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Computation of Consolidated Tax Liability (Portfolio 756)

Product Code: TPOR41
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Computation of Consolidated Tax Liability , written by George L. White, Esq., analyzes the problems relating to the computation of tax liability by an affiliated group of corporations filing a consolidated return.  

This Portfolio discusses and analyzes the computation of consolidated tax liability beginning with the determination of separate taxable income and loss of each member, and proceeding to the consolidated rules' eliminations and adjustments, the computation on a consolidated basis of items excluded from saparate taxable income, and the determination of consolidated income and consolidated tax credits. It also examines certain liquidations and distributions — including the problem of duplicated gain, actual liquidations under §332, and downstream mergers—as well as the timing of transactions, the treatment of the items of group members engaged in a transaction with each other, and the treatment of such members as divisions of a corporation.

The Portfolio also discusses the recently revamped “satisfaction and reissuance” model for transactions involving intercompany obligation, and reviews the limitation on member gains on common parent stock.

Computation of Consolidated Tax Liability allows you to benefit from:

  • Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
  • Invaluable practice documents including tables, charts and lists.
  • Plain-English guidance from world-class experts.
  • Real-world and in-depth analysis that lets you explore various options.
  • Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
  • Alternative approaches to both common and unique tax scenarios.

This Portfolio is part of the U.S. Income Portfolios Library, a comprehensive series that includes more than 200 Portfolios, which cover every federal tax topic with expert, in-depth analysis, and offer commentary on a wide range of federal taxation topics, including Compensation Planning, Deductions and Credits, Partnerships and Corporations, Special Pass-Through Entities, Corporate Reorganizations, Real Estate, Procedure and Administration, and more.


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Detailed Analysis

I. Introduction

II. Liability for Income Tax

Introductory Material

A. Computation of Separate Taxable Income

1. In General

2. Intercompany Transaction Rules

a. Background

b. Overview

c. Definitional Rules

(1) Intercompany Transactions

(a) In General

(b) Timing of Transactions

(2) Intercompany Items and Corresponding Items

(a) In General

(b) Intercompany Items

(c) Corresponding Items

(i) In General

(ii) Recomputed Corresponding Items

(3) Separate-Entity Treatment of Transactions

(a) In General

(b) Elective Separate-Entity Treatment

(4) Attributes

d. Matching Rule

(1) In General

(2) Attributes

(3) Holding Periods

(4) Timing of Transactions

(a) Treatment of S's Items

(b) Treatment of B's Items

(5) Treatment of S and B as Divisions of Corporation

(6) Conflicts or Allocation of Attributes

(a) Offsetting Amounts

(b) Allocation in Absence of Offset

(7) Special Status Members

(8) Limitation on Exclusion of Intercompany Gain

(a) General Redetermination Rule

(b) Disallowed Amounts

(c) Distributions Under § 311

(d) Certain Intercompany Gains on Member Stock

(e) Other Situations

(9) Timing Rules as Method of Accounting

(10) Reporting Intercompany Transactions on Separate Entity Basis

(11) Multiple Trigger Rule

e. Acceleration Rule

(1) In General

(2) Determination of S's Items

(a) Sales, Exchanges, and Distributions

(b) Other Transactions

(3) Attributes of B

f. Simplification of Inventory Rules

(1) In General

(2) Alternative Inventory Methods

(a) Reasonable Methods

(b) Dollar-Value LIFO Inventory Method Used by B

(i) Increment Averaging Method

(ii) Increment Valuation Method

(c) Dollar-Value LIFO Method Used by S

g. Stock of Group Members

(1) Background

(2) Overview

(3) Intercompany Distributions

(a) Exclusion from Gross Income

(b) Timing of Distributions

(c) Treatment of Distributing Corporation

(d) Treatment of Boot in Intercompany Reorganizations

(e) Issuer's Acquisition of Its Own Stock

(4) Certain Liquidations and Distributions

(a) Problem of Duplicated Gain

(b) Relief

(i) Actual Liquidations Under § 332

(ii) Downstream Mergers

(iii) Deemed Liquidations Under § 338(h)(10)

(iv) Deemed Liquidations in Forward Cash Merger

(v) Spin-offs

(c) Elections

(5) Limitation on Member Gains on Common Parent Stock

(a) Background

(b) Overview

(c) Common Parent Stock

(d) Loss Stock

(e) Waiver of Built-in Loss on P Stock

(f) Gain Stock

(g) Dealers in P Stock

(h) Positions in P Stock

(i) Effective Date

h. Obligations of Group Members

(1) History of Intercompany Obligation Regulations

(a) 1966 Regulations

(b) 1995 Regulations

(c) 1998 Proposed Regulations

(d) 2007 Proposed Regulations

(2) 2008 Regulations

(a) Overview

(b) Definitions

(i) Obligation of Member

(ii) Intercompany Obligation

(iii) Intercompany Transaction

(iv) Nomenclature

(v) Intercompany Item

(vi) Corresponding Item

(c) Deemed Satisfaction and Reissuance: Assignment-and-Extinguishment and Outbound Transactions

(d) Deemed Satisfaction and Reissuance: Inbound Transactions

i. Anti-Avoidance Rules

j. Successor Corporations and Property

k. Nonapplicability of § 362(e)(2) to Intercompany Transactions

B. Consolidated Items

1. Consolidated Net Operating Loss Deduction

a. Computation of Consolidated Net Operating Loss Deduction

b. Consolidated Net Operating Loss Carryovers and Carrybacks

c. Carryovers and Carrybacks to Separate Return Years

(1) In General

(2) Year of Departure from Group

(3) Offspring Rule

(4) Amount of Consolidated Net Operating Loss Attributable to Member

d. Election to Relinquish Carrybacks

(1) In General

(2) Split Election

(3) Special Carryback Periods in Certain Years

e. Section 381(b)(3)

f. Intragroup Reorganizations - Taxable Years

g. Effect of Excluded COD Income on Consolidated Net Operating Loss

2. Consolidated Capital Gain Net Income or Loss

3. Consolidated § 1231 Net Gain or Loss

4. Consolidated Charitable Contributions Deduction

5. Consolidated Dividends-Received Deduction

6. Consolidated § 247 Deduction

7. Consolidated Excluded COD Income

8. Consolidated Domestic Manufacturing Deduction (§ 199)

C. Hedging Transactions

1. Background

2. Proposed Regulations

3. Final Consolidated Group Hedging Regulations

a. Introduction

b. General Rule: The Single-Entity Approach

c. Separate-Entity Election

(1) Effect of Election

(2) Making the Election

d. Examples

e. Identification Requirements

(1) Single-Entity Approach

(2) Separate-Entity Election in Effect

f. Effect of Identification and Failure to Identify

g. Effective Date and Transition Rules

(1) General Rule

(2) Election to Apply the Single-Entity Approach Retroactively

(3) Transitional Identification Rules

(4) Consistency Rules

h. Timing Rules

4. “Regs. § 1.1275-6” Hedges

5. Section 475

III. Alternative Minimum Tax Liability

A. In General

B. Consolidated Returns

1. Treatment of Adjustments and Preferences

2. Rules Relating to Separate Return Limitation Years

3. Carryovers and Carrybacks of Consolidated AMT Items to Separate Return Years

4. Stock Basis Adjustments

5. Consolidated Minimum Tax Credit

6. Allocations in Determining Earnings and Profits

C. Adjusted Current Earnings (ACE) Adjustment

IV. Liability for Penalty Taxes on Undistributed Income

Introductory Material

A. Personal Holding Company Tax

1. Liability for Personal Holding Company Tax Determined on a Consolidated Basis

2. Liability for Personal Holding Company Tax Determined on a Separate Company Basis

a. Ineligible Affiliated Group

b. Excluded Corporations

B. Accumulated Earnings Tax

1. Determination as to Whether Tax Is Imposed

2. Calculation of Tax Liability

3. Common Parent as Agent

V. Consolidated Tax Credits

Introductory Material

A. General Business Credit

B. Foreign Tax Credit

1. In General

2. Limitation on the Foreign Tax Credit

3. Application of the Separate Return Limitation Year Rules

4. Carrybacks and Carryovers to Separate Return Years

C. Overall Foreign Loss

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Working Papers

Table of Worksheets

Worksheet 1 T.D. 8295, 1990-1 C.B. 165 Temporary and Final Regulations, Modification of Rules Relating to Intercompany Transactions and Distributions of Property

Worksheet 2 T.D. 8478, 1993-1 C.B. 189 (Deferred Intercompany Transactions)

Worksheet 3 CO-11-91, 1994-1 C.B. 724 (Prop. Regs. on Intercompany Transactions and Related Rules for Consolidated and Controlled Groups)

Worksheet 4 T.D. 8597, 1995-2 C.B. 147 (Intercompany Transactions)

Worksheet 5 T.D. 8598, 1995-2 C.B. 188 (Intercompany Transactions)

Worksheet 6 T.D. 8660, 61 Fed. Reg. 10447 (3/14/96) (Intercompany Transactions)

Worksheet 7 REG-107592–00, 72 Fed. Reg. 55139 (9/28/07) (Intercompany Obligations)

Worksheet 8 Notice 94-49, 1994-1 C.B. 358 (Intercompany Transactions)

Worksheet 9 Rev. Proc. 97-49, 1997-2 C.B. 523 (Procedures to Obtain or Revoke Consent to Elections Under Regs. § 1.1502-13(e)(3))

Worksheet 10 Request for Consent to Treat Some or All Intercompany Transactions on a Separate Entity Basis (Regs. § 1.1502-13(e)(3); Rev. Proc. 97-49, 1997-2 C.B. 523; See also Annual Revenue Procedure Governing Ruling Requests)





Treasury Rulings:

































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George L. White
George L. White, B.A., Holy Cross College (1958); M.B.A., University of Pennsylvania (1960); LL.B., Harvard University (1963); admitted to practice in Massachusetts; Certified Public Accountant, Massachusetts.