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Unformatted text preview: H Chapter Eight H CONSOLIDATED TAX RETURNS SOLUTIONS TO RESEARCH PROBLEMS RESEARCH PROBLEMS 8-30 The election to file a consolidated tax return is a privilege. Therefore, unless the election is properly exercised in the time and manner prescribed by the regulations, the privilege of filing a consolidated return may be lost. Under Regulation § 1.1502-75(a)(1), the election to file a consolidated return must be exercised no later than the due date for filing the return of the common parent corporation (which includes any extensions of time to file). If the return is filed before the due date, the group may change its election. 5- Under Revenue Ruling 56-67, 1956-1 C.B. 437, the Commissioner holds that if the common parent corporation has filed a separate return for the year and the due date for its return has not yet expired, a consolidated return will be allowed. However, under Revenue Ruling 76-393, 1976-2 C.B. 255, the Commissioner holds that if the due date has passed, even though the separate return was filed through inadvertence, the group may not elect to file a consolidated return. It should be noted that the filing of a separate return by a member other than the parent corporation will not prevent a timely election to file a consolidated return. 5- In Millette and Associates, Inc. v. Commissioner, taxpayers filed a timely extension on a consolidated basis but later filed a delinquent first-year tax return. The Fifth Circuit Court of Appeals, affirming the Tax Court, held that although pre-1966 judicial decisions allowed an extension of time to be a binding election, post-1965 regulations have substantially changed, and require that a consolidated return be filed within the time prescribed by law. (See Regulation § 1.1502-75.) 5- Because the privilege for filing a consolidated return cannot be exercised after the due date (including extensions) for the common parent’s return, it is essential to make sure that the return is filed on time. However, should the due date pass, it may be possible to obtain an extension to file the election in certain limited circumstances. (See Regulation § 1.9100.) The regulation states that the Commissioner has discretion, upon the showing of good cause (e.g., significant intervening events preventing a timely election), to grant a reasonable extension of time fixed by the regulations for making an election. This may be a feasible alternative because the due date for the consolidated return election is set by the regulations—but only if ‘‘good cause’’ can be demonstrated. 8-31 1. If P elects to sell any or all of its subsidiaries, under Reg. § 1.1502-13(f)(1)(iii) all deferred gains and losses must be recognized when either the selling member or the member that owns the property ceases to be a member of the group. Therefore, any deferred gains or losses in any of the subsidiaries that are sold must be recognized. In addition, any deferred gains or losses remaining between P and the ‘‘sold’’ subsidiary(ies) and any of the ‘‘unsold’’ subsidiaries and the ‘‘sold’’ subsidiary(ies) must...
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- Spring '11
- Tax Returns, Corporation, Taxation in the United States, Subsidiary