[Federal Register Volume 76, Number 69 (Monday, April 11, 2011)]
[Rules and Regulations]
[Pages 19907-19908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8555]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9522]
RIN 1545-BG94
Clarification of Controlled Group Qualification Rules
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulation.
-----------------------------------------------------------------------
SUMMARY: This document contains a final regulation that applies to a
controlled group of corporations. The regulation clarifies that a
corporation that satisfies the controlled group rules for stock
ownership and qualification is a member of such group, without regard
to its status as a component member.
DATES:
Effective Date: This regulation is effective on April 11, 2011.
Applicability Date: For date of applicability, see Sec. 1.1563-
1(e).
FOR FURTHER INFORMATION CONTACT: Grid Glyer (202) 622-7930 (not a toll-
free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
This document contains an amendment to 26 CFR part 1. On September
29, 2009, a notice of proposed rulemaking (NPRM) regarding the
controlled group qualification rules under Sec. 1.1563-1 was published
in the Federal Register (REG-135005-07; 74 FR 49829). The NPRM proposed
to amend Sec. 1.1563-1 to clarify that a corporation described in
section 1563(b) as an excluded member of a controlled group of
corporations is nevertheless a member of the group. The NPRM further
proposed to add an example demonstrating that a controlled group of
corporations can consist solely of excluded members.
One comment was received and no public hearing was requested or
held. The public comment concerned the treatment of gross receipts
between members of a controlled group of corporations for purposes of
section 41, which provides a tax credit to taxpayers for increasing
their research activities. In particular, the comment refers to CCA
200233011, dated May 1, 2002. In that CCA, the IRS Office of Chief
Counsel concluded first that a domestic corporation and its majority-
owned foreign subsidiaries should be treated as a single taxpayer for
purposes of sections 41(f)(1)(A)(i), 41(f)(5) and 1563(a) because they
were members of the same controlled group of corporations even though
the foreign subsidiaries were treated as excluded members of the group.
Second, the IRS Office of Chief Counsel concluded that, given the
particular facts and circumstances of that case, the taxpayer should
exclude sales to its majority-owned foreign subsidiaries when computing
gross receipts for purposes of determining its base amount under
section 41(c). The commenter requested guidance on the facts and
circumstances that caused the IRS Office of Chief Counsel to exclude
such sales in computing gross receipts. The IRS and the Treasury
Department believe that the requested guidance is outside the scope of
the NPRM, which only involves the first issue addressed in the CCA, and
is consistent with the conclusion of the CCA on that issue.
However, the final regulation makes one clarifying change.
Paragraph (a)(1)(ii) of the proposed regulation states that in
determining whether a corporation is included in a controlled group of
corporations, section 1563(b) shall not be taken into account. Section
1563(b) defines a component member, including an excluded member and an
additional member. Paragraph (a)(1)(ii) as now revised will also
provide that the underlying regulation, Sec. 1.1563-1(b), which
defines a component member, shall not be taken into account in
determining the members of a controlled group.
Special Analyses
It has been determined that this regulation is not a significant
regulatory action as defined in Executive Order 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
does not apply to this regulation and because this regulation does not
impose a collection of information on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to
section 7805(f) this regulation has been submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.
Drafting Information
The principal author of this regulation is Grid Glyer of the Office
of Associate Chief Counsel (Corporate). However, other personnel from
the IRS and the Treasury Department participated in its development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.1563-1 is amended by:
0
1. Redesignating paragraph (a)(1)(ii) as paragraph (a)(1)(iii) and
adding new paragraph (a)(1)(ii).
0
2. Adding Example 4 to paragraph (b)(4).
0
3. Adding a sentence at the end of paragraph (e).
The additions read as follows:
Sec. 1.1563-1 Definition of controlled group of corporations and
component members and related concepts.
(a) * * *
(1) * * *
(ii) Special rules. In determining whether a corporation is
included in a controlled group of corporations, section 1563(b) and
paragraph (b) of this section shall not be taken into account. For
rules defining a component member of a controlled group of
corporations, including rules defining an excluded member and an
additional member, see section 1563(b) and paragraph (b) of this
section.
* * * * *
(b) * * *
(4) * * *
Example 4. Individual A owns all of the stock of corporations
X, Y and Z. Each of these corporations is an S corporation. X, Y,
and Z are each members of a brother-sister controlled group, even
though each such corporation is treated as an excluded member of
such group. See Sec. 1.1563-1(b)(2)(ii)(C).
* * * * *
(e) Effective/Applicability date. * * * Paragraph (a)(1)(ii) of
this section
[[Page 19908]]
applies to taxable years beginning on or after April 11, 2011.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: April 4, 2011.
Michael Mundaca,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-8555 Filed 4-8-11; 8:45 am]
BILLING CODE 4830-01-P