1120 Schedule O Instructions for Form 1120 Scedule O

Instructions for Schedule O
(Form 1120)

Department of the Treasury
Internal Revenue Service

(Rev. December 2012)

Consent Plan and Apportionment Schedule for a Controlled Group
Section references are to the Internal
Revenue Code unless otherwise noted.

Future Developments

For the latest information about
developments related to Schedule O
(Form 1120) and its instructions, such
as legislation enacted after they were
published, go to www.irs.gov/
form1120.

General Instructions
Purpose of Schedule

A corporation that is a component
member (defined below) of a
controlled group must use
Schedule O to report the
apportionment of taxable income,
income tax, and certain tax benefits
between all component members of
the group. These members will be
subject to limitations on the use of
certain tax benefits for their applicable
tax year. See Apportionment of Tax
Benefit Items.

Also use Schedule O to indicate
that the member filing this return
consents to and represents that all the
other component members of the
controlled group:
Are adopting an apportionment
plan, effective for the current tax year;
Are amending the existing
apportionment plan;
Are terminating the existing
apportionment plan and not adopting
a new plan;
Are terminating the existing
apportionment plan and adopting a
new plan;
Have no apportionment plan in
effect and are not adopting an
apportionment plan; or
Already have an apportionment
plan in effect.

Who Must File

A corporation must file Schedule O
with its income tax return, amended
return, or claim for refund for each tax
year that the corporation is a
component member of a controlled

Nov 16, 2012

group, even if (1) no apportionment
plan is in effect, or (2) the amounts
apportioned have not changed from
the previous tax year. See Definitions
and Special Rules, below.
Consolidated groups. If any of the
component members of a controlled
group are also members of a
consolidated group, then the common
parent of that consolidated group
must file, as part of its consolidated
income tax return, one Schedule O on
behalf of the members of that
consolidated group. No subsidiary of
that consolidated group should file
Schedule O on its own behalf. The
Schedule O should contain the
required consolidated information for
all members of the consolidated
group. See Identifying Information.
Exception. If all of the members of
a parent-subsidiary controlled group
that are required to file a U.S. tax
return join in filing the same
consolidated tax return, then the
parent of that group does not have to
file Schedule O on behalf of the
group.

Completing and Filing
Schedule O

In completing Schedule O, the
following apply.
The filing of Schedule O by a
component member provides the
required information as to the status
of the group's apportionment plan.
Such information must indicate, when
applicable, whether all the component
members of the controlled group are
adopting, amending, or terminating an
apportionment plan.
If all such members complete the
required written agreement setting
forth the terms of the adopted or
amended apportionment plan (or an
agreement to terminate a previously
adopted plan), then each member of
that group may rely on this agreement
as the member's basis for
representing on its Schedule O that
the other component members of the
group have also consented to
Cat. No. 48211V

adopting, amending, or terminating
the apportionment plan.
The agreement must be signed by
a person authorized to sign on behalf
of each component member of the
controlled group and retained. No
member should attach this agreement
(or a copy of it) to their federal income
tax returns. Each component member
must keep, as part of its records,
either the original or a copy of the
signed agreement. The agreement
must contain the group's
apportionment methodology (for
example, percentages) for each tax
benefit item that is apportioned.

Definitions and Special
Rules
Types of Controlled Groups
Parent-subsidiary group. A
parent-subsidiary group is one or
more chains of corporations
connected through stock ownership
with a common parent corporation if:
Stock possessing at least 80% of
the total combined voting power of all
classes of stock entitled to vote or at
least 80% of the total value of shares
of all classes of stock of each of the
corporations, except the common
parent corporation, is directly or
indirectly owned by one or more of the
other corporations; and
The common parent corporation
directly or indirectly owns stock
possessing at least 80% of the total
combined voting power of all classes
of stock entitled to vote or at least
80% 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.
For purposes of determining
whether a corporation is a member of
a parent-subsidiary controlled group
of corporations within the meaning of
section 1563(a)(1), stock owned by a
corporation means:
Stock owned directly by the
corporation, and

Stock constructively owned by that
corporation under sections 1563(e)
(1), (2), and (3).
Brother-sister group. A
brother-sister group generally is two
or more corporations where the same
five or fewer persons who are
individuals, estates, or trusts directly
or indirectly own stock possessing:
At least 80% of the total combined
voting power of all classes of stock
entitled to vote or at least 80% of the
total value of shares of all classes of
the stock of each corporation (the
80% test), and
More than 50% of the total
combined voting power of all classes
of stock entitled to vote or more than
50% 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 (the 50% test).
Brother-sister group for
purposes of certain tax attributes.
For purposes of allocating the
following, a brother-sister group is
defined using only the 50% test
above:
The taxable income brackets,
The additional taxes,
The alternative minimum tax (AMT)
exemption amount,
The reduction of the AMT
exemption amount, and
The accumulated earnings credit.
For purposes of determining
whether a corporation is a member of
a brother-sister controlled group of
corporations within the meaning of
section 1563(a)(2), stock owned by a
person who is an individual, estate, or
trust includes:
Stock owned directly by such
person, and
Stock constructively owned under
section 1563(e).
Combined group. A combined
controlled group is three or more
corporations each of which is a
member of either a parent-subsidiary
group or a brother-sister group, and at
least one of which is both the common
parent of a parent-subsidiary group
and also a member of a brother-sister
group.
Life insurance companies only
group. Two or more life insurance
companies subject to tax under

section 801 which are members of
any parent-subsidiary, brother-sister,
or combined controlled group will be
treated as a controlled group of
corporations separate from any other
type of controlled group to which
these corporations would otherwise
belong if they were not life insurance
companies. The life insurance
companies that make up a life
insurance controlled group do not
have to be in a direct ownership
relationship with each other.
Example. Life insurance
companies Corporation X and
Corporation Z make up a life
insurance company only group, where
Corporation X, a life insurance
company, owns all the stock of
Corporation Y, a non-life insurance
company, and Corporation Y, a
non-life insurance company owns all
the stock of Corporation Z, a life
insurance company.
Exception for life-nonlife
consolidated group. The rule above
does not apply to any life insurance
company that is a member (whether
eligible or ineligible to join in filing a
consolidated return) of a life-nonlife
affiliated group for which a section
1504(c)(2) election is in effect.
Instead, an eligible life insurance
company will be treated as a member
of a life-nonlife consolidated group,
and an ineligible life insurance
company will be treated as a member
of a life-nonlife controlled group
(deemed to constitute a
parent-subsidiary controlled group).

Component Member

A corporation qualifies as a
component member of a controlled
group of corporations, for a tax year, if
the corporation:
Is not a member of the controlled
group on the applicable December 31
testing date (defined below), but is
treated as an additional member
(defined below); or
Is a member of the controlled group
on the applicable December 31
testing date and is not treated as an
excluded member (defined below).
In general, in determining if a
member of a controlled group is a
component member of that group, the
applicable tax year of that corporation
must be tested to determine if it was a
member of the controlled group for at
least one-half of the number of days in
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its testing period. Also, in order to
determine the applicable tax year of
the member being tested, the group's
testing date must be determined. See
Testing date and Testing period.
Note. If a controlled group has an
apportionment plan in effect and
some of the members of that
controlled group join in filing a
consolidated return, then the
members of that consolidated group
are treated, together, as if they were a
single member of the controlled
group. If a controlled group does not
have an apportionment plan in effect
and any of the members of that group
join in filing a consolidated return,
then each member of that
consolidated group will be treated as
a separate member of the controlled
group.
Additional member. A member of a
controlled group is treated as an
additional member if the corporation:
Was a member of the controlled
group at any time during a calendar
year,
Was not a member of the controlled
group on that testing date,
Was a member of the controlled
group for at least one-half the number
of days of its testing period, and
Is not an excluded member
(defined next).
Any member of a controlled group
that is treated as an additional
member is also treated as a
component member of that group.
Excluded member. A corporation is
treated as an excluded member of a
controlled group of corporations on
the December 31 testing date for its
tax year that includes that December
31 testing date, if the corporation is:
A member of such group for less
than one-half the number of days in its
testing period,
Exempt from tax under section
501(a) (except a corporation which is
subject to tax on its unrelated
business taxable income under
section 511) or 521 for such year,
A foreign corporation not subject to
tax under section 882(a) for such tax
year,
A life insurance company subject to
tax under section 801 other than
either a life insurance company which
is a member of a life insurance
controlled group or a life insurance
company which is a member (whether

eligible or ineligible) of a life-nonlife
affiliated group for which a section
1504(c)(2) election is in effect,
Not a franchised corporation as
defined in section 1563(f)(4), or
An S corporation, as defined in
section 1361.
Any member of a controlled group
that is treated as an excluded member
is not a component member, but is a
member of the group. However, no
tax benefit items should be
apportioned to an excluded member.
And, an excluded member's taxable
income is not taken into account in
determining the additional taxes
liability imposed by section 11(b)(1).
Also, an excluded member's
alternative minimum taxable income
(AMTI) is not taken into account in
determining the phase-out of the AMT
exemption amount. If an excluded
member of the group owns a
controlling interest in a corporation
that meets the entity status
requirements for being a component
member, that corporation is a
component member of the group.
Example. Domestic corporation P
owns all of the stock of domestic
corporation S. Domestic corporation S
owns all of the stock of foreign
corporation F. Foreign corporation F
owns all of the stock of domestic
corporation X. Corporations P, S, and
X are component members of a
controlled group.
Exception. A corporation that (1)
was included in a controlled group at
any time during its tax year, (2) was
not included in that controlled group
on the group's December 31 testing
date, and (3) was not included in the
controlled group for at least one-half
the number of days of its testing
period, is not treated as a component
member, additional member, or
excluded member.
Example. For years prior to 2012,
Corporation X has been a component
member of controlled group XYZ.
Corporations X, Y, and Z do not file
consolidated tax returns. Corporation
X is on a calendar tax year. On
February 28, 2012, Corporation X was
sold to an unrelated party that is not a
member of any consolidated group.
Corporation X remained in existence
throughout its entire 2012 calendar
year. For the period from January 1,
2012, through February 28, 2012,
Corporation X is a member of that

controlled group which includes
Corporations Y and Z and which has a
testing date of December 31, 2012.
However, Corporation X is not a
component member, additional
member, or excluded member of that
group for that testing period.
Corporations Y and Z therefore are
not required to include any
information about Corporation X in
their respective 2012 Schedules O,
filed with their 2012 income tax
returns. Further, Corporation X does
not have to file Schedule O with its
2012 income tax return, for the
controlled group that includes
Corporations Y and Z.
Testing date. The testing date is the
date for determining whether amounts
of certain tax benefits otherwise
available to a corporation will be
limited in their use with regard to a
particular tax year of a component
member of a controlled group. Each
member of the group uses a
December 31 date, when possible, as
its testing date, whether such member
uses a calendar, or fiscal, tax year.
When a member of a controlled group
qualifies as a component member of
that group on a particular December
31 date, it will be required to limit its
use of certain specified tax benefits
with regard to a tax year that includes
a December 31 date. Each member of
the group uses the December 31 date
included within that member's tax year
as its testing date, whether such
member uses a calendar, or fiscal, tax
year. However, if a component
member of a controlled group has a
short tax year that does not include a
December 31 date, then the last day
of that short tax year will be the testing
date for that member. See Special
allocation rules for a short tax year,
later. Each member of a controlled
group will apply those limitations to
that tax year that is governed by the
applicable December 31 testing date
applied to that group.
Testing period. The testing period is
the time period for determining
whether a particular member of a
controlled group qualifies either as a
component member, or as an
excluded member. The testing period
begins on the first day of that
member's tax year and ends on the
day before its testing date. However,
for a component member having a
short tax year not including a
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December 31 date, the last day of its
short tax year is deemed to function
as the December 31 testing date for
that member only. For a member on a
full fiscal tax year, the portion of its tax
year beginning on the December 31
testing date and ending on the last
day of its tax year is not taken into
account for determining its status
either as a component member or as
an excluded member. In determining
how many days comprise a member's
testing period, the group takes into
account the day that the member is
sold, but does not take into account
either the day that such member is
acquired, or the member's December
31 testing date.

Overlapping Groups

If a corporation is a component
member of more than one controlled
group of corporations with respect to
any tax year, that corporation will 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.

Excluded Stock

To be a member of a controlled group,
a corporation cannot be connected
through stock ownership based on
“excluded stock.” Excluded stock
includes:
Nonvoting stock which is limited
and preferred as to dividends,
Treasury stock, and
Stock which is treated as excluded
stock under section 1563(c)(2)(A) for
a parent-subsidiary controlled group
or section 1563(c)(2)(B) for a
brother-sister controlled group.

Apportionment Plan

An apportionment plan is an
agreement between the component
members of a controlled group of
corporations for apportioning certain
corporate tax benefits among the
members of that group, such as the
apportioning of bracketed income
amounts entitled to different tax rates.
By contrast, a tax sharing agreement
is an agreement entered into between
members of an affiliated group of
corporations which have joined in the
filing of a consolidated tax return.
Such an agreement generally
provides that the members of the
affiliated group will compensate each

other for certain tax benefits incurred
by members separately and shared
by all members on the consolidated
tax return.
An apportionment plan becomes
effective for a controlled group when it
is adopted by all the component
members of that group for their tax
years which are subject to the same
December 31 testing date. Once the
members of a controlled group adopt
an apportionment plan, it remains in
effect until it is terminated.
Amending or terminating an apportionment plan. An
apportionment plan is amended when
the same component members (for
example, when no component
members have left or joined the group
during their testing periods governed
by the applicable December 31
testing date) make any different
apportionment of the specified
tax-benefit items among themselves.
An apportionment plan is
terminated when each component
member of the controlled group
consents or is deemed to consent to
the termination of that plan. Each such
member is deemed to have
consented to the termination of the
plan for a tax year if:
The controlled group ceased to
remain in existence (within the
meaning of section 1563) as of the
testing date for that calendar year,
A corporation that was a
component member of the group on
the testing date in the preceding tax
year is not a component member on
the testing date in the current tax year,
or
A corporation that was not a
component member of the group on
the testing date in the preceding tax
year is a component member on the
testing date in the current tax year.
Exception. If the members of a
consolidated return group are treated
as if they are one component
member, then changes as to the
members which belong to that
consolidated group (as long as that
consolidated group remains in
existence within the meaning of
Regulations section 1.1502-75(d)) will
not serve to terminate the group's
apportionment plan.

Apportionment of Tax Benefit
Items
Apportionment plan in effect. If the
component members of a controlled
group have an apportionment plan in
effect, they must apportion the
specified tax-benefit items, such as
the tax bracket amounts, according to
the terms of that plan. The component
members of a group are not required
to apportion equally any tax-benefit
item among each of them. Nor is any
component member required to adopt
the same percentage of
apportionment for each tax-benefit
item. A group therefore may apportion
all, some, or none of the amount of
any these tax-benefit items to a
component member. However,
except for a member with a short tax
year that does not include a
December 31 testing date, the total
amount of a tax-benefit item
apportioned to all the component
members of the group cannot be more
than the total amount of a tax item that
would be allowed to a corporation that
is not subject to the limitations
imposed on the members of a
controlled group. See Special
allocation rules for a short tax year,
below.
No apportionment plan in effect. If
no apportionment plan is adopted or
in effect, the component members of
a controlled group must divide the
amount of any tax-benefit item equally
among themselves (without regard to
whether any members are also
members of a consolidated return
group).
Example. The Controlled Group
ABCDE consists of Corporations A, B,
C, D, and E. Corporations B, C, D,
and E file a consolidated return.
However, since the controlled group
does not have an apportionment plan
in effect, each member of the
consolidated group is treated as a
separate member of the controlled
group. Therefore, corporations A, B,
C, D, and E are required to allocate
one-fifth of the tax-bracketed income
amounts between them in the
following manner:
$10,000 (one-fifth of $50,000) on
Part II, column (c),
$5,000 (one-fifth of $25,000) on
Part II, column (d), and
$1,985,000 (one-fifth of
$9,925,000) on Part II, column (e).
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Special allocation rules for a short
tax year. Special apportionment
rules apply to the tax bracket amount
and the accumulated earnings credit,
if a component member has a short
tax year that does not include a
December 31 date. A corporation's
tax year will end before the last day of
its annual tax year and will have a
short tax year if:
The corporation is sold to a
consolidated group, or
The corporation is merged or
liquidated, including a deemed
liquidation resulting from a section
338 election.
Example. For years prior to 2012,
Corporation X has been a member of
controlled group XYZ and has a
calendar tax year. On May 31, 2012,
Corporation X is liquidated.
Corporation X has a short tax year
that begins on January 1, 2012, and
ends on May 31, 2012. Corporation X
therefore applies the special
allocation rule to the tax bracket
amount and the accumulated
earnings credit.
Determining the amount to be
apportioned. A short-year member
cannot use the group's apportionment
method for determining the amount of
a tax-benefit item to be apportioned to
it for its short tax year, even though
that method has been adopted by the
group under its existing
apportionment plan. Rather, the
short-year member must divide the full
amount of the tax-benefit item by the
number of component members in the
controlled group as of the last day of
that member's short tax year. That
amount is the amount of that
tax-benefit item to be allocated to that
member (and only to that member).
The remaining component members
will, in accordance with the terms of
their apportionment plan, apportion a
full amount of each specified
tax-benefit item between those
corporations which are the
component members of the group as
of the ensuing December 31 testing
date.
Calculation of the additional
taxes. A component member with a
short tax year determines its liability
for additional taxes imposed by
section 11(b)(1) solely for its own
taxable income. The remaining
component members will determine

their additional taxes based on their
own combined income.
AMT calculation. If a component
member has a short tax year, whether
or not that tax year includes a
December 31 testing date, see the
annualization rule of section 443(d) for
calculating the member's AMT.
See section 1561 and the related
regulations for additional details
regarding apportionment plans and a
listing of some of the tax-benefit
items.
Exceptions. This special
apportionment rule does not apply if a
component member has a short tax
year that includes the December 31
testing date in its short tax year. For
example, Corporation Y is a fiscal
year taxpayer with a tax year ending
on September 30. On January 31,
2012, Corporation Y is liquidated.
Corporation Y's tax year beginning on
October 1, 2011, and ending on
January 31, 2012, is not a short tax
year within the meaning of section
1561(b). Thus, the normal
apportionment rules apply.
This special allocation rule also
does not apply if a member of a
controlled group has a short tax year
and is a member of a consolidated
group. Instead, such corporation's
income for the short tax year is
included in the consolidated return
filed by the consolidated group for that
corporation's tax year.

Component Member's Liability
for its Additional Taxes

To determine a component member's
liability for its additional taxes
imposed by section 11(b)(1), each of
the component members of a
controlled group, for their tax years
that are subject to the same
December 31 testing date, must:
Combine their taxable incomes
from such tax years,
Determine the amount of the
additional taxes imposed by section
11(b)(1) by applying the appropriate
tax rate (see Determining the amount
of additional taxes, later) to the
amount of such combined taxable
income, and
Apportion that amount among
those members by applying the
proportionate method (defined later),
unless all of those members instead
elect to apply the FIFO method
(defined later).

Combined taxable income. All the
component members of a controlled
group, to which any part of a tax
bracket was apportioned, must
combine their taxable incomes for
their tax years that are subject to the
same December 31 testing date.
Each corporation that is a component
member of a controlled group must
include its income for its entire tax
year (their tax years that are subject to
the same December 31 testing date)
in the calculation of the combined
taxable income, even if it was not a
member of the group for each day of
that tax year.
In determining the additional taxes,
only the positive taxable incomes of
those component members of a
controlled group, to which any part of
a tax bracket amount were
apportioned, are combined for
purposes of determining the liability of
those members. If a component
member incurs a loss for the tax year,
the member is treated as having zero
taxable income for purposes of
determining the controlled group's
combined taxable income.
Example. A controlled group
includes Corporations X, Y, and Z. For
the current calendar tax year,
Corporation X has taxable income of
$80,000, Corporation Y has taxable
income of $70,000, and Corporation Z
incurred a loss of ($60,000). Under
the XYZ apportionment plan,
Corporation Z was apportioned $1 of
the $50,000 amount under the 15%
tax bracket and Corporations X and Y
were equally apportioned the
remaining amount. The combined
taxable income of the XYZ controlled
group is $150,000 ($80,000 +
$70,000). Thus, the XYZ group is
liable for the additional taxes.
Corporation Z's loss is not taken into
account in determining the combined
taxable income of the controlled
group.
Note. If a component member has
subsequent positive adjustments to its
taxable income (for example, the
result of an IRS audit), for a tax year
(the adjustment year), all the
members of the controlled group for
their tax years that share the same
testing date as that adjustment year,
must redetermine the amount of any
additional taxes imposed by section
11(b)(1) and pay those additional
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taxes. These corporations have this
responsibility even if none of the
corporations that were component
members of the group in the
adjustment year remain as
component members of the group.
Determining the amount of additional taxes. After the component
members of a controlled group have
determined their combined taxable
income, those members must
determine if they are liable for any
additional taxes imposed by section
11(b)(1) in the following manner.
If that combined taxable income
exceeds $100,000, but is not greater
than $335,000, the total amount of the
liability for additional tax of such
members is the lesser amount of 5%
of such excess or $11,750 (the 5%
additional tax).
If that combined taxable income
exceeds $335,000, but is not greater
than $15,000,000, the total amount of
the liability for the 5% additional tax of
such members will be reflected in its
aggregate income tax liability. No
allocation is necessary and no such
allocation needs to be reported in Part
III of Schedule O.
If that combined taxable income
exceeds $15,000,000, but is not
greater than $18,333,333, the total
amount for that additional tax liability
is the lesser of 3% of such excess, or
$100,000 (the 3% additional tax).
Thus, a controlled group with a
combined taxable income that
exceeds $15,000,000 will be liable for
not only the 3% additional tax, but
also the full amount of the 5%
additional tax, or $11,750.
A controlled group with a combined
taxable income that exceeds
$18,333,333 will be liable for the full
amount of the additional taxes, or
$111,750. That amount will be
reflected in the group's aggregate
income tax liability and is not required
to be separately reported in Part III of
Schedule O. The additional taxes will
not require any apportionment among
the component members of the group.
See the tax rate schedule in
TIP the Instructions for Form
1120, U.S. Corporation
Income Tax Return, which effectively
incorporates both of the additional
taxes imposed by section 11(b)(1) by
imposing a 39% tax on taxable
income over $100,000, but not over
$335,000, and also imposing a 38%

tax on taxable income over
$15,000,000, but not over
$18,333,333.
Apportioning the additional taxes.
The additional taxes imposed by
section 11(b)(1) must be apportioned
among the component members in
the same manner as the applicable
tax bracket amount is apportioned.
The component members are
required to use the proportionate
method unless all component
members affirmatively elect to adopt
the FIFO method by checking the box
on line 7b. See the instructions for
line 7.
The proportionate method.
Under the proportionate method, the
additional taxes are allocated to each
component member to which a tax
bracket amount was apportioned, in
the same proportion as the portion of
the tax-benefit from that tax bracket
which was allocated bears to the total
tax-benefit amount provided to all
members from the use of that tax
bracket. These tax-benefits are
attributable to the tax savings that the
members of the group realized from
having tax bracket amounts taxed at a
lower rate instead of the higher tax
rates to which income of the group
would otherwise be subject.
The steps for applying the
proportionate method are as follows:
Step 1. The regular tax (not including
the additional taxes imposed by
section 11(b)(1)) owed by a
component member under a particular
tax bracket is divided by the total tax
owed by all component members
under that tax bracket.
The maximum amount of tax that a
corporation owes under the 15% tax
bracket is $7,500. The maximum
amount of tax that a corporation owes
under the 25% tax bracket is $6,250.
The maximum amount of tax that a
corporation owes under the 34% tax
bracket is $3,374,500.
Step 2. The percentage calculated
under step 1 is multiplied by the total
tax-benefit amount received by all the
members of the group from their use
of this tax bracket. This computed
amount equals the portion of the
group's tax-benefit amount received
by a particular member from using its
portion of this tax bracket.

Step 3. The amount determined
under step 2 is divided by the total
tax-benefit amount, received by all the
component members of the group
from using all the tax brackets to
which any component member's
income was subject.
Step 4. The percentage calculated
under step 3 is multiplied by the
amount of the group's additional
taxes. The amount determined under
this step 4 equals the amount of the
additional taxes apportioned to such
component member for that tax
bracket.
Step 5. If a component member is
liable for regular tax (not including the
additional taxes imposed by section
11(b)(1)) under more than one tax
bracket, that member must calculate
the amount of additional taxes with
respect to each tax bracket to be
apportioned to that member.
Accordingly, steps 1 through 4
must be applied for each tax bracket
applicable to that member. The sum
of all the amounts of additional taxes
apportioned to a component member
from each tax bracket, to which that
member is subject, is the total amount
of the additional taxes apportioned to
that member.
The FIFO method. Under a
first-in-first-out (FIFO) method for
allocating the additional taxes among
the component members of the
controlled group, the first dollars of
additional taxes imposed by section
11(b)(1) owed by the component
members of a controlled group are to
be allocated proportionately to those
members availing themselves of the
lowest tax bracket (the first tax
bracket), up to the amount of the
tax-benefit received by those
members from having availed
themselves of that tax-bracket
amount. Any remaining amount of
unallocated additional taxes is then
allocated proportionately among the
component members which avail
themselves of the next higher tax
bracket, and so on, until the entire
amount of the additional taxes has
been fully apportioned among the
component members. For example,
the first $9,500 of additional tax
liability of a controlled group is
apportioned entirely to the component
members that availed themselves of
the benefit of the 15% tax bracket.
-6-

Allocation of AMT Exemption
Amount and the Reduction of
the AMT Exemption Amount

In determining the AMT liability of a
corporation, the amount of AMTI to
which the AMT rate is applied is
reduced by the $40,000 AMT
exemption amount. For a controlled
group of corporations, the AMT
exemption amount must be
apportioned among the component
members of the group. That amount
must be divided equally among the
component members for those tax
years, which are subject to the same
December 31 testing date, except
where all those members have
adopted an apportionment plan
providing for an unequal
apportionment of the AMT exemption
amount. If so, the component
members of the group will apportion
the AMT exemption amount according
to the terms of that apportionment
plan.
The $40,000 AMT exemption
amount shall be reduced, but not
below zero, as the amount of AMTI
increases. For a controlled group of
corporations, to compute the amount
of this reduction to the AMT
exemption amount, the AMTI of all
component members must be
combined in order to compute the
amount of that reduction. This
exemption amount completely phases
out when a controlled group's
combined AMTI is at least $310,000.
This reduction to the AMT exemption
amount will effectively be allocated to
each of the component members to
which the exemption amount was
apportioned and will effectively be
apportioned to the component
members in the same manner as is
the exemption amount.
Only the positive AMTI of those
component members of a controlled
group are combined for purposes of
determining those members'
reduction of the AMT exemption
amount.
Report the AMT exemption amount
and the phaseout of the exemption
amount in Part IV, columns (c) and
(d), respectively.

Specific Instructions
Identifying Information
Component member filing Schedule O. On page 1, enter the name
and employer identification number
(EIN) of the component member filing
this Schedule O.
In Part II, column (a), line 1, enter
the component member's name and
EIN. In column (b), enter the
member's tax year ending date
(Yr-Mo). In Parts III and IV, column
(a), line 1, enter only the name of the
component member.
Other component members of the
controlled group. For Parts II, III,
and IV, column (a), lines 2 through 10,
and Part II, column (b), enter the
corresponding information for each of
the other component members of the
controlled group, in the same manner
as the member filing this Schedule O.
If more space is needed, attach
additional sheets.
Consolidated groups. If several
component members are also
members of a single consolidated
group, then with respect to those
members, in Parts II, III, and IV,
column (a), and Part II, column (b),
enter only the information of the
common parent of the consolidated
group.
If any component members
of the controlled group are
also members of a
consolidated group, the parent of
such consolidated group should file
only one Schedule O on behalf of all
such members of the controlled
group. Such form must contain the
required information for each such
member. See Regulations section
1.1561-3(a)(2).

TIP

Part I. Apportionment Plan
Information
Line 1. Type of controlled group. A
component member of a controlled
group must check the applicable box
to indicate the type of group. For more
information, see Types of Controlled
Groups, earlier.
For a brother-sister controlled
group, check box 1b whether that
group is a brother-sister group for
purposes of applying only the 50%

test, or for purposes of applying both
the 80% and 50% test.
Line 2. Member status. If a
corporation was not a component
member of the group for each day of
its tax year, check box 2b and provide
the required information. If the taxable
year of this corporation does not
include a December 31 date, a
special apportionment rule applies.
See Special allocation rules for a
short tax year, earlier.
Line 3. Consent and represent. If
all the component members consent
to adopt an apportionment plan,
check box 3a. By checking box 3a,
this corporation is consenting to the
adoption of an apportionment plan
and is also representing that the other
component members of the group are
also consenting to the adoption of that
plan. See Completing and Filing
Schedule O, earlier.
If all the component members
consent to amend an apportionment
plan, check box 3b. By checking
box 3b this corporation is consenting
to the amendment of an
apportionment plan and is also
representing that the other component
members of the group are consenting
to the amendment of that plan.
However, to amend a plan both of the
following conditions must be satisfied.
The controlled group already has
an apportionment plan in effect, and
There has been no change in the
component-member composition of
the group from the previous taxable
year.
If the component members of a
group are either adopting a new
apportionment plan or amending an
existing apportionment plan that
involves prior tax years of those
component members, at least one
year must remain on each of the
statutes of limitations for assessing a
tax deficiency against all of the
component members of the group for
such prior tax years. See the
instructions, below.
If the apportionment plan for the
component members of a controlled
group is terminated:
Check box 3c, if the remaining
component members choose not to
adopt (or are not able to adopt) a new
apportionment plan; or

-7-

Check box 3d, if the remaining
component members choose to adopt
a new apportionment plan.
With regard to box 3c, the
remaining component members will
not be able to adopt a new
apportionment plan if, for example,
such component members have left
the group.
Example. For years prior to 2012,
Corporation X has been a member of
controlled group XYZ and has a
calendar tax year. Corporations X, Y,
and Z are component members of a
controlled group and each has a
calendar tax year. On August 31,
2012, X is sold to an unrelated party.
Even though X will not be a member
of the group on its December 31,
2012, testing date, it is treated as an
additional member of the group on
that date. Consequently, for 2012 the
XYZ controlled group must apportion
the tax-benefit items according to the
terms of its apportionment plan.
Therefore, X, Y, and Z would each
check box 3c on its 2012 Schedule O.
If box 3c or 3d is checked,
complete Parts II, III, and IV under
either of the following circumstances.
If a corporation which is joining or
leaving the group still qualifies as a
component member for its tax year,
complete Parts II, III, and IV according
to the terms of any applicable
apportionment plan.
If a corporation which is joining or
leaving the group will not qualify as a
component member for its tax year
then, following the corporation's name
in column (a), enter the notation “(E)”
for excluded member. In Part II,
column (b), enter the ending date of
the tax year (Yr-Mo) and enter “0” in
the remaining columns, as applicable.
The remaining component members
of the group will apportion the various
tax items according to terms of any
newly adopted apportionment plan, in
the event a new apportionment plan is
adopted by those remaining
members.
Note. Do not check more than one
box on line 3. If a corporation does not
adopt an apportionment plan, amend
a previous apportionment plan, or
terminate an existing apportionment
plan, skip line 3 and go to line 5.

Line 4. Reason for termination of
existing apportionment plan.
Check box 4a if all the component
members of a controlled group of
corporations are consenting to
terminate the apportionment plan.
Check box 4b if:
The controlled group has ceased to
remain in existence within the
meaning of section 1563,
A corporation that was a
component member of the group on
the testing date for the preceding tax
year is no longer a component
member in the current tax year, or
A corporation that was not a
component member of the group on
the testing date for the preceding tax
year is a component member for the
current tax year.
Line 5. Status of apportionment
plan. Check the applicable box to
indicate the status of any
apportionment plan of the controlled
group.
Check box 5a, if the controlled
group does not have an
apportionment plan in effect and is not
adopting one.
Check box 5b, if the controlled
group already has an apportionment
plan in effect and is not amending or
terminating this plan.
If box 5a is checked, then the
component members must share all
tax-benefits equally and tax-benefit
information is to be reported in Parts
II, III, and IV.
Line 6. Statute of limitations. An
apportionment plan may not be
adopted or amended for a tax year of
a component member unless there is
at least one year remaining in the
statutory period (including any
extensions) for assessing a deficiency
against the corporation for that tax
year, but only where the tax liability for
such tax year of that corporation
would be increased by adopting such
plan.
If there is less than one year
remaining in the statutory period, the
corporation must have entered into an
agreement with the IRS extending the
statutory period for the limited
purpose of assessing any deficiency
against that corporation for a tax year
affected by the adoption or the
amendment of an apportionment plan.
See Regulations section 1.1561-3(c)
(2).

Line 7. Required information and
elections for component members.
The component members of a
controlled group must determine their
additional taxes liability, as imposed
by section 11(b)(1), for their tax years
that are subject to the same
December 31 testing date by
combining their taxable incomes for
such tax years and then apportioning
the additional taxes among such
component members in the same
manner that the tax brackets were so
allocated. See Component Member's
Liability for its Additional Taxes,
earlier.
If a corporation does not know the
combined taxable income of the other
component members of its group (for
example, because those other
component members have adopted
substantially different tax years), it can
avoid underpayment of tax by
applying the maximum tax rate of 35%
to the entire amount of its taxable
income. If the corporation later
determines its tax liability is less, it
may file a claim for refund of
overpayment.
Line 7a. A corporation choosing to
compute its tax liability by applying the
maximum 35% rate to the entire
amount of its taxable income should
check box 7a. Further, a corporation
checking box 7a does not have to
provide taxable income or tax
apportionment information with
respect to the other component
members of the group. Instead, only
provide the identifying information (for
example, name, EIN, and ending date
of the tax year) for these other
members. Enter zero in the other
columns for these members.
Line 7b. The controlled group may
elect to apportion their additional
taxes liability under the FIFO method,
rather than the proportionate method.
To make this election, each
component member of the group must
check box 7b. If the members do not
check box 7b, they will be required to
apportion their additional taxes liability
using the proportionate method of
allocation. See The proportionate
method and The FIFO method,
earlier.
Line 7c. If a component member
of a controlled group of corporations
has a short tax year that does not
include a December 31 date, check
-8-

box 7c. If a corporation checks
box 7c, it does not have to provide
taxable income or tax apportionment
information with regard to the other
component members of the group.
Instead, only provide the identifying
information (for example, name, EIN,
and ending date of the tax year) for
these other members. See Special
allocation rules for a short tax year,
earlier.

Part II. Taxable Income
Apportionment

Enter each component member's
share of the taxable income used from
each tax bracket, as is applicable.
The component members of a
controlled group, collectively, are
entitled to one $50,000, one $25,000,
and one $9,925,000 taxable income
bracket amount (in that order) for
columns (c), (d), and (e).
Note. If a corporation has a loss,
enter zero in columns (c) through (g).
Column (c). Enter the lesser of the
corporation's taxable income (as
shown on Form 1120, or on the
applicable corporation's income tax
return) or the corporation's computed
share of the $50,000 bracket.
Column (d). Enter the lesser of the
corporation's taxable income (as
shown on Form 1120, or on the
applicable corporation's income tax
return) minus the amount entered for
this corporation in column (c), or the
corporation's computed share of the
$25,000 bracket.
Column (e). Enter the lesser of the
corporation's taxable income (as
shown on Form 1120, or on the
applicable corporation's income tax
return) minus the amounts entered for
this corporation in columns (c) and
(d), or the corporation's computed
share of the $9,925,000 bracket.
Column (f). Enter the corporation's
taxable income (from Form 1120 or
the applicable corporation's income
tax return) minus the amounts entered
for this corporation in columns (c)
through (e).
Column (g). Enter the total allocated
taxable income amounts of each
component member (add columns (c)
through (f)). Each total in Part II,
column (g), for each component
member must equal taxable income

from such component member's
income tax return.

Part III. Income Tax
Apportionment
Column (b). Multiply the taxable
income amount in Part II, column (c)
by 15% (0.15) and enter the result
here.
Column (c). Multiply the taxable
income amount in Part II, column (d)
by 25% (0.25) and enter the result
here.
Column (d). Multiply the taxable
income amount in Part II, column (e)
by 34% (0.34) and enter the result
here.
Column (e). Multiply the taxable
income amount in Part II, column (f)
by 35% (0.35) and enter the result
here.
Column (f) and (g). A corporation's
share of any additional taxes liability
imposed by section 11(b)(1) is
determined as explained in
Determining the amount of additional
taxes, earlier.
Column (h). Enter here the total
apportioned income tax for each
component member. Combine all the
amounts of apportioned tax of each
such member, as shown in columns
(b) through (g).

Part IV. Other
Apportionments
Brother-sister controlled group.
For purposes of apportioning the
amounts included in columns (b)
through (d), determine the component
members of a brother-sister controlled
group, using only the 50% test as
provided in section 1563(a)(2). For

purposes of apportioning the amounts
included in column (e) and, except as
provided elsewhere in the Internal
Revenue Code, in column (f),
determine the component members of
a brother-sister controlled group using
both the 50% and 80% tests as
provided in section 1563(f)(5). See
Brother-sister group, earlier.
Column (a). If a corporation qualifies
as a component member of a
brother-sister controlled group, solely
because it satisfies only the 50%
ownership affiliation test, insert the
notation “(50)” after that corporation's
name. If a corporation is a component
member of that group because it
satisfies both the 50% and 80%
ownership affiliation tests, no notation
is necessary.
Column (b). The component
members of a controlled group may
allocate the $250,000 accumulated
earnings credit unequally if they adopt
an apportionment plan or have an
apportionment plan in effect.
Note. If any component member of a
controlled group is the type of service
corporation described in section
535(c)(2)(B), the amount to be
apportioned among the component
members is $150,000 (rather than
$250,000).
Column (c). The component
members of a controlled group may
allocate the $40,000 AMT exemption
amount unequally if they adopt an
apportionment plan or have an
apportionment plan in effect.
Column (d). The component
members of a controlled group must
apportion the reduction to the AMT
exemption amount to the same
corporations, and in the same

-9-

proportions, as the AMT exemption
amount was apportioned in Column
(c). If the combined AMTI of the
members of the group is at least
$310,000, the corporation is not
required to complete columns (c) and
(d) of Part IV, since the exemption
amount is fully phased out at
$310,000. See Allocation of AMT
Exemption Amount and the Reduction
of the AMT Exemption Amount,
earlier.
Column (e). For purposes of
determining whether the component
members of a controlled group are
subject to a penalty for failure to pay
the correct amount of estimated tax
under section 6655(g), those
component members of a controlled
group must combine their taxable
incomes for their tax years that were
subject to the same December 31
testing date. If that amount is at least
$1 million for any tax year during the
testing period (as defined in section
6655(g)(2)(B)(i)), those members
must then divide that $1 million
amount equally unless they have an
apportionment plan in effect.
Column (f). Enter each component
member's share of any other
tax-benefit items not included in
columns (b) through (e). Provide the
applicable Internal Revenue Code
section followed by the amount
apportioned to that member.
Note. Do not include on Schedule O
an apportionment among the
component members of any
deduction for certain depreciable
property for which a section 179
expense election has been made.
Report this apportionment as required
under section 179. See Regulations
section 1.179-2(b)(7).