IRS Revenue Procedure
2002-32

 Code Secs. 1502, 1504

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26 CFR 601.201: Rulings and determination letters.
(Also Part I sections 1502, 1504; 1.1502-75, 1.1504-1.)


REV. PROC. 2002-32

SECTION 1. PURPOSE

.01 This revenue procedure clarifies and supersedes Rev. Proc. 91-71
(1991-2 C.B. 900) which grants certain taxpayers a waiver of the general
rule of section 1504(a)(3)(A) of the Internal Revenue Code. Section
1504(a)(3)(A) generally provides that a corporation that ceased to be a
member of a consolidated group (or a successor of such corporation) may
not be included in any consolidated return filed by that affiliated group
(or another affiliated group with the same common parent or a successor of
such common parent) before the 61st month beginning after the first
taxable year in which such corporation ceased to be a member of such
group.

.02 If (1) section 1504(a)(3)(A) applies to prevent the inclusion of a
corporation in a consolidated return, and (2) the representations
described in sections 5.03 and 5.14 of this revenue procedure can be made
with respect to such corporation, then such corporation may be included in
the consolidated return for the taxable year that includes the date on
which section 1504(a)(3)(A) would first apply to prevent such corporation
from being included in such consolidated return if, and only if, an
automatic waiver of the general rule of section 1504(a)(3)(A) is obtained
pursuant to section 5 of this revenue procedure.

.03 If (1) section 1504(a)(3)(A) applies to prevent the inclusion of a
corporation in a consolidated return, and (2) the representations
described in section 5.03 or 5.14 of this revenue procedure cannot be made
with respect to such corporation, then a waiver of the application of the
general rule of section 1504(a)(3)(A) for any taxable year may only be
obtained in the form of a private letter ruling pursuant to section 7 of
this revenue procedure.

.04 If (1) section 1504(a)(3)(A) applies to prevent the inclusion of a
corporation in a consolidated return, (2) the representations described in
sections 5.03 and 5.14 of this revenue procedure can be made with respect
to such corporation, and (3) the procedures for obtaining an automatic
waiver of the general rule of section 1504(a)(3)(A) are not followed, then
a waiver of the application of the general rule of section 1504(a)(3)(A)
may be obtained only for taxable years other than the taxable year that
includes the date on which section 1504(a)(3)(A) first applies to prevent
such corporation from being included in a consolidated return and may only
be obtained in the form of a private letter ruling pursuant to section 7
of this revenue procedure.


SECTION 2. BACKGROUND

.01 Section 1504(a)(3)(A) provides that (1) if a corporation is
included (or required to be included) in a consolidated return filed by an
affiliated group for a taxable year that includes any period after
December 31, 1984, and (2) the corporation ceases to be a member of such
affiliated group in a taxable year beginning after December 31, 1984, the
corporation (and any successor of the corporation) may not be included in
any consolidated return filed by such affiliated group (or by another
affiliated group with the same common parent or a successor of the common
parent) before the 61st month beginning after its first taxable year in
which it ceased to be a member of such affiliated group. Section
1504(a)(3)(B) provides that the Secretary may waive the application of
section 1504(a)(3)(A) to any corporation for any period subject to such
conditions as the Secretary may prescribe.

.02 For purposes of this revenue procedure, unless otherwise provided,
a reference to a successor of a corporation includes each successor of a
successor of such corporation, and a reference to a predecessor of a
corporation includes each predecessor of a predecessor of such
corporation.


SECTION 3. APPLICATION

.01 Any corporation described in section 4.01 of this revenue procedure
that requests an automatic waiver by complying with the requirements set
forth in section 5 of this revenue procedure is hereby granted a waiver
under section 1504(a)(3)(B) so that the corporation may be included in the
consolidated return filed (or required to be filed) by the affiliated
group of which it is a member, as provided in section 6 of this revenue
procedure. Any corporation described in section 4.01 of this revenue
procedure that does not or cannot comply with the requirements set forth
in section 5 may request a waiver of the application of the general rule
of section 1504(a)(3)(A) pursuant to section 7 of this revenue procedure.

.02 If pursuant to section 4.02, 4.03, or 4.04 of this revenue
procedure, section 1504(a)(3)(A) does not apply to prevent the inclusion
in a consolidated return of a corporation, such corporation must be
included in the consolidated return filed by the affiliated group of which
it is a member. No waiver is necessary.


SECTION 4. SCOPE

.01 This revenue procedure applies to any corporation (a deconsolidated
corporation)(1) that was included (or was required to be included), or
whose predecessor was included (or was required to be included), in a
consolidated return filed (or required to be filed) by an affiliated group
(the original group), (2) that ceased, or whose predecessor ceased, to be
a member of such original group, and (3) that subsequently became
affiliated with that original group (or another affiliated group with the
same common parent or a successor of such common parent) before the 61st
month beginning after the first taxable year in which it or its
predecessor ceased to be a member of the original group.

.02 Except as provided in section 4.05, section 1504(a)(3)(A) does not
apply to prevent the inclusion in a consolidated return of any corporation
that was a member of a consolidated group (the terminating group) and that
ceased to be a member of such group solely as a result of a transaction in
which a nonmember corporation acquired the assets of the common parent of
the terminating group in a reorganization described in section
368(a)(1)(A), (C), (D), or (G) (but, with respect to a reorganization
described in section 368(a)(1)(D) or (G), only if the requirements of
section 354(b)(1)(A) and (B) are met), and immediately after the
acquisition, the acquiring corporation is the common parent of another
affiliated group (the acquiring group). If the acquiring group files a
consolidated return, all members of the terminating group that are
includible corporations must be included in the consolidated return. See
Rev. Rul. 91-70 (1991-2 C.B. 361).

.03 Except as provided in section 4.05, section 1504(a)(3)(A) does not
apply to prevent the inclusion in a consolidated return of any corporation
that was a member of a consolidated group (the terminating group) and that
ceased to be a member of such group solely as a result of a transaction in
which a member of the terminating group acquired (a) the assets of a
nonmember corporation in a reorganization described in section
368(a)(1)(A), (C), (D), or (G) (but, with respect to a reorganization
described in section 368(a)(1)(D) or (G), only if the requirements of
section 354(b)(1)(A) and (B) are met) or (b) the stock of a nonmember
corporation, and the acquisition was a reverse acquisition described in
section 1.1502-75(d)(3) of the Income Tax Regulations in which the
terminating group ceased to exist. If the group that remains in existence
files a consolidated return, all members of the terminating group that are
includible corporations must be included in the consolidated return. See
Rev. Rul. 91-70.

.04 Except as provided in section 4.05, section 1504(a)(3)(A) does not
apply to prevent the inclusion in a consolidated return of any corporation
that was a member of a consolidated group (the terminating group) and that
ceased to be a member of the terminating group solely as a result of a
transaction in which (1) a nonmember corporation (the acquiring
corporation) acquired (a) the assets of the common parent of the
terminating group in a reorganization described in section 368(a)(1)(A),
(C), (D), or (G) (but, with respect to a reorganization described in
section 368(a)(1)(D) or (G), only if the requirements of section
354(b)(1)(A) and (B) are met) or (b) stock of the common parent of the
terminating group that satisfies the requirements of section 1504(a)(2),
(2) immediately after such acquisition, the acquiring corporation is a
member of another affiliated group (the acquiring group), and (3)
subsequent to such acquisition, the common parent of the acquiring group
or a successor of the common parent of the acquiring group acquires assets
or stock of the former common parent of the terminating group or a
successor of such former common parent. If the acquiring group files a
consolidated return, the corporation must be included in the consolidated
return, provided such corporation is an includible corporation. Cf. Rev.
Rul. 91-70.

.05 If a corporation is described in section 4.02, 4.03, or 4.04, and
such corporation (or such corporation's predecessor, as applicable) (1)
was included (or was required to be included) in a consolidated return
filed (or required to be filed) by an affiliated group other than the
terminating group (a prior group), (2) ceased to be a member of such prior
group, and (3) subsequently became affiliated with such prior group (or
another affiliated group with the same common parent or a successor of the
common parent of such prior group) before the 61st month beginning after
the first taxable year in which it or its predecessor ceased to be a
member of such group, section 1504(a)(3)(A) applies to prevent the
inclusion of such corporation in a consolidated return of such prior group
or another affiliated group with the same common parent or a successor of
the common parent of such prior group. Accordingly, that corporation is
treated as a deconsolidated corporation and must comply with the
requirements set forth in section 5 of this revenue procedure (or if it
cannot comply with section 5, section 7) to obtain a waiver of section
1504(a)(3)(A).


SECTION 5. PROCEDURE FOR A DECONSOLIDATED CORPORATION TO REQUEST AN
AUTOMATIC WAIVER UNDER SECTION 1504(a)(3)(B)

To obtain an automatic waiver of section 1504(a)(3)(A), the
deconsolidated corporation must be included in a timely-filed consolidated
return (including extensions) of the affiliated group with respect to
which the waiver request relates (the current group), for the taxable year
that includes the date on which such corporation most recently became a
member of such affiliated group. In addition, a statement, filed under
penalties of perjury, that includes the information described in sections
5.01 through 5.14 of this revenue procedure, which is subject to
verification on examination, as provided by section 6.02 of this revenue
procedure, must be attached to such return.

.01 The following heading typed or legibly printed at the top of the
statement: "AUTOMATIC WAIVER OF THE APPLICATION OF SECTION 1504(a)(3)
FILED PURSUANT TO REV. PROC. 2002-32."

.02 The name, address, and employer identification number of the
deconsolidated corporation, and the name, address, and employer
identification number of each corporation, if any, that was a predecessor
of such deconsolidated corporation at any time on or after the date a
predecessor of such deconsolidated corporation ceased to be a member of
the current group (or another affiliated group with the same common parent
or a predecessor of the common parent of the current group).

.03 If the common parent of the current group is the common parent of
the group from which the deconsolidated corporation or its predecessor
disaffiliated (the former group), a representation that such common parent
was not an S corporation, an entity disregarded as an entity separate from
its owner, a real estate investment trust, or a regulated investment
company at any time during the period of disaffiliation. If the common
parent of the current group was not the common parent of the former group,
a representation that the common parent of the former group and each
successor of the common parent of the former group was not an S
corporation, an entity disregarded as an entity separate from its owner, a
real estate investment trust, or a regulated investment company at any
time during the period beginning on the date of disaffiliation and ending
on the date that such common parent or successor ceased to exist. In
addition, if the common parent of the current group was not the common
parent of the former group, a representation that the common parent of the
current group was not an S corporation, an entity disregarded as an entity
separate from its owner, a real estate investment trust, or a regulated
investment company at any time during the period beginning on the date
that such corporation became a successor of the common parent of the
former group and ending on the date the deconsolidated corporation became
a member of the current group.

.04 The year in which the current group elected to file consolidated
returns.

.05 The date on which the deconsolidated corporation or its predecessor
ceased to be a member of either the current group or the former group.

.06 The date on which the deconsolidated corporation most recently
became a member of the current group.

.07 A description of the manner by which the deconsolidated corporation
or its predecessor ceased to be a member of the current group or the
former group and the manner by which the deconsolidated corporation became
a member of the current group (redemption of stock, new issuance of stock,
etc.). This statement should include the business purposes of the
transactions that caused the disaffiliation and subsequent affiliation and
describe whether the transactions were with a related party.

.08 If the common parent of the current group is the common parent of
the former group and the former group remained in existence throughout the
period of disaffiliation, the taxable income of the current group for (1)
the taxable year prior to the taxable year in which the deconsolidated
corporation or its predecessor ceased to be a member of the current group,
(2) the taxable year in which the deconsolidated corporation or its
predecessor ceased to be a member of such group, (3) each taxable year
subsequent to the taxable year in which the deconsolidated corporation or
its predecessor ceased to be a member of such group but before the
deconsolidated corporation again became a member of the current group, and
(4) the taxable year in which the deconsolidated corporation became a
member of the current group.

.09 If the common parent of the current group is the common parent of
the former group and the former group ceased to exist on or after the date
on which the deconsolidated corporation or its predecessor ceased to be a
member of the former group and before the date the deconsolidated
corporation became a member of the current group, the taxable income of
the former group for (1) the taxable year prior to the taxable year in
which the deconsolidated corporation or its predecessor ceased to be a
member of the former group, (2) the taxable year in which the
deconsolidated corporation or its predecessor ceased to be a member of
such group, and (3) each taxable year, if any, subsequent to the taxable
year in which the deconsolidated corporation or its predecessor ceased to
be a member of such group and during which such group existed. In
addition, (1) the taxable income of the common parent of the former group
or its successor for each interim taxable year (as defined herein) during
which such common parent of the former group was not the common parent of
a consolidated group, (2) the taxable income of any consolidated group
other than the former group of which the common parent of the former group
or its successor was the common parent during any interim taxable year for
each interim taxable year, and (3) the taxable income of the current group
for the taxable year in which the deconsolidated corporation became a
member of the current group. For purposes of this section 5.09 and
sections 5.10 and 5.11 of this revenue procedure, the term interim taxable
year refers to any taxable year that is subsequent to the taxable year in
which the deconsolidated corporation or its predecessor ceased to be a
member of the former group but before the taxable year in which the
deconsolidated corporation became a member of the current group.

.10 If the common parent of the current group is not the common parent
of the former group, the taxable income of the former group for (1) the
taxable year prior to the taxable year in which the deconsolidated
corporation or its predecessor ceased to be a member of the former group,
(2) the taxable year in which the deconsolidated corporation or its
predecessor ceased to be a member of such group, and (3) each interim
taxable year, if any, during which such group existed. In addition, (1)
the taxable income of the common parent of the former group or its
successor for each interim taxable year during which such common parent of
the former group or its successor was not the common parent of a
consolidated group, (2) the taxable income of any consolidated group other
than the former group of which the common parent of the former group or
its successor was the common parent during any interim taxable year for
each interim taxable year, and (3) the taxable income of the current group
for the taxable year in which the deconsolidated corporation became a
member of the current group.

.11 The taxable income, or separate taxable income (adjusted for the
items that would be taken into account in determining the consolidated net
operating loss attributable to the deconsolidated corporation under
section 1.1502-21(b)(2)(iv)), as the case may be, of the deconsolidated
corporation or its predecessor, as applicable, for (1) the taxable year
prior to the taxable year in which the deconsolidated corporation or its
predecessor ceased to be a member of the current group or the former
group, (2) the taxable year in which the deconsolidated corporation or its
predecessor ceased to be a member of such group, (3) each interim taxable
year, and (4) the taxable year in which the deconsolidated corporation
became a member of the current group.

.12 An analysis of the effect of the disaffiliation and the effect of
the subsequent consolidation on the following items of (a) the
deconsolidated corporation and its predecessor, as applicable, (b) the
current group, and (c) if the current group is not the group from which
the deconsolidated corporation or its predecessor disaffiliated, the
former group or, if the former group terminated as a result of the
disaffiliation or during the period of the disaffiliation, the common
parent of the former group and the members of the former group (or their
successors, if applicable) with which such common parent (or its
successor, as applicable) was affiliated at any time during the period of
disaffiliation for all periods described in section 5.11 of this revenue
procedure:

(1) Taxable income;

(2) Gains and losses on intercompany transactions;

(3) Excess loss accounts;

(4) Tax liability;

(5) Net operating loss carryovers;

(6) Capital loss carryovers;

(7) Tax credits; and

(8) Losses deferred pursuant to section 267(f).


.13 In the case of a consolidated group of which one or more members
are reporting corporations described in section 6038A(a), an analysis of
the effect of the disaffiliation and the effect of the subsequent
consolidation on the United States taxation of any related party within
the meaning of section 6038A(c)(2) (other than a member of the group).
Such analysis must take into account any transfers of money or property
occurring during the period of disaffiliation and involving (directly or
indirectly) the deconsolidated corporation, its predecessors, and any
reporting corporation or related party, if such transfers are not in the
ordinary course of business.

.14 A representation that the disaffiliation and subsequent
consolidation has not provided and will not provide a benefit of a
reduction in income, increase in loss, or any other deduction, credit, or
allowance (a federal tax savings) that would not otherwise be secured or
have been secured had the disaffiliation and subsequent consolidation not
occurred, including, but not limited to, the use of a net operating loss
or credit that would have otherwise expired, or the use of a loss
recognized on a disposition of stock of the deconsolidated corporation or
a predecessor of such corporation. In determining whether the
disaffiliation and subsequent consolidation provided or will provide a
federal tax savings, the net tax consequences to all parties, taking into
account the time value of money, are considered.


SECTION 6. EFFECT OF WAIVER

.01 A waiver under section 1504(a)(3)(B) granted pursuant to section
3.01 of this revenue procedure is binding on the consolidated group that
files the statement required by section 5 of this revenue procedure with a
consolidated return and may not be revoked by such consolidated group. The
waiver is binding as of the date on which the deconsolidated corporation
most recently became a member of the current group and as long as the
deconsolidated corporation or a successor of such corporation remains a
member of the current group or another group with a common parent that is
a successor of the common parent of the current group, unless permission
is granted for the entire group to cease filing a consolidated return.

.02 Notwithstanding section 6.01, if the Service determines that the
information provided pursuant to section 5 of this revenue procedure was
incorrect in any material respect at the time the waiver request was
filed, the Service may revoke the waiver granted pursuant to this revenue
procedure at any time, for all or any part of the period for which it was
granted.


SECTION 7. DECONSOLIDATED CORPORATIONS THAT DO NOT QUALIFY FOR THE
AUTOMATIC WAIVER

If a deconsolidated corporation cannot qualify for an automatic waiver
pursuant to section 3.01 of this revenue procedure, a waiver under section
1504(a)(3)(B) may only be obtained through a letter ruling request filed
in accordance with Rev. Proc. 2002-1 (2002-1 I.R.B. 1) (or similar revenue
procedure applicable to a later year). If the representations described in
sections 5.03 and 5.14 of this revenue procedure can be made with respect
to such corporation and the procedures for obtaining an automatic waiver
of the general rule of section 1504(a)(3)(A) are not followed, however,
then a private letter ruling can only be obtained to waive the application
of the general rule of section 1504(a)(3)(A) for taxable years other than
the taxable year that includes the date on which section 1504(a)(3)(A)
first applies to prevent such corporation from being included in the
consolidated return. The letter ruling request must be submitted by the
common parent of the affiliated group of which the deconsolidated
corporation becomes a member before the due date (including extensions) of
the consolidated return for the tax year with respect to which the waiver
is requested. The letter ruling request must include the information set
forth in section 5 of this revenue procedure. To the extent that the
representations set forth in section 5.03 or section 5.14 of this revenue
procedure cannot be made, however, the letter ruling request must: (1)
contain information establishing that federal tax savings (as described in
section 5.14 of this revenue procedure) was not a purpose of the
disaffiliation, and that the amount of any federal tax savings
attributable to the disaffiliation or a subsequent consolidation is not
significant; and (2) state whether the deconsolidated corporation or a
predecessor of such corporation was, at any time during the period of
disaffiliation, in the effective control of any member (or successor of
any member) of the current group or the former group.


SECTION 8. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 91-71 (1991-2 C.B. 900) is clarified, and, as clarified, is
superseded.


SECTION 9. EFFECTIVE DATE

This revenue procedure is generally effective for consolidated returns
due (including extensions) on or after May 20, 2002. Section 7 of this
revenue procedure, however, applies to all letter ruling requests
postmarked, or if not mailed, received, after May 20, 2002. Nonetheless,
the Service may ask the taxpayer to submit information specified in this
revenue procedure for any ruling requests postmarked, or if not mailed,
received, before that date.


SECTION 10. PAPERWORK REDUCTION ACT

The collections of information contained in this revenue procedure have
been reviewed and approved by the Office of Management and Budget (OMB) in
accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control
number 1545-1784.

An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless the collection of
information displays a valid OMB control number.

The collections of information in this revenue procedure are in section
5 and section 7. This information is required to determine whether a
taxpayer qualifies for a waiver under this revenue procedure. The
collections of information are required to obtain a benefit. The likely
respondents are corporations that were formerly members of consolidated
groups and that later join affiliated groups.

The estimated total annual reporting burden is 100 hours.

The estimated annual burden per respondent varies from 2 hours to 8
hours, depending on individual circumstances, with an estimated average of
5 hours. The estimated number of respondents is 20.

The estimated annual frequency of responses is on occasion.

Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue tax law. Generally tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.


SECTION 11. DRAFTING INFORMATION

The principal author of this revenue procedure is Vincent Daly of the
Office of Associate Chief Counsel (Corporate). For further information
regarding this revenue procedure, contact Mr. Daly at (202) 622-7770 (not
a toll-free call).

<<END RULING>>

 

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