26 U.S.C. § 1501 — Privilege to file consolidated returns

Page 2545 TITLE 26—INTERNAL REVENUE CODE § 1502 1 Section numbers editorially supplied. CHAPTER 6—CONSOLIDATED RETURNS Subchapter Sec.1 A. Returns and Payment of Tax ................. 1501 B. Related Rules ........................................ 1551 Subchapter A—Returns and Payment of Tax Sec. 1501. Privilege to file consolidated returns. 1502. Regulations. 1503. Computation and payment of tax. 1504. Definitions. 1505. Cross references. § 1501. Privilege to file consolidated returns An affiliated group of corporations shall, sub- ject to the provisions of this chapter, 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 pre- scribed by law for the filing of such return. The making of a consolidated return shall be consid- ered as such consent. In the case of a corpora- tion which is a member of the affiliated group for a fractional part of the year, the consoli- dated return shall include the income of such corporation for such part of the year as it is a member of the affiliated group. (Aug. 16, 1954, ch. 736, 68A Stat. 367.) § 1502. Regulations The Secretary shall prescribe such regulations as he may deem necessary in order that the tax liability of any affiliated group of corporations making a consolidated return and of each cor- poration in the group, both during and after the period of affiliation, may be returned, deter- mined, computed, assessed, collected, and ad- justed, in such manner as clearly to reflect the income-tax liability and the various factors nec- essary for the determination of such liability, and in order to prevent avoidance of such tax li- ability. In carrying out the preceding sentence, the Secretary may prescribe rules that are dif- ferent from the provisions of chapter 1 that would apply if such corporations filed separate returns. (Aug. 16, 1954, ch. 736, 68A Stat. 367; Pub. L. 94–455, title XIX, § 1906(b) (13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 108–357, title VIII, § 844(a), Oct. 22, 2004, 118 Stat. 1600.) Editorial Notes AMENDMENTS 2004—Pub. L. 108–357 inserted at end ‘‘In carrying out the preceding sentence, the Secretary may prescribe rules that are different from the provisions of chapter 1 that would apply if such corporations filed separate returns.’’ 1976—Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Pub. L. 108–357, title VIII, § 844(c), Oct. 22, 2004, 118 Stat. 1600, provided that: ‘‘This section [amending this section], and the amendment made by this section, shall apply to taxable years beginning before, on, or after the date of the enactment of this Act [Oct. 22, 2004].’’ DUAL RESIDENT COMPANIES Pub. L. 100–647, title VI, § 6126, Nov. 10, 1988, 102 Stat. 3713, provided that: ‘‘(a) GENERAL RULE.—In the case of a transaction which— ‘‘(1) involves the transfer after the date of the en- actment of this Act [Nov. 10, 1988] by a domestic cor- poration, with respect to which there is a qualified excess loss account, of its assets and liabilities to a foreign corporation in exchange for all of the stock of such foreign corporation, followed by the complete liquidation of the domestic corporation into the com- mon parent, and ‘‘(2) qualifies, pursuant to Revenue Ruling 87–27, as a reorganization which is described in section 368(a)(1)(F) of the 1986 Code, then, solely for purposes of applying Treasury Regula- tion section 1.1502–19 to such qualified excess loss ac- count, such foreign corporation shall be treated as a domestic corporation in determining whether such for- eign corporation is a member of the affiliated group of the common parent. ‘‘(b) TREATMENT OF INCOME OF NEW FOREIGN CORPORA- TION.— ‘‘(1) IN GENERAL.—In any case to which subsection (a) applies, for purposes of the 1986 Code— ‘‘(A) the source and character of any item of in- come of the foreign corporation referred to in sub- section (a) shall be determined as if such foreign corporation were a domestic corporation, ‘‘(B) the net amount of any such income shall be treated as subpart F income (without regard to sec- tion 952(c) of the 1986 Code), and ‘‘(C) the amount in the qualified excess loss ac- count referred to in subsection (a) shall— ‘‘(i) be reduced by the net amount of any such income, and ‘‘(ii) be increased by the amount of any such in- come distributed directly or indirectly to the common parent described in subsection (a). ‘‘(2) LIMITATION.—Paragraph (1) shall apply to any item of income only to the extent that the net amount of such income does not exceed the amount in the qualified excess loss account after being re- duced under paragraph (1)(C) for prior income. ‘‘(3) BASIS ADJUSTMENTS NOT APPLICABLE.—To the extent paragraph (1) applies to any item of income, there shall be no increase in basis under section 961(a) of such Code on account of such income (and there shall be no reduction in basis under section 961(b) of such Code on account of an exclusion attributable to the inclusion of such income). ‘‘(4) RECOGNITION OF GAIN.—For purposes of para- graph (1), if the foreign corporation referred to in subsection (a) transfers any property acquired by such foreign corporation in the transaction referred to in subsection (a) (or transfers any other property the basis of which is determined in whole or in part by reference to the basis of property so acquired) and (but for this paragraph) there is not full recognition of gain on such transfer, the excess (if any) of— ‘‘(A) the fair market value of the property trans- ferred, over ‘‘(B) its adjusted basis, shall be treated as gain from the sale or exchange of such property and shall be recognized notwith- standing any other provision of law. Proper adjust- ment shall be made to the basis of any such property for gain recognized under the preceding sentence.