2004 Form Tc-20 Utah Corporation Franchise Or Income Tax Return And Instructions (Page 5 of 19) in pdf

IRC Section 338

Corporations electing to file a worldwide combined

report may not thereafter elect to file a return on a basis

If a federal election is made under IRC Section 338, the

other than a worldwide combined report without the

target corporation must file a separate entity one-day tax

consent of the Tax Commission.

return for Utah purposes, as required for federal pur-

poses. The target corporation must include the gain or

Threshold Level of Business Activity

loss on the deemed sale of assets in its adjusted income.

Foreign corporations that conduct 20 percent or more

Form TC-20 (338), “One-day Corporation Tax Return for

of their business activity in the United States, as mea-

Target Corporation,” is available at tax.utah.gov.

sured by the average of the property and payroll fac-

IRC Section 338(h)(10)

tors, must be included 100 percent in a water’s edge

combined report. Any business activity in Utah will

If an election is made for federal purposes under IRC

subject a foreign corporation to Utah franchise tax. The

Section 338(h)(10), the following apply:

threshold test for purposes of combined reporting de-

termines whether the foreign corporation is a member

1. If the target corporation is a member of a unitary

group immediately preceding the acquisition date,

of a unitary group.

the target corporation must be included in a com-

Foreign Dividends

bined report to the extent of its income through the

acquisition date. The gain or loss on the deemed

Fifty percent of unitary foreign dividends are included in

sale of assets is included in the combined income of

adjusted income. The remaining 50 percent, less ex-

the unitary group.

penses, are excluded. Refer to UCA §59-7-106(11)(a).

Adjustment to the denominators of the apportionment

2. If the target corporation is not a member of a unitary

fraction for each dividend-paying company is provided

group immediately preceding the acquisition date,

at the ratio that the included dividend bears to the total

the target corporation must file a short-period return

earnings and profits for dividend-paying companies.

for the period ending on the acquisition date and

must include in that return the gain or loss on the

Preparation of Combined Report(s)

deemed sale of assets in its adjusted income.

A group filing a combined report will calculate adjusted

3. Any gain or loss, on stock sold or exchanged by a

income of the combined group by:

member of a selling consolidated group (as defined

in IRC Section 338), which is not recognized for

1. Determining which corporations are unitary;

federal purposes may not be included in the ad-

2. Computing unadjusted income on a separate return

justed income of the selling corporation.

basis;

4. The target corporation is treated as a new corpora-

3. Combining income or loss of the members included

tion as of the day after the acquisition date.

in the combined report;

IRC Section 336(e)

4. Making appropriate eliminations and adjustments

between members included in the combined report

If an election is made under IRC Section 336(e), the

to arrive at unadjusted income on a combined basis;

transaction must be treated as follows:

and

1. If the corporation is treated for federal purposes as

5. Making additions and subtractions to unadjusted

having disposed of all of its assets and is a member

income as outlined in Schedules B, C and D to arrive

of a unitary group immediately preceding the date of

at adjusted income.

sale, the corporation must be included in a com-

bined return to the extent of its income through the

A unitary group of corporations is considered a single

date of sale. The gain or loss on the deemed

taxpayer for purposes of the assignment of sales in the

disposal of assets is included in the combined

sales factor of the apportionment fraction. Therefore,

income of the unitary group.

sales of tangible personal property by any member of

the unitary group that are delivered or shipped into Utah

2. If the corporation is treated for federal purposes as

are includable in the Utah sales numerator. Conversely,

having disposed of all of its assets and is not a

such sales originating in Utah, which are delivered or

member of a unitary group immediately preceding

shipped to another state, will not be thrown back to the

the date of sale, the corporation must file a

Utah sales numerator if any member of the unitary

short-period return for the period ending on the date

group has a taxable presence (nexus) in that state.

of sale and must include the gain or loss on the

Refer to Tax Commission Rule R865-6F-24.

deemed disposal of assets in its adjusted income.

3. Any gain or loss that is not recognized for federal

IRC Sections 338, 338(h)(10),

purposes on stock sold, exchanged or distributed by

and 336(e)

a corporation pursuant to IRC Section 336(e) may

not be included in adjusted income.

An election made or considered to be made under IRC

4. The new basis of assets of the corporation treated

Sections 338, 338(h)(10) and 336(e) is also followed for

as having disposed of its assets is the same as

Utah purposes.

determined for federal purposes.

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2004 Form Tc-20 Utah Corporation Franchise Or Income Tax Return And Instructions Page 5

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