Instructions For Schedule O (Form 1120) - 2011 Page 3

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Any member of a controlled group
returns. Further, Corporation X does
acquired, or the member’s December
that is treated as an excluded
not have to file Schedule O with its
31 testing date.
member is not a component member,
2011 income tax return, for the
Overlapping Groups
but is a member of the group.
controlled group that includes
However, no tax benefit items should
Corporations Y and Z.
If a corporation is a component
be apportioned to an excluded
member of more than one controlled
Testing date. The testing date is the
member. And, an excluded member’s
group of corporations with respect to
date for determining whether
taxable income is not taken into
any tax year, that corporation will be
amounts of certain tax benefits
account in determining the additional
treated as a component member of
otherwise available to a corporation,
taxes liability imposed by section
only one controlled group. The
will be limited in their use with regard
11(b)(1). Also, an excluded member’s
determination as to the group of
to a particular tax year of a
alternative minimum taxable income
which such corporation is a
component member of a controlled
(AMTI) is not taken into account in
component member shall be made
group. Each member of the group
determining the phase-out of the AMT
under regulations prescribed by the
uses a December 31 date, when
exemption amount. If an excluded
Secretary.
possible, as its testing date, whether
member of the group owns a
such member uses a calendar, or
Excluded Stock
controlling interest in a corporation
fiscal, tax year. When a member of a
that meets the entity status
To be a member of a controlled
controlled group qualifies as a
requirements for being a component
group, a corporation cannot be
component member of that group on
member, that corporation is a
connected through stock ownership
a particular December 31 date, it will
component member of the group.
based on “excluded stock.” Excluded
be required to limit its use of certain
stock includes:
Example. Domestic corporation P
specified tax benefits with regard to a
Nonvoting stock which is limited
owns all of the stock of domestic
tax year that includes a December 31
and preferred as to dividends,
corporation S. Domestic corporation
date. Each member of the group uses
Treasury stock, and
S owns all of the stock of foreign
the December 31 date included within
Stock which is treated as excluded
corporation F. Foreign corporation F
that member’s tax year as its testing
stock under section 1563(c)(2)(A) for
owns all of the stock of domestic
date, whether such member uses a
a parent-subsidiary controlled group
corporation X. Corporations P, S, and
calendar, or fiscal, tax year. However,
or section 1563(c)(2)(B) for a
X are component members of a
if a component member of a
brother-sister controlled group.
controlled group.
controlled group has a short tax year
Exception. A corporation that (1)
that does not include a December 31
Apportionment Plan
was included in a controlled group at
date, then the last day of that short
An apportionment plan is an
any time during its tax year, (2) was
tax year will be the testing date for
agreement between the component
not included in that controlled group
that member. See Special allocation
members of a controlled group of
on the group’s December 31 testing
rules for a short tax year, below. Each
corporations for apportioning certain
date, and (3) was not included in the
member of a controlled group will
corporate tax benefits among the
controlled group for at least one-half
apply those limitations to that tax year
members of that group, such as the
the number of days of its testing
that is governed by the applicable
apportioning of bracketed income
period, is not treated as a component
December 31 testing date applied to
amounts entitled to different tax rates.
member, additional member, or
that group.
By contrast, a tax sharing agreement
excluded member.
Testing period. The testing period
is an agreement entered into between
Example. For years prior to 2011,
is the time period for determining
members of an affiliated group of
Corporation X has been a component
whether a particular member of a
corporations which have joined in the
member of controlled group XYZ.
controlled group qualifies either as a
filing of a consolidated tax return.
Corporations X, Y, and Z do not file
component member, or as an
Such an agreement generally
consolidated tax returns. Corporation
excluded member. The testing period
provides that the members of the
X is on a calendar tax year. On
begins on the first day of that
affiliated group will compensate each
February 28, 2011, Corporation X
member’s tax year and ends on the
other for certain tax benefits incurred
was sold to an unrelated party that is
day before its testing date. However,
by members separately and shared
not a member of any consolidated
for a component member having a
by all members on the consolidated
group. Corporation X remained in
short tax year not including a
tax return.
existence throughout its entire 2011
December 31 date, the last day of its
An apportionment plan becomes
calendar year. For the period from
short tax year is deemed to function
effective for a controlled group when
January 1, 2011, through February
as the December 31 testing date for
it is adopted by all the component
28, 2011, Corporation X is a member
that member only. For a member on a
members of that group for their tax
of that controlled group which
full fiscal tax year, the portion of its
years which are subject to the same
includes Corporations Y and Z and
tax year beginning on the December
December 31 testing date. Once the
which has a testing date of December
31 testing date and ending on the last
members of a controlled group adopt
31, 2011. However, Corporation X is
day of its tax year is not taken into
an apportionment plan, it remains in
not a component member, additional
account for determining its status
effect until it is terminated.
member, or excluded member of that
either as a component member or as
group for that testing period.
an excluded member. In determining
Amending or terminating an
apportionment plan. An
Corporations Y and Z therefore are
how many days comprise a member’s
not required to include any
testing period, the group takes into
apportionment plan is amended when
information about Corporation X in
account the day that the member is
the same component members (for
their respective 2011 Schedules O,
sold, but does not take into account
example, when no component
filed with their 2011 income tax
either the day that such member is
members have left or joined the
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