a corporation previously treated as a DISC In determining the consolidated taxable income of an affiliated group for any taxable year beginning after December 31, 1984, a corporation which had been a DISC and which would otherwise be a member of such group shall not be treated as such a member with respect to—
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1018(d)(10)(B), added subsec. (f).
(1) any distribution (or deemed distribution) of accumulated DISC income which was not treated as previously taxed income under section 805(b)(2)(A) of the Tax Reform Act of 1984, and
(2) any amount treated as received under section 805(b)(3) of such Act.