-CITE-

26 USC CHAPTER 6 - CONSOLIDATED RETURNS 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

-HEAD-

CHAPTER 6 - CONSOLIDATED RETURNS

-MISC1-

Subchapter Sec.(!1)

A. Returns and Payment of Tax 1501

B. Related Rules 1551

-SECREF-

CHAPTER REFERRED TO IN OTHER SECTIONS

This chapter is referred to in sections 953, 6012, 6103, 7851 of

this title.

-FOOTNOTE-

(!1) Section numbers editorially supplied.

-End-

-CITE-

26 USC Subchapter A - Returns and Payment of Tax 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter A - Returns and Payment of Tax

-HEAD-

SUBCHAPTER A - RETURNS AND PAYMENT OF TAX

-MISC1-

Sec.

1501. Privilege to file consolidated returns.

1502. Regulations.

1503. Computation and payment of tax.

1504. Definitions.

1505. Cross references.

-End-

-CITE-

26 USC Sec. 1501 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter A - Returns and Payment of Tax

-HEAD-

Sec. 1501. Privilege to file consolidated returns

-STATUTE-

An affiliated group of corporations shall, subject to the

provisions of this chapter, have the privilege of making a

consolidated return with respect to the income tax imposed by

chapter 1 for the taxable year in lieu of separate returns. The

making of a consolidated return shall be upon the condition that

all corporations which at any time during the taxable year have

been members of the affiliated group consent to all the

consolidated return regulations prescribed under section 1502 prior

to the last day prescribed by law for the filing of such return.

The making of a consolidated return shall be considered as such

consent. In the case of a corporation which is a member of the

affiliated group for a fractional part of the year, the

consolidated return shall include the income of such corporation

for such part of the year as it is a member of the affiliated

group.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 367.)

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 172, 542, 818, 832, 963,

1092, 7701 of this title.

-End-

-CITE-

26 USC Sec. 1502 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter A - Returns and Payment of Tax

-HEAD-

Sec. 1502. Regulations

-STATUTE-

The Secretary shall prescribe such regulations as he may deem

necessary in order that the tax liability of any affiliated group

of corporations making a consolidated return and of each

corporation in the group, both during and after the period of

affiliation, may be returned, determined, computed, assessed,

collected, and adjusted, in such manner as clearly to reflect the

income-tax liability and the various factors necessary for the

determination of such liability, and in order to prevent avoidance

of such tax liability.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 367; Pub. L. 94-455, title XIX,

Sec. 1906(b) (13)(A), Oct. 4, 1976, 90 Stat. 1834.)

-MISC1-

AMENDMENTS

1976 - Pub. L. 94-455 struck out "or his delegate" after

"Secretary".

DUAL RESIDENT COMPANIES

Pub. L. 100-647, title VI, Sec. 6126, Nov. 10, 1988, 102 Stat.

3713, provided that:

"(a) General Rule. - In the case of a transaction which -

"(1) involves the transfer after the date of the enactment of

this Act [Nov. 10, 1988] by a domestic corporation, with respect

to which there is a qualified excess loss account, of its assets

and liabilities to a foreign corporation in exchange for all of

the stock of such foreign corporation, followed by the complete

liquidation of the domestic corporation into the common parent,

and

"(2) qualifies, pursuant to Revenue Ruling 87-27, as a

reorganization which is described in section 368(a)(1)(F) of the

1986 Code,

then, solely for purposes of applying Treasury Regulation section

1.1502-19 to such qualified excess loss account, such foreign

corporation shall be treated as a domestic corporation in

determining whether such foreign corporation is a member of the

affiliated group of the common parent.

"(b) Treatment of Income of New Foreign Corporation. -

"(1) In general. - In any case to which subsection (a) applies,

for purposes of the 1986 Code -

"(A) the source and character of any item of income of the

foreign corporation referred to in subsection (a) shall be

determined as if such foreign corporation were a domestic

corporation,

"(B) the net amount of any such income shall be treated as

subpart F income (without regard to section 952(c) of the 1986

Code), and

"(C) the amount in the qualified excess loss account referred

to in subsection (a) shall -

"(i) be reduced by the net amount of any such income, and

"(ii) be increased by the amount of any such income

distributed directly or indirectly to the common parent

described in subsection (a).

"(2) Limitation. - Paragraph (1) shall apply to any item of

income only to the extent that the net amount of such income does

not exceed the amount in the qualified excess loss account after

being reduced under paragraph (1)(C) for prior income.

"(3) Basis adjustments not applicable. - To the extent

paragraph (1) applies to any item of income, there shall be no

increase in basis under section 961(a) of such Code on account of

such income (and there shall be no reduction in basis under

section 961(b) of such Code on account of an exclusion

attributable to the inclusion of such income).

"(4) Recognition of gain. - For purposes of paragraph (1), if

the foreign corporation referred to in subsection (a) transfers

any property acquired by such foreign corporation in the

transaction referred to in subsection (a) (or transfers any other

property the basis of which is determined in whole or in part by

reference to the basis of property so acquired) and (but for this

paragraph) there is not full recognition of gain on such

transfer, the excess (if any) of -

"(A) the fair market value of the property transferred, over

"(B) its adjusted basis,

shall be treated as gain from the sale or exchange of such

property and shall be recognized notwithstanding any other

provision of law. Proper adjustment shall be made to the basis of

any such property for gain recognized under the preceding

sentence.

"(c) Definitions. - For purposes of this section -

"(1) Common parent. - The term 'common parent' means the common

parent of the affiliated group which included the domestic

corporation referred to in subsection (a)(1).

"(2) Qualified excess loss account. - The term 'qualified

excess loss account' means any excess loss account (within the

meaning of the consolidated return regulations) to the extent

such account is attributable -

"(A) to taxable years beginning before January 1, 1988, and

"(B) to periods during which the domestic corporation was

subject to an income tax of a foreign country on its income on

a residence basis or without regard to whether such income is

from sources in or outside of such foreign country.

The amount of such account shall be determined as of immediately

after the transaction referred to in subsection (a) and without,

except as provided in subsection (b), diminution for any future

adjustment.

"(3) Net amount. - The net amount of any item of income is the

amount of such income reduced by allocable deductions as

determined under the rules of section 954(b)(5) of the 1986 Code.

"(4) Second same country corporation may be treated as domestic

corporation in certain cases. - If -

"(A) another foreign corporation acquires from the common

parent stock of the foreign corporation referred to in

subsection (a) after the transaction referred to in subsection

(a),

"(B) both of such foreign corporations are subject to the

income tax of the same foreign country on a residence basis,

and

"(C) such common parent complies with such reporting

requirements as the Secretary of the Treasury or his delegate

may prescribe for purposes of this paragraph,

such other foreign corporation shall be treated as a domestic

corporation in determining whether the foreign corporation

referred to in subsection (a) is a member of the affiliated group

referred to in subsection (a) (and the rules of subsection (b)

shall apply (i) to any gain of such other foreign corporation on

any disposition of such stock, and (ii) to any other income of

such other foreign corporation except to the extent it

establishes to the satisfaction of the Secretary of the Treasury

or his delegate that such income is not attributable to property

acquired from the foreign corporation referred to in subsection

(a))."

SPECIAL RULE FOR DISPOSITION OF STOCK OF SUBSIDIARY

Pub. L. 99-514, title VI, Sec. 647, Oct. 22, 1986, 100 Stat.

2294, provided that: "If for a taxable year of an affiliated group

filing a consolidated return ending on or before December 31, 1987,

there is a disposition of stock of a subsidiary (within the meaning

of Treasury Regulation section 1.1502-19), the amount required to

be included in income with respect to such disposition under

Treasury Regulation section 1.1502-19(a) shall, notwithstanding

such section, be included in income ratably over the 15-year period

beginning with the taxable year in which the disposition occurs.

The preceding sentence shall apply only if such subsidiary was

incorporated on December 24, 1969, and is a participant in a

mineral joint venture with a corporation organized under the laws

of the foreign country in which the joint venture mineral project

is located."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1501, 1503 of this title.

-End-

-CITE-

26 USC Sec. 1503 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter A - Returns and Payment of Tax

-HEAD-

Sec. 1503. Computation and payment of tax

-STATUTE-

(a) [General rule] (!1)

In any case in which a consolidated return is made or is required

to be made, the tax shall be determined, computed, assessed,

collected, and adjusted in accordance with the regulations under

section 1502 prescribed before the last day prescribed by law for

the filing of such return.

[(b) Repealed. Pub. L. 94-455, title X, Sec. 1052(c)(5), Oct. 4,

1976, 90 Stat. 1648]

(c) Special rule for application of certain losses against income

of insurance companies taxed under section 801

(1) In general

If an election under section 1504(c)(2) is in effect for the

taxable year and the consolidated taxable income of the members

of the group not taxed under section 801 results in a

consolidated net operating loss for such taxable year, then under

regulations prescribed by the Secretary, the amount of such loss

which cannot be absorbed in the applicable carry-back periods

against the taxable income of such members not taxed under

section 801 shall be taken into account in determining the

consolidated taxable income of the affiliated group for such

taxable year to the extent of 35 percent of such loss or 35

percent of the taxable income of the members taxed under section

801, whichever is less. The unused portion of such loss shall be

available as a carryover, subject to the same limitations

(applicable to the sum of the loss for the carryover year and the

loss (or losses) carried over to such year), in applicable

carryover years.

(2) Losses of recent nonlife affiliates

Notwithstanding the provisions of paragraph (1), a net

operating loss for a taxable year of a member of the group not

taxed under section 801 shall not be taken into account in

determining the taxable income of a member taxed under section

801 (either for the taxable year or as a carryover or carryback)

if such taxable year precedes the sixth taxable year such members

have been members of the same affiliated group (determined

without regard to section 1504(b)(2)).

(d) Dual consolidated loss

(1) In general

The dual consolidated loss for any taxable year of any

corporation shall not be allowed to reduce the taxable income of

any other member of the affiliated group for the taxable year or

any other taxable year.

(2) Dual consolidated loss

For purposes of this section -

(A) In general

Except as provided in subparagraph (B), the term "dual

consolidated loss" means any net operating loss of a domestic

corporation which is subject to an income tax of a foreign

country on its income without regard to whether such income is

from sources in or outside of such foreign country, or is

subject to such a tax on a residence basis.

(B) Special rule where loss not used under foreign law

To the extent provided in regulations, the term "dual

consolidated loss" shall not include any loss which, under the

foreign income tax law, does not offset the income of any

foreign corporation.

(3) Treatment of losses of separate business units

To the extent provided in regulations, any loss of a separate

unit of a domestic corporation shall be subject to the

limitations of this subsection in the same manner as if such unit

were a wholly owned subsidiary of such corporation.

(4) Income on assets acquired after the loss

The Secretary shall prescribe such regulations as may be

necessary or appropriate to prevent the avoidance of the purposes

of this subsection by contributing assets to the corporation with

the dual consolidated loss after such loss was sustained.

(e) Special rule for determining adjustments to basis

(1) In general

Solely for purposes of determining gain or loss on the

disposition of intragroup stock and the amount of any inclusion

by reason of an excess loss account, in determining the

adjustments to the basis of such intragroup stock on account of

the earnings and profits of any member of an affiliated group for

any consolidated year (and in determining the amount in such

account) -

(A) such earnings and profits shall be determined as if

section 312 were applied for such taxable year (and all

preceding consolidated years of the member with respect to such

group) without regard to subsections (k) and (n) thereof, and

(B) earnings and profits shall not include any amount

excluded from gross income under section 108 to the extent the

amount so excluded was not applied to reduce tax attributes

(other than basis in property).

(2) Definitions

For purposes of this subsection -

(A) Intragroup stock

The term "intragroup stock" means any stock which -

(i) is in a corporation which is or was a member of an

affiliated group of corporations, and

(ii) is held by another corporation which is or was a

member of such group.

Such term includes any other property the basis of which is

determined (in whole or in part) by reference to the basis of

stock described in the preceding sentence.

(B) Consolidated year

The term "consolidated year" means any taxable year for which

the affiliated group makes a consolidated return.

(C) Application of section 312(n)(7) not affected

The reference in paragraph (1) to subsection (n) of section

312 shall be treated as not including a reference to paragraph

(7) of such subsection.

(3) Adjustments

Under regulations prescribed by the Secretary, proper

adjustments shall be made in the application of paragraph (1) -

(A) in the case of any property acquired by the corporation

before consolidation, for the difference between the adjusted

basis of such property for purposes of computing taxable income

and its adjusted basis for purposes of computing earnings and

profits, and

(B) in the case of any property, for any basis adjustment

under section 50(c).

(4) Elimination of election to reduce basis of indebtedness

Nothing in the regulations prescribed under section 1502 shall

permit any reduction in the amount otherwise included in gross

income by reason of an excess loss account if such reduction is

on account of a reduction in the basis of indebtedness.

(f) Limitation on use of group losses to offset income of

subsidiary paying preferred dividends

(1) In general

In the case of any subsidiary distributing during any taxable

year dividends on any applicable preferred stock -

(A) no group loss item shall be allowed to reduce the

disqualified separately computed income of such subsidiary for

such taxable year, and

(B) no group credit item shall be allowed against the tax

imposed by this chapter on such disqualified separately

computed income.

(2) Group items

For purposes of this subsection -

(A) Group loss item

The term "group loss item" means any of the following items

of any other member of the affiliated group which includes the

subsidiary:

(i) Any net operating loss and any net operating loss

carryover or carryback under section 172.

(ii) Any loss from the sale or exchange of any capital

asset and any capital loss carryover or carryback under

section 1212.

(B) Group credit item

The term "group credit item" means any credit allowable under

part IV of subchapter A of chapter 1 (other than section 34) to

any other member of the affiliated group which includes the

subsidiary and any carryover or carryback of any such credit.

(3) Other definitions

For purposes of this subsection -

(A) Disqualified separately computed income

The term "disqualified separately computed income" means the

portion of the separately computed taxable income of the

subsidiary which does not exceed the dividends distributed by

the subsidiary during the taxable year on applicable preferred

stock.

(B) Separately computed taxable income

The term "separately computed taxable income" means the

separate taxable income of the subsidiary for the taxable year

determined -

(i) by taking into account gains and losses from the sale

or exchange of a capital asset and section 1231 gains and

losses,

(ii) without regard to any net operating loss or capital

loss carryover or carryback, and

(iii) with such adjustments as the Secretary may prescribe.

(C) Subsidiary

The term "subsidiary" means any corporation which is a member

of an affiliated group filing a consolidated return other than

the common parent.

(D) Applicable preferred stock

The term "applicable preferred stock" means stock described

in section 1504(a)(4) in the subsidiary which is -

(i) issued after November 17, 1989, and

(ii) held by a person other than a member of the same

affiliated group as the subsidiary.

(4) Regulations

The Secretary shall prescribe such regulations as may be

necessary or appropriate to carry out the provisions of this

subsection, including regulations -

(A) to prevent the avoidance of this subsection through the

transfer of built-in losses to the subsidiary,

(B) to provide rules for cases in which the subsidiary owns

(directly or indirectly) stock in another member of the

affiliated group, and

(C) to provide for the application of this subsection where

dividends are not paid currently, where the redemption and

liquidation rights of the applicable preferred stock exceed the

issue price for such stock, or where the stock is otherwise

structured to avoid the purposes of this subsection.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 367; Pub. L. 86-780, Sec. 2,

Sept. 14, 1960, 74 Stat. 1011; Pub. L. 88-272, title II, Sec.

234(a), (b)(1), (2), Feb. 26, 1964, 78 Stat. 113; Pub. L. 94-455,

title X, Secs. 1031(b)(4), 1052(c)(5), title XV, Sec. 1507(b)(3),

title XIX, Sec. 1901(b)(1)(Y), Oct. 4, 1976, 90 Stat. 1623, 1648,

1740, 1792; Pub. L. 98-369, div. A, title II, Sec. 211(b)(19), July

18, 1984, 98 Stat. 756; Pub. L. 99-514, title XII, Sec. 1249(a),

Oct. 22, 1986, 100 Stat. 2584; Pub. L. 100-203, title X, Sec.

10222(a)(1), Dec. 22, 1987, 101 Stat. 1330-410; Pub. L. 100-647,

title I, Sec. 1012(u), title II, Sec. 2004(j)(1)(A), (2), (3)(A),

Nov. 10, 1988, 102 Stat. 3528, 3604, 3605; Pub. L. 101-239, title

VII, Secs. 7201(a), 7207(a), 7821(c), Dec. 19, 1989, 103 Stat.

2328, 2337, 2424; Pub. L. 101-508, title XI, Secs. 11802(f)(4),

11813(b)(25), Nov. 5, 1990, 104 Stat. 1388-530, 1388-555.)

-MISC1-

AMENDMENTS

1990 - Subsec. (c)(1). Pub. L. 101-508, Sec. 11802(f)(4), struck

out at end "For taxable years ending with or within calendar year

1981, '25 percent' shall be substituted for '35 percent' each place

it appears in the first sentence of this subsection. For taxable

years ending with or within calendar year 1982, '30 percent' shall

be substituted for '35 percent' each place it appears in that

sentence."

Subsec. (e)(3)(B). Pub. L. 101-508, Sec. 11813(b)(25),

substituted "section 50(c)" for "section 48(q)".

1989 - Subsec. (e)(2)(A)(ii). Pub. L. 101-239, Sec. 7821(c),

substituted "another corporation which is or was a member" for

"another member".

Subsec. (e)(4). Pub. L. 101-239, Sec. 7207(a), added par. (4).

Subsec. (f). Pub. L. 101-239, Sec. 7201(a), added subsec. (f).

1988 - Subsec. (d)(3), (4). Pub. L. 100-647, Sec. 1012(u), added

pars. (3) and (4).

Subsec. (e)(1). Pub. L. 100-647, Sec. 2004(j)(1)(A), amended

introductory provisions generally. Prior to amendment, introductory

provisions read as follows: "Solely for purposes of determining

gain or loss on the disposition of intragroup stock, in determining

the adjustments to the basis of such intragroup stock on account of

the earnings and profits of any member of an affiliated group for

any consolidated year - ".

Subsec. (e)(2)(C). Pub. L. 100-647, Sec. 2004(j)(3)(A), added

subpar. (C).

Subsec. (e)(3). Pub. L. 100-647, Sec. 2004(j)(2), added par. (3).

1987 - Subsec. (e). Pub. L. 100-203 added subsec. (e).

1986 - Subsec. (d). Pub. L. 99-514 added subsec. (d).

1984 - Subsec. (c). Pub. L. 98-369, Sec. 211(b)(19)(A), (C),

substituted "section 801" for "section 802" in heading, and

wherever appearing in text.

Subsec. (c)(1). Pub. L. 98-369, Sec. 211(b)(19)(B), struck out

provision that for purposes of this subsection, in determining the

taxable income of each insurance company subject to tax under

section 802, section 802(b)(3) would not be taken into account.

1976 - Subsec. (a). Pub. L. 94-455, Sec. 1052(c)(5), struck out

subsec. (a) designation.

Subsec. (b). Pub. L. 94-455, Sec. 1052(c)(5), struck out subsec.

(b) which provided for a special rule for application of foreign

tax credit when overall limitation applies.

Subsec. (b)(1). Pub. L. 94-455, Sec. 1031(b)(4), struck out "and

if for the taxable year an election under section 904(b)(1)

(relating to election of overall limitation on foreign tax credit)

is in effect" after "section 921)".

Subsec. (b)(3)(C). Pub. L. 94-455, Sec. 1901(b)(1)(Y), struck out

subpar. (C) which defined "consolidated taxable income".

Subsec. (c). Pub. L. 94-455, Sec. 1507(b)(3), added subsec. (c).

1964 - Subsec. (a). Pub. L. 88-272, Sec. 234(a), struck out

provisions which increased the tax imposed under section 11(c), or

section 831, by 2% of the consolidated taxable income of the

affiliated group of includible corporations, and defined

"consolidated taxable income".

Subsec. (b). Pub. L. 88-272, Sec. 234(b)(1), (2), redesignated

subsec. (d) as (b), and substituted references to section 7701 for

references to former subsection (c) of this section, in subpar.

(A), and definition of "consolidated taxable income" for provisions

relating to the computation of tax, for purposes of par. (1)(A), on

the portion of consolidated taxable income attributable to any

corporation, without regard to the increase of 2% as in subsec.

(a), in subpar. (C). Former subsec. (b), which limited the 2%

increase in subsec. (a) in cases where the affiliated group

included one or more Western Hemisphere trade corporations or one

or more regulated public utilities, to the amount by which the

consolidated taxable income of the affiliated group exceed the

income attributable to such corporations and utilities, was struck

out.

Subsec. (c). Pub. L. 88-272, Sec. 234(b)(1), struck out subsec.

(c) which defined regulated public utility. See section 7701(a)(33)

of this title.

Subsec. (d). Pub. L. 88-272, Sec. 234(b)(1), redesignated subsec.

(d) as (b).

1960 - Subsec. (d). Pub. L. 86-780 added subsec. (d).

EFFECTIVE DATE OF 1990 AMENDMENT

Amendment by section 11813(b)(25) of Pub. L. 101-508 applicable

to property placed in service after Dec. 31, 1990, but not

applicable to any transition property (as defined in section 49(e)

of this title), any property with respect to which qualified

progress expenditures were previously taken into account under

section 46(d) of this title, and any property described in section

46(b)(2)(C) of this title, as such sections were in effect on Nov.

4, 1990, see section 11813(c) of Pub. L. 101-508, set out as a note

under section 29 of this title.

EFFECTIVE DATE OF 1989 AMENDMENT

Section 7201(b) of Pub. L. 101-239 provided that:

"(1) In general. - The amendment made by this section [amending

this section] shall apply to taxable years ending after November

17, 1989.

"(2) Binding contract exception. - For purposes of section

1503(f)(3)(D) of the Internal Revenue Code of 1986, stock issued

after November 17, 1989, pursuant to a written binding contract in

effect on November 17, 1989, and at all times thereafter before

such issuance, shall be treated as issued on November 17, 1989.

"(3) Special rule when subsidiary leaves group. - If, by reason

of a transaction after November 17, 1989, a corporation ceases to

be, or becomes, a member of an affiliated group, the stock of such

corporation shall be treated, for purposes of section 1503(f)(3)(D)

of such Code, as issued on the date of such cessation or

commencement, unless such transaction is of a kind which would not

result in the recognition of any deferred intercompany gain under

the consolidated return regulations by reason of the acquisition of

the entire group.

"(4) Retired stock. -

"(A) Except as provided in subparagraph (B), if stock issued

before November 18, 1989, (or described in paragraph (2)), is

retired or acquired after November 17, 1989, by the corporation

or another member of the same affiliated group, such stock shall

be treated, for purposes of section 1503(f)(3)(D) of such Code,

as issued on the date of such retirement or acquisition.

"(B) Subparagraph (A) shall not apply to any retirement or

acquisition pursuant to an obligation to reissue under a binding

written contract in effect on November 17, 1989, and at all times

thereafter before such retirement or acquisition.

"(5) Auction rate preferred. - For purposes of section

1503(f)(3)(D) of such Code, auction rate preferred stock shall be

treated as issued when the contract requiring the auction became

binding.

"(6) Special rule for certain auction rate preferred. - For

purposes of section 1503(f)(3)(D) of the Internal Revenue Code of

1986, any auction rate preferred stock shall be treated as issued

before November 18, 1989, if -

"(A) a subsidiary was incorporated before July 10, 1989 for the

special purpose of issuing such stock,

"(B) a rating agency was retained before July 10, 1989, and

"(C) such stock is issued before the date 30 days after the

date of the enactment of this Act [Dec. 19, 1989]."

Section 7207(b) of Pub. L. 101-239 provided that:

"(1) In general. - Except as provided in paragraph (2), the

amendment made by subsection (a) [amending this section] shall

apply to dispositions after July 10, 1989, in taxable years ending

after such date.

"(2) Binding contract. - The amendment made by subsection (a)

shall not apply to any disposition pursuant to a written binding

contract in effect on July 10, 1989, and at all times thereafter

before such disposition."

Amendment by section 7821 of Pub. L. 101-239 effective as if

included in the provision of the Revenue Act of 1987, Pub. L.

100-203, title X, to which such amendment relates, see section 7823

of Pub. L. 101-239, set out as a note under section 26 of this

title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by section 1012(u) of Pub. L. 100-647 effective, except

as otherwise provided, as if included in the provision of the Tax

Reform Act of 1986, Pub. L. 99-514, to which such amendment

relates, see section 1019(a) of Pub. L. 100-647, set out as a note

under section 1 of this title.

Amendment by section 2004(j)(1)(A), (2), (3)(A) of Pub. L.

100-647 effective, except as otherwise provided, as if included in

the provisions of the Revenue Act of 1987, Pub. L. 100-203, title

X, to which such amendment relates, see section 2004(u) of Pub. L.

100-647, set out as a note under section 56 of this title.

EFFECTIVE DATE OF 1987 AMENDMENT

Section 10222(a)(2) of Pub. L. 100-203, as amended by Pub. L.

100-647, title II, Sec. 2004(j)(1)(B), Nov. 10, 1988, 102 Stat.

3604, provided that:

"(A) In general. - Except as provided in subparagraph (B), the

amendment made by paragraph (1) [amending this section] shall apply

to any intragroup stock disposed of after December 15, 1987. For

purposes of determining the adjustments to the basis of such stock,

such amendment shall be deemed to have been in effect for all

periods whether before, on, or after December 15, 1987.

"(B) Exception. - The amendment made by paragraph (1) shall not

apply to any intragroup stock disposed of after December 15, 1987,

and before January 1, 1989, if such disposition is pursuant to a

written binding contract, governmental order, letter of intent or

preliminary agreement, or stock acquisition agreement, in effect on

or before December 15, 1987.

"(C) Treatment of certain excess loss accounts. -

"(i) In general. - If -

"(I) any disposition on or before December 15, 1987, of stock

resulted in an inclusion of an excess loss account (or would

have so resulted if the amendments made by paragraph (1) had

applied to such disposition), and

"(II) there is an unrecaptured amount with respect to such

disposition,

the portion of such unrecaptured amount allocable to stock

disposed of in a disposition to which the amendment made by

paragraph (1) applies shall be taken into account as negative

basis. To the extent permitted by the Secretary of the Treasury

or his delegate, the preceding sentence shall not apply to the

extent the taxpayer elects to reduce its basis in indebtedness of

the corporation with respect to which there would have been an

excess loss account.

"(ii) Special rules. - For purposes of this subparagraph -

"(I) Unrecaptured amount. - The term 'unrecaptured amount'

means the amount by which the inclusion referred to in clause

(i)(I) would have been increased if the amendment made by

paragraph (1) and [had] applied to the disposition.

"(II) Coordination with binding contract exception. - A

disposition shall be treated as occurring on or before December

15, 1987, if the amendment made by paragraph (1) does not apply

to such disposition by reason of subparagraph (B)."

EFFECTIVE DATE OF 1986 AMENDMENT

Section 1249(b) of Pub. L. 99-514 provided that: "The amendment

made by subsection (a) [amending this section] shall apply to net

operating losses for taxable years beginning after December 31,

1986."

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-369 applicable to taxable years beginning

after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as

an Effective Date note under section 801 of this title.

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by section 1031(b)(4) of Pub. L. 94-455 applicable to

taxable years beginning after Dec. 31, 1975, see section 1031(c) of

Pub. L. 94-455, set out as a note under section 904 of this title.

Amendment by section 1052(c)(5) of Pub. L. 94-455 effective with

respect to taxable years beginning after Dec. 31, 1979, see section

1052(d) of Pub. L. 94-455, set out as a note under section 170 of

this title.

Amendment by section 1507(b)(3) of Pub. L. 94-455 applicable to

taxable years beginning after Dec. 31, 1980, see section 1507(c) of

Pub. L. 94-455, set out as a note under section 1504 of this title.

Amendment by section 1901(b)(1)(Y) of Pub. L. 94-455 applicable

with respect to taxable years beginning after Dec. 31, 1976, see

section 1901(d) of Pub. L. 94-455, set out as a note under section

2 of this title.

EFFECTIVE DATE OF 1964 AMENDMENT

Section 234(c) of Pub. L. 88-272 provided that: "The amendments

made by subsections (a) and (b) [amending this section and sections

12, 172, 904, 1341, 1552, and 7701 of this title] shall apply with

respect to taxable years beginning after December 31, 1963."

EFFECTIVE DATE OF 1960 AMENDMENT

Amendment by Pub. L. 86-780 applicable to taxable years beginning

after Dec. 31, 1960, see section 4 of Pub. L. 86-780, set out as a

note under section 904 of this title.

SAVINGS PROVISION

For provisions that nothing in amendment by Pub. L. 101-508 be

construed to affect treatment of certain transactions occurring,

property acquired, or items of income, loss, deduction, or credit

taken into account prior to Nov. 5, 1990, for purposes of

determining liability for tax for periods ending after Nov. 5,

1990, see section 11821(b) of Pub. L. 101-508, set out as a note

under section 29 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 178, 337, 584, 806, 847,

953 of this title.

-FOOTNOTE-

(!1) Subsec. (a) heading editorially supplied.

-End-

-CITE-

26 USC Sec. 1504 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter A - Returns and Payment of Tax

-HEAD-

Sec. 1504. Definitions

-STATUTE-

(a) Affiliated group defined

For purposes of this subtitle -

(1) In general

The term "affiliated group" means -

(A) 1 or more chains of includible corporations connected

through stock ownership with a common parent corporation which

is an includible corporation, but only if -

(B)(i) the common parent owns directly stock meeting the

requirements of paragraph (2) in at least 1 of the other

includible corporations, and

(ii) stock meeting the requirements of paragraph (2) in each

of the includible corporations (except the common parent) is

owned directly by 1 or more of the other includible

corporations.

(2) 80-percent voting and value test

The ownership of stock of any corporation meets the

requirements of this paragraph if it -

(A) possesses at least 80 percent of the total voting power

of the stock of such corporation, and

(B) has a value equal to at least 80 percent of the total

value of the stock of such corporation.

(3) 5 years must elapse before reconsolidation

(A) In general

If -

(i) a corporation is included (or required to be included)

in a consolidated return filed by an affiliated group for a

taxable year which includes any period after December 31,

1984, and

(ii) such corporation ceases to be a member of such group

in a taxable year beginning after December 31, 1984,

with respect to periods after such cessation, such corporation

(and any successor of such corporation) may not be included in

any consolidated return filed by the affiliated group (or by

another affiliated group with the same common parent or a

successor of such common parent) before the 61st month

beginning after its first taxable year in which it ceased to be

a member of such affiliated group.

(B) Secretary may waive application of subparagraph (A)

The Secretary may waive the application of subparagraph (A)

to any corporation for any period subject to such conditions as

the Secretary may prescribe.

(4) Stock not to include certain preferred stock

For purposes of this subsection, the term "stock" does not

include any stock which -

(A) is not entitled to vote,

(B) is limited and preferred as to dividends and does not

participate in corporate growth to any significant extent,

(C) has redemption and liquidation rights which do not exceed

the issue price of such stock (except for a reasonable

redemption or liquidation premium), and

(D) is not convertible into another class of stock.

(5) Regulations

The Secretary shall prescribe such regulations as may be

necessary or appropriate to carry out the purposes of this

subsection, including (but not limited to) regulations -

(A) which treat warrants, obligations convertible into stock,

and other similar interests as stock, and stock as not stock,

(B) which treat options to acquire or sell stock as having

been exercised,

(C) which provide that the requirements of paragraph (2)(B)

shall be treated as met if the affiliated group, in reliance on

a good faith determination of value, treated such requirements

as met,

(D) which disregard an inadvertent ceasing to meet the

requirements of paragraph (2)(B) by reason of changes in

relative values of different classes of stock,

(E) which provide that transfers of stock within the group

shall not be taken into account in determining whether a

corporation ceases to be a member of an affiliated group, and

(F) which disregard changes in voting power to the extent

such changes are disproportionate to related changes in value.

(b) Definition of "includible corporation"

As used in this chapter, the term "includible corporation" means

any corporation except -

(1) Corporations exempt from taxation under section 501.

(2) Insurance companies subject to taxation under section 801.

(3) Foreign corporations.

(4) Corporations with respect to which an election under

section 936 (relating to possession tax credit) is in effect for

the taxable year.

[(5) Repealed. Pub. L. 94-455, title X, Sec. 1053(d)(2), Oct.

4, 1976, 90 Stat. 1649.]

(6) Regulated investment companies and real estate investment

trusts subject to tax under subchapter M of chapter 1.

(7) A DISC (as defined in section 992(a)(1)).

(8) An S corporation.

(c) Includible insurance companies

Notwithstanding the provisions of paragraph (2) of subsection (b)

-

(1) Two or more domestic insurance companies each of which is

subject to tax under section 801 shall be treated as includible

corporations for purposes of applying subsection (a) to such

insurance companies alone.

(2)(A) If an affiliated group (determined without regard to

subsection (b)(2)) includes one or more domestic insurance

companies taxed under section 801, the common parent of such

group may elect (pursuant to regulations prescribed by the

Secretary) to treat all such companies as includible corporations

for purposes of applying subsection (a) except that no such

company shall be so treated until it has been a member of the

affiliated group for the 5 taxable years immediately preceding

the taxable year for which the consolidated return is filed.

(B) If an election under this paragraph is in effect for a

taxable year -

(i) section 243(b)(3) and the exception provided under

section 243(b)(2) with respect to subsections (b)(2) and (c) of

this section,

(ii) section 542(b)(5), and

(iii) subsection (a)(4) and (b)(2)(D) of section 1563, and

the reference to section 1563(b)(2)(D) contained in section

1563(b)(3)(C),

shall not be effective for such taxable year.

(d) Subsidiary formed to comply with foreign law

In the case of a domestic corporation owning or controlling,

directly or indirectly, 100 percent of the capital stock (exclusive

of directors' qualifying shares) of a corporation organized under

the laws of a contiguous foreign country and maintained solely for

the purpose of complying with the laws of such country as to title

and operation of property, such foreign corporation may, at the

option of the domestic corporation, be treated for the purpose of

this subtitle as a domestic corporation.

(e) Includible tax-exempt organizations

Despite the provisions of paragraph (1) of subsection (b), two or

more organizations exempt from taxation under section 501, one or

more of which is described in section 501(c)(2) and the others of

which derive income from such 501(c)(2) organizations, shall be

considered as includible corporations for the purpose of the

application of subsection (a) to such organizations alone.

(f) Special rule for certain amounts derived from a corporation

previously treated as a DISC

In determining the consolidated taxable income of an affiliated

group for any taxable year beginning after December 31, 1984, a

corporation which had been a DISC and which would otherwise be a

member of such group shall not be treated as such a member with

respect to -

(1) any distribution (or deemed distribution) of accumulated

DISC income which was not treated as previously taxed income

under section 805(b)(2)(A) of the Tax Reform Act of 1984, and

(2) any amount treated as received under section 805(b)(3) of

such Act.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 369; Mar. 13, 1956, ch. 83, Sec.

5(8), 70 Stat. 49; Pub. L. 85-866, title I, Sec. 64(d)(3), Sept. 2,

1958, 72 Stat. 1657; Pub. L. 86-69, Sec. 3(f)(1), June 25, 1959, 73

Stat. 140; Pub. L. 86-376, Sec. 2(c), Sept. 23, 1959, 73 Stat. 699;

Pub. L. 86-779, Sec. 10(j), Sept. 14, 1960, 74 Stat. 1009; Pub. L.

89-389, Sec. 4(b)(3), Apr. 14, 1966, 80 Stat. 116; Pub. L. 91-172,

title I, Sec. 121(a)(4), Dec. 30, 1969, 83 Stat. 537; Pub. L.

92-178, title V, Sec. 502(e), Dec. 10, 1971, 85 Stat. 550; Pub. L.

94-455, title VIII, Sec. 803(b)(3), title X, Secs. 1051(g),

1053(d)(2), title XV, Sec. 1507(a), Oct. 4, 1976, 90 Stat. 1584,

1646, 1649, 1739; Pub. L. 95-600, title I, Sec. 141(f)(4), Nov. 6,

1978, 92 Stat. 2795; Pub. L. 96-222, title I, Sec.

101(a)(7)(L)(i)(VIII), (iv)(II), Apr. 1, 1980, 94 Stat. 199, 200;

Pub. L. 98-369, div. A, title I, Sec. 60(a), title II, Sec.

211(b)(20), July 18, 1984, 98 Stat. 577, 756; Pub. L. 99-514, title

X, Sec. 1024(c)(15), (16), title XVIII, Secs. 1804(e)(1), (10),

1899A(35), Oct. 22, 1986, 100 Stat. 2408, 2800, 2804, 2960; Pub. L.

100-647, title I, Sec. 1018(d)(10), Nov. 10, 1988, 102 Stat. 3581;

Pub. L. 101-508, title XI, Sec. 11814(b), Nov. 5, 1990, 104 Stat.

1388-557; Pub. L. 104-188, title I, Secs. 1308(d)(2), 1702(h)(6),

Aug. 20, 1996, 110 Stat. 1783, 1874.)

-REFTEXT-

REFERENCES IN TEXT

Section 805(b)(2)(A) and (3) of the Tax Reform Act of 1984,

referred to in subsec. (f)(1), (2), is section 805(b)(2)(A) and (3)

of Pub. L. 98-369, which is set out as a note under section 991 of

this title.

-MISC1-

AMENDMENTS

1996 - Subsec. (b)(8). Pub. L. 104-188, Sec. 1308(d)(2), added

par. (8).

Subsec. (c)(2)(B)(i). Pub. L. 104-188, Sec. 1702(h)(6), inserted

"section" before "243(b)(2)".

1990 - Subsec. (c)(2)(B)(i). Pub. L. 101-508, Sec. 11814(b),

substituted "section 243(b)(3)" for "section 243(b)(6)" and

"243(b)(2)" for "section 243(b)(5)".

1988 - Subsec. (b)(7). Pub. L. 100-647, Sec. 1018(d)(10)(A),

amended par. (7) generally, striking out ", or any other

corporation which has accumulated DISC income which is derived

after December 31, 1984" after "in section 992(a)(1))".

Subsec. (f). Pub. L. 100-647, Sec. 1018(d)(10)(B), added subsec.

(f).

1986 - Subsec. (a)(4)(C). Pub. L. 99-514, Sec. 1804(e)(1),

amended subpar. (C) generally. Prior to amendment, subpar. (C) read

as follows: "has redemption and liquidation rights which do not

exceed the paid-in capital or par value represented by such stock

(except for a reasonable redemption premium in excess of such

paid-in capital or par value), and".

Subsec. (b)(2). Pub. L. 99-514, Sec. 1024(c)(15), struck out "or

821" after "section 802".

Subsec. (b)(7). Pub. L. 99-514, Sec. 1804(e)(10), amended par.

(7) generally. Prior to amendment, par. (7) read as follows: "A

DISC or former DISC (as defined in section 992(a))."

Subsec. (c)(2)(A). Pub. L. 99-514, Sec. 1899A(35), struck out "or

821" after "section 801".

Pub. L. 99-514, Sec. 1024(c)(16), substituted "subsection (b)(2))

includes" for "subsection (b)(2) includes".

1984 - Subsec. (a). Pub. L. 98-369, Sec. 60(a), in amending

subsec. (a), generally, revised existing provisions of subsec. (a)

into pars. (1), (2), and (4), added pars. (3) and (5), revised

definition of "affiliated group", and expanded the enumeration of

securities not included under term "stock".

Subsecs. (b)(2), (c)(1), (2)(A). Pub. L. 98-369, Sec. 211(b)(20),

substituted "section 801" for "section 802".

1980 - Subsec. (a). Pub. L. 96-222 substituted "a tax credit

employee stock ownership plan" for "an ESOP" and "employee" for

"leveraged employee".

1978 - Subsec. (a). Pub. L. 95-600 substituted "(within the

meaning for section 409A(l)) while such securities are held under

an ESOP, or qualifying employer securities (within the meaning of

section 4975(e)(8)) while such securities are held under a

leveraged employee stock ownership plan which meets the

requirements of section 4975(e)(7)" for "within the meaning of

section 301(d)(9)(A) of the Tax Reduction Act of 1975, or

qualifying employer securities within the meaning of section

4975(e)(8) while such securities are held under an employee stock

ownership plan which meets the requirements of section 301(d) of

such Act or section 4975(e)(7), respectively".

1976 - Subsec. (a). Pub. L. 94-455, Sec. 803(b)(3), substituted

"dividends, employer securities within the meaning of section

301(d)(9)(A) of the Tax Reduction Act of 1976, or qualifying

employer securities within the meaning of section 4975(e)(8) while

such securities are held under an employee stock ownership plan

which meets the requirements of section 301(d) of such Act or

section 4975(e)(7), respectively" for "dividends" after "preferred

as to".

Subsec. (b)(4). Pub. L. 94-455, Sec. 1051(g), substituted

"Corporations with respect to which an election under section 936

(relating to possession tax credit) is in effect for the taxable

year" for "Corporations entitled to the benefits of section 931, by

reason of receiving a large percentage of their income from sources

within possessions of the United States" in par. (4).

Subsec. (b)(5). Pub. L. 94-455, Sec. 1053(d)(2), struck out par.

(5) which included corporations organized under the China Trade

Act, 1922, within term "includible corporation".

Subsec. (c). Pub. L. 94-455, Sec. 1507(a), designated existing

provisions as provision preceding par. (1) and par. (1), in

provision preceding par. (1) as so designated, substituted

"Notwithstanding the provisions" for "Despite the provisions", in

par. (1) as so designated, substituted "tax under section 802 shall

be treated" for "taxation under the same section of this subtitle

shall be considered" and added par. (2).

1971 - Subsec. (b)(7). Pub. L. 92-178 added par. (7).

1969 - Subsec. (e). Pub. L. 91-172 added subsec. (e).

1966 - Subsec. (b)(7). Pub. L. 89-389 struck out par. (7)

exception to definition of "includible corporation" of

unincorporated business enterprises subject to tax as corporations

under section 1361 of this title.

1960 - Subsec. (b)(6). Pub. L. 86-779 inserted "and real estate

investment trusts" after "Regulated investment companies".

1959 - Subsec. (b)(2). Pub. L. 86-69 struck out reference to

section 811.

Subsec. (b)(8). Pub. L. 86-376 struck out par. (8) which excepted

an electing small business corporation from term "includible

corporation".

1958 - Subsec. (b)(8). Pub. L. 85-866 added par. (8).

1956 - Subsec. (b)(2), Act Mar. 13, 1956, inserted reference to

section 811.

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by section 1308(d)(2) of Pub. L. 104-188 applicable to

taxable years beginning after Dec. 31, 1996, see section 1317(a) of

Pub. L. 104-188, set out as a note under section 641 of this title.

Amendment by section 1702(h)(6) of Pub. L. 104-188 effective,

except as otherwise expressly provided, as if included in the

provision of the Revenue Reconciliation Act of 1990, Pub. L.

101-508, title XI, to which such amendment relates, see section

1702(i) of Pub. L. 104-188, set out as a note under section 38 of

this title.

EFFECTIVE DATE OF 1990 AMENDMENT

Amendment by Pub. L. 101-508 applicable to taxable years

beginning after Dec. 31, 1990, and for purposes of section

243(b)(3) of this title, references to elections under such section

to include references to an election under section 243(b) of this

title as in effect on Nov. 4, 1990, see section 11814(c) of Pub. L.

101-508, set out as a note under section 243 of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by Pub. L. 100-647 effective, except as otherwise

provided, as if included in the provision of the Tax Reform Act of

1986, Pub. L. 99-514, to which such amendment relates, see section

1019(a) of Pub. L. 100-647, set out as a note under section 1 of

this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by section 1024(c)(15), (16) of Pub. L. 99-514

applicable to taxable years beginning after Dec. 31, 1986, see

section 1024(e) of Pub. L. 99-514, set out as a note under section

831 of this title.

Amendment by section 1804(e)(1), (10) of Pub. L. 99-514

effective, except as otherwise provided, as if included in the

provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A,

to which such amendment relates, see section 1881 of Pub. L.

99-514, set out as a note under section 48 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Section 60(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,

Sec. 2, title XVIII, Sec. 1804(e)(2)-(5), Oct. 22, 1986, 100 Stat.

2095, 2800, provided that:

"(1) In general. - Except as otherwise provided in this

subsection, the amendment made by subsection (a) [amending this

section] shall apply to taxable years beginning after December 31,

1984.

"(2) Special rule for corporations affiliated on june 22, 1984. -

In the case of a corporation which on June 22, 1984, is a member of

an affiliated group which files a consolidated return for such

corporation's taxable year which includes June 22, 1984, for

purposes of determining whether such corporation continues to be a

member of such group for taxable years beginning before January 1,

1988, the amendment made by subsection (a) [amending this section]

shall not apply. The preceding sentence shall cease to apply as of

the first day after June 22, 1984, on which such corporation does

not qualify as a member of such group under section 1504(a) of the

Internal Revenue Code of 1954 [now 1986] (as in effect on the day

before the date of the enactment of this Act [July 18, 1984]).

"(3) Special rule not to apply to certain sell-downs after june

22, 1984. - If -

"(A) the requirements of paragraph (2) are satisfied with

respect to a corporation,

"(B) more than a de minimis amount of the stock of such

corporation -

"(i) is sold or exchanged (including in a redemption), or

"(ii) is issued,

after June 22, 1984 (other than in the ordinary course of

business), and

"(C) the requirements of the amendment made by subsection (a)

are not satisfied after such sale, exchange, or issuance,

then the amendment made by subsection (a) [amending this section]

shall apply for purposes of determining whether such corporation

continues to be a member of the group. The preceding sentence shall

not apply to any transaction if such transaction does not reduce

the percentage of the fair market value of the stock of the

corporation referred to in the preceding sentence held by members

of the group determined without regard to this paragraph.

"(4) Exception for certain sell-downs. - Subsection (b)(2) (and

not subsection (b)(3)) will apply to a corporation if such

corporation issues or sells stock after June 22, 1984, pursuant to

a registration statement filed with the Securities and Exchange

Commission on or before June 22, 1984, but only if the requirements

of the amendment made by subsection (a) [amending this section]

(substituting 'more than 50 percent' for 'at least 80 percent' in

paragraph (2)(B) of section 1504(a) of the Internal Revenue Code of

1986 [formerly I.R.C. 1954]) are satisfied immediately after such

issuance or sale and at all times thereafter until the first day of

the first taxable year beginning after December 31, 1987. For

purposes of the preceding sentence, if there is a letter of intent

between a corporation and a securities underwriter entered into on

or before June 22, 1984, and the subsequent issuance or sale is

effected pursuant to a registration statement filed with the

Securities and Exchange Commission, such stock shall be treated as

issued or sold pursuant to a registration statement filed with the

Securities and Exchange Commission on or before June 22, 1984.

"(5) Native corporations. -

"(A) In the case of a Native Corporation established under the

Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.), or

a corporation all of whose stock is owned directly by such a

corporation, during any taxable year (beginning after the

effective date of these amendments and before 1992), or any part

thereof, in which the Native Corporation is subject to the

provisions of section 7(h)(1) of such Act (43 U.S.C. 1606(h)(1))

-

"(i) the amendment made by subsection (a) [amending this

section] shall not apply, and

"(ii) the requirements for affiliation under section 1504(a)

of the Internal Revenue Code of 1986 before the amendment made

by subsection (a) shall be applied solely according to the

provisions expressly contained therein, without regard to

escrow arrangements, redemption rights, or similar provisions.

"(B) Except as provided in subparagraph (C), during the period

described in subparagraph (A), no provision of the Internal

Revenue Code of 1986 (including sections 269 and 482) or

principle of law shall apply to deny the benefit or use of losses

incurred or credits earned by a corporation described in

subparagraph (A) to the affiliated group of which the Native

Corporation is the common parent.

"(C) Losses incurred or credits earned by a corporation

described in subparagraph (A) shall be subject to the general

consolidated return regulations, including the provisions

relating to separate return limitation years, and to sections 382

and 383 of the Internal Revenue Code of 1986.

"(D) Losses incurred and credits earned by a corporation which

is affiliated with a corporation described in subparagraph (A)

shall be treated as having been incurred or earned in a separate

return limitation year, unless the corporation incurring the

losses or earning the credits satisfies the affiliation

requirements of section 1504(a) without application of

subparagraph (A).

"(6) Treatment of certain corporations affiliated on June 22,

1984. - In the case of an affiliated group which -

"(A) has as its common parent a Minnesota corporation

incorporated on April 23, 1940, and

"(B) has a member which is a New York corporation incorporated

on November 13, 1969,

for purposes of determining whether such New York corporation

continues to be a member of such group, paragraph (2) shall be

applied by substituting for 'January 1, 1988,' the earlier of

January 1, 1994, or the date on which the voting power of the

preferred stock in such New York corporation terminates.

"(7) Election to have amendments apply for years beginning after

1983. - If the common parent of any group makes an election under

this paragraph, notwithstanding any other provision of this

subsection, the amendments made by subsection (a) [amending this

section] shall apply to such group for taxable years beginning

after December 31, 1983. Any such election, once made, shall be

irrevocable.

"(8) Treatment of certain affiliated groups. - If -

"(A) a corporation (hereinafter in this paragraph referred to

as the 'parent') was incorporated in 1968 and filed consolidated

returns as the parent of an affiliated group for each of its

taxable years ending after 1969 and before 1985,

"(B) another corporation (hereinafter in this paragraph

referred to as the 'subsidiary') became a member of the parent's

affiliated group in 1978 by reason of a recapitalization pursuant

to which the parent increased its voting interest in the

subsidiary from not less than 56 percent to not less than 85

percent, and

"(C) such subsidiary is engaged (or was on September 27, 1985,

engaged) in manufacturing and distributing a broad line of

business systems and related supplies for binding, laminating,

shredding, graphics, and providing secure identification,

then, for purposes of determining whether such subsidiary

corporation is a member of the parent's affiliated group under

section 1504(a) of the Internal Revenue Code of 1954 [now 1986] (as

amended by subsection (a)), paragraph (2)(B) of such section

1504(a) shall be applied by substituting '55 percent' for '80

percent'.

"(9) Treatment of certain corporations affiliated during 1971. -

In the case of a group of corporations which filed a consolidated

Federal income tax return for the taxable year beginning during

1971 and which -

"(A) included as a common parent on December 31, 1971, a

Delaware corporation incorporated on August 26, 1969, and

"(B) included as a member thereof a Delaware corporation

incorporated on November 8, 1971,

for taxable years beginning after December 31, 1970, and ending

before January 1, 1988, the requirements for affiliation for each

member of such group under section 1504(a) of the Internal Revenue

Code of 1954 [now 1986] (before the amendment made by subsection

(a) [amending this section]) shall be limited solely to the

provisions expressly contained therein and by reference to stock

issued under State law as common or preferred stock. During the

period described in the preceding sentence, no provision of the

Internal Revenue Code of 1986 (including sections 269 and 482) or

principle of law, except the general consolidated return

regulations (including the provisions relating to separate return

limitation years) and sections 382 and 383 of such Code, shall

apply to deny the benefit or use of losses incurred or credits

earned by members of such group."

Amendment by section 211(b)(20) of Pub. L. 98-369 applicable to

taxable years beginning after Dec. 31, 1983, see section 215 of

Pub. L. 98-369, set out as an Effective Date note under section 801

of this title.

EFFECTIVE DATE OF 1980 AMENDMENT

Amendment by Pub. L. 96-222 effective, except as otherwise

provided, as if it had been included in the provisions of the

Revenue Act of 1978, Pub. L. 95-600, to which such amendment

relates, see section 201 of Pub. L. 96-222, set out as a note under

section 32 of this title.

EFFECTIVE DATE OF 1978 AMENDMENT

Amendment by Pub. L. 95-600 effective with respect to qualified

investment for taxable years beginning after Dec. 31, 1978, see

section 141(g)(1) of Pub. L. 95-600, set out as a Effective Date

note under section 409 of this title.

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by section 803(b)(3) of Pub. L. 94-455 applicable for

taxable years beginning after Dec. 31, 1974, see section 803(j) of

Pub. L. 94-455, set out as a note under section 46 of this title.

Amendment by section 1051(g) of Pub. L. 94-455 applicable to

taxable years beginning after Dec. 31, 1975, see section 1051(i) of

Pub. L. 94-455, set out as a note under section 27 of this title.

Section 1053(e) of Pub. L. 94-455 provided that: "The amendments

made by subsections (a) and (b) [amending section 941 and 943 of

this title] shall apply with respect to taxable years beginning

after December 31, 1975. The amendments made by subsections (c) and

(d) [amending this section and sections 116, 6072, and 6091 of this

title and repealing sections 941-943 of this title] shall apply

with respect to taxable years beginning after December 31, 1977."

Section 1507(c)(1) of Pub. L. 94-455 provided that: "The

amendments made by subsections (a) and (b) [amending this section

and sections 821, 843, and 1503 of this title] shall apply to

taxable years beginning after December 31, 1980."

EFFECTIVE DATE OF 1971 AMENDMENT

Amendment by Pub. L. 92-178 applicable with respect to taxable

years ending after Dec. 31, 1971, except that a corporation may not

be a DISC for any taxable year beginning before Jan. 1, 1972, see

section 507 of Pub. L. 92-178, set out as an Effective Date note

under section 991 of this title.

EFFECTIVE DATE OF 1969 AMENDMENT

Amendment by Pub. L. 91-172 applicable to taxable years beginning

after Dec. 31, 1969, see section 121(g) of Pub. L. 91-172, set out

as a note under section 511 of this title.

EFFECTIVE DATE OF 1966 AMENDMENT

Section 4(b) of Pub. L. 89-389 provided that the amendment made

by that section is effective on Jan. 1, 1969.

EFFECTIVE DATE OF 1960 AMENDMENT

Amendment by Pub. L. 86-779 applicable with respect to taxable

years of real estate investment trusts beginning after Dec. 31,

1960, see section 10(k) of Pub. L. 86-779, set out as an Effective

Date note under section 856 of this title.

EFFECTIVE DATE OF 1959 AMENDMENTS

Section 2(d) of Pub. L. 86-376 provided that: "The amendment made

by subsection (a) [amending section 1371 of this title] shall apply

to taxable years beginning after December 31, 1959. The amendments

made by subsections (b) and (c) [amending this section and section

1374 of this title] shall take effect on the day after the date of

the enactment of this Act [Sept. 23, 1959]."

Amendment by Pub. L. 86-69 applicable only with respect to

taxable years beginning after Dec. 31, 1957, see section 4 of Pub.

L. 86-69, set out as an Effective Date note under section 381 of

this title.

EFFECTIVE DATE OF 1958 AMENDMENT

Amendment by Pub. L. 85-866 applicable only with respect to

taxable years beginning after Dec. 31, 1958, see section 64(e) of

Pub. L. 85-866, set out as a note under section 172 of this title.

EFFECTIVE DATE OF 1956 AMENDMENT

Amendment by act Mar. 13, 1956, applicable only to taxable years

beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,

set out as a note set out under section 316 of this title.

SAVINGS PROVISION

For provisions that nothing in amendment by Pub. L. 101-508 be

construed to affect treatment of certain transactions occurring,

property acquired, or items of income, loss, deduction, or credit

taken into account prior to Nov. 5, 1990, for purposes of

determining liability for tax for periods ending after Nov. 5,

1990, see section 11821(b) of Pub. L. 101-508, set out as a note

under section 29 of this title.

REPEAL OF RULES PERMITTING LOSS TRANSFERS BY ALASKA NATIVE

CORPORATIONS

Section 5021 of Pub. L. 100-647, as amended by Pub. L. 101-239,

title VII, Sec. 7815(b), Dec. 19, 1989, 103 Stat. 2414, provided

that:

"(a) General Rule. - Nothing in section 60(b)(5) of the Tax

Reform Act of 1984 (as amended by section 1804(e)(4) of the Tax

Reform Act of 1986) [section 60(b)(5) of Pub. L. 98-369, set out as

an Effective Date of 1984 Amendment note above] -

"(1) shall allow any loss (or credit) of any corporation which

arises after April 26, 1988, to be used to offset the income (or

tax) of another corporation if such use would not be allowable

without regard to such section 60(b)(5) as so amended, or

"(2) shall allow any loss (or credit) of any corporation which

arises on or before such date to be used to offset disqualified

income (or tax attributable to such income) of another

corporation if such use would not be allowable without regard to

such section 60(b)(5) as so amended.

"(b) Exception for Existing Contracts. -

"(1) In general. - Subsection (a) shall not apply to any loss

(or credit) of any corporation if -

"(A) such corporation was in existence on April 26, 1988, and

"(B) such loss (or credit) is used to offset income assigned

(or attributable to property contributed) pursuant to a binding

contract entered into before July 26, 1988.

"(2) $40,000,000 limitation. - The aggregate amount of losses

(and the deduction equivalent of credits as determined in the

same manner as under section 469(j)(5) of the 1986 Code) to which

paragraph (1) applies with respect to any corporation shall not

exceed $40,000,000. For purposes of this paragraph, a Native

Corporation and all other corporations all of the stock of which

is owned directly by such corporation shall be treated as 1

corporation.

"(3) Special rule for corporations under title 11. - In the

case of a corporation which on April 26, 1988, was under the

jurisdiction of a Federal district court under title 11 of the

United States Code -

"(A) paragraph (1)(B) shall be applied by substituting the

date 1 year after the date of the enactment of this Act [Nov.

10, 1988] for 'July 26, 1988',

"(B) paragraph (1) shall not apply to any loss or credit

which arises on or after the date 1 year after the date of the

enactment of this Act, and

"(C) paragraph (2) shall be applied by substituting

'$99,000,000' for '$40,000,000'.

"(c) Special Administrative Rules. -

"(1) Notice to native corporations of proposed tax adjustments.

- Notwithstanding section 6103 of the 1986 Code, the Secretary of

the Treasury or his delegate shall notify a Native Corporation or

its designated representative of any proposed adjustment -

"(A) of the tax liability of a taxpayer which has contracted

with the Native Corporation (or other corporation all of the

stock of which is owned directly by the Native Corporation) for

the use of losses of such Native Corporation (or such other

corporation), and

"(B) which is attributable to an asserted overstatement of

losses by, or misassignment of income (or income attributable

to property contributed) to, an affiliated group of which the

Native Corporation (or such other corporation) is a member.

Such notice shall only include information with respect to the

transaction between the taxpayer and the Native Corporation.

"(2) Rights of native corporation. -

"(A) In general. - If a Native Corporation receives a notice

under paragraph (1), the Native Corporation shall have the

right to -

"(i) submit to the Secretary of the Treasury or his

delegate a written statement regarding the proposed

adjustment, and

"(ii) meet with the Secretary of the Treasury or his

delegate with respect to such proposed adjustment.

The Secretary of the Treasury or his delegate may discuss such

proposed adjustment with the Native Corporation or its designated

representative.

"(B) Extension of statute of limitations. - Subparagraph (A)

shall not apply if the Secretary of the Treasury or his

delegate determines that an extension of the statute of

limitation[s] is necessary to permit the participation

described in subparagraph (A) and the taxpayer and the

Secretary or his delegate have not agreed to such extension.

"(3) Judicial proceedings. - In the case of any proceeding in a

Federal court or the United States Tax Court involving a proposed

adjustment under paragraph (1), the Native Corporation, subject

to the rules of such court, may file an amicus brief concerning

such adjustment.

"(4) Failures. - For purposes of the 1986 Code, any failure by

the Secretary of the Treasury or his delegate to comply with the

provisions of this subsection shall not affect the validity of

the determination of the Internal Revenue Service of any

adjustment of tax liability of any taxpayer described in

paragraph (1).

"(d) Disqualified Income Defined. - For purposes of subsection

(a), the term 'disqualified income' means any income assigned (or

attributable to property contributed) after April 26, 1988, by a

person who is not a Native Corporation or a corporation all the

stock of which is owned directly by a Native Corporation.

"(e) Basis Determination. - For purposes of determining basis for

Federal tax purposes, no provision in any law enacted after the

date of the enactment of this Act [Nov. 10, 1988] shall affect the

date on which the transfer to the Native Corporation is made. The

preceding sentence shall apply to all taxable years whether

beginning before, on, or after such date of enactment."

PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989

For provisions directing that if any amendments made by subtitle

A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or

title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an

amendment to any plan, such plan amendment shall not be required to

be made before the first plan year beginning on or after Jan. 1,

1989, see section 1140 of Pub. L. 99-514, as amended, set out as a

note under section 401 of this title.

TRANSACTION RULES

Section 1507(c)(2) of Pub. L. 94-455, as amended by Pub. L.

99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

"(A) Limitations on carryovers or carrybacks for groups electing

under section 1504(c)(2). - If an affiliated group elects to file a

consolidated return pursuant to section 1501(c)(2) of the Internal

Revenue Code of 1986 [formerly I.R.C. 1954] a carryover of a loss

or credit from a taxable year ending before January 1, 1981, and

losses or credits which may be carried back to taxable years ending

before such date, shall be taken into account as if this section

had not been enacted.

"(B) Nontermination of affiliated group. - The mere election to

file a consolidated return pursuant to such section 1504(c)(2)

shall not cause the termination of an affiliated group filing

consolidated returns."

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 132, 149, 163, 165, 168,

172, 243, 246A, 279, 280G, 281, 304, 312, 332, 336, 338, 355, 358,

367, 382, 384, 404, 448, 465, 472, 542, 543, 584, 593, 732, 805,

818, 832, 861, 864, 865, 904, 936, 952, 954, 1042, 1092, 1313,

1362, 1503, 4216, 4282, 4612, 6166, 7701 of this title; title 6

section 395.

-End-

-CITE-

26 USC Sec. 1505 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter A - Returns and Payment of Tax

-HEAD-

Sec. 1505. Cross references

-STATUTE-

(1) For suspension of running of statute of limitations when

notice in respect of a deficiency is mailed to one corporation,

see section 6503(a)(1).

(2) For allocation of income and deductions of related trades

or businesses, see section 482.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 370.)

-End-

-CITE-

26 USC Subchapter B - Related Rules 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter B - Related Rules

-HEAD-

SUBCHAPTER B - RELATED RULES

-MISC1-

Part Sec.(!1)

I. In general 1551

II. Certain controlled corporations 1561

-FOOTNOTE-

(!1) Section numbers editorially supplied.

-End-

-CITE-

26 USC PART I - IN GENERAL 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter B - Related Rules

PART I - IN GENERAL

-HEAD-

PART I - IN GENERAL

-MISC1-

Sec.

1551. Disallowance of the benefits of the graduated

corporate rates and accumulated earnings credit.

1552. Earnings and profits.

AMENDMENTS

1978 - Pub. L. 95-600, title III, Sec. 301(b)(18)(C), Nov. 6,

1978, 92 Stat. 2823, in item 1551 substituted "the benefits of the

graduated corporate rates" for "surtax exemption".

1964 - Pub. L. 88-272, title II, Sec. 235(c)(4), Feb. 26, 1964,

78 Stat. 127, inserted table of parts, and heading for part I.

-End-

-CITE-

26 USC Sec. 1551 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter B - Related Rules

PART I - IN GENERAL

-HEAD-

Sec. 1551. Disallowance of the benefits of the graduated corporate

rates and accumulated earnings credit

-STATUTE-

(a) In general

If -

(1) any corporation transfers, on or after January 1, 1951, and

on or before June 12, 1963, all or part of its property (other

than money) to a transferee corporation,

(2) any corporation transfers, directly or indirectly, after

June 12, 1963, all or part of its property (other than money) to

a transferee corporation, or

(3) five or fewer individuals who are in control of a

corporation transfer, directly or indirectly, after June 12,

1963, property (other than money) to a transferee corporation,

and the transferee corporation was created for the purpose of

acquiring such property or was not actively engaged in business at

the time of such acquisition, and if after such transfer the

transferor or transferors are in control of such transferee

corporation during any part of the taxable year of such transferee

corporation, then for such taxable year of such transferee

corporation the Secretary may (except as may be otherwise

determined under subsection (c)) disallow the benefits of the rates

contained in section 11(b) which are lower than the highest rate

specified in such section, or the accumulated earnings credit

provided in paragraph (2) or (3) of section 535(c), unless such

transferee corporation shall establish by the clear preponderance

of the evidence that the securing of such benefits or credit was

not a major purpose of such transfer.

(b) Control

For purposes of subsection (a), the term "control" means -

(1) With respect to a transferee corporation described in

subsection (a)(1) or (2), the ownership by the transferor

corporation, its shareholders, or both, of stock possessing at

least 80 percent of the total combined voting power of all

classes of stock entitled to vote or at least 80 percent of the

total value of shares of all classes of the stock; or

(2) With respect to each corporation described in subsection

(a)(3), the ownership by the five or fewer individuals described

in such subsection of stock possessing -

(A) at least 80 percent of the total combined voting power of

all classes of stock entitled to vote or at least 80 percent of

the total value of shares of all classes of the stock of each

corporation, and

(B) more than 50 percent of the total combined voting power

of all classes of stock entitled to vote or more than 50

percent of the total value of shares of all classes of stock of

each corporation, taking into account the stock ownership of

each such individual only to the extent such stock ownership is

identical with respect to each such corporation.

For purposes of this subsection, section 1563(e) shall apply in

determining the ownership of stock.

(c) Authority of the Secretary under this section

The provisions of section 269(c) and the authority of the

Secretary under such section, shall, to the extent not inconsistent

with the provisions of this section, be applicable to this section.

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 371; Pub. L. 85-866, title II,

Sec. 205(a), Sept. 2, 1958, 72 Stat. 1680; Pub. L. 88-272, title

II, Sec. 235(b), Feb. 26, 1964, 78 Stat. 125; Pub. L. 94-12, title

III, Sec. 304(b), Mar. 29, 1975, 89 Stat. 45; Pub. L. 94-455, title

XIX, Secs. 1901(a)(158), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.

1790, 1834; Pub. L. 95-600, title III, Sec. 301(b)(18)(A), (B),

Nov. 6, 1978, 92 Stat. 2823; Pub. L. 97-34, title II, Sec.

232(b)(2), Aug. 13, 1981, 95 Stat. 250; Pub. L. 99-514, title

XVIII, Sec. 1899A(36), Oct. 22, 1986, 100 Stat. 2960.)

-MISC1-

AMENDMENTS

1986 - Subsec. (c). Pub. L. 99-514 substituted "section 269(c)"

for "section 269(b)".

1981 - Subsec. (a). Pub. L. 97-34 struck out "$150,000" before

"accumulated earnings credit".

1978 - Pub. L. 95-600, Sec. 301(b)(18)(B), substituted "the

benefits of the graduated corporate rates" for "surtax exemption"

in section catchline.

Subsec. (a). Pub. L. 95-600, Sec. 301(b)(18)(A), in provisions

following par. (3) substituted "disallow the benefits of the rates

contained in section 11(b) which are lower than the highest rate

specified in such section" for "disallow the surtax exemption (as

defined in section 11(d))" and "such benefits or" for "such

exemption or".

1976 - Subsec. (a). Pub. L. 94-455 Secs. 1901(a)(158),

1906(b)(13)(A), substituted "subsection (c)" for "subsection (d)"

after "determined under" and struck out "or his delegate" after

"Secretary".

1975 - Subsec. (a). Pub. L. 94-12 substituted "$150,000" for

"$100,000".

1964 - Pub. L. 88-272 amended section generally, and among other

changes, designated provisions as subsecs. (a) to (c), included

among corporations who are disallowed surtax exemption and

accumulated earnings credit, corporations, and five or fewer

individuals in charge of a corporation who, directly or indirectly,

transfer property in contravention of subsec. (a) after June 12,

1963, substituted provisions permitting the Secretary or his

delegate to disallow the exemption or the earnings credit, for

provisions which disallowed the exemption and the credit except as

otherwise determined by the Secretary of his delegate, provisions

that for purposes of determining ownership of stock, section

1563(e) shall apply, for provisions which determined ownership in

accordance with section 544, and defined control, with respect to

corporations described in subsec. (a)(3), to include the additional

test as stated in subsec. (b)(2)(B).

1958 - Pub. L. 85-866 substituted "$100,000" for "$60,000".

EFFECTIVE DATE OF 1981 AMENDMENT

Amendment by Pub. L. 97-34 applicable to taxable years beginning

after Dec. 31, 1981, see section 232(c) of Pub. L. 97-34, set out

as a note under section 535 of this title.

EFFECTIVE DATE OF 1978 AMENDMENT

Amendment by Pub. L. 95-600 applicable to taxable years beginning

after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out

as a note under section 11 of this title.

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by section 1901(a)(158) of Pub. L. 94-455 applicable

with respect to taxable years beginning after Dec. 31, 1976, see

section 1901(d) of Pub. L. 94-455, set out as a note under section

2 of this title.

EFFECTIVE DATE OF 1975 AMENDMENT

Amendment by Pub. L. 94-12 applicable to taxable years beginning

after Dec. 31, 1974, see section 305(c) of Pub. L. 94-12, set out

as a note under section 535 of this title.

EFFECTIVE DATE OF 1964 AMENDMENT

Section 235(d) of Pub. L. 88-272 provided that: "The amendments

made by subsections (a) and (c) [enacting sections 1561 to 1563 of

this title and amending sections 269, 441, and 802 of this title]

shall apply with respect to taxable years ending after December 31,

1963. The amendment made by subsection (b) [amending this section]

shall apply with respect to transfers made after June 12, 1963."

EFFECTIVE DATE OF 1958 AMENDMENT

Amendment by Pub. L. 85-866 applicable with respect to taxable

years beginning after Dec. 31, 1957, see section 205(b) of Pub. L.

85-866, set out as a note under section 535 of this title.

PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989

For provisions directing that if any amendments made by subtitle

A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or

title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an

amendment to any plan, such plan amendment shall not be required to

be made before the first plan year beginning on or after Jan. 1,

1989, see section 1140 of Pub. L. 99-514, as amended, set out as a

note under section 401 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 12, 535 of this title.

-End-

-CITE-

26 USC Sec. 1552 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter B - Related Rules

PART I - IN GENERAL

-HEAD-

Sec. 1552. Earnings and profits

-STATUTE-

(a) General rule

Pursuant to regulations prescribed by the Secretary the earnings

and profits of each member of an affiliated group required to be

included in a consolidated return for such group filed for a

taxable year shall be determined by allocating the tax liability of

the group for such year among the members of the group in accord

with whichever of the following methods the group shall elect in

its first consolidated return filed for such a taxable year:

(1) The tax liability shall be apportioned among the members of

the group in accordance with the ratio which that portion of the

consolidated taxable income attributable to each member of the

group having taxable income bears to the consolidated taxable

income.

(2) The tax liability of the group shall be allocated to the

several members of the group on the basis of the percentage of

the total tax which the tax of such member if computed on a

separate return would bear to the total amount of the taxes for

all members of the group so computed.

(3) The tax liability of the group (excluding the tax increases

arising from the consolidation) shall be allocated on the basis

of the contribution of each member of the group to the

consolidated taxable income of the group. Any tax increases

arising from the consolidation shall be distributed to the

several members in direct proportion to the reduction in tax

liability resulting to such members from the filing of the

consolidated return as measured by the difference between their

tax liabilities determined on a separate return basis and their

tax liabilities based on their contributions to the consolidated

taxable income.

(4) The tax liability of the group shall be allocated in accord

with any other method selected by the group with the approval of

the Secretary.

(b) Failure to elect

If no election is made in such first return, the tax liability

shall be allocated among the several members of the group pursuant

to the method prescribed in subsection (a)(1).

-SOURCE-

(Aug. 16, 1954, ch. 736, 68A Stat. 371; Pub. L. 88-272, title II,

Sec. 234(b)(8), Feb. 26, 1964, 78 Stat. 116; Pub. L. 94-455, title

XIX, Secs. 1901(a)(159), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat.

1790, 1834.)

-MISC1-

AMENDMENTS

1976 - Subsec. (a). Pub. L. 94-455, Secs. 1901(a)(159),

1906(b)(13)(A), struck out "beginning after December 31, 1953, and

ending after the date of enactment of this title" after "group

filed for a taxable year", and "or his delegate" after "Secretary"

in two places.

1964 - Subsec. (a)(3). Pub. L. 88-272 struck out "(determined

without regard to the 2 percent increase provided by section

1503(a))", before "based on their contributions".

EFFECTIVE DATE OF 1976 AMENDMENT

Amendment by section 1901(a)(159) of Pub. L. 94-455 applicable

with respect to taxable years beginning after Dec. 31, 1976, see

section 1901(d) of Pub. L. 94-455, set out as a note under section

2 of this title.

EFFECTIVE DATE OF 1964 AMENDMENT

Amendment by Pub. L. 88-272 applicable to taxable years beginning

after Dec. 31, 1963, see section 234(c) of Pub. L. 88-272, set out

as a note under section 1503 of this title.

-End-

-CITE-

26 USC PART II - CERTAIN CONTROLLED CORPORATIONS 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter B - Related Rules

PART II - CERTAIN CONTROLLED CORPORATIONS

-HEAD-

PART II - CERTAIN CONTROLLED CORPORATIONS

-MISC1-

Sec.

1561. Limitations on certain multiple tax benefits in the

case of certain controlled corporations.

[1562. Repealed.]

1563. Definitions and special rules.

[1564. Repealed.]

AMENDMENTS

1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(12), Nov. 5,

1990, 104 Stat. 1388-522, struck out item 1564 "Transitional rules

in the case of certain controlled corporations".

1969 - Pub. L. 91-172, title IV, Sec. 401(a)(3), (b)(2)(E), Dec.

30, 1969, 83 Stat. 600, 602, substituted "Sec. 1561. Limitations on

certain multiple tax benefits in the case of certain controlled

corporations." for "Sec. 1561. Surtax exemptions in case of certain

controlled corporations.", and struck out item 1562, effective with

respect to taxable years beginning after Dec. 31, 1974, and added

item 1564.

1964 - Pub. L. 88-272, title II, Sec. 235(a), Feb. 26, 1964, 78

Stat. 116, added designation of part II, and items 1561 to 1563.

-End-

-CITE-

26 USC Sec. 1561 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter B - Related Rules

PART II - CERTAIN CONTROLLED CORPORATIONS

-HEAD-

Sec. 1561. Limitations on certain multiple tax benefits in the case

of certain controlled corporations

-STATUTE-

(a) General rule

The component members of a controlled group of corporations on a

December 31 shall, for their taxable years which include such

December 31, be limited for purposes of this subtitle to -

(1) amounts in each taxable income bracket in the tax table in

section 11(b)(1) which do not aggregate more than the maximum

amount in such bracket to which a corporation which is not a

component member of a controlled group is entitled,

(2) one $250,000 ($150,000 if any component member is a

corporation described in section 535(c)(2)(B)) amount for

purposes of computing the accumulated earnings credit under

section 535(c)(2) and (3),

(3) one $40,000 exemption amount for purposes of computing the

amount of the minimum tax, and

(4) one $2,000,000 amount for purposes of computing the tax

imposed by section 59A.

The amounts specified in paragraph (1), the amount specified in

paragraph (3), and the amount specified in paragraph (4) shall be

divided equally among the component members of such group on such

December 31 unless all of such component members consent (at such

time and in such manner as the Secretary shall by regulations

prescribe) to an apportionment plan providing for an unequal

allocation of such amounts. The amounts specified in paragraph (2)

shall be divided equally among the component members of such group

on such December 31 unless the Secretary prescribes regulations

permitting an unequal allocation of such amounts. Notwithstanding

paragraph (1), in applying the last 2 sentences of section 11(b)(1)

to such component members, the taxable income of all such component

members shall be taken into account and any increase in tax under

such last 2 sentences shall be divided among such component members

in the same manner as amounts under paragraph (1). In applying

section 55(d)(3), the alternative minimum taxable income of all

component members shall be taken into account and any decrease in

the exemption amount shall be allocated to the component members in

the same manner as under paragraph (3).

(b) Certain short taxable years

If a corporation has a short taxable year which does not include

a December 31 and is a component member of a controlled group of

corporations with respect to such taxable year, then for purposes

of this subtitle -

(1) the amount in each taxable income bracket in the tax table

in section 11(b), and

(2) the amount to be used in computing the accumulated earnings

credit under section 535(c)(2) and (3),

of such corporation for such taxable year shall be the amount

specified in subsection (a)(1) or (2), as the case may be, divided

by the number of corporations which are component members of such

group on the last day of such taxable year. For purposes of the

preceding sentence, section 1563(b) shall be applied as if such

last day were substituted for December 31.

-SOURCE-

(Added Pub. L. 88-272, title II, Sec. 235(a), Feb. 26, 1964, 78

Stat. 116; amended Pub. L. 91-172, title IV, Sec. 401(a)(1), Dec.

30, 1969, 83 Stat. 599; Pub. L. 94-12, title III, Secs. 303(c)(1),

304(b), Mar. 29, 1975, 89 Stat. 44, 45; Pub. L. 94-164, Sec.

4(d)(1), Dec. 23, 1975, 89 Stat. 974; Pub. L. 94-455, title IX,

Sec. 901(c)(1), title XIX, Secs. 1901(b)(1)(J)(v), 1906(b)(13)(A),

Oct. 4, 1976, 90 Stat. 1607, 1791, 1834; Pub. L. 95-600, title III,

Sec. 301(b)(19), title VII, Sec. 703(j)(7), Nov. 6, 1978, 92 Stat.

2823, 2941; Pub. L. 97-34, title II, Sec. 232(b)(3), Aug. 13, 1981,

95 Stat. 250; Pub. L. 97-248, title II, Sec. 259(b), (c), Sept. 3,

1982, 96 Stat. 539; Pub. L. 98-369, div. A, title I, Sec. 66(b),

title II, Sec. 211(b)(21), July 18, 1984, 98 Stat. 585, 756; Pub.

L. 99-499, title V, Sec. 516(b)(3), Oct. 17, 1986, 100 Stat. 1771;

Pub. L. 99-514, title VII, Sec. 701(e)(2), Oct. 22, 1986, 100 Stat.

2342; Pub. L. 100-647, title II, Sec. 2004(l), Nov. 10, 1988, 102

Stat. 3606; Pub. L. 104-188, title I, Sec. 1703(f), Aug. 20, 1996,

110 Stat. 1876.)

-MISC1-

AMENDMENTS

1996 - Subsec. (a). Pub. L. 104-188 in closing provisions

substituted "last 2 sentences" for "last sentence" in two places.

1988 - Subsec. (a). Pub. L. 100-647 substituted "section

11(b)(1)" for "section 11(b)" in par. (1) and in penultimate

sentence.

1986 - Subsec. (a). Pub. L. 99-514 added par. (3), and in

concluding provisions, substituted "amounts specified in paragraph

(1) (and the amount specified in paragraph (3))" for "amounts

specified in paragraph (1)" and inserted "In applying section

55(d)(3), the alternative minimum taxable income of all component

members shall be taken into account and any decrease in the

exemption amount shall be allocated to the component members in the

same manner as under paragraph (3)."

Pub. L. 99-499, in subsec. (a) as amended by Pub. L. 99-514

above, added par. (4), and in concluding provisions substituted ",

the amount specified in paragraph (3), and the amount specified in

paragraph (4)" for "(and the amount specified in paragraph (3))".

1984 - Subsec. (a). Pub. L. 98-369, Sec. 211(b)(21)(A), inserted

"and" at end of par. (1), substituted a period for the comma at end

of par. (2), struck out par. (3) which read as follows: "one

$25,000 amount for purposes of computing the limitation on the

small business deduction of life insurance companies under sections

804(a)(3) and 809(d)(10), and", struck out par. (4) which read as

follows: "one $1,000,000 amount (adjusted as provided in section

809(f)(3) for purposes of computing the limitation under paragraph

(1) or (2) of section 809(f).", and substituted "paragraph (2)" for

"paragraphs (2), (3), and (4)" in concluding provisions.

Pub. L. 98-369, Sec. 66(b), inserted provision that

notwithstanding paragraph (1), in applying last sentence of section

11(b) to such component members, the taxable income of all such

component members shall be taken into account and any increase in

tax under the last sentence shall be divided among such component

members in the same manner as amounts under paragraph (1).

Subsec. (b). Pub. L. 98-369, Sec. 211(b)(21)(B), inserted "and"

at end of par. (1), struck out par. (3) which read as follows: "the

amount to be used in computing the limitation on the small business

deduction of life insurance companies under sections 804(a)(3) and

809(d)(10), and", struck out par. (4) which read as follows: "the

amount (adjusted as provided in section 809(f)(3)) to be used in

computing the limitation under paragraph (1) or (2) of section

809(f),", and substituted "or (2)" for ", (2), (3), or (4)" in

concluding provisions.

1982 - Subsec. (a). Pub. L. 97-248, Sec. 259(b), added par. (4)

and inserted reference to par. (4) in text following par. (4).

Subsec. (b). Pub. L. 97-248, Sec. 259(c), added par. (4) and

inserted reference to subsec. (a)(4) in text following par. (4).

1981 - Subsec. (a)(2). Pub. L. 97-34 substituted "$250,000

($150,000 if any component member is a corporation described in

section 535(c)(2)(B))" for "$150,000".

1978 - Subsec. (a). Pub. L. 95-600, Sec. 301(b)(19)(A), in par.

(1) substituted "amounts in each taxable income bracket in the tax

table in section 11(b) which do not aggregate more than the maximum

amount in such bracket to which a corporation is not a component

member of a controlled group is entitled" for "the surtax exemption

under section 11(d)" and in provisions following par. (3)

substituted "amounts" for "amount" in two places and struck out

provision that in applying section 11(b)(2), the first $25,000 of

taxable income and the second $25,000 of taxable income each be

allocated among the component members of a controlled group of

corporations in the same manner as the surtax exemption is

allocated.

Subsec. (b)(1). Pub. L. 95-600, Sec. 301(b)(19)(B), substituted

"the amount in each taxable income bracket in the tax table in

section 11(b)" for "the surtax exemption under section 11(d)".

Subsec. (b)(3). Pub. L. 95-600, Sec. 703(j)(7), substituted

"804(a)(3)" for "804(a)(4)".

1976 - Subsec. (a). Pub. L. 94-455, Secs. 901(c)(1),

1906(b)(13)(A), inserted "In applying section 11(b)(2), the first

$25,000 of taxable income and the second $25,000 of taxable income

shall each be allocated among the component members of a controlled

group of corporations in the same manner as the surtax exemption is

allocated" after "unequal allocation of such amounts" and struck

out "or his delegate" after "Secretary" in two places.

Subsec. (a)(3). Pub. L. 94-455, Sec. 1901(b)(1)(J)(v),

substituted "804(a)(3)" for "804(a)(4)" after "under sections".

1975 - Subsec. (a)(1). Pub. L. 94-164 struck out "$25,000" in

par. (1) as par. (1) is in effect for taxable years ending after

Dec. 31, 1975.

Pub. L. 94-12, Sec. 303(c)(1), substituted "$50,000" for

"$25,000".

Subsec. (a)(2). Pub. L. 94-12, Sec. 304(b), substituted

"$150,000" for "$100,000".

1969 - Pub. L. 91-172 provided, with respect to taxable years

beginning after Dec. 31, 1974, that a controlled group of

corporations is limited to one $25,000 surtax exemption under

section 11(d), one $100,000 amount for purposes of computing the

accumulated earnings credit under section 535(c)(2) and (3), and

one $25,000 amount for purposes of computing the limitation on the

small business deduction of life insurance companies under sections

804(a)(4) and 809(d)(10).

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by Pub. L. 104-188 effective as if included in the

provision of the Revenue Reconciliation Act of 1993, Pub. L.

103-66, Secs. 13001-13444, to which such amendment relates, see

section 1703(o) of Pub. L. 104-188, set out as a note under section

39 of this title.

EFFECTIVE DATE OF 1988 AMENDMENT

Amendment by Pub. L. 100-647 effective, except as otherwise

provided, as if included in the provisions of the Revenue Act of

1987, Pub. L. 100-203, title X, to which such amendment relates,

see section 2004(u) of Pub. L. 100-647, set out as a note under

section 56 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by Pub. L. 99-514 applicable to taxable years beginning

after Dec. 31, 1986, with certain exceptions and qualifications,

see section 701(f) of Pub. L. 99-514, set out as an Effective Date

note under section 55 of this title.

Amendment by Pub. L. 99-499 applicable to taxable years beginning

after Dec. 31, 1986, see section 516(c) of Pub. L. 99-499, set out

as a note under section 26 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by section 66(b) of Pub. L. 98-369 applicable to

taxable years beginning after Dec. 31, 1983, see section 66(c) of

Pub. L. 98-369, set out as a note under section 11 of this title.

Amendment by section 211(b)(21) of Pub. L. 98-369 applicable to

taxable years beginning after Dec. 31, 1983, see section 215 of

Pub. L. 98-369, set out as an Effective Date note under section 801

of this title.

EFFECTIVE AND TERMINATION DATE OF 1982 AMENDMENT

Section 263(a)(1) of Pub. L. 97-248 provided that the amendment

made by section 259(b), (c) of Pub. L. 97-248 is applicable to

taxable years beginning after Dec. 31, 1981, and before Jan. 1,

1984.

EFFECTIVE DATE OF 1981 AMENDMENT

Amendment by Pub. L. 97-34 applicable to taxable years beginning

after Dec. 31, 1981, see section 232(c) of Pub. L. 97-34, set out

as a note under section 535 of this title.

EFFECTIVE DATE OF 1978 AMENDMENT

Amendment by section 301(b)(19) of Pub. L. 95-600 applicable to

taxable years beginning after Dec. 31, 1978, see section 301(c) of

Pub. L. 95-600, set out as a note under section 11 of this title.

Amendment by section 703(j)(7) of Pub. L. 95-600 effective on

Oct. 4, 1976, see section 703(r) of Pub. L. 95-600, set out as a

note under section 46 of this title.

EFFECTIVE DATES OF 1976 AMENDMENT

Amendment by section 901(c)(1) of Pub. L. 94-455 applicable to

taxable years ending after Dec. 31, 1975, see section 901(d) of

Pub. L. 94-455, set out as a note under section 11 of this title.

Amendment by section 1901(b)(1)(J)(v) of Pub. L. 94-455 effective

for taxable years beginning after Dec. 31, 1976, see section

1901(d) of Pub. L. 94-455, set out as a note under section 2 of

this title.

EFFECTIVE AND TERMINATION DATES OF 1975 AMENDMENTS

Amendment by Pub. L. 94-164 applicable to taxable years beginning

after Dec. 31, 1975, see section 4(e) of Pub. L. 94-164, set out as

a note under section 11 of this title.

Amendment by section 303(c)(1) of Pub. L. 94-12 applicable to

taxable years ending after Dec. 31, 1974, but to cease to apply for

taxable years ending after Dec. 31, 1975, see section 305(b)(1) of

Pub. L. 94-12, set out as a note under section 11 of this title.

Amendment by section 304(b) of Pub. L. 94-12 applicable to

taxable years beginning after Dec. 31, 1974, see section 305(c) of

Pub. L. 94-12, set out as an Effective Date of 1975 Amendment note

under section 535 of this title.

EFFECTIVE DATE OF 1969 AMENDMENT

Section 401(h) of Pub. L. 91-172 provided that:

"(1) The amendments made by subsection (a) [amending this section

and repealing section 1562 of this title] shall apply with respect

to taxable years beginning after December 31, 1974.

"(2) The amendments made by subsection (b) [enacting section 1564

and amending sections 11, 535, 804, and 1562] shall apply with

respect to taxable years beginning after December 31, 1969.

"(3) The amendments made by subsections (c), (d), (e), and (f)

[amending sections 46, 48, 179, and 1563] shall apply with respect

to taxable years ending on or after December 31, 1970."

EFFECTIVE DATE

Section applicable with respect to taxable years ending after

Dec. 31, 1963, see section 235(d) of Pub. L. 88-272, set out as an

Effective Date of 1964 Amendment note under section 1551 of this

title.

APPLICABILITY OF CERTAIN AMENDMENTS BY PUB. L. 99-514 IN RELATION

TO TREATY OBLIGATIONS OF UNITED STATES

For applicability of amendment by section 701(e)(2) of Pub. L.

99-514 notwithstanding any treaty obligation of the United States

in effect on Oct. 22, 1986, see section 1012(aa)(2) of Pub. L.

100-647, set out as a note under section 861 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 535, 4980B, 4980D, 4980F,

6655 of this title.

-End-

-CITE-

26 USC [Sec. 1562 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter B - Related Rules

PART II - CERTAIN CONTROLLED CORPORATIONS

-HEAD-

[Sec. 1562. Repealed. Pub. L. 91-172, title IV, Sec. 401(a)(2),

Dec. 30, 1969, 83 Stat. 600]

-MISC1-

Section, added Pub. L. 88-272, title II, Sec. 235(a), Feb. 26,

1964, 78 Stat. 117, amended Pub. L. 91-172, title IV, Sec.

401(b)(2)(A), Dec. 30, 1969, 83 Stat. 602, set limits on the

privilege of groups to elect multiple surtax exemptions.

EFFECTIVE DATE OF REPEAL

Repeal applicable with respect to taxable years beginning after

Dec. 31, 1974, see section 401(h)(1) of Pub. L. 91-172, set out as

an Effective Date of 1969 Amendment note under section 1561 of this

title.

RETROACTIVE TERMINATION OF ELECTIONS

Section 401(g) of Pub. L. 91-172 authorized an affiliated group

of corporations making a consolidated return for the taxable year

which included Dec. 31, 1970, to terminate the election under

section 1562 of this title with respect to any prior Dec. 31 which

was included in a taxable year of any such corporations from which

there was a net operating loss carryover to the 1970 consolidated

return year and provided that the termination of such election was

to be valid only if in accord with subsecs. (c)(1) and (e) of

section 1562 of this title other than the requirement of making the

termination prior to the expiration of the 3 year period specified

in subsec. (e) of section 1562 of this title.

-End-

-CITE-

26 USC Sec. 1563 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter B - Related Rules

PART II - CERTAIN CONTROLLED CORPORATIONS

-HEAD-

Sec. 1563. Definitions and special rules

-STATUTE-

(a) Controlled group of corporations

For purposes of this part, the term "controlled group of

corporations" means any group of -

(1) Parent-subsidiary controlled group

One or more chains of corporations connected through stock

ownership with a common parent corporation if -

(A) stock possessing at least 80 percent of the total

combined voting power of all classes of stock entitled to vote

or at least 80 percent of the total value of shares of all

classes of stock of each of the corporations, except the common

parent corporation, is owned (within the meaning of subsection

(d)(1)) by one or more of the other corporations; and

(B) the common parent corporation owns (within the meaning of

subsection (d)(1)) stock possessing at least 80 percent of the

total combined voting power of all classes of stock entitled to

vote or at least 80 percent of the total value of shares of all

classes of stock of at least one of the other corporations,

excluding, in computing such voting power or value, stock owned

directly by such other corporations.

(2) Brother-sister controlled group

Two or more corporations if 5 or fewer persons who are

individuals, estates, or trusts own (within the meaning of

subsection (d)(2)) stock possessing -

(A) at least 80 percent of the total combined voting power of

all classes of stock entitled to vote or at least 80 percent of

the total value of shares of all classes of the stock of each

corporation, and

(B) more than 50 percent of the total combined voting power

of all classes of stock entitled to vote or more than 50

percent of the total value of shares of all classes of stock of

each corporation, taking into account the stock ownership of

each such person only to the extent such stock ownership is

identical with respect to each such corporation.

(3) Combined group

Three or more corporations each of which is a member of a group

of corporations described in paragraph (1) or (2), and one of

which -

(A) is a common parent corporation included in a group of

corporations described in paragraph (1), and also

(B) is included in a group of corporations described in

paragraph (2).

(4) Certain insurance companies

Two or more insurance companies subject to taxation under

section 801 which are members of a controlled group of

corporations described in paragraph (1), (2), or (3). Such

insurance companies shall be treated as a controlled group of

corporations separate from any other corporations which are

members of the controlled group of corporations described in

paragraph (1), (2), or (3).

(b) Component member

(1) General rule

For purposes of this part, a corporation is a component member

of a controlled group of corporations on a December 31 of any

taxable year (and with respect to the taxable year which includes

such December 31) if such corporation -

(A) is a member of such controlled group of corporations on

the December 31 included in such year and is not treated as an

excluded member under paragraph (2), or

(B) is not a member of such controlled group of corporations

on the December 31 included in such year but is treated as an

additional member under paragraph (3).

(2) Excluded members

A corporation which is a member of a controlled group of

corporations on December 31 of any taxable year shall be treated

as an excluded member of such group for the taxable year

including such December 31 if such corporation -

(A) is a member of such group for less than one-half the

number of days in such taxable year which precede such December

31,

(B) is exempt from taxation under section 501(a) (except a

corporation which is subject to tax on its unrelated business

taxable income under section 511) for such taxable year,

(C) is a foreign corporation subject to tax under section 881

for such taxable year,

(D) is an insurance company subject to taxation under section

801 (other than an insurance company which is a member of a

controlled group described in subsection (a)(4)), or

(E) is a franchised corporation, as defined in subsection

(f)(4).

(3) Additional members

A corporation which -

(A) was a member of a controlled group of corporations at any

time during a calendar year,

(B) is not a member of such group on December 31 of such

calendar year, and

(C) is not described, with respect to such group, in

subparagraph (B), (C), (D), or (E) of paragraph (2),

shall be treated as an additional member of such group on

December 31 for its taxable year including such December 31 if it

was a member of such group for one-half (or more) of the number

of days in such taxable year which precede such December 31.

(4) Overlapping groups

If a corporation is a component member of more than one

controlled group of corporations with respect to any taxable

year, such corporation shall be treated as a component member of

only one controlled group. The determination as to the group of

which such corporation is a component member shall be made under

regulations prescribed by the Secretary which are consistent with

the purposes of this part.

(c) Certain stock excluded

(1) General rule

For purposes of this part, the term "stock" does not include -

(A) nonvoting stock which is limited and preferred as to

dividends,

(B) treasury stock, and

(C) stock which is treated as "excluded stock" under

paragraph (2).

(2) Stock treated as "excluded stock"

(A) Parent-subsidiary controlled group

For purposes of subsection (a)(1), if a corporation (referred

to in this paragraph as "parent corporation") owns (within the

meaning of subsections (d)(1) and (e)(4)), 50 percent or more

of the total combined voting power of all classes of stock

entitled to vote or 50 percent or more of the total value of

shares of all classes of stock in another corporation (referred

to in this paragraph as "subsidiary corporation"), the

following stock of the subsidiary corporation shall be treated

as excluded stock -

(i) stock in the subsidiary corporation held by a trust

which is part of a plan of deferred compensation for the

benefit of the employees of the parent corporation or the

subsidiary corporation,

(ii) stock in the subsidiary corporation owned by an

individual (within the meaning of subsection (d)(2)) who is a

principal stockholder or officer of the parent corporation.

For purposes of this clause, the term "principal stockholder"

of a corporation means an individual who owns (within the

meaning of subsection (d)(2)) 5 percent or more of the total

combined voting power of all classes of stock entitled to

vote or 5 percent or more of the total value of shares of all

classes of stock in such corporation,

(iii) stock in the subsidiary corporation owned (within the

meaning of subsection (d)(2)) by an employee of the

subsidiary corporation if such stock is subject to conditions

which run in favor of such parent (or subsidiary) corporation

and which substantially restrict or limit the employee's

right (or if the employee constructively owns such stock, the

direct owner's right) to dispose of such stock, or

(iv) stock in the subsidiary corporation owned (within the

meaning of subsection (d)(2)) by an organization (other than

the parent corporation) to which section 501 (relating to

certain educational and charitable organizations which are

exempt from tax) applies and which is controlled directly or

indirectly by the parent corporation or subsidiary

corporation, by an individual, estate, or trust that is a

principal stockholder (within the meaning of clause (ii)) of

the parent corporation, by an officer of the parent

corporation, or by any combination thereof.

(B) Brother-sister controlled group

For purposes of subsection (a)(2), if 5 or fewer persons who

are individuals, estates, or trusts (referred to in this

subparagraph as "common owners") own (within the meaning of

subsection (d)(2)), 50 percent or more of the total combined

voting power of all classes of stock entitled to vote or 50

percent or more of the total value of shares of all classes of

stock in a corporation, the following stock of such corporation

shall be treated as excluded stock -

(i) stock in such corporation held by an employees' trust

described in section 401(a) which is exempt from tax under

section 501(a), if such trust is for the benefit of the

employees of such corporation,

(ii) stock in such corporation owned (within the meaning of

subsection (d)(2)) by an employee of the corporation if such

stock is subject to conditions which run in favor of any of

such common owners (or such corporation) and which

substantially restrict or limit the employee's right (or if

the employee constructively owns such stock, the direct

owner's right) to dispose of such stock. If a condition which

limits or restricts the employee's right (or the direct

owner's right) to dispose of such stock also applies to the

stock held by any of the common owners pursuant to a bona

fide reciprocal stock purchase arrangement, such condition

shall not be treated as one which restricts or limits the

employee's right to dispose of such stock, or

(iii) stock in such corporation owned (within the meaning

of subsection (d)(2)) by an organization to which section 501

(relating to certain educational and charitable organizations

which are exempt from tax) applies and which is controlled

directly or indirectly by such corporation, by an individual,

estate, or trust that is a principal stockholder (within the

meaning of subparagraph (A)(ii)) of such corporation, by an

officer of such corporation, or by any combination thereof.

(d) Rules for determining stock ownership

(1) Parent-subsidiary controlled group

For purposes of determining whether a corporation is a member

of a parent-subsidiary controlled group of corporations (within

the meaning of subsection (a)(1)), stock owned by a corporation

means -

(A) stock owned directly by such corporation, and

(B) stock owned with the application of paragraphs (1), (2),

and (3) of subsection (e).

(2) Brother-sister controlled group

For purposes of determining whether a corporation is a member

of a brother-sister controlled group of corporations (within the

meaning of subsection (a)(2)), stock owned by a person who is an

individual, estate, or trust means -

(A) stock owned directly by such person, and

(B) stock owned with the application of subsection (e).

(e) Constructive ownership

(1) Options

If any person has an option to acquire stock, such stock shall

be considered as owned by such person. For purposes of this

paragraph, an option to acquire such an option, and each one of a

series of such options, shall be considered as an option to

acquire such stock.

(2) Attribution from partnerships

Stock owned, directly or indirectly, by or for a partnership

shall be considered as owned by any partner having an interest of

5 percent or more in either the capital or profits of the

partnership in proportion to his interest in capital or profits,

whichever such proportion is the greater.

(3) Attribution from estates or trusts

(A) Stock owned, directly or indirectly, by or for an estate or

trust shall be considered as owned by any beneficiary who has an

actuarial interest of 5 percent or more in such stock, to the

extent of such actuarial interest. For purposes of this

subparagraph, the actuarial interest of each beneficiary shall be

determined by assuming the maximum exercise of discretion by the

fiduciary in favor of such beneficiary and the maximum use of

such stock to satisfy his rights as a beneficiary.

(B) Stock owned, directly or indirectly, by or for any portion

of a trust of which a person is considered the owner under

subpart E of part I of subchapter J (relating to grantors and

others treated as substantial owners) shall be considered as

owned by such person.

(C) This paragraph shall not apply to stock owned by any

employees' trust described in section 401(a) which is exempt from

tax under section 501(a).

(4) Attribution from corporations

Stock owned, directly or indirectly, by or for a corporation

shall be considered as owned by any person who owns (within the

meaning of subsection (d)) 5 percent or more in value of its

stock in that proportion which the value of the stock which such

person so owns bears to the value of all the stock in such

corporation.

(5) Spouse

An individual shall be considered as owning stock in a

corporation owned, directly or indirectly, by or for his spouse

(other than a spouse who is legally separated from the individual

under a decree of divorce whether interlocutory or final, or a

decree of separate maintenance), except in the case of a

corporation with respect to which each of the following

conditions is satisfied for its taxable year -

(A) The individual does not, at any time during such taxable

year, own directly any stock in such corporation;

(B) The individual is not a director or employee and does not

participate in the management of such corporation at any time

during such taxable year;

(C) Not more than 50 percent of such corporation's gross

income for such taxable year was derived from royalties, rents,

dividends, interest, and annuities; and

(D) Such stock in such corporation is not, at any time during

such taxable year, subject to conditions which substantially

restrict or limit the spouse's right to dispose of such stock

and which run in favor of the individual or his children who

have not attained the age of 21 years.

(6) Children, grandchildren, parents, and grandparents

(A) Minor children

An individual shall be considered as owning stock owned,

directly or indirectly, by or for his children who have not

attained the age of 21 years, and, if the individual has not

attained the age of 21 years, the stock owned, directly or

indirectly, by or for his parents.

(B) Adult children and grandchildren

An individual who owns (within the meaning of subsection

(d)(2), but without regard to this subparagraph) more than 50

percent of the total combined voting power of all classes of

stock entitled to vote or more than 50 percent of the total

value of shares of all classes of stock in a corporation shall

be considered as owning the stock in such corporation owned,

directly or indirectly, by or for his parents, grandparents,

grandchildren, and children who have attained the age of 21

years.

(C) Adopted child

For purposes of this section, a legally adopted child of an

individual shall be treated as a child of such individual by

blood.

(f) Other definitions and rules

(1) Employee defined

For purposes of this section the term "employee" has the same

meaning such term is given by paragraphs (1) and (2) of section

3121(d).

(2) Operating rules

(A) In general

Except as provided in subparagraph (B), stock constructively

owned by a person by reason of the application of paragraph

(1), (2), (3), (4), (5), or (6) of subsection (e) shall, for

purposes of applying such paragraphs, be treated as actually

owned by such person.

(B) Members of family

Stock constructively owned by an individual by reason of the

application of paragraph (5) or (6) of subsection (e) shall not

be treated as owned by him for purposes of again applying such

paragraphs in order to make another the constructive owner of

such stock.

(3) Special rules

For purposes of this section -

(A) If stock may be considered as owned by a person under

subsection (e)(1) and under any other paragraph of subsection

(e), it shall be considered as owned by him under subsection

(e)(1).

(B) If stock is owned (within the meaning of subsection (d))

by two or more persons, such stock shall be considered as owned

by the person whose ownership of such stock results in the

corporation being a component member of a controlled group. If

by reason of the preceding sentence, a corporation would (but

for this sentence) become a component member of two controlled

groups, it shall be treated as a component member of one

controlled group. The determination as to the group of which

such corporation is a component member shall be made under

regulations prescribed by the Secretary which are consistent

with the purposes of this part.

(C) If stock is owned by a person within the meaning of

subsection (d) and such ownership results in the corporation

being a component member of a controlled group, such stock

shall not be treated as excluded stock under subsection (c)(2),

if by reason of treating such stock as excluded stock the

result is that such corporation is not a component member of a

controlled group of corporations.

(4) Franchised corporation

If -

(A) a parent corporation (as defined in subsection

(c)(2)(A)), or a common owner (as defined in subsection

(c)(2)(B)), of a corporation which is a member of a controlled

group of corporations is under a duty (arising out of a written

agreement) to sell stock of such corporation (referred to in

this paragraph as "franchised corporation") which is franchised

to sell the products of another member, or the common owner, of

such controlled group;

(B) such stock is to be sold to an employee (or employees) of

such franchised corporation pursuant to a bona fide plan

designed to eliminate the stock ownership of the parent

corporation or of the common owner in the franchised

corporation;

(C) such plan -

(i) provides a reasonable selling price for such stock, and

(ii) requires that a portion of the employee's share of the

profits of such corporation (whether received as compensation

or as a dividend) be applied to the purchase of such stock

(or the purchase of notes, bonds, debentures or other similar

evidence of indebtedness of such franchised corporation held

by such parent corporation or common owner);

(D) such employee (or employees) owns directly more than 20

percent of the total value of shares of all classes of stock in

such franchised corporation;

(E) more than 50 percent of the inventory of such franchised

corporation is acquired from members of the controlled group,

the common owner, or both; and

(F) all of the conditions contained in subparagraphs (A),

(B), (C), (D), and (E) have been met for one-half (or more) of

the number of days preceding the December 31 included within

the taxable year (or if the taxable year does not include

December 31, the last day of such year) of the franchised

corporation,

then such franchised corporation shall be treated as an excluded

member of such group, under subsection (b)(2), for such taxable

year.

-SOURCE-

(Added Pub. L. 88-272, title II, Sec. 235(a), Feb. 26, 1964, 78

Stat. 120; amended Pub. L. 91-172, title IV, Sec. 401(c), (d), Dec.

30, 1969, 83 Stat. 602; Pub. L. 91-373, title I, Sec. 102(b), Aug.

10, 1970, 84 Stat. 696; Pub. L. 94-455, title XIX, Sec.

1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98-369, div.

A, title II, Sec. 211(b)(22), July 18, 1984, 98 Stat. 757; Pub. L.

99-514, title X, Sec. 1024(c)(17), Oct. 22, 1986, 100 Stat. 2408;

Pub. L. 100-647, title I, Sec. 1018(s)(3)(A), Nov. 10, 1988, 102

Stat. 3587.)

-MISC1-

AMENDMENTS

1988 - Subsec. (d)(1)(B). Pub. L. 100-647 substituted "paragraphs

(1), (2), and (3) of subsection (e)" for "subsection (e)(1)".

1986 - Subsec. (b)(2)(D). Pub. L. 99-514 struck out "or section

821" after "section 801".

1984 - Subsecs. (a)(4), (b)(2)(D). Pub. L. 98-369 substituted

"section 801" for "section 802".

1976 - Subsecs. (b)(4), (f)(3)(B). Pub. L. 94-455 struck out "or

his delegate" after "Secretary".

1970 - Subsec. (f)(1). Pub. L. 91-373 substituted "by paragraphs

(1) and (2) of section 2131(d)" for "in section 3306(i)".

1969 - Subsec. (a)(2). Pub. L. 91-172, Sec. 401(c), redesignated

existing provisions with minor changes as par. (A) and added par.

(B).

Subsec. (c)(2)(A)(iv). Pub. L. 91-172, Sec. 401(d)(1), added cl.

(iv).

Subsec. (c)(2)(B). Pub. L. 91-172, Sec. 401(d)(2), substituted "5

or fewer persons who are individuals, estates, or trusts (referred

to in this subparagraph as 'common owners') own" for "a person who

is an individual, estate, or trust (referred to in this paragraph

as 'common owner') owns" and in cl. (ii), substituted "any of such

common owners", "any of the common owners" for "such common owner"

and "the common owner", respectively and added cl. (iii).

EFFECTIVE DATE OF 1988 AMENDMENT

Section 1018(s)(3)(B) of Pub. L. 100-647 provided that: "The

amendment made by subparagraph (A) [amending this section] shall

apply to taxable years beginning after the date of the enactment of

this Act [Nov. 10, 1988]."

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by Pub. L. 99-514 applicable to taxable years beginning

after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out

as a note under section 831 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-369 applicable to taxable years beginning

after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as

an Effective Date note under section 801 of this title.

EFFECTIVE DATE OF 1969 AMENDMENT

Amendment by Pub. L. 91-172 applicable with respect to taxable

years ending on or after Dec. 31, 1970, see section 401(h)(3) of

Pub. L. 91-172, set out as a note under section 1561 of this title.

EFFECTIVE DATE

Section applicable with respect to taxable years ending after

Dec. 31, 1963, see section 235(d) of Pub. L. 88-272, set out as an

Effective Date of 1964 Amendment note under section 1551 of this

title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 38, 41, 52, 120, 127,

129, 144, 147, 179, 194, 243, 263A, 267, 269B, 368, 382, 384, 404,

409, 414, 447, 460, 465, 585, 593, 613A, 806, 831, 848, 861, 904,

936, 943, 993, 1042, 1202, 1504, 1551, 1561, 5061 of this title;

title 2 section 691e; title 29 sections 1060, 1107, 1322; title 42

section 1395w-25.

-End-

-CITE-

26 USC [Sec. 1564 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 6 - CONSOLIDATED RETURNS

Subchapter B - Related Rules

PART II - CERTAIN CONTROLLED CORPORATIONS

-HEAD-

[Sec. 1564. Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(38),

Nov. 5, 1990, 104 Stat. 1388-521]

-MISC1-

Section, added Pub. L. 91-172, title IV, Sec. 401(b)(1), Dec. 30,

1969, 83 Stat. 600; amended Pub. L. 94-455, title XIX, Secs.

1901(b)(1)(J)(vi), (21)(A)(ii), 1906(b)(13)(A), Oct. 4, 1976, 90

Stat. 1791, 1797, 1834, related to transitional rules in the case

of certain controlled corporations.

SAVINGS PROVISION

For provisions that nothing in repeal by Pub. L. 101-508 be

construed to affect treatment of certain transactions occurring,

property acquired, or items of income, loss, deduction, or credit

taken into account prior to Nov. 5, 1990, for purposes of

determining liability for tax for periods ending after Nov. 5,

1990, see section 11821(b) of Pub. L. 101-508, set out as a note

under section 29 of this title.

-End-

-CITE-

26 USC Subtitle B - Estate and Gift Taxes 01/06/03

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle B - Estate and Gift Taxes

-HEAD-

Subtitle B - Estate and Gift Taxes

-MISC1-

Chapter Sec.(!1)

11. Estate tax 2001

12. Gift tax 2501

13. Tax on generation-skipping transfers 2601

14. Special valuation rules 2701

AMENDMENTS

1990 - Pub. L. 101-508, title XI, Sec. 11602(c), Nov. 5, 1990,

104 Stat. 1388-500, added item for chapter 14.

1986 - Pub. L. 99-514, title XIV, Sec. 1431(b), Oct. 22, 1986,

100 Stat. 2729, struck out "certain" after "Tax on" in item for

chapter 13.

1976 - Pub. L. 94-455, title XX, Sec. 2006(b)(1), Oct. 4, 1976,

90 Stat. 1888, added item for chapter 13.

-SECREF-

SUBTITLE REFERRED TO IN OTHER SECTIONS

This subtitle is referred to in sections 404, 877, 6019, 6211,

6212, 6213, 6214, 6404, 6501, 6662, 6871, 6901, 7491, 7701, 7702 of

this title.

-FOOTNOTE-

(!1) Section numbers editorially supplied.

-End-