Instructions For Schedule O (Form 1120) - 2012 (Page 3 of 9) in pdf

eligible or ineligible) of a life-nonlife

controlled group which includes

December 31 date, the last day of its

affiliated group for which a section

Corporations Y and Z and which has a

short tax year is deemed to function

1504(c)(2) election is in effect,

testing date of December 31, 2012.

as the December 31 testing date for

However, Corporation X is not a

that member only. For a member on a

Not a franchised corporation as

component member, additional

full fiscal tax year, the portion of its tax

defined in section 1563(f)(4), or

member, or excluded member of that

year beginning on the December 31

An S corporation, as defined in

group for that testing period.

testing date and ending on the last

section 1361.

Corporations Y and Z therefore are

day of its tax year is not taken into

Any member of a controlled group

not required to include any

account for determining its status

that is treated as an excluded member

information about Corporation X in

either as a component member or as

is not a component member, but is a

their respective 2012 Schedules O,

an excluded member. In determining

member of the group. However, no

filed with their 2012 income tax

how many days comprise a member's

tax benefit items should be

returns. Further, Corporation X does

testing period, the group takes into

apportioned to an excluded member.

not have to file Schedule O with its

account the day that the member is

And, an excluded member's taxable

2012 income tax return, for the

sold, but does not take into account

income is not taken into account in

controlled group that includes

either the day that such member is

determining the additional taxes

Corporations Y and Z.

acquired, or the member's December

liability imposed by section 11(b)(1).

31 testing date.

Also, an excluded member's

Testing date. The testing date is the

alternative minimum taxable income

date for determining whether amounts

Overlapping Groups

(AMTI) is not taken into account in

of certain tax benefits otherwise

If a corporation is a component

determining the phase-out of the AMT

available to a corporation will be

member of more than one controlled

exemption amount. If an excluded

limited in their use with regard to a

group of corporations with respect to

member of the group owns a

particular tax year of a component

any tax year, that corporation will be

controlling interest in a corporation

member of a controlled group. Each

treated as a component member of

that meets the entity status

member of the group uses a

only one controlled group. The

requirements for being a component

December 31 date, when possible, as

determination as to the group of which

member, that corporation is a

its testing date, whether such member

such corporation is a component

component member of the group.

uses a calendar, or fiscal, tax year.

member shall be made under

When a member of a controlled group

Example. Domestic corporation P

regulations prescribed by the

qualifies as a component member of

owns all of the stock of domestic

Secretary.

that group on a particular December

corporation S. Domestic corporation S

Excluded Stock

31 date, it will be required to limit its

owns all of the stock of foreign

use of certain specified tax benefits

To be a member of a controlled group,

corporation F. Foreign corporation F

with regard to a tax year that includes

a corporation cannot be connected

owns all of the stock of domestic

a December 31 date. Each member of

through stock ownership based on

corporation X. Corporations P, S, and

the group uses the December 31 date

“excluded stock.” Excluded stock

X are component members of a

included within that member's tax year

includes:

controlled group.

as its testing date, whether such

Nonvoting stock which is limited

Exception. A corporation that (1)

member uses a calendar, or fiscal, tax

and preferred as to dividends,

was included in a controlled group at

year. However, if a component

Treasury stock, and

any time during its tax year, (2) was

member of a controlled group has a

Stock which is treated as excluded

not included in that controlled group

short tax year that does not include a

stock under section 1563(c)(2)(A) for

on the group's December 31 testing

December 31 date, then the last day

a parent-subsidiary controlled group

date, and (3) was not included in the

of that short tax year will be the testing

or section 1563(c)(2)(B) for a

controlled group for at least one-half

date for that member. See Special

brother-sister controlled group.

the number of days of its testing

allocation rules for a short tax year,

period, is not treated as a component

Apportionment Plan

later. Each member of a controlled

member, additional member, or

group will apply those limitations to

An apportionment plan is an

excluded member.

that tax year that is governed by the

agreement between the component

applicable December 31 testing date

Example. For years prior to 2012,

members of a controlled group of

applied to that group.

Corporation X has been a component

corporations for apportioning certain

corporate tax benefits among the

member of controlled group XYZ.

Testing period. The testing period is

Corporations X, Y, and Z do not file

members of that group, such as the

the time period for determining

consolidated tax returns. Corporation

apportioning of bracketed income

whether a particular member of a

amounts entitled to different tax rates.

X is on a calendar tax year. On

controlled group qualifies either as a

February 28, 2012, Corporation X was

By contrast, a tax sharing agreement

component member, or as an

sold to an unrelated party that is not a

is an agreement entered into between

excluded member. The testing period

members of an affiliated group of

member of any consolidated group.

begins on the first day of that

corporations which have joined in the

Corporation X remained in existence

member's tax year and ends on the

throughout its entire 2012 calendar

filing of a consolidated tax return.

day before its testing date. However,

year. For the period from January 1,

Such an agreement generally

for a component member having a

provides that the members of the

2012, through February 28, 2012,

short tax year not including a

Corporation X is a member of that

affiliated group will compensate each

-3-

Instructions For Schedule O (Form 1120) - 2012 Page 3

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