[Federal Register Volume 71, Number 49 (Tuesday, March 14, 2006)]
[Rules and Regulations]
[Pages 13001-13003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-2438]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9255]
RIN 1545-BF31


Agent for a Consolidated Group With Foreign Common Parent

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains temporary regulations under section 
1502 that provide the IRS with the authority to designate a domestic 
member of the consolidated group as a substitute agent to act as the 
sole agent for the group where a foreign entity is the common parent. 
The regulations affect corporations that join in the filing of a 
consolidated Federal income tax return where the common parent of the 
consolidated group is a foreign entity that is treated as a domestic 
corporation pursuant to section 7874(b) of the Internal Revenue Code 
(Code) or as the result of a section 953(d) election. The text of these 
temporary regulations also serves as the text of the proposed 
regulations set forth in the notice of proposed rulemaking on this 
subject in the Proposed Rules section in this issue of the Federal 
Register.

DATES: Effective Date: These regulations are effective March 14, 2006.
    Applicability Dates: These regulations apply to taxable years for 
which the due date (without extensions) for filing returns is after 
March 14, 2006. The applicability of these regulations will expire on 
or before March 9, 2009.

FOR FURTHER INFORMATION CONTACT: Stephen R. Cleary, (202) 622-7750, 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    Section 1504(b)(3) of the Internal Revenue Code of 1986 (Code) 
excludes foreign corporations from the definition of ``includible 
corporation.'' As a result, a foreign entity generally cannot be a 
member of a consolidated group. In certain cases, section 7874 treats a 
foreign entity as a domestic corporation and section 953(d) allows a 
foreign insurance company to make an election to be treated as a 
domestic corporation. As a result, a foreign entity could be the common 
parent or a subsidiary of a consolidated group if it is treated as a 
domestic corporation under either section 7874(b) or section 953(d).
    Under Sec.  1.1502-77(a)(1)(i) of the regulations, the common 
parent for a consolidated return year is generally the sole agent 
(agent for the group) that is authorized to act in its own name with 
respect to all matters relating to the tax liability for that 
consolidated return year for each member of the group, and any 
successor of a member (as defined in Sec.  1.1502-77(a)(1)(iii)). The 
common parent's agency for a consolidated return year generally 
continues until the common parent ceases to exist, regardless of 
whether any subsidiaries in that year cease to be members of the group, 
whether the group files a consolidated return in any later year, or 
whether the common parent ceases to be the common parent or a member of 
the group in a later year. Section 1.1502-77(d) provides rules for 
designating a substitute agent if the common parent's existence 
terminates.
    The IRS and Treasury Department believe that it may not always be 
practical or efficient for tax administration to have a foreign entity 
act as the agent for the group. Accordingly, where a foreign entity is 
the common parent because it is treated as a domestic corporation by 
reason of section 7874 or a section 953(d) election (a Foreign Common 
Parent), the temporary regulations provide the IRS with the authority 
to designate a domestic member of the group to be the sole agent (a 
Domestic Substitute Agent) even though the group's common parent 
continues in existence.
    These temporary regulations provide flexibility in the method of 
communication the IRS may use to designate a Domestic Substitute Agent, 
allowing notification by mail or by faxed transmission. In addition, 
these regulations provide specificity for the determination of the 
effective date of the designation of a Domestic Substitute Agent: the 
designation is effective on the earliest of the 14th day following the 
date of a mailing, the 4th day following a faxed transmission, or the 
date the Commissioner receives written confirmation of the designation 
by a duly authorized officer of the designated agent, within the 
meaning of section 6062.

[[Page 13002]]

Special Analyses

    It has been determined that these temporary regulations are not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has been 
determined, pursuant to 5 U.S.C. 553(b)(B), that good cause exists for 
dispensing with the notice and public comment procedures and that, 
pursuant to 5 U.S.C. 553(d)(3), good cause exists to dispense with a 
delayed effective date. The regulations are necessary to allow the IRS 
to avoid potentially serious tax administration problems that may arise 
when a foreign entity is the agent for a consolidated group, and to 
provide immediate guidance to taxpayers regarding the IRS' authority to 
designate a substitute agent for the group in such a case. For 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
refer to the Special Analysis section of the Notice of Proposed 
Rulemaking published in the Proposed Rules section in this issue of the 
Federal Register. Pursuant to section 7805(f) of the Code, these 
temporary regulations will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact on small business.

Drafting Information

    The principal author of these regulations is Stephen R. Cleary of 
the Office of Associate Chief Counsel (Corporate). Other personnel from 
the Treasury Department and the IRS participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.1502-77T also issued under 26 U.S.C. 1502 * * *


0
Par. 2. Section 1.1502-77 is amended by adding and reserving paragraph 
(i) and adding paragraph (j) to read as follows:


Sec.  1.1502-77  Agent for the group.

* * * * *
    (i)[Reserved]
    (j) Designation by Commissioner if common parent is treated as a 
domestic corporation under section 7874 or section 953(d) [Reserved]. 
For further guidance, see Sec.  1.1502-77T(j).

0
Par. 3. Section 1.1502-77T is added to read as follows:


Sec.  1.1502-77T  Agent for the group (temporary).

    (a) through (i) [Reserved]. For further guidance see Sec.  1.1502-
77(a) through (i).
    (j) Designation by Commissioner if common parent is treated as a 
domestic corporation under section 7874 or section 953(d)--(1) In 
general. If the common parent is an entity created or organized under 
the law of a foreign country and is treated as a domestic corporation 
by reason of section 7874 (or regulations thereunder) or a section 
953(d) election (a Foreign Common Parent), the Commissioner may at any 
time, with or without a request from any member of the group, designate 
another member of the group to act as the agent for the group (a 
Domestic Substitute Agent) for any taxable year for which the due date 
(without extensions) for filing returns is after March 14, 2006 and the 
Foreign Common Parent would otherwise be the agent for the group. For 
each such year, the Domestic Substitute Agent will be the sole agent 
for the group even though the Foreign Common Parent remains in 
existence. The Foreign Common Parent ceases to be the agent for the 
group when the Commissioner's designation of a Domestic Substitute 
Agent becomes effective. The Commissioner may designate a Domestic 
Substitute Agent for the term of a single taxable year, multiple years, 
or on a continuing basis.
    (2) Domestic Substitute Agent. The Domestic Substitute Agent, by 
designation or by succession, shall be a domestic corporation described 
in Sec.  1.1502-77(d)(1)(i)(A) (determined without regard to section 
7874, a section 953(d) election, section 269B, or section 1504(d)).
    (3) Designation by the Commissioner. The Commissioner will notify 
the Domestic Substitute Agent in writing by mail or faxed transmission 
of the designation. The Domestic Substitute Agent's designation is 
effective on the earliest of the 14th day following the date of a 
mailing, the 4th day following a faxed transmission, or the date the 
Commissioner receives written confirmation of the designation by a duly 
authorized officer of the Domestic Substitute Agent (within the meaning 
of section 6062). The Domestic Substitute Agent must give notice of its 
designation to the Foreign Common Parent and each corporation that was 
a member of the group during any part of any consolidated return year 
for which the Domestic Substitute Agent will be the agent. A failure of 
the Domestic Substitute Agent to notify the Foreign Common Parent or 
any member of the group does not invalidate the designation. The 
Commissioner will send a copy of the notification to the Foreign Common 
Parent, and if applicable, to any Domestic Substitute Agent the 
designation replaces; a failure to send a copy of the notification does 
not invalidate the designation.
    (4) Term of agency--(i) In general. If the Commissioner designates 
a Domestic Substitute Agent for a taxable year, the Domestic Substitute 
Agent will remain the agent for such year until the group ceases to 
exist or the Domestic Substitute Agent ceases to exist, ceases to be a 
member of the group, is replaced by a successor, or is replaced by the 
Commissioner. This designee remains the agent for such year regardless 
of whether one or more corporations that were members of the group 
during any part of such year cease to be members of the group, whether 
the group files a consolidated return for any subsequent year, or, 
except as provided by paragraphs (j)(4)(iv)(B) and (j)(4)(v) of this 
section, whether the group remains in existence with a new common 
parent in any subsequent year.
    (ii) Agency of Domestic Substitute Agent upon termination of the 
group. If the Domestic Substitute Agent is the agent for the group for 
a year in which the group terminates, the Domestic Substitute Agent 
shall be the agent for that taxable year (and any prior taxable year 
for which it is the agent for the group) so long as the Domestic 
Substitute Agent continues its corporate existence unless it is 
replaced by a successor or a new designee by the Commissioner.
    (iii) Replacement of Sec.  1.1502-77(d)(1) agent. If, pursuant to 
Sec.  1.1502-77(d)(1), the common parent of the group designates a 
Foreign Common Parent as the agent for the group for any taxable year, 
the Commissioner may, at any time, designate a Domestic Substitute 
Agent to replace the Foreign Common Parent, even if the Commissioner 
approved the terminating common parent's designation.
    (iv) Group continues with a new common parent--(A) Year the new 
common parent becomes the common parent. If subsequent to a transaction 
to which section 7874 applies or a section 953(d) election, the group 
remains in existence with a new common parent and such new common 
parent is a domestic corporation (determined without regard to section 
7874, a section 953(d) election, or section 269B), such new common 
parent will become the

[[Page 13003]]

agent for the group with respect to the entire consolidated return year 
(including the portion of the year preceding the date on which the new 
common parent became the common parent)) and the former Domestic 
Substitute Agent will no longer be the agent for the group for any part 
of that year.
    (B) Years preceding the year the new common parent becomes the 
common parent. If after the Commissioner's designation of a Domestic 
Substitute Agent the group remains in existence with a new common 
parent, and such new common parent is a domestic corporation 
(determined without regard to section 7874, a section 953(d) election, 
or section 269B), the Commissioner may designate the new common parent 
as the agent for the group for any of the group's prior taxable years 
(for which the due date (without extensions) for filing returns is 
after March 14, 2006) in which the new common parent was a member of 
the group. For this purpose, the new common parent is treated as having 
been a member of the group for any taxable year it is primarily liable 
for the group's income tax liability.
    (v) Replacement of Domestic Substitute Agent by the Commissioner. 
The Commissioner may at any time, with or without a request from any 
member of the group, designate a replacement for a Domestic Substitute 
Agent (or a successor to such agent).
    (5) Deemed Sec.  1.1502-77(d) designation--(i) Section 1.1502-78 
adjustments. If the Commissioner designates a Domestic Substitute Agent 
under this paragraph (j), it will be treated as a designation of a 
substitute agent under Sec.  1.1502-77(d) for the purposes of Sec.  
1.1502-78.
    (ii) Default Substitute Agent. If the Domestic Substitute Agent 
goes out of existence and has a single successor that is eligible to be 
a Domestic Substitute Agent, such successor becomes the Domestic 
Substitute Agent and is treated as a default substitute agent under 
Sec.  1.1502-77(d)(2). See Sec.  1.1502-77(d)(4) regarding the 
consequences of the successor's failure to notify the Commissioner of 
its status as a default substitute agent. The default substitute agent 
shall use procedures in section 9 of Rev. Proc. 2002-43 (2002-2 C.B. 
99) or a corresponding provision of a successor revenue procedure for 
notification. (See Sec.  601.601(d)(2)(ii) of this chapter.)
    (6) Request that IRS designate a Domestic Substitute Agent--(i) 
Original designation. If the common parent of the group is a Foreign 
Common Parent, and the IRS has not designated a Domestic Substitute 
Agent, one or more members of the group may request the IRS to make a 
designation for taxable years for which the due date (without 
extensions) for filing returns is after March 14, 2006. Such request is 
deemed to be a request under Sec.  1.1502-77(d)(3)(i). Members of the 
group shall use the procedures in section 10 of Rev. Proc. 2002-43 
(2002-2 C.B. 99) or a corresponding provision of a successor revenue 
procedure for this purpose. (See Sec.  601.601(d)(2)(ii) of this 
chapter.)
    (ii) Request that IRS replace a previously designated substitute 
agent. If the IRS designates a Domestic Substitute Agent pursuant to 
this paragraph (j), one or more members of the group may request that 
the IRS replace the designated Domestic Substitute Agent with another 
member (or successor to another member). Such a request is deemed to be 
a request pursuant to Sec.  1.1502-77(d)(3)(ii). Members of the group 
shall use the procedures in section 11 of Rev. Proc. 2002-43 (2002-2 
C.B. 99) or a corresponding provision of a successor revenue procedure 
for this purpose. (See Sec.  601.601(d)(2)(ii) of this chapter.)
    (7) Effective Date. This paragraph (j) applies to taxable years for 
which the due date (without extensions) for filing returns is after 
March 14, 2006. The applicability of this paragraph (j) expires on or 
before March 9, 2009.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: March 9, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 06-2438 Filed 3-9-06; 4:15 pm]
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