Instructions For Schedule O (Form 1120) - 2011 (Page 5 of 9) in pdf

income for the short tax year is

the XYZ apportionment plan,

also the full amount of the 5%

included in the consolidated return

additional tax, or $11,750.

Corporation Z was apportioned $1 of

•

filed by the consolidated group for

A controlled group with a combined

the $50,000 amount under the 15%

that corporation’s tax year.

tax bracket and Corporations X and Y

taxable income that exceeds

were equally apportioned the

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

Component Member’s

amount of the additional taxes, or

remaining amount. The combined

Liability for its Additional

$111,750. That amount will be

taxable income of the XYZ controlled

reflected in the group’s aggregate

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

Taxes

income tax liability and is not required

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

To determine a component member’s

to be separately reported in Part III of

liable for the additional taxes.

liability for its additional taxes

Schedule O. The additional taxes will

Corporation Z’s loss is not taken into

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

not require any apportionment among

account in determining the combined

the component members of a

the component members of the

taxable income of the controlled

controlled group, for their tax years

group.

that are subject to the same

December 31 testing date, must:

Note. If a component member has

See the tax rate schedule in

•

Combine their taxable incomes

subsequent positive adjustments to

the Instructions for Form

TIP

from such tax years,

its taxable income (for example, the

1120, U.S. Corporation

•

Determine the amount of the

result of an IRS audit), for a tax year

Income Tax Return, which effectively

additional taxes imposed by section

(the adjustment year), all the

incorporates both of the additional

11(b)(1) by applying the appropriate

members of the controlled group for

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

tax rate (see Determining the amount

their tax years that share the same

imposing a 39% tax on taxable

of additional taxes, later) to the

testing date as that adjustment year,

income over $100,000, but not over

amount of such combined taxable

must redetermine the amount of any

$335,000, and also imposing a 38%

income, and

additional taxes imposed by section

tax on taxable income over

•

Apportion that amount among

11(b)(1) and pay those additional

$15,000,000, but not over

those members by applying the

taxes. These corporations have this

$18,333,333.

proportionate method (defined later),

responsibility even if none of the

Apportioning the additional taxes.

unless all of those members instead

corporations that were component

The additional taxes imposed by

elect to apply the FIFO method

members of the group in the

section 11(b)(1) must be apportioned

(defined later).

adjustment year remain as

among the component members in

component members of the group.

Combined taxable income. All the

the same manner as the applicable

component members of a controlled

tax bracket amount is apportioned.

Determining the amount of

group, to which any part of a tax

The component members are

additional taxes. After the

bracket was apportioned, must

required to use the proportionate

component members of a controlled

combine their taxable incomes for

method unless all component

group have determined their

their tax years that are subject to the

members affirmatively elect to adopt

combined taxable income, those

same December 31 testing date.

the FIFO method by checking the box

members must determine if they are

Each corporation that is a component

on line 7b. See the instructions for

liable for any additional taxes

member of a controlled group must

line 7.

imposed by section 11(b)(1) in the

include its income for its entire tax

following manner.

The proportionate method.

year (their tax years that are subject

•

If that combined taxable income

Under the proportionate method, the

to the same December 31 testing

exceeds $100,000, but is not greater

additional taxes are allocated to each

date) in the calculation of the

than $335,000, the total amount of

component member to which a tax

combined taxable income, even if it

the liability for additional tax of such

bracket amount was apportioned, in

was not a member of the group for

members is the lesser amount of 5%

the same proportion as the portion of

each day of that tax year.

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

the tax-benefit from that tax bracket

In determining the additional taxes,

additional tax).

which was allocated bears to the total

only the positive taxable incomes of

•

If that combined taxable income

tax-benefit amount provided to all

those component members of a

exceeds $335,000, but is not greater

members from the use of that tax

controlled group, to which any part of

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

bracket. These tax-benefits are

a tax bracket amount were

the liability for the 5% additional tax of

attributable to the tax savings that the

apportioned, are combined for

such members will be reflected in its

members of the group realized from

purposes of determining the liability of

aggregate income tax liability. No

having tax bracket amounts taxed at

those members. If a component

allocation is necessary and no such

a lower rate instead of the higher tax

member incurs a loss for the tax year,

allocation needs to be reported in

rates to which income of the group

the member is treated as having zero

Part III of Schedule O.

would otherwise be subject.

taxable income for purposes of

•

If that combined taxable income

The steps for applying the

determining the controlled group’s

exceeds $15,000,000, but is not

proportionate method are as follows:

combined taxable income.

greater than $18,333,333, the total

Example. A controlled group

amount for that additional tax liability

Step 1. The regular tax (not

includes Corporations X, Y, and Z.

is the lesser of 3% of such excess, or

including the additional taxes

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

For the current calendar tax year,

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

Corporation X has taxable income of

Thus, a controlled group with a

a component member under a

$80,000, Corporation Y has taxable

combined taxable income that

particular tax bracket is divided by the

exceeds $15,000,000 will be liable for

income of $70,000, and Corporation

total tax owed by all component

not only the 3% additional tax, but

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

members under that tax bracket.

-5-

Instructions For Schedule O (Form 1120) - 2011 Page 5

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