Irc 1561

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26 U.S.C.A. § 1561

I.R.C. § 1561
Effective: August 20, 1996
UNITED STATES CODE ANNOTATED
TITLE 26. INTERNAL REVENUE CODE
SUBTITLE A--INCOME TAXES
CHAPTER 6--CONSOLIDATED RETURNS
SUBCHAPTER B--RELATED RULES
PART II--CERTAIN CONTROLLED CORPORATIONS
§ 1561. Limitations on certain multiple tax benefits in the case of certain controlled
corporations
(a) General rule.--The component members of a controlled group of corporations on a December 31 shall, for their
taxable years which include such December 31, be limited for purposes of this subtitle to-(1) amounts in each taxable income bracket in the tax table in section 11(b)(1) which do not aggregate more than
the maximum amount in such bracket to which a corporation which is not a component member of a controlled
group is entitled,
(2) one $250,000 ($150,000 if any component member is a corporation described in section 535(c)(2)(B)) amount
for purposes of computing the accumulated earnings credit under section 535(c)(2) and (3),
(3) one $40,000 exemption amount for purposes of computing the amount of the minimum tax, and
(4) one $2,000,000 amount for purposes of computing the tax imposed by section 59A.
The amounts specified in paragraph (1), the amount specified in paragraph (3), and the amount specified in
paragraph (4) shall be divided equally among the component members of such group on such December 31 unless
all of such component members consent (at such time and in such manner as the Secretary shall by regulations
prescribe) to an apportionment plan providing for an unequal allocation of such amounts. The amounts specified in
paragraph (2) shall be divided equally among the component members of such group on such December 31 unless
the Secretary prescribes regulations permitting an unequal allocation of such amounts. Notwithstanding paragraph
(1), in applying the last 2 sentences of section 11(b)(1) to such component members, the taxable income of all such
component members shall be taken into account and any increase in tax under such last 2 sentences shall be divided
among such component members in the same manner as amounts under paragraph (1). In applying section 55(d)(3),
the alternative minimum taxable income of all component members shall be taken into account and any decrease in
the exemption amount shall be allocated to the component members in the same manner as under paragraph (3).
(b) Certain short taxable years.--If a corporation has a short taxable year which does not include a December 31
and is a component member of a controlled group of corporations with respect to such taxable year, then for
purposes of this subtitle-(1) the amount in each taxable income bracket in the tax table in section 11(b), and
(2) the amount to be used in computing the accumulated earnings credit under section 535(c)(2) and (3),
of such corporation for such taxable year shall be the amount specified in subsection (a)(1) or (2), as the case may
be, divided by the number of corporations which are component members of such group on the last day of such
taxable year. For purposes of the preceding sentence, section 1563(b) shall be applied as if such last day were
substituted for December 31.
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26 U.S.C.A. § 1561

Current through P.L. 109-367 (excluding P.L. 109-304, P.L. 109-364)
approved 10-26-06

Copr. © 2006 Thomson/West. No. Claim to Orig. U.S. Govt. Works

END OF DOCUMENT

© 2006 Thomson/West. No Claim to Orig. U.S. Govt. Works.

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26 U.S.C.A. § 1563

I.R.C. § 1563
Effective: October 23, 2004
UNITED STATES CODE ANNOTATED
TITLE 26. INTERNAL REVENUE CODE
SUBTITLE A--INCOME TAXES
CHAPTER 6--CONSOLIDATED RETURNS
SUBCHAPTER B--RELATED RULES
PART II--CERTAIN CONTROLLED CORPORATIONS
§ 1563. Definitions and special rules
(a) Controlled group of corporations.--For purposes of this part, the term "controlled group of corporations"
means any group of-(1) Parent-subsidiary controlled group.--One or more chains of corporations connected through stock
ownership with a common parent corporation if-(A) stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to
vote or at least 80 percent of the total value of shares of all classes of stock of each of the corporations, except
the common parent corporation, is owned (within the meaning of subsection (d) (1)) by one or more of the other
corporations; and
(B) the common parent corporation owns (within the meaning of subsection (d) (1)) stock possessing at least 80
percent of the total combined voting power of all classes of stock entitled to vote or at least 80 percent of the
total value of shares of all classes of stock of at least one of the other corporations, excluding, in computing
such voting power or value, stock owned directly by such other corporations.
(2) Brother-sister controlled group.--Two or more corporations if 5 or fewer persons who are individuals,
estates, or trusts own (within the meaning of subsection (d)(2)) stock possessing more than 50 percent of the total
combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares
of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the
extent such stock ownership is identical with respect to each such corporation.
(3) Combined group.--Three or more corporations each of which is a member of a group of corporations
described in paragraph (1) or (2), and one of which-(A) is a common parent corporation included in a group of corporations described in paragraph (1), and also
(B) is included in a group of corporations described in paragraph (2).
(4) Certain insurance companies.--Two or more insurance companies subject to taxation under section 801
which are members of a controlled group of corporations described in paragraph (1), (2), or (3). Such insurance
companies shall be treated as a controlled group of corporations separate from any other corporations which are
members of the controlled group of corporations described in paragraph (1), (2), or (3).
(b) Component member.-(1) General rule.--For purposes of this part, a corporation is a component member of a controlled group of
corporations on a December 31 of any taxable year (and with respect to the taxable year which includes such
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(A) is a member of such controlled group of corporations on the December 31 included in such year and is not
treated as an excluded member under paragraph (2), or
(B) is not a member of such controlled group of corporations on the December 31 included in such year but is
treated as an additional member under paragraph (3).
(2) Excluded members.--A corporation which is a member of a controlled group of corporations on December 31
of any taxable year shall be treated as an excluded member of such group for the taxable year including such
December 31 if such corporation-(A) is a member of such group for less than one-half the number of days in such taxable year which precede
such December 31,
(B) is exempt from taxation under section 501(a) (except a corporation which is subject to tax on its unrelated
business taxable income under section 511) for such taxable year,
(C) is a foreign corporation subject to tax under section 881 for such taxable year,
(D) is an insurance company subject to taxation under section 801 (other than an insurance company which is a
member of a controlled group described in subsection (a)(4)), or
(E) is a franchised corporation, as defined in subsection (f)(4).
(3) Additional members.--A corporation which-(A) was a member of a controlled group of corporations at any time during a calendar year,
(B) is not a member of such group on December 31 of such calendar year, and
(C) is not described, with respect to such group, in subparagraph (B), (C), (D), or (E) of paragraph (2),
shall be treated as an additional member of such group on December 31 for its taxable year including such
December 31 if it was a member of such group for one-half (or more) of the number of days in such taxable
year which precede such December 31.
(4) Overlapping groups.--If a corporation is a component member of more than one controlled group of
corporations with respect to any taxable year, such corporation shall be treated as a component member of only
one controlled group. The determination as to the group of which such corporation is a component member shall
be made under regulations prescribed by the Secretary which are consistent with the purposes of this part.
(c) Certain stock excluded.-(1) General rule.--For purposes of this part, the term "stock" does not include-(A) nonvoting stock which is limited and preferred as to dividends,
(B) treasury stock, and
(C) stock which is treated as "excluded stock" under paragraph (2).
(2) Stock treated as "excluded stock".-(A) Parent-subsidiary controlled group.--For purposes of subsection (a) (1), if a corporation (referred to in
this paragraph as "parent corporation") owns (within the meaning of subsections (d)(1) and (e)(4)), 50 percent
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or more of the total combined voting power of all classes of stock entitled to vote or 50 percent or more of the
total value of shares of all classes of stock in another corporation (referred to in this paragraph as "subsidiary
corporation"), the following stock of the subsidiary corporation shall be treated as excluded stock-(i) stock in the subsidiary corporation held by a trust which is part of a plan of deferred compensation for the
benefit of the employees of the parent corporation or the subsidiary corporation,
(ii) stock in the subsidiary corporation owned by an individual (within the meaning of subsection (d)(2)) who
is a principal stockholder or officer of the parent corporation. For purposes of this clause, the term "principal
stockholder" of a corporation means an individual who owns (within the meaning of subsection (d)(2)) 5
percent or more of the total combined voting power of all classes of stock entitled to vote or 5 percent or
more of the total value of shares of all classes of stock in such corporation,
(iii) stock in the subsidiary corporation owned (within the meaning of subsection (d)(2)) by an employee of
the subsidiary corporation if such stock is subject to conditions which run in favor of such parent (or
subsidiary) corporation and which substantially restrict or limit the employee's right (or if the employee
constructively owns such stock, the direct owner's right) to dispose of such stock, or
(iv) stock in the subsidiary corporation owned (within the meaning of subsection (d)(2)) by an organization
(other than the parent corporation) to which section 501 (relating to certain educational and charitable
organizations which are exempt from tax) applies and which is controlled directly or indirectly by the parent
corporation or subsidiary corporation, by an individual, estate, or trust that is a principal stockholder (within
the meaning of clause (ii)) of the parent corporation, by an officer of the parent corporation, or by any
combination thereof.
(B) Brother-sister controlled group.--For purposes of subsection (a)(2), if 5 or fewer persons who are
individuals, estates, or trusts (referred to in this subparagraph as "common owners") own (within the meaning of
subsection (d)(2)), 50 percent or more of the total combined voting power of all classes of stock entitled to vote
or 50 percent or more of the total value of shares of all classes of stock in a corporation, the following stock of
such corporation shall be treated as excluded stock-(i) stock in such corporation held by an employees' trust described in section 401(a) which is exempt from
tax under section 501(a), if such trust is for the benefit of the employees of such corporation,
(ii) stock in such corporation owned (within the meaning of subsection (d) (2)) by an employee of the
corporation if such stock is subject to conditions which run in favor of any of such common owners (or such
corporation) and which substantially restrict or limit the employee's right (or if the employee constructively
owns such stock, the direct owner's right) to dispose of such stock. If a condition which limits or restricts the
employee's right (or the direct owner's right) to dispose of such stock also applies to the stock held by any of
the common owners pursuant to a bona fide reciprocal stock purchase arrangement, such condition shall not
be treated as one which restricts or limits the employee's right to dispose of such stock, or
(iii) stock in such corporation owned (within the meaning of subsection (d) (2)) by an organization to which
section 501 (relating to certain educational and charitable organizations which are exempt from tax) applies
and which is controlled directly or indirectly by such corporation, by an individual, estate, or trust that is a
principal stockholder (within the meaning of subparagraph (A)(ii)) of such corporation, by an officer of such
corporation, or by any combination thereof.
(d) Rules for determining stock ownership.-(1) Parent-subsidiary controlled group.--For purposes of determining whether a corporation is a member of a
parent-subsidiary controlled group of corporations (within the meaning of subsection (a)(1)), stock owned by a
corporation means-(A) stock owned directly by such corporation, and
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(B) stock owned with the application of paragraphs (1), (2), and (3) of subsection (e).
(2) Brother-sister controlled group.--For purposes of determining whether a corporation is a member of a
brother-sister controlled group of corporations (within the meaning of subsection (a)(2)), stock owned by a person
who is an individual, estate, or trust means-(A) stock owned directly by such person, and
(B) stock owned with the application of subsection (e).
(e) Constructive ownership.-(1) Options.--If any person has an option to acquire stock, such stock shall be considered as owned by such
person. For purposes of this paragraph, an option to acquire such an option, and each one of a series of such
options, shall be considered as an option to acquire such stock.
(2) Attribution from partnerships.--Stock owned, directly or indirectly, by or for a partnership shall be
considered as owned by any partner having an interest of 5 percent or more in either the capital or profits of the
partnership in proportion to his interest in capital or profits, whichever such proportion is the greater.
(3) Attribution from estates or trusts.-(A) Stock owned, directly or indirectly, by or for an estate or trust shall be considered as owned by any
beneficiary who has an actuarial interest of 5 percent or more in such stock, to the extent of such actuarial
interest. For purposes of this subparagraph, the actuarial interest of each beneficiary shall be determined by
assuming the maximum exercise of discretion by the fiduciary in favor of such beneficiary and the maximum
use of such stock to satisfy his rights as a beneficiary.
(B) Stock owned, directly or indirectly, by or for any portion of a trust of which a person is considered the
owner under subpart E of part I of subchapter J (relating to grantors and others treated as substantial owners)
shall be considered as owned by such person.
(C) This paragraph shall not apply to stock owned by any employees' trust described in section 401(a) which is
exempt from tax under section 501(a).
(4) Attribution from corporations.--Stock owned, directly or indirectly, by or for a corporation shall be
considered as owned by any person who owns (within the meaning of subsection (d)) 5 percent or more in value
of its stock in that proportion which the value of the stock which such person so owns bears to the value of all the
stock in such corporation.
(5) Spouse.--An individual shall be considered as owning stock in a corporation owned, directly or indirectly, by
or for his spouse (other than a spouse who is legally separated from the individual under a decree of divorce
whether interlocutory or final, or a decree of separate maintenance), except in the case of a corporation with
respect to which each of the following conditions is satisfied for its taxable year-(A) The individual does not, at any time during such taxable year, own directly any stock in such corporation;
(B) The individual is not a director or employee and does not participate in the management of such corporation
at any time during such taxable year;
(C) Not more than 50 percent of such corporation's gross income for such taxable year was derived from
royalties, rents, dividends, interest, and annuities; and
(D) Such stock in such corporation is not, at any time during such taxable year, subject to conditions which
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substantially restrict or limit the spouse's right to dispose of such stock and which run in favor of the individual
or his children who have not attained the age of 21 years.
(6) Children, grandchildren, parents, and grandparents.-(A) Minor children.--An individual shall be considered as owning stock owned, directly or indirectly, by or for
his children who have not attained the age of 21 years, and, if the individual has not attained the age of 21 years,
the stock owned, directly or indirectly, by or for his parents.
(B) Adult children and grandchildren.--An individual who owns (within the meaning of subsection (d)(2),
but without regard to this subparagraph) more than 50 percent of the total combined voting power of all classes
of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock in a
corporation shall be considered as owning the stock in such corporation owned, directly or indirectly, by or for
his parents, grandparents, grandchildren, and children who have attained the age of 21 years.
(C) Adopted child.--For purposes of this section, a legally adopted child of an individual shall be treated as a
child of such individual by blood.
(f) Other definitions and rules.-(1) Employee defined.--For purposes of this section the term "employee" has the same meaning such term is
given by paragraphs (1) and (2) of section 3121(d).
(2) Operating rules.-(A) In general.--Except as provided in subparagraph (B), stock constructively owned by a person by reason of
the application of paragraph (1), (2), (3), (4), (5), or (6) of subsection (e) shall, for purposes of applying such
paragraphs, be treated as actually owned by such person.
(B) Members of family.--Stock constructively owned by an individual by reason of the application of
paragraph (5) or (6) of subsection (e) shall not be treated as owned by him for purposes of again applying such
paragraphs in order to make another the constructive owner of such stock.
(3) Special rules.--For purposes of this section-(A) If stock may be considered as owned by a person under subsection (e)(1) and under any other paragraph of
subsection (e), it shall be considered as owned by him under subsection (e)(1).
(B) If stock is owned (within the meaning of subsection (d)) by two or more persons, such stock shall be
considered as owned by the person whose ownership of such stock results in the corporation being a component
member of a controlled group. If by reason of the preceding sentence, a corporation would (but for this
sentence) become a component member of two controlled groups, it shall be treated as a component member of
one controlled group. The determination as to the group of which such corporation is a component member
shall be made under regulations prescribed by the Secretary which are consistent with the purposes of this part.
(C) If stock is owned by a person within the meaning of subsection (d) and such ownership results in the
corporation being a component member of a controlled group, such stock shall not be treated as excluded stock
under subsection (c)(2), if by reason of treating such stock as excluded stock the result is that such corporation
is not a component member of a controlled group of corporations.
(4) Franchised corporation.--If-(A) a parent corporation (as defined in subsection (c)(2)(A)), or a common owner (as defined in subsection
(c)(2)(B)), of a corporation which is a member of a controlled group of corporations is under a duty (arising out
of a written agreement) to sell stock of such corporation (referred to in this paragraph as "franchised
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corporation") which is franchised to sell the products of another member, or the common owner, of such
controlled group;
(B) such stock is to be sold to an employee (or employees) of such franchised corporation pursuant to a bona
fide plan designed to eliminate the stock ownership of the parent corporation or of the common owner in the
franchised corporation;
(C) such plan-(i) provides a reasonable selling price for such stock, and
(ii) requires that a portion of the employee's share of the profits of such corporation (whether received as
compensation or as a dividend) be applied to the purchase of such stock (or the purchase of notes, bonds,
debentures or other similar evidence of indebtedness of such franchised corporation held by such parent
corporation or common owner);
(D) such employee (or employees) owns directly more than 20 percent of the total value of shares of all classes
of stock in such franchised corporation;
(E) more than 50 percent of the inventory of such franchised corporation is acquired from members of the
controlled group, the common owner, or both; and
(F) all of the conditions contained in subparagraphs (A), (B), (C), (D), and (E) have been met for one-half (or
more) of the number of days preceding the December 31 included within the taxable year (or if the taxable year
does not include December 31, the last day of such year) of the franchised corporation,
then such franchised corporation shall be treated as an excluded member of such group, under subsection (b)(2),
for such taxable year.
(5) Brother-sister controlled group definition for provisions other than this part.-(A) In general.--Except as specifically provided in an applicable provision, subsection (a)(2) shall be applied to
an applicable provision as if it read as follows:
(2) Brother-sister controlled group.--Two or more corporations if 5 or fewer persons who are individuals,
estates, or trusts own (within the meaning of subsection (d)(2) stock possessing-(A) at least 80 percent of the total combined voting power of all classes of stock entitled to vote, or at least 80
percent of the total value of shares of all classes of stock, of each corporation, and
(B) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than
50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock
ownership of each such person only to the extent such stock ownership is identical with respect to each such
corporation."
(B) Applicable provision.--For purposes of this paragraph, an applicable provision is any provision of law
(other than this part) which incorporates the definition of controlled group of corporations under subsection (a).
Current through P.L. 109-367 (excluding P.L. 109-304, P.L. 109-364)
approved 10-26-06

Copr. © 2006 Thomson/West. No. Claim to Orig. U.S. Govt. Works

© 2006 Thomson/West. No Claim to Orig. U.S. Govt. Works.

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26 U.S.C.A. § 1563

END OF DOCUMENT

© 2006 Thomson/West. No Claim to Orig. U.S. Govt. Works.