[Federal Register Volume 72, Number 140 (Monday, July 23, 2007)]
[Rules and Regulations]
[Pages 40066-40069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-14197]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9343]
RIN 1545-BF30


Agent for a Consolidated Group With Foreign Common Parent

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations under section 1502 
that

[[Page 40067]]

provide the Internal Revenue Service 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 group's 
common parent. The final regulations are necessary to clarify and 
explain the rules governing the designation of an agent for the members 
of a consolidated group. 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.

DATES: Effective Date: These regulations are effective July 23, 2007.
    Applicability Date: For dates of applicability, see Sec.  1.1502-
77(h)(3).

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

SUPPLEMENTARY INFORMATION:

Background

    On March 14, 2006, the IRS and Treasury Department published 
temporary regulations (TD 9255) in the Federal Register (71 FR 13001) 
providing the IRS the authority to designate a domestic member of a 
consolidated group to be the sole agent for the group where the common 
parent of the group is a foreign entity. A notice of proposed rule 
making (REG-164247-05) cross-referencing the temporary regulations was 
published in the Federal Register for the same day (71 FR 13062). The 
temporary regulations provide procedures for the IRS's designation of a 
``domestic substitute agent'' and define the term of that substitute 
agent's agency.

Explanation of Provisions and Summary of Comments

    No comments were received responding to the notice of proposed 
rulemaking, and no public hearing was requested or held. The proposed 
regulations are adopted as amended by this Treasury decision and the 
corresponding temporary regulations are removed. The temporary 
regulations, as contained in the 26 CFR part 1 edition revised as of 
April 1, 2007, remain in effect for certain taxable years as provided 
by Sec.  1.1502-77(h)(3)(ii) of these final regulations.
    These final regulations clarify the term of the domestic substitute 
agent's agency by specifying that once appointed for one or more 
taxable years of the group, unless the designation is expressly limited 
to such term, the domestic substitute agent will continue to be the 
agent for subsequent taxable years of the group until certain specified 
events occur. These final regulations also specify that, if the 
domestic substitute agent is the group's agent for a taxable year, it 
will generally continue to serve as the agent for that year until the 
domestic substitute agent's existence terminates. Finally, these final 
regulations clarify that if a group with a domestic substitute agent 
continues in existence with a new common parent that is a domestic 
corporation (without regard to section 7874 or a section 953(d) 
election) during a consolidated return year, the domestic substitute 
agent is the agent of the group for the year through the date of the 
transaction in which the new common parent becomes the common parent, 
and thereafter the new common parent becomes the agent of the group for 
the entire taxable year.
    Additionally, these regulations indicate that Sec.  1.1502-77(e)(1) 
is also applicable for purposes of determining whether a domestic 
substitute agent's existence has terminated.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. Pursuant to 5 
U.S.C. 553(d)(3) it has been determined that that a delayed effective 
date is unnecessary because this rule finalizes currently effective 
temporary rules regarding the designation of a domestic substitute 
agent without substantive change. It is hereby certified that these 
regulations will not have a significant economic impact on a 
substantial number of small entities. This certification is based on 
the fact that these regulations will primarily affect affiliated groups 
of corporations that have elected to file consolidated returns, which 
tend to be larger businesses. Therefore, a regulatory flexibility 
analysis is not required. Pursuant to section 7805(f) of the Internal 
Revenue Code, the notice of proposed rulemaking preceding these final 
regulations was submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its 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 removing 
the entry for Sec.  1.1502-77T to read as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.1502-77 is amended by:
0
1. Revising paragraph (e)(1).
0
2. Adding paragraph (h)(3).
0
3. Revising paragraph (j).
    The additions and revisions read as follows:


Sec.  1.1502-77  Agent for the group.

* * * * *
    (e) Termination of a corporation's existence--(1) In general. For 
purposes of paragraphs (a)(1)(v), (a)(4)(i), (d), and (j) of this 
section, the existence of a corporation is deemed to terminate if--
    (i) Its existence terminates under applicable law; or
    (ii) Except as provided in paragraph (e)(3) of this section, it 
becomes, for Federal tax purposes, either--
    (A) An entity that is disregarded as an entity separate from its 
owner; or
    (B) An entity that is reclassified as a partnership. * * *
* * * * *
    (h) * * *
    (3) Designation of a domestic substitute agent--(i) In general. The 
provisions of paragraphs (e)(1) and (j) of this section apply to 
taxable years for which the consolidated Federal income tax return is 
due (without extensions) after July 23, 2007.
    (ii) Prior law. For taxable years for which the consolidated 
Federal income tax return is due (without extensions) on or before July 
23, 2007, see Sec.  1.1502-77(e)(1) as contained in the 26 CFR part 1 
edition revised as of April 1, 2007. For taxable years for which the 
consolidated Federal income tax return is due (without extensions) 
after March 14, 2006, and on or before July 23, 2007, see Sec.  1.1502-
77T as contained in the 26 CFR part 1 edition revised as of April 1, 
2007.
* * * * *
    (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

[[Page 40068]]

organized under the law of a foreign country and is treated as a 
domestic corporation by reason of section 7874 (or regulations under 
that section) 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 consolidated Federal income tax return is due 
(without extensions) after July 23, 2007, 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 paragraph (d)(1)(i)(A) of this section (determined without regard to 
section 7874, a section 953(d) election 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) Taxable years for which domestic substitute 
agent is the agent. If the Commissioner designates a domestic 
substitute agent for one or more taxable years, unless the designation 
is expressly limited to such term, such domestic substitute agent will 
continue as the group's sole agent for subsequent taxable years until 
the domestic substitute agent ceases to be a member of the continuing 
group, is replaced by a new domestic common parent (as provided in 
paragraph (j)(4)(iv)(A) of this section), is replaced by the 
Commissioner, or is replaced by a default substitute agent (as provided 
in paragraph (j)(5)(ii) of this section). If during the course of a 
consolidated return year the domestic substitute agent ceases to be a 
member of the continuing group or is replaced, it shall no longer act 
as agent for such taxable year or subsequent taxable years in any 
matter.
    (ii) Continuing agency for prior taxable years. Unless replaced by 
a default substitute agent (as provided in paragraph (j)(5)(ii) of this 
section) or by the Commissioner, the domestic substitute agent at the 
end of a taxable year of the group will remain the agent for such year 
until its existence terminates, even if the group subsequently ceases 
to exist or the domestic substitute agent subsequently ceases to be a 
member of the group.
    (iii) Replacement of a Sec.  1.1502-77(d)(1) agent. If, pursuant to 
paragraph (d)(1) of this section, 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 the group has a domestic 
substitute agent and the group continues in existence with a new common 
parent during a consolidated return year, and such new common parent is 
a domestic corporation (determined without regard to section 7874 or a 
section 953(d) election), the domestic substitute agent at the 
beginning of the year is the agent for the group through the date of 
the transaction in which the new common parent becomes the common 
parent, and the new common parent becomes the agent for the group 
beginning the day after the transaction, at which time it becomes the 
agent for the group with respect to the entire consolidated return year 
(including the period through the date of the transaction) and the 
former domestic substitute agent will no longer be the agent for the 
group for 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 or a section 953(d) 
election), the Commissioner may designate the new common parent as the 
sole agent for the group for any of the group's prior taxable years 
(for which the consolidated Federal income tax return is due (without 
extensions) after July 23, 2007) 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) In general. If the 
Commissioner designates a domestic substitute agent under this 
paragraph (j), it will be treated as a designation of a substitute 
agent under paragraph (d) of this section.
    (ii) Default substitute agent. If the domestic substitute agent's 
existence terminates and it has a single successor that is a domestic 
corporation (without regard to section 269B) 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 
paragraph (d)(2) of this section. See paragraph (d)(4) of this section 
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 CB 99) or a corresponding provision of a successor revenue 
procedure for notification. (See Sec.  601.601(d)(2)(ii)(b) 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 consolidated Federal income 
tax return is due (without extensions) after July 23, 2007. Such 
request is

[[Page 40069]]

deemed to be a request under paragraph (d)(3)(i) of this section. 
Members of the group shall use the procedures in section 10 of Rev. 
Proc. 2002-43 (2002-2 CB 99) or a corresponding provision of a 
successor revenue procedure for this purpose. (See Sec.  
601.601(d)(2)(ii)(b) 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 paragraph (d)(3)(ii) of this section. Members of 
the group shall use the procedures in section 11 of Rev. Proc. 2002-43 
(2002-2 CB 99) or a corresponding provision of a successor revenue 
procedure for this purpose. (See Sec.  601.601(d)(2)(ii)(b) of this 
chapter.)


Sec.  1.1502-77T  [Removed]

0
Par. 3. Section 1.1502-77T is removed.

 Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.
    Approved: July 16, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
 [FR Doc. E7-14197 Filed 7-20-07; 8:45 am]
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