TD 9715, Agent for Consolidated Group

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Federal Register / Vol. 80, No. 62 / Wednesday, April 1, 2015 / Rules and Regulations

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9715]
RIN 1545–BH31

Regulations Revising Rules Regarding
Agency for a Consolidated Group
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:

This document contains final
regulations regarding the agent for an
affiliated group of corporations that files
a consolidated return (consolidated
group). The final regulations provide
guidance concerning the identity and
authority of the agent for a consolidated
group. These final regulations affect all
corporations in consolidated groups.
DATES:
Effective Date: These regulations are
effective on April 1, 2015.
Applicability Date: For dates of
applicability, see § 1.1502–77(j).
FOR FURTHER INFORMATION CONTACT:
Gerald B. Fleming at (202) 317–6975 or
Richard M. Heinecke at (202) 317–6065
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
SUMMARY:

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Paperwork Reduction Act
The collection of information
contained in these final regulations has
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507)
under control number 1545–1699. The
collection of information in these final
regulations is in paragraphs (c)(4),
(c)(5)(iii), (c)(6)(i)(B), (c)(6)(ii), (c)(6)(iv),
(c)(7)(i)(A), (c)(7)(i)(B), (c)(7)(ii), and
(f)(3) of § 1.1502–77. The collection of
information is necessary to make certain
that the Commissioner of Internal
Revenue (Commissioner), agent for the
consolidated group, and members of the
group are each informed of the proper
identity of the agent for any given
period, and are able to timely exercise
their privileges and fulfill their
responsibilities with respect to the filing
of a consolidated return.
For more information, see Rev. Proc.
2015–26, IRB 2015–15, the revenue
procedure published to accompany the
final regulations that provides
instructions with respect to all
communications relating to the
identification of an agent for a
consolidated group.
An agency may not conduct or
sponsor, and a person is not required to

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respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
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 law. Generally,
tax returns and return information are
confidential, as required by section
6103.
Background and Explanation of
Provisions
1. Introduction
This Treasury Decision contains final
regulations that amend 26 CFR part 1,
under section 1502 of the Internal
Revenue Code of 1986 (Code) (Final
Regulations). Section 1502 authorizes
the Secretary to prescribe regulations for
corporations that join in filing
consolidated returns and provides that
such rules may be different from the
provisions of chapter 1 of subtitle A of
the Code that would apply if such
corporations filed separate returns.
These Final Regulations provide
guidance under § 1.1502–77 with
respect to the agent for a group of
affiliated corporations that file a
consolidated return (agent), including
rules for identifying and communicating
with the agent, and determining the
scope of the agent’s authority.
The Final Regulations apply to
consolidated return years beginning on
or after April 1, 2015. Regulations in
effect before April 1, 2015 will continue
to apply to consolidated tax years
beginning before April 1, 2015.
Contemporaneously with the
publication of the Final Regulations in
the Federal Register, the IRS is issuing
Rev. Proc. 2015–26, IRB 2015–15,
providing instructions regarding the
manner of making all communications
that relate to the identification of an
agent under the Final Regulations. Rev.
Proc. 2015–26, IRB 2015–15, will
obsolete Rev. Proc. 2002–43, 2002–2 CB
99 (see § 601.601(d)(2)(ii)(b) of this
chapter) (Determination of Substitute
Agent for a Consolidated Group When
the Common Parent Ceases to Exist)
with respect to consolidated return
years for which these Final Regulations
apply. Thus, Rev. Proc. 2002–43 will
continue to apply for consolidated
return years subject to prior regulations.
2. Overview of Prior Guidance
Regarding Agents
On June 28, 2002, the IRS and the
Treasury Department promulgated final
regulations under § 1.1502–77 in TD
9002, 67 FR 43538, to provide rules

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concerning the identity and authority of
the agent and the designation of a new
agent. These regulations were amended
by TD 9255 (71 FR 13001) (March 14,
2006) and TD 9343 (72 FR 40066) (July
23, 2007). (The June 28, 2002
regulations and amendments are
collectively referred to in this preamble
as the 2002 Regulations.)
On June 29, 2002, the IRS released
Rev. Proc. 2002–43 to prescribe
instructions for all communications
relating to the determination of a
substitute agent and the designation of
a substitute agent by a terminating
common parent.
On May 30, 2012, the IRS and the
Treasury Department proposed
regulations that would replace the 2002
Regulations (2012 Proposed
Regulations). The 2012 Proposed
Regulations were published in the
Federal Register (77 FR 31786). No
request for a hearing was received. One
comment was received with respect to
the 2012 Proposed Regulations, but it
made no specific recommendations. No
other comments were received,
including with respect to the specific
request for comments regarding the
expansion of the circumstances in
which the Commissioner could
designate agents, and the ability of an
agent to resign.
3. Summary of the 2002 Regulations
Under the 2002 Regulations, the
common parent of a group ceased to be
the agent if its existence terminated
under applicable law, if it became
disregarded as an entity separate from
its owner for federal tax purposes (a
disregarded entity), or if it became an
entity classified as a partnership for
federal tax purposes. In such cases, the
common parent could generally
designate its successor, another member
of the group, or a group member’s
successor as the substitute agent for the
group (provided such designee was a
domestic corporation for federal tax
purposes). However, any such
designation required affirmative
approval by the Commissioner.
Although in general a common parent
must be a domestic corporation, a
common parent could be an entity
created or organized under the laws of
a foreign country and treated as a
domestic corporation by reason of
section 7874 (treating a foreign
corporation as a domestic corporation as
a result of certain outbound inversion
transactions) or an election under
section 953(d) to treat a foreign
insurance company as a domestic
corporation (foreign common parent). In
recognition of the logistical problems
this could create, the 2002 Regulations

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permitted the Commissioner to
designate a domestic member of the
group to act as the agent (domestic
substitute agent) in the case of a foreign
common parent.
Finally, the 2002 Regulations
provided certain rules relating to
partnerships and partners subject to
sections 6221 through 6234 of the Code,
enacted by section 402 of the Tax Equity
and Fiscal Responsibility Act of 1982
(96 Stat. 324) (TEFRA), generally
providing that the Commissioner would
deal directly with a member that was
the tax matters partner (TMP) regarding
specified matters for the partners in a
TEFRA partnership even if the TMP is
not the agent.

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4. Overview of the 2012 Proposed
Regulations
The 2012 Proposed Regulations
retained the general rules, concepts, and
examples of the 2002 Regulations.
However, the 2012 Proposed
Regulations renumbered, restructured,
and revised the 2002 Regulations to
minimize the circumstances under
which the identity of the agent would
not be clear. The 2012 Proposed
Regulations also increased the number
of situations in which the identity of the
agent would be determined without
action by taxpayers or the
Commissioner. The proposed changes
are described in the following
paragraphs 4.A. through 4.G.
A. Default Successors
The 2002 Regulations generally
permitted a terminating agent to
designate the substitute agent. However,
the IRS observed that terminating
agents, to the extent they designated at
all, tended to designate their successors
rather than another member of their
group. To simplify the procedures and
align them with taxpayers’ practices, the
2012 Proposed Regulations provided
that if an agent had a sole successor
(default successor), the default
successor would automatically become
the group’s agent when the prior agent
ceased to exist, such as in a merger. The
terminating agent would not be
permitted to designate an agent unless
there was no default successor, in which
case the agent could only designate an
entity that was a member of the group
for the consolidated return year (or a
successor of such a member). The 2012
Proposed Regulations also prescribed
limited circumstances under which the
Commissioner could replace a default
successor.
B. Entities Eligible To Be an Agent
The 2012 Proposed Regulations
included disregarded entities and

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partnerships among the entities
permitted to be agents for prior years in
which they or their predecessors were
not treated as disregarded. Thus, if a
common parent converted or merged
into a disregarded entity or partnership,
whether by reason of a state law merger,
a state law conversion, or a federal tax
election, the continuing or successor
juridical entity (whether a disregarded
entity or partnership) would continue as
the agent for the prior periods.
C. TEFRA Partnerships
In general, the Code and regulations
governing the treatment of TEFRA
partnerships provide that the
Commissioner will deal with the TMP
regarding specified matters for the
partners in a TEFRA partnership. See
generally, sections 6221 through 6234.
The 2002 Regulations provided two
TEFRA specific rules relating to
members that were partners in a TEFRA
partnership. Under the first rule, a
subsidiary that was the TMP of a TEFRA
partnership would act in its own name
regarding partnership matters, without
requiring any action by the agent. Under
the second rule, the Commissioner
would deal with a subsidiary that was
a partner in a TEFRA partnership in the
performance of an examination of the
TEFRA partnership. This second rule,
however, appeared to create some
confusion in the context of other
provisions of the 2002 Regulations.
To provide more clarity with respect
to the second rule, the 2012 Proposed
Regulations provided that: (1) The agent
will generally act as agent for a member
that is a partner in a TEFRA partnership
regarding all matters related to the
partnership, including execution of a
settlement agreement under section
6224(c) (as illustrated in Example 12 in
§ 1.1502–77(g) of the 2012 Proposed
Regulations) and extension of the statute
of limitations with respect to items
other than the items of the TEFRA
partnership (as illustrated in Example
11 in § 1.1502–77(g) of the 2012
Proposed Regulations); and (2) the
Commissioner, without having to deal
with each member separately by
‘‘breaking agency’’ pursuant to § 1.1502–
77(f)(2)(i) of the 2012 Proposed
Regulations, may communicate directly
with a subsidiary or a disregarded entity
owned by a subsidiary that is a partner
in a TEFRA partnership whenever the
Commissioner determines that such
direct communication will facilitate the
conduct of an examination, appeal, or
settlement with respect to the
partnership. However, like the 2002
Regulations, the 2012 Proposed
Regulations provided that any member
of the group designated as the TMP of

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a TEFRA partnership will act in its own
name and perform its responsibilities
with respect to the partnership without
requiring any action by the agent.
D. Commissioner’s Approval of
Substitute Agent
Although the 2002 Regulations
required the Commissioner to approve
any designation, in practice, designation
approval requests were denied only
rarely. To simplify procedures, and
thereby conserve resources and enhance
efficiency, the 2012 Proposed
Regulations eliminated the requirement.
However, to ensure that IRS records
accurately reflect the identity of an
agent, the 2012 Proposed Regulations
provided that a default successor, or a
terminating agent that has no default
successor, must notify the IRS (in
writing in the manner prescribed by the
Commissioner) when the default
successor or an entity designated by a
terminating agent becomes the group’s
new agent.
E. Commissioner’s Authority To
Designate Agent
The 2012 Proposed Regulations
provided several limited circumstances
in which the Commissioner could
designate or replace an agent, either on
its own initiative or at the request of
other members. Examples were
included in the 2012 Proposed
Regulations to illustrate the
circumstances in which an agent may be
designated.
The 2012 Proposed Regulations did
not provide the Commissioner with the
ability to replace a domestic default
successor under circumstances in which
it could not replace the common parent.
F. Foreign Entity as Agent
As previously noted, the 2002
Regulations did not preclude foreign
entities from acting as agent, but
provided that the Commissioner could
designate a domestic substitute agent.
The IRS and the Treasury Department
recognize that such an entity may have
the best access to information, but also
that these situations present unique
logistical issues. Accordingly, the 2012
Proposed Regulations did not preclude
a foreign entity from being the agent and
preserved the Commissioner’s
discretion to replace a foreign entity.
G. Post-Dissolution Winding Up Period
Questions arose under the 2002
Regulations with respect to the actions
that could be performed by a
terminating agent during the ‘‘winding
up’’ period following its dissolution.
Because winding up statutes vary
widely among the states, the IRS and the

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Treasury Department determined that
no single rule for post-dissolution
terminating agents would be appropriate
in all cases. The 2012 Proposed
Regulations resolved the issue by
providing that an entity that has
dissolved or otherwise ceased to exist
under applicable law can no longer be
the agent, irrespective of its powers
under state or local law during its postdissolution winding up period.

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5. Final Regulations
The rules adopted in these Final
Regulations are consistent with those set
forth in the 2012 Proposed Regulations.
The Final Regulations, however, make
several revisions to the 2012 Proposed
Regulations. First, as further described
in section 5.A. of this preamble, the
Final Regulations expand the
circumstances under which the
Commissioner may replace an agent on
the Commissioner’s own accord.
Second, the Final Regulations clarify
that a terminating agent without a
default successor may only designate an
agent with respect to a completed year.
See section 5.A.iii. of this preamble.
Third, the Final Regulations organize
the provisions that permit the
Commissioner to designate an agent into
two categories: (1) Those provisions that
authorize the Commissioner to replace
an agent on the Commissioner’s own
accord, with or without a written
request from a member; and (2) a
provision described in section 5.B. of
this preamble permitting the
Commissioner to replace an agent
pursuant to a member’s written request.
Fourth, as described in section 5.C. of
this preamble, the Final Regulations
allow an agent to resign under certain
circumstances. Fifth, the Final
Regulations clarify that an agent other
than the common parent generally
serves as agent under the same terms
and with the same rights as the common
parent. A significant exception to this
general rule discussed in section 5.A.iii.
of this preamble applies in the case of
an agent designated by the
Commissioner, in that such an agent
may not designate an agent upon its
termination unless the Commissioner
designated the agent solely because a
prior agent terminated without a default
successor and without designating an
agent (other than in the case of a group
structure change as defined in § 1.1502–
33(f)(1)).
In addition, the Final Regulations
contain clarifying and non-substantive
changes to the text of the 2012 Proposed
Regulations and redesignate the 2002
Regulations as § 1.1502–77B (§ 1.1502–
77A continues to apply for consolidated

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return years beginning before June 28,
2002).
A. Designation on Commissioner’s Own
Accord
The Final Regulations prescribe four
circumstances in which the
Commissioner may designate an agent
on the Commissioner’s own accord.
Three of the circumstances are adopted
from the 2012 Proposed Regulations:
The Commissioner may designate an
agent if (1) a terminating agent has no
default successor and fails to designate
an agent; (2) the Commissioner believes
that the agent or its default successor
exists but such entity fails to timely
respond to notices properly sent by the
Commissioner; or (3) the agent is or
becomes a foreign entity (for example,
through the agent’s continuance into a
foreign jurisdiction or certain
transactions subject to the inversion
rules of section 7874). The Final
Regulations add an additional situation
to the second circumstance so that the
Commissioner may designate an agent
where the agent either fails timely
respond to notices or fails to perform its
obligations as agent. Finally, the Final
Regulations add a fourth circumstance:
The Commissioner may designate a new
agent for a current year if a previously
designated agent ceases to be a member
of the group.
i. Replacing Agent That Fails To
Perform Its Obligations
The IRS and the Treasury Department
recognize that there may be situations in
which an agent is failing to perform its
obligations as agent under the Code or
regulations. Neither the 2002
Regulations nor the 2012 Proposed
Regulations provided a remedy to
designate an agent in such situations. As
a result, members would not be able to
accurately file a return, determine their
federal tax liability, or obtain refunds,
and the Commissioner might have to
deal with each member separately by
‘‘breaking agency’’ pursuant to § 1.1502–
77(f)(2)(i) of the 2012 Proposed
Regulations. This could, in turn, result
in significant uncertainty and undue
burden for group members as well as the
Commissioner. For example, assume the
Commissioner breaks agency for a
consolidated return year that has ended
(completed year) and then one or more
members files a claim for refund of
income taxes paid for that year. Because
of the uncertainty as to which
member(s) would be entitled to all or a
portion of the refund, the Government
would likely be forced to interplead all
potential member-claimants in an
ensuing refund case.

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The preamble to the 2012 Proposed
Regulations requested comments with
respect to this issue, but no comments
were received. Nevertheless, the IRS
and the Treasury Department have
considered this issue and determined
that the best interests of all concerned
would be served by providing the
Commissioner the authority to replace
an agent that fails to perform its
obligations as agent as prescribed by
federal tax law. Accordingly, the Final
Regulations provide that the
Commissioner may, with or without a
written request from a member,
designate an agent to replace any agent
that fails to perform its obligations as
agent as prescribed by the Code or
regulations promulgated thereunder.
ii. Replacing Agent That Ceases To Be
a Member for Current Year
The 2012 Proposed Regulations did
not provide guidance for situations in
which an agent previously designated
by the Commissioner ceases to be a
member during a consolidated return
year that is not a completed year
(current year). Thus, under the 2012
Proposed Regulations, there could be
situations in which a group would have
a non-member agent or no agent at all.
The Final Regulations address these
issues by requiring that the agent for the
current year be a member of the group.
An agent designated by the
Commissioner will generally continue
as the agent in successive consolidated
return years except in three
circumstances: (1) If the Commissioner
specifies a limited or specific period of
agency in the designation; (2) if the
agent ceases to be a member of the
group; or (3) if the agent is replaced
pursuant to the Final Regulations.
The Final Regulations also provide an
additional circumstance in which the
Commissioner may designate an agent
on the Commissioner’s own accord.
Specifically, the Final Regulations
permit the Commissioner, with or
without a written request from a
member, to designate an agent for the
current year if an agent previously
designated by the Commissioner ceases
to be a member of the group without
leaving a default successor in the group.
In that situation, a member of the group
should request that the Commissioner
designate an agent.
iii. Effect of Certain Designations on the
Commissioner’s Own Accord
The Proposed Regulations permitted
an agent that terminates without a
default successor to designate an agent.
If a terminating agent had no default
successor and failed to designate an
agent, the Commissioner could

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designate an agent with or without the
request of any member. The Final
Regulations generally adopt these rules
with one significant modification. If a
terminating agent was itself designated
by the Commissioner on the
Commissioner’s own accord and the
terminating agent does not have a
default successor, the Final Regulations
provide that the terminating agent is not
permitted to designate an agent if it was
designated because the agent it replaced
(1) ceased to be a member of the group
in a current year; (2) failed to timely
respond to notices or failed to fulfill its
obligations under the Code or
regulations; or (3) became a foreign
entity. Because the Commissioner’s
ability to administer the tax law is
impaired under these circumstances, the
IRS and the Treasury Department
determined that the interests of tax
administration would be best served by
monitoring of designated agents and
groups in these limited cases.
Accordingly, the IRS and the Treasury
Department determined that the
Commissioner, rather than the
terminating agent, should designate the
agent in these situations. In such cases,
any member (including the terminating
agent) of the group is permitted to
request that the Commissioner designate
a new agent. The Final Regulations
permit other categories of agents
previously designated by the
Commissioner to designate an agent
upon termination provided the
terminating agent does not (1) have a
default successor or (2) terminate in a
group structure change. The Final
Regulations clarify that a terminating
agent that is permitted to designate an
agent may only do so with respect to
completed years.
Finally, to prevent groups from
nullifying a designation made by the
Commissioner, the Final Regulations
provide that a designating agent may not
designate as an agent any entity that the
Commissioner previously replaced as
agent. The designating agent may,
however, submit a request that the
Commissioner designate as agent the
entity previously replaced as agent.
B. Designation Upon Written Request by
a Member
The 2002 Regulations and the 2012
Proposed Regulations provided a
mechanism whereby upon the written
request from a member, the
Commissioner could, but was not
required to, replace an agent previously
designated by the Commissioner. The
Final Regulations retain this provision
to permit a member to request that the
Commissioner designate a new agent in
circumstances other than the

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specifically enumerated circumstances
in which the Commissioner may
designate an agent on the
Commissioner’s own accord.
C. Resignation of Agent
Under the 2002 Regulations, a
common parent remained the agent for
any year for which it was the common
parent, with only a termination of the
common parent terminating that agency.
However, the IRS and the Treasury
Department recognize that there could
be circumstances in which an agent
would want to resign and have another
entity take its place as agent. For
example, assume P, the common parent
of the P consolidated group, becomes a
subsidiary of the group in a transaction
under § 1.1502–75(d) (resulting in a
group structure change described in
§ 1.1502–33(f)(1)), and the group
continues with N as the new common
parent and agent. If unrelated X acquires
the stock of P, P would leave the group
but would still be the agent for the years
during which it was the group’s
common parent. In that situation, it
might be more efficient for all
concerned if P were to resign as agent
in favor of another member. Although
the 2012 Proposed Regulations did not
include a mechanism for an existing
agent to resign, the preamble to the 2012
Proposed Regulations requested
comments with respect to this issue. No
comments were received. Nevertheless,
the IRS and the Treasury Department
have considered the issue and
determined that it would be in the best
interests of all concerned and sound tax
administration for agents to have the
ability to resign, at least in limited
situations.
Accordingly, the Final Regulations
provide a mechanism for agents to
resign with respect to completed years.
However, there are four conditions that
must be met. First, the agent must
provide written notice to the
Commissioner that it no longer intends
to be the agent for a completed year.
Second, an entity that could have been
designated by the resigning agent upon
its termination must consent, in writing,
to be the agent for that year. Third,
immediately after its resignation takes
effect, the resigning agent must not be
the agent for the current year. Fourth,
the Commissioner must not object to the
agent’s resignation. If these conditions
are satisfied, the new agent must notify
each member of the group that it has
become the agent.
Effective/Applicability Date
The Final Regulations apply to
consolidated return years beginning on
or after April 1, 2015. The 2002

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Regulations, redesignated as § 1.1502–
77B, and Rev. Proc. 2002–43 continue to
apply with respect to consolidated
return years beginning on or after June
28, 2002, and before April 1, 2015.
However, the new rules permitting the
resignation of agents may be relied upon
for completed years otherwise governed
by the 2002 Regulations (or any
predecessor regulations).
Special Analyses
It has been determined that this
Treasury Decision is not a significant
regulatory action as defined in
Executive Order 12866, as
supplemented by Executive Order
13563. Therefore, a regulatory
assessment is not required. It is hereby
certified that these regulations will not
have a significant economic impact on
a substantial number of small entities.
This certification is based on the fact
that these regulations will affect
affiliated groups of corporations that
have elected to file consolidated returns,
which tend to be larger entities.
Therefore, a Regulatory Flexibility
Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is
not required. Pursuant to section 7805(f)
of the Code, the proposed regulations
preceding these final regulations were
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business, and no
comments were received.
Drafting Information
The principal author of these final
regulations is Richard M. Heinecke,
Office of Associate Chief Counsel
(Corporate). However, other personnel
from the IRS and the Treasury
Department participated in their
development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
in numerical order to read in part as
follows:

■

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Authority: 26 U.S.C. 7805 * * *

*

*

*

*

*

Section 1.1502–77B also issued under 26
U.S.C. 1502 and 6402(j).

*

*

§ 1.338–1

*

*

*

[Amended]

Par. 2. Section 1.338–1 is amended by
removing the language ‘‘§ 1.1502–
77(e)(4)’’ in the last sentence of
paragraph (b)(2)(viii) and adding the
language ‘‘§ 1.1502–77(c)(8)’’ in its
place.
■ Par. 3. Section 1.1502–77A is
amended as follows:
■ 1. Paragraph (e)(2) is amended by
removing every occurrence of the
language ‘‘(a)(4)’’ and adding ‘‘(e)(4)’’ in
its place.
■ 2. In paragraph (e)(2), the first
sentence is amended by removing the
language ‘‘§ 1.1502–77’’ and adding
‘‘§ 1.1502–77A’’ in its place.
■ 3. In paragraph (e)(2), the second
sentence is amended by removing the
language ‘‘§ 1.1502–77(d)’’ and adding
‘‘§ 1.1502–77A(d)’’ in its place.
■ 4. Paragraph (e)(3) is amended by
removing the language ‘‘(a)(4)’’ and
adding ‘‘(e)(4)’’ in its place.
■ 5. Paragraph (e)(4) is amended by
removing the language ‘‘(a)(2)’’ and
adding ‘‘(e)(2)’’ in its place.
■ 6. Paragraph (e)(4)(iii) is amended by
removing the language ‘‘§ 1.1502–77(d)’’
and adding ‘‘§ 1.1502–77A(d)’’ in its
place.
■ 7. The heading for paragraph (g) is
revised.
The revision reads as follows:
■

§ 1.1502–77A Common parent agent for
subsidiaries applicable for consolidated
return years beginning before June 28,
2002.

*

*
*
*
*
(g) Effective/applicability dates. * * *

§ 1.1502.77
77B]

[Redesignated as § 1.1502–

Par. 4. Add an undesignated center
heading under § 1.1502.77A, redesignate
§ 1.1502–77 as § 1.1502–77B and, in
newly redesignated § 1.1502–77B, revise
the section heading and paragraph
(h)(1)(i) to read as follows:

■

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Regulations Applicable to Taxable
Years Beginning on or After June 28,
2002, and Before April 1, 2015
§ 1.1502–77B Agent for the group
applicable for consolidated return years
beginning on or after June 28, 2002, and
before April 1, 2015.

*

*
*
*
*
(h) Effective/applicability date—(1)
Application—(i) In general. This section

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applies to consolidated return years
beginning on or after June 28, 2002, and
before April 1, 2015. For instructions
regarding communications relating to
the determination of a substitute agent
and other matters under this section, see
Rev. Proc. 2002–43, 2002–2 CB 99 (see
§ 601.601(d)(2)(ii)(b) of this chapter).
For rules governing the resignation of
certain agents for the group subject to
this section, see § 1.1502–77(c)(7) and
(j)(2).
*
*
*
*
*
■ Par. 5. Section 1.1502–77 is added to
read as follows:
§ 1.1502–77

Agent for the group.

(a) Agent for the group—(1) Sole
agent. Except as provided in paragraphs
(e) and (f)(2) of this section, one entity
(the agent) is the sole agent that is
authorized to act in its own name
regarding all matters relating to the
federal income tax liability for the
consolidated return year for each
member of the group and any successor
or transferee of a member (and any
subsequent successors and transferees
thereof). The identity of that agent is
determined under the rules of paragraph
(c) of this section.
(2) Agent for each consolidated return
year. Agency for the group is established
for each consolidated return year and is
not affected by the status or membership
of the group in later years. Thus, subject
to the rules of paragraph (c) of this
section, the agent will generally remain
agent for that consolidated return year
regardless of whether one or more
subsidiaries later cease to be members of
the group, whether the group files a
consolidated return for any subsequent
year, whether the agent ceases to be the
agent or a member of the group in any
subsequent year, or whether the group
continues pursuant to § 1.1502–75(d)
with a new common parent in any
subsequent year.
(3) Communications under this
section. Any designation, notification,
objection, request, or other
communication made to or by the
Commissioner pursuant to paragraphs
(c) and (f)(2) of this section must be
made in accordance with procedures
prescribed by the Commissioner in the
Internal Revenue Bulletin (see
§ 601.601(d)(2)(ii) of this chapter),
forms, instructions, or other appropriate
guidance.
(b) Definitions. The following
definitions apply for purposes of this
section only—
(1) Successor. A successor is an
individual or entity (including a
disregarded entity as defined in
paragraph (b)(3) of this section) that is

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primarily liable, pursuant to applicable
law (including, for example, by
operation of a state or federal merger
statute), for the tax liability of a
corporation that was a member of the
group but is no longer in existence
under applicable law. The
determination of tax liability is made
without regard to § 1.1502–1(f)(4) or
§ 1.1502–6(a). (For inclusion of a
successor in references to a subsidiary
or member, see paragraph (b)(5)(iii) of
this section.)
(2) Entity. The term entity includes
any corporation, limited liability
company, or partnership formed under
any state, federal, or foreign jurisdiction.
The term entity includes a disregarded
entity (as defined in paragraph (b)(3) of
this section). The term entity does not
include an entity that has terminated
even if it is in a winding up period
under the law under which it is
organized.
(3) Disregarded entity. The term
disregarded entity includes any of the
following types of entities that are
disregarded as separate from their
owners—
(i) Qualified real estate investment
trust subsidiaries (within the meaning of
section 856(i)(2));
(ii) Qualified subchapter S
subsidiaries (within the meaning of
section 1361(b)(3)(B)); and
(iii) Eligible entities with a single
owner (within the meaning of
§ 301.7701–3 of this chapter).
(4) Default successor. A successor to
the agent is the default successor if it is
an entity (whether domestic or foreign)
that is the sole successor to the agent.
A partnership is treated as a sole
successor with primary liability
notwithstanding that one or more
partners may also be primarily liable by
virtue of being partners.
(5) Member or subsidiary. All
references to a member or subsidiary for
a consolidated return year include—
(i) Each corporation that was a
member of the group during any part of
such year (except that any reference to
a subsidiary does not include the
common parent);
(ii) Each corporation whose income
was included in the consolidated return
for such year, notwithstanding that the
tax liability of such corporation should
have been computed on the basis of a
separate return, or as a member of
another consolidated group, under the
provisions of § 1.1502–75; and
(iii) Except as indicated otherwise, a
successor of any of the foregoing
corporations.
(6) Completed year. A completed year
is a consolidated return year that has

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ended, or will end at the time of the
referenced event.
(7) Current year. A current year is a
consolidated return year that is not a
completed year.
(c) Identity of the agent—(1) In
general. Except as otherwise provided
in this section, the agent for a current
year is the common parent and the agent
for a completed year is the common
parent at the close of the completed year
or its default successor, if any. Except as
specifically provided otherwise in this
paragraph (c), any entity that is an agent
pursuant to paragraph (c)(3) of this
section (agent following group structure
change), paragraph (c)(5) of this section
(agent designated by agent terminating
without default successor), paragraph
(c)(6) of this section (agent designated
by Commissioner), or paragraph (c)(7) of
this section (agent designated by
resigning agent) of this section (and any
entity that subsequently serves as agent)
acts as an agent for and under the same
terms and conditions that apply to a
common parent. For example, such an
agent would generally be able to
designate an agent if it terminates
without a default successor; however,
an entity that became agent pursuant to
a designation by the Commissioner
under paragraphs (c)(6)(i)(A)(2), (3), or
(4) of this section is not permitted to
designate an agent if it terminates
without a default successor. Other
special rules described in this paragraph
(c) apply.
(2) Purported agent. If any entity files
a consolidated return, or takes any other
action related to the tax liability for the
consolidated return year, purporting to
be the agent but is subsequently
determined not to have been the agent
with respect to the claimed group, that
entity is treated, to the extent necessary
to avoid prejudice to the Commissioner,
as if it were the agent.
(3) New common parent after a group
structure change. If the group continues
in existence after a group structure
change (as described in § 1.1502–
33(f)(1)), the former common parent is
the agent until the group structure
change, and the new common parent
becomes the agent after the group
structure change. Following the group
structure change, the new common
parent is the agent with respect to the
entire current year (including the period
before the group structure change) and
the former common parent is no longer
the agent for that year. However, actions
taken by the former common parent as
the agent before the group structure
change are not nullified when the new
common parent becomes the agent with
respect to the entire consolidated return
year. Following the group structure

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change, the new common parent
continues as the agent for succeeding
years subject to the rules of this section.
(4) Notification by default successor—
(i) In general. Failure to provide notice
to the Commissioner pursuant to this
paragraph (c)(4)(i) does not invalidate
an entity’s status as the default
successor. However, until the
Commissioner receives notification in
writing that an entity is the default
successor—
(A) Any notice of deficiency or other
communication mailed to the
predecessor agent, even if no longer in
existence, is considered as having been
properly mailed to the agent; and
(B) The Commissioner is not required
to act on any communication
(including, for example, a claim for
refund) submitted on behalf of the group
by any person (including the default
successor) other than the predecessor
agent.
(ii) Conversions and continuances.
For purposes of the notice requirements
under paragraph (c)(4)(i) of this section,
any entity that results from the agent’s
conversion or continuance by operation
of state law and that qualifies as a
default successor under paragraph (b)(4)
of this section is treated as a default
successor for purposes of the notice
provisions of paragraph (c)(4)(i) of this
section, even if applicable state or local
law may treat the converted or
continued entity as not ceasing to exist.
(5) Designation by terminating
agent—(i) In general. Prior to the
termination of its existence without a
default successor, an agent may
designate an entity described in
paragraph (c)(5)(ii) of this section to act
as agent for any completed year. This
designation is effective upon the
termination of the designating agent’s
existence. However, this paragraph
(c)(5) does not apply to, and no
designation can be made by, an agent
that was designated by the
Commissioner under paragraphs
(c)(6)(i)(A)(2), (3), or (4) of this section,
or any successor of such an agent; in
such a case, the terminating agent
should request that the Commissioner
designate an agent pursuant to
paragraph (c)(6)(i)(B) of this section.
(ii) Permissible agents—(A) The
terminating agent may designate as
agent a member of the group during any
part of the completed year, or an entity
(whether domestic or foreign) that is a
successor of such a member, including
an entity that will become a successor
at the time the agent’s existence
terminates.
(B) The terminating agent may not
designate as agent any entity that was
previously replaced as agent by the

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Commissioner pursuant to paragraphs
(c)(6)(i)(A)(2), (3), or (4) of this section,
or any successor of such an agent.
However, the terminating agent may
submit a request pursuant to paragraph
(c)(6)(i)(B) of this section that the
Commissioner designate such an entity
as agent.
(iii) Notification of designation. The
terminating agent must notify the
Commissioner in writing of its
designation of an entity as agent
pursuant to paragraph (c)(5)(i) of this
section and provide a statement
executed by the designated entity
acknowledging that it will serve as the
agent for each specified completed year
for which it is designated as the agent.
If the designated entity was not itself a
member of the group during any
specified year (because it is a successor
of a member), the notification must
include a statement acknowledging that
the designated entity is or will be
primarily liable for the tax liability for
the specified completed year as a
successor of a member.
(iv) Failure to designate an agent. If
the agent terminates without a default
successor, and no agent is designated
pursuant to this paragraph (c)(5)—
(A) Any notice of deficiency or other
communication mailed to the agent,
even if no longer in existence, is
considered as having been properly
mailed to the agent; and
(B) The Commissioner is not required
to act on any communication
(including, for example, a claim for
refund) submitted on behalf of the group
by any person.
(6) Designation by the
Commissioner—(i) In general. The
Commissioner has the authority to
designate an entity to act as the agent
under the circumstances prescribed in
this paragraph (c)(6)(i). The designated
agent for a completed year must be an
entity described in paragraph
(c)(5)(ii)(A) of this section when the
designation becomes effective. The
designated agent for a current year must
be a member of the group when the
designation becomes effective. If,
pursuant to this paragraph (c)(6), the
Commissioner replaces the common
parent or another entity as the agent, the
common parent or other entity, or any
successor thereof, may not later act as
the agent unless so designated by the
Commissioner.
(A) On Commissioner’s own accord.
With or without a request from any
member of the group, the Commissioner
may designate an entity to act as the
agent if—
(1) The agent’s existence terminates,
other than in a group structure change,
without there being a default successor

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and without any designation made
under paragraph (c)(5)(i) of this section;
(2) An agent previously designated by
the Commissioner is no longer a
member of the group in the current year
and does not have a default successor
that is a member of the group;
(3) The Commissioner believes that
the agent or its default successor exists
but such entity has either not timely
responded to the Commissioner’s
notices (sent to the last known address
on file for the entity or left at the usual
place of business for such entity) or has
failed to perform its obligations as agent
as prescribed by the Internal Revenue
Code (Code) or regulations promulgated
thereunder; or
(4) The agent is or becomes a foreign
entity as a result of any action or
transaction (including, for example, a
continuance into a foreign jurisdiction
or certain inversion transactions subject
to section 7874 in which a foreign
parent is treated as a domestic
corporation).
(B) Written request from any member.
At the request of any member, in a
circumstance not described in
paragraph (c)(6)(i)(A) of this section, the
Commissioner may, but is not required
to, replace an agent previously
designated under this paragraph (c)(6).
(ii) Notification by Commissioner. The
Commissioner will notify the designated
entity in writing of the Commissioner’s
designation of the entity as agent
pursuant to paragraph (c)(6)(i) of this
section, and the designation will be
effective as prescribed by the
Commissioner. The designated entity
should give notice of the designation by
the Commissioner pursuant to
paragraph (c)(6)(i) of this section to each
member of the group during any part of
the consolidated return year. However,
a failure by the designated entity to
notify any such member of the group
does not invalidate the designation by
the Commissioner.
(iii) Term and effect of designation.
Unless otherwise provided by the
Commissioner in the designation, any
agent designated by the Commissioner
pursuant to paragraph (c)(6)(i) of this
section (new agent) is the agent with
respect to the entire consolidated return
year for which it is designated and
successive years, subject to the rules of
this section. An agent immediately
preceding a new agent (former agent)
ceases to be the agent for a particular
consolidated return year once the new
agent has been designated for that year,
but the designation of the new agent
does not nullify actions taken on behalf
of the group by the former agent while
it was agent. If there is more than one
new agent designated by the

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Commissioner for a consolidated return
year, the new agent that is designated
last in time by the Commissioner is the
agent with respect to the entire
consolidated return year. A designation
pursuant to this paragraph (c)(6) is
effective as prescribed by the
Commissioner in such designation or
the Internal Revenue Bulletin (see
§ 601.601(d)(2)(ii) of this chapter),
forms, instructions, or other appropriate
guidance.
(iv) Request by member of the group
where agent previously designated by
the Commissioner is no longer a
member. If an agent at any time after it
is designated as agent by the
Commissioner pursuant to paragraph
(c)(6)(i) of this section is no longer a
member of the group for any current
year, and its default successor, if any, is
not a member of the group at that time,
a member of the group, including the
agent that will cease to be a member,
should request, in writing, that the
Commissioner designate a member of
the group to be the new agent pursuant
to paragraph (c)(6)(i)(A)(2) of this
section. Until such a request is made—
(A) Any notice of deficiency or other
communication mailed to the agent,
even if no longer a member, is
considered as having been properly
mailed to the agent; and
(B) The Commissioner is not required
to act on any communication
(including, for example, a claim for
refund) submitted on behalf of the group
by any person.
(7) Agent resigns—(i) In general. The
agent may resign for a completed year
if—
(A) It provides written notice to the
Commissioner that it no longer intends
to be the agent for that completed year;
(B) An entity described in paragraph
(c)(5)(ii)(A) of this section consents, in
writing, to be the agent with respect to
that completed year;
(C) Immediately after its resignation
takes effect, the resigning agent will not
be the agent for the current year; and
(D) The Commissioner does not object
to the agent’s resignation.
(ii) Notification by agent that replaces
agent that resigns. If the Commissioner
does not object to the agent’s
resignation, the agent that replaces the
agent that resigns should give written
notice that it is the new agent to each
member of the group for any part of the
completed year for which it is
designated the agent.
(8) Transactions under the Code.
Notwithstanding section 338(a)(2), a
target corporation for which an election
is made under section 338 is not
deemed to terminate for purposes of this
section.

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(d) Examples of matters subject to
agency. With respect to any
consolidated return year for which it is
the agent—
(1) The agent makes any election (or
similar choice of a permissible option)
that is available to a subsidiary in the
computation of its separate taxable
income, and any change in an election
(or similar choice of a permissible
option) previously made by or for a
subsidiary, including, for example, a
request to change a subsidiary’s method
or period of accounting;
(2) All correspondence concerning the
income tax liability for the consolidated
return year is carried on directly with
the agent;
(3) The agent files for all extensions
of time, including extensions of time for
payment of tax under section 6164, and
any extension so filed is considered as
having been filed by each member;
(4) The agent gives waivers, gives
bonds, and executes closing agreements,
offers in compromise, and all other
documents, and any waiver or bond so
given, or agreement, offer in
compromise, or any other document so
executed, is considered as having also
been given or executed by each member;
(5) The agent files claims for refund,
and any refund is made directly to and
in the name of the agent and discharges
any liability of the Government to any
member with respect to such refund;
(6) The agent takes any action on
behalf of a member of the group with
respect to a foreign corporation
including, for example, elections by,
and changes to the method of
accounting of, a controlled foreign
corporation in accordance with § 1.964–
1(c)(3);
(7) Notices of claim disallowance are
mailed only to the agent, and the
mailing to the agent is considered as a
mailing to each member;
(8) Notices of deficiencies are mailed
only to the agent (except as provided in
paragraph (f)(3) of this section), and the
mailing to the agent is considered as a
mailing to each member;
(9) Notices of final partnership
administrative adjustment under section
6223 with respect to any partnership in
which a member of the group is a
partner may be mailed to the agent, and,
if so, the mailing to the agent is
considered as a mailing to each member
that is a partner entitled to receive such
notice (for other rules regarding
partnership proceedings, see paragraph
(f)(2)(iii) of this section);
(10) The agent files petitions and
conducts proceedings before the United
States Tax Court, and any such petition
is considered as also having been filed
by each member;

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(11) Any assessment of tax may be
made in the name of the agent, and an
assessment naming the agent is
considered as an assessment with
respect to each member; and
(12) Notice and demand for payment
of taxes is given only to the agent, and
such notice and demand is considered
as a notice and demand to each member.
(e) Matters reserved to subsidiaries.
Except as provided in this paragraph (e)
and paragraph (f)(2) of this section, no
subsidiary (unless it is or becomes an
agent pursuant to paragraph (c) of this
section) has authority to act for or to
represent itself in any matter related to
the tax liability for the consolidated
return year. The following matters,
however, are reserved exclusively to
each subsidiary—
(1) The making of the consent
required by § 1.1502–75(a)(1);
(2) Any action with respect to the
subsidiary’s liability for a federal tax
other than the income tax imposed by
chapter 1 of the Code (including, for
example, employment taxes under
chapters 21 through 25 of the Code, and
miscellaneous excise taxes under
chapters 31 through 47 of the Code); and
(3) The making of an election to be
treated as a Domestic International Sales
Corporation under § 1.992–2.
(f) Dealings with members—(1)
Identifying members in notice of a lien.
Notwithstanding any other provisions of
this section, any notice of a lien, any
levy, or any other proceeding to collect
the amount of any assessment, after the
assessment has been made, must name
the entity from which such collection is
to be made.
(2) Direct dealing with a member—(i)
Several liability. The Commissioner
may, upon issuing to the agent written
notice that expressly invokes the
authority of this provision, deal directly
with any member of the group with
respect to its liability under § 1.1502–6
for the consolidated tax of the group, in
which event such member has sole
authority to act for itself with respect to
that liability. However, if the
Commissioner believes or has reason to
believe that the existence of the agent
has terminated without an agent being
identified under this section, the
Commissioner may, if the Commissioner
deems it advisable, deal directly with
any member with respect to that
member’s liability under § 1.1502–6
without issuing notice to any other
entity.
(ii) Information requests. The
Commissioner may, upon issuing to the
agent written notice, request
information relevant to the consolidated
tax liability from any member of the
group. However, if the Commissioner

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believes or has reason to believe that the
existence of the agent has terminated
without an agent being identified under
this section, the Commissioner may
request such information from any
member of the group without issuing
notice to any other entity.
(iii) Members as partners in
partnerships subject to the provisions of
the Code. Except as otherwise provided
in this paragraph (f)(2)(iii), the general
rule of paragraph (a)(1) of this section
applies so that the agent is the agent for
any subsidiary member that for any part
of the consolidated return year is a
partner in a partnership subject to the
provisions of sections 6221 through
6234 of the Code (as originally enacted
by the Tax Equity and Fiscal
Responsibility Act of 1982 and
subsequently amended) and the
accompanying regulations (TEFRA
partnership). However—
(A) Any subsidiary or any disregarded
entity owned by a subsidiary that is
designated as tax matters partner of a
TEFRA partnership will act in its own
name and perform its responsibilities
under sections 6221 through 6234 and
the accompanying regulations without
requiring any action by the agent (but
see paragraph (d)(9) of this section
regarding the mailing of a final
partnership administrative adjustment
to the agent); and
(B) The Commissioner may at any
time communicate directly with a
subsidiary or a disregarded entity
owned by a subsidiary that is a partner
in a TEFRA partnership, without having
to deal with each member separately
pursuant to paragraph (f)(2)(i) of this
section, whenever the Commissioner
determines that such direct
communication will facilitate the
conduct of an examination, appeal, or
settlement with respect to the
partnership.
(3) Copy of notice of deficiency to
entity that has ceased to be a member
of the group. A subsidiary that ceases to
be a member of the group during or after
a consolidated return year may file a
written notice of that fact with the
Commissioner and request a copy of any
notice of deficiency with respect to the
tax for a consolidated return year during
which it was a member, or a copy of any
notice and demand for payment of such
deficiency, or both. Such filing does not
limit the scope of the agency of the
agent provided for in this section. Any
failure by the Commissioner to comply
with such request does not limit the
subsidiary’s tax liability under § 1.1502–
6.
(g) Examples. Unless otherwise
indicated, all entities are domestic and
have a calendar year taxable year, and

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each of P, S, S–1, S–2, S–3, T, V, W,
W–1, Y, Z, and Z–1 is a corporation. For
none of the consolidated return years at
issue does the Commissioner exercise
the authority under paragraph (f)(2) of
this section to deal with any member
separately. Any surviving entity in a
merger is either a successor as described
in paragraph (b)(1) of this section, or a
default successor as described in
paragraph (b)(4) of this section, as the
case may be. Except as otherwise
indicated, no agent will be replaced
under paragraph (c)(6) of this section or
will resign under paragraph (c)(7) of this
section, and all communications to and
from the Commissioner are made in
accordance with procedures prescribed
by the Commissioner.
Example 1. Disposition of all group
members where the agent remains the agent.
(i) Facts. As of January 1 of Year 1, P is the
common parent and agent for the P
consolidated group, consisting of P and its
two subsidiaries, S and S–1. P files
consolidated returns for the P group in Years
1 and 2. On December 31 of Year 1, P sells
all the stock of S–1 to X. On December 31 of
Year 2, P distributes all the stock of S to P’s
shareholders. P files a separate return for
Year 3.
(ii) Analysis. Although the consolidated
group terminates after Year 2 under § 1.1502–
75(d)(1) and P is no longer the common
parent nor the agent for years after Year 2,
P remains the agent for the P group for Years
1 and 2 under paragraph (a)(2) of this section.
Accordingly, for as long as P remains in
existence, P is the agent for the P group
under paragraphs (a)(1) and (2) and (c)(1) of
this section for Years 1 and 2.
Example 2. Acquisition of the agent by
another group where the agent remains the
agent. (i) Facts. The facts are the same as in
Example 1, except on January 1 of Year 3, all
of the outstanding stock of P is acquired by
Y, which is the common parent and agent of
the Y consolidated group. P thereafter joins
in the Y group’s consolidated return as a
member of the Y group.
(ii) Analysis. Although P is a member of
the Y group in Year 3 and succeeding years,
P remains the agent for the P group for Years
1 and 2 under paragraph (a)(2) of this section.
Accordingly, for as long as P remains in
existence, P is the agent for the P group
under paragraphs (a)(1) and (2) and (c)(1) of
this section for Years 1 and 2.
Example 3. Reverse triangular merger of
the agent where the agent remains the agent.
(i) Facts. As of January 1 of Year 1, P is the
common parent and agent for the P
consolidated group consisting of P and its
two subsidiaries, S and S–1. P files
consolidated returns for the P group in Years
1 and 2. On March 1 of Year 3, W–1, a
subsidiary of W, merges into P in a reverse
triangular merger qualifying as a
reorganization under section 368(a)(1)(A) and
(a)(2)(E). P survives the merger with W–1.
The transaction constitutes a reverse
acquisition under § 1.1502–75(d)(3)(i)
because P’s shareholders receive more than
50 percent of W’s stock in exchange for all

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of P’s stock. The transaction is therefore a
group structure change as described in
paragraph (c)(3) of this section.
(ii) Analysis. Because the transaction
constitutes a reverse acquisition that results
in a group structure change, the P group is
treated as remaining in existence with W as
its common parent and agent. Under
paragraphs (a)(1) and (2) and (c)(1) of this
section, P remains the agent for the P group
for Years 1 and 2 for as long as P remains
in existence, even though the P group
continues with W as its new common parent
pursuant to § 1.1502–75(d)(3)(i). Until the
merger of W–1 and P on March 1 of Year 3,
P is the agent for the P group for Year 3. From
the time of that merger, W, as common parent
of the P group, becomes the agent for the P
group with respect to all of Year 3 (including
the period through March 1) and succeeding
consolidated return years. The actions taken
by P before the merger as agent for the P
group for Year 3 are not nullified by the fact
that W becomes the agent for all of Year 3.
Example 4. Reverse triangular merger of
the agent—subsequent distribution of agent
where the agent remains the agent. (i) Facts.
The facts are the same as in Example 3,
except that on April 1 of Year 4, in a
transaction unrelated to the March 1, Year 3
reverse acquisition, P distributes the stock of
its subsidiaries S and S–1 to W, and W then
distributes the stock of P to the W
shareholders.
(ii) Analysis. Although P is no longer a
member of the P group after the Year 4
distribution, P remains the agent for the P
group under paragraphs (a)(1) and (2) and
(c)(1) of this section for Years 1 and 2 for as
long as P remains in existence.
Example 5. Agent Resigns. (i) Facts. The
facts are the same as in Example 4, except
that on August 1 of Year 4, P provides
written notice to the Commissioner that it
resigns as the agent for Years 1 and 2.
Included with the written notice is a
statement executed by either S or S–1
consenting to be the agent for the P group for
Years 1 and 2.
(ii) Analysis. Pursuant to paragraph (c)(7)
of this section, because P is not the agent in
Year 4, the current year, it will not be the
agent immediately after its resignation takes
effect. Accordingly, if the Commissioner does
not object to P’s resignation, P may resign
with respect to Years 1 and 2, both of which
are completed years, and either S or S–1,
each an entity described in paragraph
(c)(5)(ii)(A) of this section, can be the agent
for the P group for Years 1 and 2 if it
consents in writing. W cannot be the agent
for the P group for Years 1 and 2 because it
is not an entity described in paragraph
(c)(5)(ii)(A) of this section with respect to the
P group for Years 1 and 2.
Example 6. Qualified stock purchase and
section 338 election where the agent remains
the agent. (i) Facts. As of January 1 of Year
1, P is the common parent and agent for the
P consolidated group consisting of P and its
two subsidiaries, S and S–1. P files
consolidated returns for the P group in Years
1 and 2. On March 31 of Year 2, V purchases
the stock of P in a qualified stock purchase
(within the meaning of section 338(d)(3)),
and V makes a timely election pursuant to
section 338(g) with respect to P.

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(ii) Analysis. Although section 338(a)(2)
provides that P is treated as a new
corporation as of the beginning of the day
after the acquisition date for purposes of
subtitle A, paragraph (c)(8) of this section
provides that P’s existence is not deemed to
terminate for purposes of this section
notwithstanding the general rule of section
338(a)(2). Accordingly, new P is the agent for
the P group for Year 1 and the period ending
March 31 of Year 2 regardless of the election
under section 338(g).
Example 7. Change in the agent’s federal
income tax classification to a partnership
and the resulting partnership continues as
the agent. (i) Facts. P, a State M limited
liability partnership with two partners that is
formed on January 1 of Year 1, elects
pursuant to § 301.7701–3(c) of this chapter to
be an association taxable as a corporation for
federal income tax purposes effective on the
date of formation. P is the common parent
and agent for the P consolidated group
consisting of P and its two subsidiaries, S
and S–1. P files consolidated returns for the
P group in Years 1 through 6. On January 1
of Year 7, P elects pursuant to § 301.7701–
3(c) of this chapter to be treated as a
partnership. P remains in existence under
applicable law.
(ii) Analysis. The P group terminates and
P is no longer the common parent of a
consolidated group after its election to be
treated as a partnership for federal income
tax purposes. Because P remains in existence
under applicable law, P is the agent for the
P group under paragraphs (a)(1) and (2) and
(c)(1) of this section for Years 1 through 6.
If P merged into a foreign partnership instead
of converting to a partnership, the foreign
partnership would be P’s default successor
and agent for the P group for Years 1 through
6. See paragraphs (b)(4) and (c)(1) of this
section.
Example 8. Forward triangular merger of
agent—successor as default successor. (i)
Facts. As of January 1 of Year 1, P is the
common parent and agent for the P
consolidated group consisting of P and its
two subsidiaries, S and S–1. P files a
consolidated return for the P group for Year
1. On January 1 of Year 3, P merges with and
into Z–1, a subsidiary of Z, in a forward
triangular merger qualifying as a
reorganization under section 368(a)(1)(A) and
(a)(2)(D). The transaction constitutes a
reverse acquisition under § 1.1502–75(d)(3)(i)
resulting in a group structure change as
described in paragraph (c)(3) of this section
because P’s shareholders receive more than
50 percent of Z’s stock in exchange for all of
P’s stock. Z–1, the corporation that survives
the merger and the successor of P, is the
default successor for the P group for Years 1
and 2.
(ii) Analysis. Although Z is the new
common parent for the P group (which
continues pursuant to § 1.1502–75(d)(3)(i))
for consolidated return years after the merger,
and, as a consequence, Z is the new agent as
a result of this group structure change, P may
not designate an agent for Years 1 or 2
because Z–1 is P’s default successor and the
agent for the P group for Years 1 and 2.
Z–1 must file the P group’s consolidated
return for Year 2. See paragraphs (b)(4) and
(c)(1) of this section.

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Example 9. Merger of the agent into a
disregarded entity in exchange for stock of
owner in a transaction qualifying as a
reorganization under the Code where
successor is the default successor. (i) Facts.
As of January 1 of Year 1, P is the common
parent and agent for the P consolidated group
consisting of P and its two subsidiaries, S
and S–1. P files a consolidated return for the
P group in Year 1. On January 1 of Year 2,
the shareholders of P form Y, a State M
corporation. On the same date, Y forms Y–
1, a State M limited liability company that is
a disregarded entity (as defined in paragraph
(b)(3) of this section) for federal income tax
purposes, and P merges into Y–1 under State
M law. In the merger, the P shareholders
receive all of the Y stock. Y (through Y–1) is
treated as acquiring the assets of P in a
transaction qualifying as a reorganization of
P into Y under section 368(a)(1)(F), and the
P group continues under § 1.1502–75(d)(2)
with Y as the common parent and, as a
consequence, the transaction is treated as a
group structure change as described in
paragraph (c)(3) with Y as the P group’s agent
for Year 2. In Year 4, the Commissioner seeks
to extend the period of limitations on
assessment with respect to Year 1 of the P
group. In Year 5, the Commissioner seeks to
extend the period of limitations on
assessment with respect to Year 2 of the Y
group (formerly the P group).
(ii) Analysis. (A) Year 1 extension. As a
result of the January 1, Year 2 merger, Y–1
is the default successor of P, and the agent
for the P group for Year 1. See paragraphs
(b)(4) and (c)(1) of this section. Therefore, Y–
1 is the only party that can sign the extension
with respect to the P group for Year 1.
(B) Year 2 extension. Because the January
1, Year 2 merger qualified as a reorganization
under section 368(a)(1)(F), the P group
remains in existence with Y as the common
parent. Therefore, Y, the common parent of
the P group after the merger, is the P group’s
agent for all of Year 2 (see paragraph (c)(3)
of this section) and is the only party that can
sign the extension with respect to the P group
for that year and in succeeding years. See
paragraphs (a)(1) and (2) and (c)(1) of this
section.
Example 10. Designation of agent where
there is no default successor. (i) Facts. P is
incorporated under the laws of State X. Fifty
percent of its stock is owned at all times by
A, an individual, and 50 percent by BCD, a
partnership. On January 1 of Year 1, P forms
two subsidiaries, S and T, and becomes the
common parent of the P group. P files
consolidated returns for the P group
beginning in Year 1 and is the agent for the
P consolidated group beginning on January 1
of Year 1. On November 30 of Year 3, P
dissolves under X law. Under X law, A and
BCD are primarily liable for the federal
income tax liability of dissolved corporation
P. State X law allows the officers of a
dissolved corporation to perform certain
actions incident to the winding up of its
affairs after its dissolution, including the
filing of tax returns.
(ii) Analysis. Upon P’s dissolution, there is
no default successor to P, pursuant to
paragraph (b)(4) of this section, because there
are two successors. Prior to its dissolution on

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November 30 of Year 3, pursuant to
paragraph (c)(5)(i) of this section, P may
designate an agent for the P group for Years
1 and 2 and the short taxable year ending on
November 30 of Year 3, to be effective upon
P’s dissolution. P may designate S or T,
pursuant to paragraph (c)(5)(ii)(A) of this
section (because they are members of the
former group), or BCD (because it is an entity
that is a successor to P pursuant to paragraph
(b)(1) of this section). P cannot designate A
pursuant to paragraph (c)(5)(ii) of this
section, because A is not an entity. Under
paragraph (b)(2) of this section, the officers
of P cannot designate an agent for the P group
after P dissolves on November 30 of Year 3,
notwithstanding the winding up provisions
of State X law. Accordingly, P should
designate an agent prior to its dissolution to
ensure that there is an agent authorized to
file the short Year 3 consolidated return. If
P does not designate an agent prior to
dissolution under paragraph (c)(5)(i) of this
section, the Commissioner may designate an
agent under paragraph (c)(6)(i)(A)(1) of this
section from among S, T, or BCD, upon their
request or otherwise. If any of S, T, A, or BCD
realizes that P has dissolved without
designating an agent, it should request, in
writing, a designation of an agent by the
Commissioner as soon as possible.
Example 11. Commissioner designates a
new agent. (i) Agent fails to fulfill its
obligations. (A) Facts. P is the common
parent and agent for the P consolidated group
consisting of P and its two subsidiaries,
S–1 and S–2, each a State Y corporation. P
files a consolidated return for the P group in
Year 1. In Year 2, S–3, also a State Y
corporation, joins the P group. The P group
continues as a consolidated group in Years 2,
3, and 4. As of Year 4, P has failed to file
the P group consolidated returns for Years 2
and 3.
(B) Analysis. (1) Scope of designation.
Because P failed to perform its obligations as
agent as prescribed by federal tax law, the
Commissioner may, under the authority of
paragraph (c)(6)(i)(A)(3) of this section, on
his own accord, with or without a written
request from a member, designate another
entity described in paragraph (c)(6)(i) of this
section to act as the agent for not just Years
2 and 3, but any of Years 1 through 4.
(2) Year 1 designation. The Commissioner
may designate either S–1 or S–2, both of
which are entities described in paragraphs
(c)(6)(i) and (c)(5)(ii)(A) of this section, to act
as the agent for the P group for Year 1.
Because S–3 was not a member of the group
in Year 1, it is not an entity described in
paragraphs (c)(6)(i) and (c)(5)(ii)(A) of this
section for Year 1 and therefore cannot be the
agent for Year 1. Unless otherwise provided
in the designation, the designation of either
S–1 or S–2 will also be effective for Years 2,
3, and 4 and all succeeding consolidated
return years of the group.
(3) Year 2 designation. The Commissioner
may designate either S–1, S–2, or S–3, all of
which are entities described in paragraph
(c)(5)(ii)(A) of this section, to act as the agent
for the P group for Year 2. Unless otherwise
provided in the designation, the designation
of either S–1, S–2, or S–3 will also be
effective for Years 3 and 4 and all succeeding
consolidated return years of the group.

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(4) Year 3 designation. The Commissioner
may designate any of S–1, S–2, or S–3 as the
agent for Year 3. Unless otherwise provided
in the designation, the designation of either
S–1, S–2, or S–3 will also be effective for
Year 4 and all succeeding consolidated
return years of the group.
(5) Year 4 designation. The Commissioner
may designate any of S–1, S–2, or S–3 as the
agent for Year 4. Unless otherwise provided
in the designation, the designation of either
S–1, S–2, or S–3 will also be effective for all
succeeding consolidated return years of the
group.
(ii) Member requests replacement of
designated agent. (A) Facts. The facts are the
same as in paragraph (i)(A) of this Example
11, except that in Year 4 the Commissioner
designates S–1 as agent for Years 1 and
succeeding years to replace P for P’s failure
to fulfill its obligations. After receiving
notification that S–1 has been designated,
S–3 submits a request in Year 4, pursuant to
paragraph (c)(6)(i)(B) of this section, that the
Commissioner designate S–2 as the agent
because S–1 does not have ready access to
the group’s books and records, which are
located in another state and are in the
possession of S–2.
(B) Analysis. In light of S–3’s request, the
Commissioner may, under the authority of
paragraph (c)(6)(i)(B) of this section,
designate either S–2 (for all or any years) or
S–3 (for any year or years other than Year 1)
as agent in lieu of the previously designated
agent, S–1. However, notwithstanding S–3’s
request, the Commissioner is not required to
replace S–1 as agent for any of the
consolidated return years for which S–1 was
designated.
Example 12. Designated agent ceases to be
a member of the group. (i) Facts. The facts
are the same as in paragraph (ii)(A) of
Example 11, except that in Year 4 no member
requests that the Commissioner replace S–1,
which accordingly continues to be the agent
for the P group in Year 5 pursuant to
paragraph (c)(6)(iii) of this section. On May
2 of Year 5, S–1 converts under State Y law
into S–1 LLC, a limited liability company
that is an entity that is treated as a
disregarded entity (as defined in paragraph
(b)(3) of this section) and, as a consequence,
is no longer a member of the P group after
the conversion.
(ii) Analysis for completed years. S–1 LLC,
the disregarded entity resulting from the
conversion, becomes S–1’s default successor.
As such, S–1 LLC is the agent for Years
1–4.
(iii) Analysis for current and succeeding
years. S–1 is an agent designated by the
Commissioner pursuant to paragraph
(c)(6)(i)(A)(3) of this section. Because S–1 is
no longer a member of the P group after May
2 of Year 5, S–1 is the agent for the P group
for Year 5 only while it remains a member
(see paragraphs (c)(6)(i) and (iii) of this
section). According to paragraph (c)(6)(i) of
this section, although S–1 LLC is S–1’s
default successor, it is not a member of the
group for the current year and therefore
cannot be its agent. Furthermore, S–1 cannot
designate an agent for Year 5 under
paragraph (c)(5)(i) of this section because that
paragraph pertains only to designations for

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completed years for which there is no default
successor. In addition, S–1 cannot designate
an agent for Year 5 under paragraph (c)(5)(i)
of this section because S–1 was previously
designated by the Commissioner under
paragraph (c)(6)(i)(A)(3) of this section.
(iv) Member’s notice to Commissioner for
Commissioner to designate a member of the
group for a current year. A member of the
group in Year 5 should request that the
Commissioner designate, pursuant to
paragraphs (c)(6)(i)(A)(2) and (c)(6)(iv) of this
section, another member of the P group to be
the agent of the group for Year 5. The
Commissioner may then, pursuant to
paragraph (c)(6)(i)(A)(2) of this section,
designate either S–2, S–3, or P to be the agent
for the P group and, once so designated, that
member will be, effective on May 3 of Year
5, the agent for all of Year 5 and for
succeeding years (subject to the rules of this
section) pursuant to paragraph (c)(6)(iii) of
this section. No actions taken by S–1 on
behalf of the P group through May 2, Year 5,
are nullified by the Commissioner’s
designation of another agent even though the
agent so designated will be the agent for all
of Year 5.
Example 13. Fraudulent conveyance of
assets. (i) Facts. As of January 1 of Year 1,
P is the common parent and agent for the P
consolidated group consisting of P and its
two subsidiaries, S and S–1. On March 15 of
Year 2, P files a consolidated return that
includes the income of S and S–1 for Year
1. On December 1 of Year 2, S–1 transfers
assets having a fair market value of $100x to
U in exchange for $10x. This transfer of
assets for less than fair market value
constitutes a fraudulent conveyance under
applicable state law. On March 1 of Year 5,
P executes a waiver extending to December
31 of Year 6 the period of limitations on
assessment with respect to the P group’s Year
1 consolidated return. On February 1 of Year
6, the Commissioner issues a notice of
deficiency to P asserting a deficiency of $30x
for the P group’s Year 1 consolidated tax
liability. P does not file a petition for
redetermination in the Tax Court, and the
Commissioner makes a timely assessment
against the P group. P, S, and S–1 are all
insolvent and are unable to pay the
deficiency. On February 1 of Year 8, the
Commissioner sends a notice of transferee
liability to U, which does not file a petition
in the Tax Court. On August 1 of Year 8, the
Commissioner assesses the amount of the P
group’s deficiency against U. Under section
6901(c), the Commissioner may assess U’s
transferee liability within one year after the
expiration of the period of limitations against
the transferor, S–1. By operation of section
6213(a) and 6503(a), the issuance of the
notice of deficiency to P and the expiration
of the 90-day period for filing a petition in
the Tax Court have the effect of further
extending by 150 days the P group’s
limitations period on assessment from the
previously extended date of December 31 of
Year 6 to May 30 of Year 7.
(ii) Analysis. Pursuant to paragraph (a)(1)
of this section, the waiver executed by P on
March 1 of Year 5 to extend the period of
limitations on assessment to December 31 of
Year 6 and the further extension of the P

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group’s limitations period to May 30 of Year
7 (by operation of sections 6213(a) and
6503(a)) have the derivative effect of
extending the period of limitations on
assessment of U’s transferee liability to May
30 of Year 8. By operation of section 6901(f),
the issuance of the notice of transferee
liability to U and the expiration of the 90-day
period for filing a petition in the Tax Court
have the effect of further extending the
limitations period on assessment of U’s
liability as a transferee by 150 days, from
May 30 of Year 8 to October 27 of Year 8.
Accordingly, the Commissioner may send a
notice of transferee liability to U at any time
on or before May 30 of Year 8 and assess the
unpaid liability against U at any time on or
before October 27 of Year 8. The result would
be the same even if S–1 ceased to exist before
March 1 of Year 5, the date P executed the
waiver.
Example 14. Consent to extend the statute
of limitations for a partnership where a
member of the consolidated group is a
partner of such partnership subject to the
provisions of the Code and the tax matters
partner is not a member of the group. (i)
Facts. P is the common parent and agent for
the P consolidated group consisting of P and
its two subsidiaries, S and S–1. The P group
has a November 30 fiscal year end and P files
consolidated returns for the P group for the
years ending November 30, Year 1 and
November 30, Year 2. S–1 is a partner in the
PRS partnership, which is subject to the
provisions of sections 6221 through 6234.
PRS has a calendar year end and A, an
individual, is the tax matters partner of the
PRS partnership. PRS files a partnership
return for the year ending December 31, Year
1. On January 10, Year 5, A, as the tax
matters partner for the PRS partnership,
executes a consent to extend the period for
assessment of partnership items of PRS for all
partners, and the Commissioner co-executes
the consent on the same day for the year
ending December 31, Year 1.
(ii) Analysis. A’s consent to extend the
statute of limitations for the partnership
items of PRS partnership for the year ending
December 31, Year 1, extends the statute of
limitations with respect to the partnership
items for all members of the P group,
including P, S, and S–1 for the consolidated
return year ending November 30, Year 2. This
is because S–1 is a partner in the PRS
partnership for which A, the tax matters
partner for the PRS partnership, consents,
pursuant to section 6229(b)(1)(B), to extend
the statute of limitations for the year ending
December 31, Year 1. However, under
paragraph (f)(2)(iii) of this section, such
agreement with respect to the statute of
limitations for the PRS partnership for the
year ending December 31, Year 1 does not
obviate the need to obtain a consent from P,
the agent for the P consolidated group, to
extend the statute of limitations for the P
consolidated group for the P group’s
consolidated return years ending November
30, Year 1 and November 30, Year 2
regarding any items other than partnership
items or affected items of the PRS
partnership.
Example 15. Contacting subsidiary member
in order to facilitate the conduct of an

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examination, appeal, or settlement where a
member of the consolidated group is a
partner of a partnership subject to the
provisions of the Code. (i) Facts. P is the
common parent and agent for the P
consolidated group consisting of P and its
two subsidiaries, S and S–1. The P group has
a November 30 fiscal year end, and P files
consolidated returns for the P group for the
years ending November 30, Year 1 and
November 30, Year 2. S–1 is a partner in the
PRS partnership, which is subject to the
provisions of sections 6221 through 6234.
PRS has a calendar year end and A, an
individual, is the tax matters partner of the
PRS partnership. PRS files a partnership
return for the year ending December 31, Year
1. The Commissioner, on January 10, Year 4,
in the course of an examination of the PRS
partnership for the year ending December 31,
Year 1, seeks to obtain information in the
course of that examination to resolve the
audit.
(ii) Analysis. Because the direct contact
with a subsidiary member of a consolidated
group that is a partner in a partnership
subject to the provisions under sections 6221
through 6234 may facilitate the conduct of an
examination, appeal, or settlement, the
Commissioner, under paragraph (f)(2)(iii) of
this section, may communicate directly with
either S–1, P, or A regarding the PRS
partnership without breaking agency
pursuant to paragraph (f)(2)(i) of this section.
However, if the Commissioner were instead
seeking to execute a settlement agreement
with respect to S–1 as a partner with respect
to its liability as a partner in PRS
partnership, P would need to execute such
settlement agreement for all members of the
group including the partner subsidiary.

(h) Cross-reference. For further rules
applicable to groups that include
insolvent financial institutions, see
§ 301.6402–7 of this chapter.
(i) [Reserved]
(j) Effective/applicability date—(1) In
general. The rules of this section apply
to consolidated return years beginning
on or after April 1, 2015. For prior years
beginning before June 28, 2002, see
§ 1.1502–77A. For prior years beginning
on or after June 28, 2002, and before
April 1, 2015, see § 1.1502–77B.
(2) Application of this section to prior
years. Notwithstanding paragraph (j)(1)
of this section, an agent may apply the
rules of paragraph (c)(7) of this section
to resign as agent for a completed year
that began before April 1, 2015.
§ 1.1502–78

Par. 6. Section 1.1502–78 is amended
as follows:
■ 1. Paragraph (a) is amended by
removing every occurrence of the
language ‘‘(or substitute agent
designated under § 1.1502–77(d) for the
carryback year)’’ and adding ‘‘(or the
agent determined under § 1.1502–77(c)
or § 1.1502–77B(d) for the carryback
year)’’ in its place.

Frm 00018

PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 7. The authority citation for part
602 continues to read as follows:

■

Authority: 26 U.S.C. 7805.

Par. 8. In § 602.101, revise paragraph
(b) by adding an entry in numerical
order to the table to read as follows:

■

§ 602.101

*

OMB Control numbers.

*
*
(b) * * *

*

*

CFR part or section where
identified and described
*
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1.1502–77B ..........................
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Current OMB
control No.
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1545–1699

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John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
Approved: February 23, 2015.
Mark D. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2015–07182 Filed 3–31–15; 8:45 am]
BILLING CODE 4830–01–P

DEPARTMENT OF HOMELAND
SECURITY
Coast Guard

[Amended]

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PO 00000

2. Paragraph (b)(1) is amended by
removing the language ‘‘(or substitute
agent designated under § 1.1502–77(d)
for the carryback year)’’ and adding ‘‘(or
the agent determined under § 1.1502–
77(c) or § 1.1502–77B(d) for the
carryback year)’’ in its place.
■ 3. Paragraph (c) is amended by
removing each occurrence of the
language ‘‘1966’’ and adding ‘‘2003’’ in
its place; removing the language ‘‘1967’’
and adding ‘‘2004’’ in its place;
removing each occurrence of the
language ‘‘1968’’ and adding ‘‘2005’’ in
its place; and removing each occurrence
of the language ‘‘1969’’ and adding
‘‘2006’’ in its place.
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Fmt 4700

Sfmt 4700

33 CFR Part 117
[Docket No. USCG–2015–0082]
RIN 1625–AA09

Drawbridge Operation Regulation;
Ontonagon River, Ontonagon, MI
Coast Guard, DHS.
Final rule.

AGENCY:
ACTION:

E:\FR\FM\01APR1.SGM

01APR1

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