Instructions For Schedule O (Form 1120) - 2012 (Page 5 of 9) in pdf

their additional taxes based on their

taxes. These corporations have this

Combined taxable income. All the

own combined income.

responsibility even if none of the

component members of a controlled

corporations that were component

group, to which any part of a tax

AMT calculation. If a component

members of the group in the

bracket was apportioned, must

member has a short tax year, whether

adjustment year remain as

combine their taxable incomes for

or not that tax year includes a

component members of the group.

their tax years that are subject to the

December 31 testing date, see the

same December 31 testing date.

Determining the amount of addi-

annualization rule of section 443(d) for

Each corporation that is a component

tional taxes. After the component

calculating the member's AMT.

member of a controlled group must

members of a controlled group have

See section 1561 and the related

include its income for its entire tax

determined their combined taxable

regulations for additional details

year (their tax years that are subject to

income, those members must

regarding apportionment plans and a

the same December 31 testing date)

determine if they are liable for any

listing of some of the tax-benefit

in the calculation of the combined

additional taxes imposed by section

items.

taxable income, even if it was not a

11(b)(1) in the following manner.

Exceptions. This special

member of the group for each day of

If that combined taxable income

apportionment rule does not apply if a

that tax year.

exceeds $100,000, but is not greater

component member has a short tax

than $335,000, the total amount of the

In determining the additional taxes,

year that includes the December 31

liability for additional tax of such

only the positive taxable incomes of

testing date in its short tax year. For

members is the lesser amount of 5%

those component members of a

example, Corporation Y is a fiscal

of such excess or $11,750 (the 5%

controlled group, to which any part of

year taxpayer with a tax year ending

additional tax).

a tax bracket amount were

on September 30. On January 31,

If that combined taxable income

apportioned, are combined for

2012, Corporation Y is liquidated.

exceeds $335,000, but is not greater

purposes of determining the liability of

Corporation Y's tax year beginning on

than $15,000,000, the total amount of

those members. If a component

October 1, 2011, and ending on

the liability for the 5% additional tax of

member incurs a loss for the tax year,

January 31, 2012, is not a short tax

such members will be reflected in its

the member is treated as having zero

year within the meaning of section

aggregate income tax liability. No

taxable income for purposes of

1561(b). Thus, the normal

allocation is necessary and no such

determining the controlled group's

apportionment rules apply.

allocation needs to be reported in Part

combined taxable income.

This special allocation rule also

III of Schedule O.

does not apply if a member of a

Example. A controlled group

If that combined taxable income

controlled group has a short tax year

includes Corporations X, Y, and Z. For

exceeds $15,000,000, but is not

and is a member of a consolidated

the current calendar tax year,

greater than $18,333,333, the total

group. Instead, such corporation's

Corporation X has taxable income of

amount for that additional tax liability

income for the short tax year is

$80,000, Corporation Y has taxable

is the lesser of 3% of such excess, or

included in the consolidated return

income of $70,000, and Corporation Z

$100,000 (the 3% additional tax).

filed by the consolidated group for that

incurred a loss of ($60,000). Under

Thus, a controlled group with a

corporation's tax year.

the XYZ apportionment plan,

combined taxable income that

Corporation Z was apportioned $1 of

exceeds $15,000,000 will be liable for

Component Member's Liability

the $50,000 amount under the 15%

not only the 3% additional tax, but

for its Additional Taxes

tax bracket and Corporations X and Y

also the full amount of the 5%

To determine a component member's

were equally apportioned the

additional tax, or $11,750.

liability for its additional taxes

remaining amount. The combined

A controlled group with a combined

imposed by section 11(b)(1), each of

taxable income of the XYZ controlled

taxable income that exceeds

the component members of a

group is $150,000 ($80,000 +

$18,333,333 will be liable for the full

controlled group, for their tax years

$70,000). Thus, the XYZ group is

amount of the additional taxes, or

that are subject to the same

liable for the additional taxes.

$111,750. That amount will be

December 31 testing date, must:

Corporation Z's loss is not taken into

reflected in the group's aggregate

Combine their taxable incomes

account in determining the combined

income tax liability and is not required

from such tax years,

taxable income of the controlled

to be separately reported in Part III of

group.

Determine the amount of the

Schedule O. The additional taxes will

additional taxes imposed by section

not require any apportionment among

Note. If a component member has

11(b)(1) by applying the appropriate

the component members of the group.

subsequent positive adjustments to its

tax rate (see Determining the amount

taxable income (for example, the

See the tax rate schedule in

of additional taxes, later) to the

result of an IRS audit), for a tax year

the Instructions for Form

amount of such combined taxable

TIP

(the adjustment year), all the

1120, U.S. Corporation

income, and

members of the controlled group for

Income Tax Return, which effectively

Apportion that amount among

their tax years that share the same

incorporates both of the additional

those members by applying the

testing date as that adjustment year,

taxes imposed by section 11(b)(1) by

proportionate method (defined later),

must redetermine the amount of any

imposing a 39% tax on taxable

unless all of those members instead

additional taxes imposed by section

income over $100,000, but not over

elect to apply the FIFO method

11(b)(1) and pay those additional

$335,000, and also imposing a 38%

(defined later).

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Instructions For Schedule O (Form 1120) - 2012 Page 5

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