[Federal Register Volume 77, Number 104 (Wednesday, May 30, 2012)]
[Proposed Rules]
[Pages 31786-31794]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13056]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-142561-07]
RIN 1545-BH31


Regulations Revising Rules Regarding Agency for a Consolidated 
Group

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed amendments to the regulations 
regarding the agent for an affiliated group that files a consolidated 
return (consolidated group). The proposed regulations provide guidance 
concerning the identity and authority of the agent for the consolidated 
group (agent for the group). These proposed regulations affect all 
consolidated groups. This document also invites comments from the 
public regarding these proposed regulations.

DATES: Written or electronic comments and a request for a public 
hearing must be received by August 28, 2012.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-142561-07), room 
5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may also be hand-delivered Monday 
through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR 
(REG-142561-07), Courier's Desk, Internal Revenue Service, 1111 
Constitution Avenue NW., Washington, DC, or sent electronically via the 
Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-
142561-07).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Gerald B. Fleming at (202) 622-7770 or Richard M. Heinecke at (202) 
622-7930; concerning submissions of comments or a request for a public 
hearing, Funmi Taylor, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
(OMB) for review and approval under OMB approval number 1545-1699 in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)).
    Comments on the collection of information should be sent to the 
Office of Management and Budget, Attn: Desk Officer for the Department 
of the Treasury, Office of Information and Regulatory Affairs, 
Washington, DC 20503, with copies to the Internal Revenue Service, 
Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:SP, Washington, DC 
20224. Comments on the collection of information should be received by 
July 30, 2012.
    Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
collection will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collections of information in the proposed regulations are in 
Sec.  1.1502-77(c)(3), (c)(4), (c)(5), and (f)(3).
    The proposed regulations provide that an entity that is the agent 
for the group, upon becoming the default successor, is required to 
notify the Commissioner in writing (under procedures prescribed by the 
Commissioner), in accordance with Sec.  1.1502-77(c)(3), that it is the 
default successor.
    The proposed regulations under Sec.  1.1502-77(c)(4) further 
provide that, when the agent for the group designates an agent for the 
group under circumstances in which the agent for the group's existence 
terminates without a default successor, the agent for the group must 
notify the Commissioner in writing (under procedures prescribed by the 
Commissioner) of the designation and provide an agreement executed by 
the designated entity acknowledging

[[Page 31787]]

that it will serve as the agent for the group. If the designated entity 
was not itself a member of the group during the consolidated return 
year because the designated entity is a successor of a member of the 
group for the consolidated return year, the agent for the group must 
furnish a statement by the designated entity acknowledging that it is 
or will be primarily liable for the tax as a successor of a member.
    The proposed regulations at Sec.  1.1502-77(c)(5) require a 
designated substitute agent to give notice to each member of the group 
when the Commissioner has designated a substitute agent for the group.
    Under Sec.  1.1502-77(f)(3), if an entity ceases to be a member of 
a group, such entity may file a written notice of that fact with the 
Commissioner and request a copy of the notice of deficiency with 
respect to the Federal income tax for a consolidated return year during 
which the entity was a member, or a copy of any notice and demand for 
payment of such deficiency, or both.
    The collections of information are required to obtain a benefit, 
for example, to identify a substitute agent for the group. The likely 
respondents are business or other for-profit institutions.
    The burden for the collection of information in Sec.  1.1502-
77(c)(3), (c)(4), (c)(5), and (f)(3) is as follows:
    Estimated total annual reporting burden: 200 hours.
    Estimated average annual burden per respondent: 2 hours.
    Estimated number of respondents: 100.
    Estimated annual frequency of responses: On occasion.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.

Background

    This document proposes amendments to 26 CFR part 1 under section 
1502 of the Internal Revenue Code of 1986 (Code). Section 1.1502-77 
provides the existing regulations concerning the agent for a group and 
the designation of a new agent to act for the group. Section 1.1502-77 
was promulgated in 2002 in TD 9002 (June 28, 2002) (67 FR 43538), and 
supplemented by TD 9255 (71 FR 13001) (March 14, 2006) and TD 9343 (72 
FR 40066) (July 23, 2007) (each providing authority to replace the 
common parent as agent where the parent is a foreign entity). 
Subsequent to 2002, the IRS and Treasury Department issued other 
regulations, Sec. Sec.  1.856-9, 1.1361-4(a)(6), and 301.7701-
2(c)(2)(iii), which provide that an entity treated as disregarded from 
its owner for Federal income tax purposes is not disregarded for 
purposes of its tax liability for periods during which it was not 
disregarded. These proposed regulations conform to the subsequent 
guidance by permitting a non-corporate entity to be agent for the 
group.
    These proposed regulations provide greater certainty as to which 
entity will be the substitute agent for the group by identifying a 
default successor agent for the group. Under the proposed regulations, 
an entity (whether foreign or domestic) is a default successor if it 
becomes the single entity primarily liable, pursuant to applicable law 
(including, for example, by operation of a state or Federal merger 
statute), for the tax liability of the former agent of the group upon 
the termination of the agent's existence. (The determination of tax 
liability is made without regard to Sec.  1.1502-1(f)(4) or Sec.  
1.1502-6(a)). When the agent for the group terminates under applicable 
law and there is no default successor, the agent for the group may 
designate a substitute agent.
    Furthermore, as discussed under ``Explanation of Provisions'' the 
proposed amendments clarify and supplement the existing regulations to 
address other issues that have arisen. This notice of proposed 
rulemaking also requests comments with respect to several issues that 
the proposed amendments do not address.

Explanation of Provisions

1. Overview

    These proposed regulations generally retain the rules, concepts and 
examples from the existing regulations regarding the agent for a 
consolidated group. However, the rules, concepts and examples from the 
existing regulations have been renumbered, restructured and revised to 
provide greater clarity. Examples in the final regulations also have 
been modified to reflect the more limited circumstances in which an 
agent may be selected by the IRS or the former agent. In addition, when 
these proposed regulations are adopted, the IRS plans to issue 
contemporaneous guidance in a revenue procedure superseding Rev. Proc. 
2002-43 (2002-2 CB 99) (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter). Rev. Proc. 2002-43 provides instructions regarding all 
communications relating to the determination of a substitute agent to 
act on behalf of a consolidated group. In general, it is anticipated 
that the instructions in the superseding revenue procedure will update 
Revenue Procedure 2002-43 to reflect the rules in the adopted 
regulations.

2. Automatic Designation of a Default Successor Agent

    Under the existing regulations, a common parent that is going out 
of existence may designate its successor, another member of the group, 
or a group member's successor entity as the substitute agent for the 
group. In practice, the terminating common parent, when it has 
designated a substitute agent at all, has generally designated its 
successor rather than another member as the substitute agent.
    The proposed regulations provide that the terminating agent's 
default successor automatically becomes the agent for the group. The 
former agent cannot designate an agent if there is a default successor, 
and the IRS can replace a default successor only in limited 
circumstances. See Sec.  1.1502-77(c)(5). If the agent for the group 
has no default successor, the agent for the group may designate an 
entity that was a member of the group for the consolidated return year 
or a successor of such member. Narrowing the option to designate the 
agent for the group is consistent with the pattern of choices exhibited 
by taxpayers under the existing regulations and minimizes the 
difficulties that arise when a terminating agent fails to designate a 
substitute. In the rare cases in which an entity serving as agent 
terminates its existence without having a default successor, the IRS 
and Treasury Department expect that fact generally will be clear. 
Accordingly, IRS and taxpayers can readily identify situations in which 
a new agent must be designated. Furthermore, having the default 
successor become the substitute agent is the intuitively appropriate 
choice because it is generally consistent with the handling of tax 
matters involving non-consolidated entities and non-consolidated taxes.
    A default successor must notify the IRS in writing (under 
procedures prescribed by the IRS) that it is the default successor. 
Until the IRS receives such notification, any notice of deficiency or 
other communication mailed to the predecessor agent for the group, even 
if no longer in existence, is considered as having been properly mailed 
to the agent for the group, and the IRS is not required to act on any 
communication (including, for example, a claim for refund) submitted on 
behalf of the group by any person (including the default successor) 
other than the predecessor agent for the group.

[[Page 31788]]

3. Entities That Can Be an Agent for the Group

    In general, Sec.  1.1502-77(e) provides that the common parent, as 
agent for the group, ceases to be the agent for the group if its 
existence terminates under applicable law, if it becomes an entity 
disregarded from its owner for Federal tax purposes, or if it becomes 
an entity that is reclassified as a partnership for Federal tax 
purposes.
    When the existing regulations were adopted in 2002, there was no 
direct guidance concerning whether the party liable for a disregarded 
entity's Federal taxes with respect to periods before it becomes 
disregarded should be the disregarded entity or its owner. Section 
1.1502-77(e) generally precludes the common parent from continuing to 
serve as the agent for the group if it becomes a disregarded entity or 
partnership. Subsequent regulatory amendments provided that an entity 
treated as disregarded from its owner for Federal income tax purposes 
(whether a single member eligible entity, a Qualified Real Estate 
Investment Trust Subsidiary or a Qualified Subchapter S Subsidiary) is 
not disregarded for purposes of its tax liability for taxable periods 
during which it was not disregarded. See TD 9183 (70 FR 9220) (February 
25, 2005), as supplemented in TD 9462 (74 FR 46903) (September 14, 
2009) and TD 9553 (76 FR 66181) (October 26, 2011). Thus, such an 
entity, rather than its owner, is the party liable for the taxes 
arising in taxable periods before the entity became disregarded.
    These proposed regulations include disregarded entities and 
partnerships among the entities capable of serving as substitute agents 
for prior years. Accordingly, the transformation or merger of a common 
parent into a disregarded entity or partnership after the taxable year 
of the return generally will result in the disregarded entity or 
partnership becoming the agent for the group. Because the entity that 
was formerly a corporation serving as the agent for the group is no 
longer treated as a corporation for Federal income tax purposes after 
the change in its classification, it will not be a continuing member of 
a consolidated group in future periods. Nevertheless, the continuing or 
successor juridical entity is the agent for the group for prior 
periods. This result will obtain whether the change in classification 
is effectuated by a merger under state law, a conversion under state 
law, or a tax election.

4. TEFRA Partnerships

    Section 402 of the Tax Equity and Fiscal Responsibility Act of 1982 
(96 Stat. 324) (TEFRA) provides that the tax treatment of partnership 
items shall be determined at the partnership level. These TEFRA 
provisions are in sections 6221 through 6234. A partner in a TEFRA 
partnership is subject to the provisions of sections 6221 through 6234. 
In general, the IRS will deal with the tax matters partner (TMP) 
regarding specified matters for the partners in a TEFRA partnership.
    The existing regulations at Sec.  1.1502-77(a)(6)(iii) provide that 
``[t]he Commissioner generally will deal directly with any member in 
its capacity as a partner of a [TEFRA] partnership'' but also permits 
the Commissioner to deal with the common parent, as agent for the 
group, if requested to do so in accordance with the provisions of Sec.  
301.6223(c)-1(b). This provision was intended to facilitate IRS audits 
of TEFRA partnerships by permitting the IRS TEFRA audit team to deal 
with a member-partner without the involvement of the agent for the 
group. However, these rules have created some confusion, especially 
with respect to the execution of consents to extend the statute of 
limitations and settlement agreements in connection with TEFRA audits.
    Subject to enumerated exceptions in (f)(2)(iii) (relating to a 
member's actions as TMP and the Commissioner's discretion to deal 
directly with the member-partner), section 1.1502-77(f)(2)(iii)(A) 
provides that the agent for the group is the agent for any matter 
related to a TEFRA partnership in which a member is a partner. 
Consistent with this general rule, these proposed regulations would 
delete the provision of the existing regulations that the common 
parent, as agent for the group, will not act as agent for a member that 
is a partner in a TEFRA partnership for purposes of executing a 
settlement agreement under section 6224(c). The proposed regulations 
also clarify that only the agent for the group can extend the statute 
of limitations with respect to items other than the items of the TEFRA 
partnership. Section 1.1502-77(g), Example 11.

5. Commissioner's Affirmative Approval

    The existing regulations at Sec.  1.1502-77(d)(1)(i)(A) and 
(d)(1)(ii) provide that any designation of the substitute agent for the 
group must be approved by the Commissioner. The IRS is aware of having 
denied this approval only in the very limited circumstance in which the 
designation was not made in accordance with the regulations. Because 
the IRS would deny approval only infrequently, the proposed regulations 
do not require IRS approval of the designation of an agent for the 
group by the terminating agent. This proposed change will enhance 
efficiency and save resources. However, the proposed regulations retain 
the requirement that a terminating agent must notify the IRS in writing 
(under procedures prescribed by the IRS) of the designation of the 
agent for the group so that IRS records will reflect the identity of 
the agent for the group.
    The proposed regulations also provide several limited circumstances 
in which the IRS may designate or replace the agent for the group, 
either on its own initiative or at the request of other members. The 
IRS will not, however, have the ability to replace a domestic default 
successor under circumstances in which it could not replace the common 
parent.

6. Foreign Entity

    Under the existing regulations, a substitute agent is required to 
be a domestic entity for Federal income tax purposes. However, the 
existing regulations also provide that the Commissioner may designate 
another domestic member of the group to act as the agent for the group 
(a domestic substitute agent) if the common parent is an entity created 
or organized under the laws of a foreign country and is treated as a 
domestic corporation by reason of section 7874 (or regulations under 
that section) or a section 953(d) election (a foreign common parent). 
This rule recognizes that foreign agents may present unique logistical 
issues, and provides the Commissioner full discretion to replace a 
foreign agent should those issues arise.
    Although a foreign entity may raise practical difficulties in 
certain cases, the IRS and Treasury realize that a foreign entity, 
especially a default successor, may have the best access to information 
relating to prior consolidated return years. Furthermore, the IRS and 
Treasury believe that it is important for a consolidated group to have, 
to the greatest extent practicable, an entity that is authorized to act 
on its behalf to enable the group to communicate with the IRS and to 
ensure that the group can timely meet its compliance obligations (for 
example, file a timely final return if the group terminates). The IRS 
and Treasury also believe that the interests of the government and 
taxpayers are best served by a rule that clearly identifies the group's 
agent. Balancing special logistical issues and the importance of 
continual agency, the

[[Page 31789]]

proposed regulations do not preclude a foreign entity from being the 
agent for the consolidated group. However, the IRS retains discretion 
to replace a foreign entity that is an agent for a consolidated group.

7. Agency Does Not Include Any Winding Up Period After Dissolution

    These proposed regulations also provide that an entity cannot serve 
as the agent for the group during any winding up period that follows 
its dissolution.
    The existing regulations predicate agency on the continued 
existence of the corporation under applicable law. Questions have 
arisen as to what actions can be performed by a dissolved entity that 
has a ``winding up'' period following its dissolution. In many states, 
a dissolved corporation or entity may continue to perform certain acts 
after its dissolution to wind up its affairs. The duration of such a 
winding up period and the scope of the permissible actions vary from 
jurisdiction to jurisdiction. To resolve questions about whether a 
dissolved entity may be the agent for the remaining members of the 
consolidated group during the winding up period, these proposed 
regulations provide that an entity that has dissolved or otherwise 
ceased to exist under applicable law can no longer be the agent for the 
group, irrespective of any winding up period under applicable law.

8. The Agent for the Group's Failure To Fulfill Its Duties With Respect 
to the Consolidated Group

    These proposed regulations include no new mechanism to address 
situations in which the agent for the group fails to fulfill its duties 
on behalf of the members of the consolidated group, for example by not 
filing a return, not requesting a refund, or not cooperating with an 
examination. Under those circumstances, the members might not be able 
to accurately file or determine their Federal tax liability or obtain 
their refunds. The government might have difficulty determining which, 
if any, member is entitled to a refund, forcing it to interplead all 
potential claimants in any such refund case.
    The IRS and Treasury Department request comments on whether and how 
to implement a mechanism whereby the subsidiary members can request 
that the IRS designate another member of the group to be the agent when 
the common parent or substitute agent does not discharge its 
obligations as agent. Comments should consider under what circumstances 
and how this mechanism might be invoked to ensure that it is narrowly 
applied.

9. Possible Resignation of the Agent for the Group

    Under the existing regulations, a common parent, as agent for the 
group, remains the agent for the group for consolidated return years 
for which it was the common parent of the group. Only a termination of 
the common parent under applicable law will result in either the 
successor becoming the default substitute agent or an agent being 
designated for the group. The proposed regulations do not provide a 
mechanism for an existing agent to resign and limit the ability of the 
agent to displace its obligations transactionally by mandating the 
designation of any default successor. The Treasury Department and the 
IRS are considering whether, and under what circumstances, the 
regulations should allow an agent for the group to resign as the agent, 
and invite comments on this issue.

Proposed Effective/Applicability Date

    The amendments to Sec.  1.1502-77 are proposed to apply to 
consolidated return years beginning on or after the date final 
regulations are published in the Federal Register. The current rules of 
Sec.  1.1502-77 continue to apply with respect to consolidated return 
years beginning before the effective date of final regulations. Those 
regulations are proposed to be republished as Sec.  1.1502-77B.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12666, as supplemented by Executive Order 13563. Therefore, a 
regulatory assessment is not required. It is hereby certified that 
these regulations will not have a significant economic impact on a 
substantial number of small entities. This certification is based on 
the fact that these regulations primarily will affect affiliated groups 
of corporations that have elected to file consolidated returns, which 
tend to be larger entities. Therefore, a Regulatory Flexibility 
Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is 
not required. Pursuant to section 7805(f) of the Code, this notice of 
proposed rulemaking has been submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are timely submitted 
to the IRS.
    The Treasury Department and the IRS request comments on all aspects 
of the proposed rules. In addition, comments are requested on the 
treatment in the proposed regulations of entities that become 
disregarded as entities separate from their owners or classified as 
partnerships for Federal tax purposes.
    All comments that are submitted by the public will be available for 
public inspection and copying at http://www.regulations.gov or upon 
request. A public hearing may be scheduled if requested in writing by 
any person who timely submits comments. If a public hearing is 
scheduled, notice of the date, time and place for the hearing will be 
published in the Federal Register.

Drafting Information

    The principal author of these proposed regulations is Richard M. 
Heinecke, Office of Associate Chief Counsel (Corporate). However, other 
personnel from the IRS and the Treasury Department participated in 
their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended to read 
in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.1502-77 also issued under 26 U.S.C. 1502 and 6402(j). 
* * *
    Section 1.1502-77A also issued under 26 U.S.C. 1502 and 6402(j). 
* * *
    Section 1.1502-77B also issued under 26 U.S.C. 1502 and 6402(j). 
* * *

    Par. 2. Section 1.338-1 is amended by removing the language ``Sec.  
1.1502-77(e)(4)'' in the last sentence of paragraph (b)(2)(viii) and 
adding the language ``Sec.  1.1502-77(c)(8)'' in its place.
    Par. 3. Section 1.1502-41A, paragraph (c) heading is revised to 
read as follows:
* * * * *
    (c) Effective/applicability dates. * * *
    Par. 4. Section 1.1502-77 is redesignated as Sec.  1.1502-77B and 
added immediately following newly designated Sec.  1.1502-77B the 
undesignated center heading and revised paragraph (h)(1)(i) to read as 
follows:

[[Page 31790]]

Sec.  1.1502-77B  Agent for the group applicable for consolidated 
return years beginning on or after June 28, 2002, and before [the date 
final regulations are published in the Federal Register].

Regulations Applicable to Taxable Years Beginning on or After June 28, 
2002, and Before [the Date Final Regulations Are Published in the 
Federal Register]

* * * * *
    (h) Effective/Applicability date--(1) Application--(i) In general. 
This section applies to taxable years beginning on or after June 28, 
2002, and before [the date final regulations are published in the 
Federal Register].
* * * * *
    Par. 5. New Sec.  1.1502-77 is added to read as follows:


Sec.  1.1502-77  Agent for the group.

    (a) Agent for the group. Except as provided in paragraphs (e) and 
(f)(2) of this section, one entity (the agent for the group) is the 
sole agent that is authorized to act in its own name regarding all 
matters relating to the Federal income tax liability for the 
consolidated return year for each member of the group and any successor 
or transferee of a member (and any subsequent successors and 
transferees thereof). The common parent during the consolidated return 
year to which the matter relates or such other entity as is provided in 
paragraph (c) of this section is the agent for the group. Agency for 
the group is established for each consolidated return year and is not 
affected by the status or membership of the group in later years. Thus, 
for as long as it remains in existence under applicable law and is not 
replaced under paragraph (c)(5)(i)(C) of this section, a corporation or 
entity that is the agent for the group for a particular consolidated 
return year remains the agent for the group for that year regardless of 
whether one or more subsidiaries later cease to be members of the 
group, whether the group files a consolidated return for any subsequent 
year, whether the agent for the group ceases to be the agent for the 
group or a member of the group in any subsequent year, or whether the 
group continues pursuant to Sec.  1.1502-75(d) with a new common parent 
in any subsequent year.
    (b) Definitions. The following definitions apply for purposes of 
this section only--
    (1) Successor. A successor is an individual or entity (including a 
disregarded entity) that is primarily liable, pursuant to applicable 
law (including, for example, by operation of a state or Federal merger 
statute), for the tax liability of a corporation which was a member of 
the group but is no longer in existence under applicable law. The 
determination of tax liability is made without regard to Sec.  1.1502-
1(f)(4) or Sec.  1.1502-6(a). (For inclusion of a successor in 
references to a subsidiary or member, see paragraph (b)(5)(iii) of this 
section.)
    (2) Entity. The term entity includes any corporation, limited 
liability company or partnership formed under any state, Federal, or 
foreign jurisdiction. The term entity includes a disregarded entity. 
The term entity does not include an entity during any winding up period 
if the entity's existence has terminated pursuant to the law under 
which it is organized.
    (3) Disregarded entity. The term disregarded entity includes any of 
the following types of entities disregarded as separate from their 
owners--
    (i) Qualified real estate investment trust subsidiaries (within the 
meaning of section 856(i)(2));
    (ii) Qualified subchapter S subsidiaries (within the meaning of 
section 1361(b)(3)(B)); and
    (iii) Single owner eligible entities (within the meaning of Treas. 
Reg. Sec.  301.7701-3).
    (4) Default successor. A successor to the agent for the group is 
the default successor if it is an entity (whether domestic or foreign) 
that is the sole successor to the agent for the group. A partnership is 
treated as a sole successor with primary liability notwithstanding that 
one or more partners may also be primarily liable by virtue of being 
partners.
    (5) Member or subsidiary. All references to a member or subsidiary 
for a consolidated return year include--
    (i) Each corporation that was a member of the group during any part 
of such year (except that any reference to a subsidiary does not 
include the common parent);
    (ii) Each corporation whose income was included in the consolidated 
return for such year, notwithstanding that the tax liability of such 
corporation should have been computed on the basis of a separate 
return, or as a member of another consolidated group, under the 
provisions of Sec.  1.1502-75; and
    (iii) Except as indicated otherwise, a successor of any of the 
foregoing corporations.
    (c) Identity of the agent for the group--(1) In general. Except as 
otherwise provided in this section, the common parent or its default 
successor, if any, is the agent for the group. Any entity that is an 
agent pursuant to this paragraph (c) acts as agent for the group to the 
same extent and subject to the same limitations as are applicable to 
the common parent.
    (2) New common parent after a group structure change. If the group 
continues in existence with a new common parent under the principles of 
Sec.  1.1502-75(d) during a consolidated return year, the common parent 
at the beginning of the year is the agent for the group through the 
date of the Sec.  1.1502-75(d) transaction, and the new common parent 
becomes the agent for the group beginning the day after the 
transaction, at which time the new common parent becomes the agent for 
the group with respect to the entire consolidated return year 
(including the period through the date of the transaction) and the 
former common parent is no longer the agent for that year.
    (3) Notification by default successor. A default successor must 
notify the Commissioner in writing (under procedures prescribed by the 
Commissioner) that it is the default successor. Until the Commissioner 
receives such notification--
    (i) Any notice of deficiency or other communication mailed to the 
predecessor agent for the group, even if no longer in existence, is 
considered as having been properly mailed to the agent for the group; 
and
    (ii) The Commissioner is not required to act on any communication 
(including, for example, a claim for refund) submitted on behalf of the 
group by any person (including the default successor) other than the 
predecessor agent for the group.
    (4) Designation by terminating agent. (i) Prior to the termination 
of its existence without a default successor, the agent for the group 
may designate an entity described in paragraph (c)(4)(ii) of this 
section to act as agent for the group, effective upon its termination.
    (ii) The terminating agent for the group may designate as agent for 
the group, for any consolidated return year for which it is the agent 
for the group--
    (A) Any corporation that was a member of the group during any part 
of the consolidated return year, or
    (B) Any successor of such a corporation or of the agent for the 
group that is an entity (whether domestic or foreign), including an 
entity that will become a successor at the time that the agent for the 
group's existence terminates.
    (iii) The agent for the group must notify the Commissioner in 
writing (under procedures prescribed by the Commissioner) of the 
designation and provide an agreement executed by the designated entity 
acknowledging that it will serve as the agent for the group,

[[Page 31791]]

and, if the designated entity was not itself a member of the group 
during the consolidated return year (because the designated entity is a 
successor of a member of the group for the consolidated return year), a 
statement by the designated entity acknowledging that it is or will be 
primarily liable for the tax as a successor of a member.
    (iv) If the agent for the group's existence terminates without 
there being a default successor, and it has not designated an entity to 
act as agent for the group in its place pursuant to this paragraph 
(c)(4)--
    (A) Any notice of deficiency or other communication mailed to the 
agent for the group, even if no longer in existence, is considered as 
having been properly mailed to the agent for the group; and
    (B) The Commissioner is not required to act on any communication 
(including, for example, a claim for refund) submitted on behalf of the 
group by any person.
    (5) Designation by the Commissioner. (i) The Commissioner may, at 
any time, with or without a request from any member of the group, 
designate an entity described in paragraph (c)(4)(ii) of this section 
to act as the agent for the group if--
    (A) The agent for the group's existence terminates without there 
being a default successor and no designation is made under paragraph 
(c)(4) of this section;
    (B) The Commissioner believes that the agent for the group or its 
default successor exists but such entity has not responded to the 
Commissioner's notices sent to the last known address on file for the 
entity or any notices left at the usual place of business for such 
entity; or
    (C) The agent for the group is or becomes a foreign entity as a 
result of any action or transaction (including, for example, a 
continuance into a foreign jurisdiction).
    (ii) The Commissioner will notify the designated entity in writing 
of its designation, and the designation is effective upon receipt by 
the designated entity of such notice. The designated entity must give 
notice of the designation to each member of the group during any part 
of the consolidated return year, but a failure by the designated entity 
to notify any such member of the group does not invalidate the 
designation.
    (iii) At the request of any member, the Commissioner may, but is 
not required to, replace an agent for the group previously designated 
under this paragraph (c)(5) with another entity described in paragraph 
(c)(4)(ii) of this section.
    (iv) If the Commissioner replaces the agent for the group pursuant 
to this paragraph (c)(5), the replaced agent for the group ceases to be 
the agent after the Commissioner designates another agent.
    (6) Successors to designated agents. The designation of an agent 
for the group under paragraph (c)(4) or paragraph (c)(5) of this 
section includes its default successors, if any.
    (7) Purported agent for the group. If any entity files a 
consolidated return, or takes any other action related to the tax 
liability for the consolidated return year, purporting to be the agent 
for the group but is subsequently determined not to have been the agent 
for the group with respect to the claimed group, that entity is 
treated, to the extent necessary to avoid prejudice to the 
Commissioner, as if it were the agent for the group.
    (8) Section 338 transactions. Notwithstanding section 338(a)(2), a 
target corporation for which an election is made under section 338 is 
not deemed to terminate for purposes of this section.
    (d) Examples of matters subject to agency. With respect to any 
consolidated return year for which it is the agent for the group--
    (1) The agent for the group makes any election (or similar choice 
of a permissible option) that is available to a subsidiary in the 
computation of its separate taxable income, and any change in an 
election (or similar choice of a permissible option) previously made by 
or for a subsidiary, including, for example, a request to change a 
subsidiary's method or period of accounting;
    (2) All correspondence concerning the income tax liability for the 
consolidated return year is carried on directly with the agent for the 
group;
    (3) The agent for the group files for all extensions of time, 
including extensions of time for payment of tax under section 6164, and 
any extension so filed is considered as having been filed by each 
member;
    (4) The agent for the group gives waivers, gives bonds, and 
executes closing agreements, offers in compromise, and all other 
documents, and any waiver or bond so given, or agreement, offer in 
compromise, or any other document so executed, is considered as having 
also been given or executed by each member;
    (5) The agent for the group files claims for refund, and any refund 
is made directly to and in the name of the agent for the group and 
discharges any liability of the Government to any member with respect 
to such refund;
    (6) The agent for the group takes any action on behalf of a member 
of the group with respect to a foreign corporation including, for 
example, elections by, and changes to the method of accounting of, a 
controlled foreign corporation in accordance with Sec.  1.964-1(c)(3);
    (7) Notices of claim disallowance are mailed only to the agent for 
the group, and the mailing to the agent for the group is considered as 
a mailing to each member;
    (8) Notices of deficiencies are mailed only to the agent for the 
group (except as provided in paragraph (f)(3) of this section), and the 
mailing to the agent for the group is considered as a mailing to each 
member;
    (9) Notices of final partnership administrative adjustment under 
section 6223 with respect to any partnership in which a member of the 
group is a partner may be mailed to the agent for the group, and, if 
so, the mailing to the agent for the group is considered as a mailing 
to each member that is a partner entitled to receive such notice (for 
other rules regarding partnership proceedings, see paragraph 
(f)(2)(iii) of this section);
    (10) The agent for the group files petitions and conducts 
proceedings before the United States Tax Court, and any such petition 
is considered as also having been filed by each member;
    (11) Any assessment of tax may be made in the name of the agent for 
the group, and an assessment naming the agent for the group is 
considered as an assessment with respect to each member; and
    (12) Notice and demand for payment of taxes is given only to the 
agent for the group, and such notice and demand is considered as a 
notice and demand to each member.
    (e) Matters reserved to subsidiaries. Except as provided in this 
paragraph (e) and paragraph (f)(2) of this section, no subsidiary has 
authority to act for or to represent itself in any matter related to 
the tax liability for the consolidated return year. The following 
matters, however, are reserved exclusively to each subsidiary--
    (1) The making of the consent required by Sec.  1.1502-75(a)(1);
    (2) Any action with respect to the subsidiary's liability for a 
Federal tax other than the income tax imposed by chapter 1 of the 
Internal Revenue Code (Code) (including, for example, employment taxes 
under chapters 21 through 25 of the Code, and miscellaneous excise 
taxes under chapters 31 through 47 of the Code);
    (3) The making of an election under section 936(e); and

[[Page 31792]]

    (4) The making of an election to be treated as a Domestic 
International Sales Corporation under Sec.  1.992-2.
    (f) Dealings with members. (1) Identifying members in notice of a 
lien. Notwithstanding any other provisions of this section, any notice 
of a lien, any levy or any other proceeding to collect the amount of 
any assessment, after the assessment has been made, must name the 
entity from which such collection is to be made.
    (2) Direct dealing with a member--(i) Several liability. The 
Commissioner may, upon issuing to the agent for the group written 
notice that expressly invokes the authority of this provision, deal 
directly with any member of the group with respect to its liability 
under Sec.  1.1502-6 for the consolidated tax of the group, in which 
event such member has sole authority to act for itself with respect to 
that liability. However, if the Commissioner believes or has reason to 
believe that the existence of the agent for the group has terminated, 
he may, if he deems it advisable, deal directly with any member with 
respect to that member's liability under Sec.  1.1502-6.
    (ii) Information requests. The Commissioner may, upon issuing to 
the agent for the group written notice, request information relevant to 
the consolidated tax liability from any member of the group. However, 
if the Commissioner believes or has reason to believe that the 
existence of the agent for the group has terminated, he may request 
such information from any member of the group.
    (iii) Members as partners in partnerships subject to the provisions 
of sections 6221 through 6234.
    (A) Except as otherwise provided in this paragraph (f)(2)(iii), the 
general rule of paragraph (a)(1) of this section applies to make the 
agent for the group the agent for any subsidiary member that for any 
part of the consolidated return year is a partner in a partnership 
subject to the provisions of sections 6221 through 6234 of the Code (as 
originally enacted by the Tax Equity and Fiscal Responsibility Act of 
1982 and subsequently amended) and the accompanying regulations (TEFRA 
partnership).
    (B) Any subsidiary or any disregarded entity owned by a subsidiary 
that is designated as tax matters partner of a TEFRA partnership will 
act in its own name and perform its responsibilities under sections 
6221 through 6234 and the accompanying regulations without requiring 
any action by the agent for the group (but see paragraph (d)(9) of this 
section regarding the mailing of a final partnership administrative 
adjustment to the agent for the group).
    (C) The Commissioner may at any time communicate directly with a 
subsidiary or a disregarded entity owned by a subsidiary that is a 
partner in a TEFRA partnership whenever the Commissioner determines 
that such direct communication will facilitate the conduct of an 
examination, appeal or settlement with respect to the partnership.
    (3) Copy of notice of deficiency to entity that has ceased to be a 
member of the group. A subsidiary that ceases to be a member of the 
group during or after a consolidated return year may file a written 
notice of that fact with the Commissioner and request a copy of any 
notice of deficiency with respect to the tax for a consolidated return 
year during which it was a member, or a copy of any notice and demand 
for payment of such deficiency, or both. Such filing does not limit the 
scope of the agency of the agent for the group provided for in this 
section. Any failure by the Commissioner to comply with such request 
does not limit the subsidiary's tax liability under Sec.  1.1502-6.
    (g) Examples. Unless otherwise indicated, all entities are domestic 
and are calendar year taxpayers. For none of the tax years at issue 
does the Commissioner exercise the authority under paragraph (f)(2) of 
this section to deal with any member separately. Any surviving entity 
in a merger is either a successor as described in paragraph (b)(1) of 
this section, or a default successor as described in (b)(4) of this 
section, as the case may be. The following examples illustrate the 
principles of this section:

    Example 1. Disposition of all group members where the agent for 
the group remains the agent.  As of January 1 of Year 1, P, a 
domestic corporation, is the common parent and agent for the P 
consolidated group, consisting of P and its two subsidiary 
corporations, S and S-1. P files consolidated returns for the P 
group in Years 1 and 2. On December 31 of Year 1, P sells all the 
stock of S-1 to X. On December 31 of Year 2, P distributes all the 
stock of S to P's shareholders. P files a separate return for Year 
3. Although the consolidated group terminates after Year 2 and P is 
no longer the common parent nor the agent for the group in years 
after Year 2, P remains the agent for the P group for Years 1 and 2. 
For as long as P remains in existence, P is the agent for the P 
group under paragraph (a) of this section for Years 1 and 2.
    Example 2. Acquisition of the agent for the group by another 
group where the agent for the group remains the agent.  The facts 
are the same as in Example 1, except on January 1 of Year 3, all of 
the outstanding stock of P is acquired by Y, a domestic corporation 
that is the common parent and agent for the group of the Y 
consolidated group. P thereafter joins in the Y group consolidated 
return as a member of the Y group. Although P is a member of the Y 
group in Year 3 and subsequent periods, P remains the agent for the 
P group for Years 1 and 2. For as long as P remains in existence, P 
is the agent for the P group under paragraph (a) of this section for 
Years 1 and 2.
    Example 3. Reverse triangular merger of the agent for the group 
where the agent for the group remains the agent.  (i) As of January 
1 of Year 1, P, a domestic corporation that is the common parent and 
agent for the P consolidated group consisting of P and its two 
subsidiary corporations, S and S-1. P files consolidated returns for 
the P group in Years 1 and 2. On March 1 of Year 3, W-1, a domestic 
subsidiary corporation of W, a domestic corporation, merges into P, 
in a reverse triangular merger described in section 368(a)(1)(A) and 
(a)(2)(E). P survives the merger with W-1. The transaction 
constitutes a reverse acquisition under Sec.  1.1502-75(d)(3)(i) 
because P's shareholders receive more than 50 percent of W's stock 
in exchange for all of P's stock.
    (ii) Because the transaction constitutes a reverse acquisition, 
the P group is treated as remaining in existence with W as its 
common parent and agent for the group. Under paragraph (a) of this 
section, P remains the agent for the P group for Years 1 and 2, even 
though the P group continues with W as its new common parent 
pursuant to Sec.  1.1502-75(d)(3)(i). Before March 2 of Year 3, P is 
the agent for the P group for Year 3. Beginning on March 2 of Year 
3, W becomes the agent for the P group with respect to all of Year 3 
(including the period through March 1) and subsequent consolidated 
return years. Thus, for as long as P remains in existence, P is the 
agent for the P group under paragraph (a) of this section for Years 
1 and 2.
    Example 4. Reverse triangular merger of the agent for the 
group--subsequent spinoff of agent for the group where the agent for 
the group remains the agent.  The facts are the same as in Example 
3, except that on April 1 of Year 4, in a transaction unrelated to 
the March 1, Year 3 reverse acquisition, P distributes the stock of 
its subsidiaries S and S-1 to W, and W then distributes the stock of 
P to the W shareholders. Beginning on March 2 of Year 3, W becomes 
the agent for the P group with respect to Year 3 (including the 
period through March 1) and subsequent consolidated return years. 
Although P is no longer a member of the P group after the Year 4 
spinoff, P remains the agent for the P group under paragraph (a) of 
this section for Years 1 and 2. For as long as P remains in 
existence, P is the agent for the P group under paragraph (a) of 
this section for Years 1 and 2.
    Example 5. Qualified stock purchase and section 338 election 
where the agent for the group remains the agent.  As of January 1 of 
Year 1, P, a domestic corporation, is the common parent and agent 
for the P consolidated group consisting of P and its two subsidiary 
corporations, S and S-1. P files consolidated returns for the P 
group in Years 1 and 2. On March 31 of Year 2, V, a domestic 
corporation, purchases the stock of P in a qualified stock purchase 
(within the meaning of section 338(d)(3)), and V makes a timely 
election pursuant to section 338(g)

[[Page 31793]]

with respect to P. Although section 338(a)(2) provides that P is 
treated as a new corporation as of the beginning of the day after 
the acquisition date for purposes of subtitle A, paragraph (c)(8) of 
this section provides that P's existence is not deemed to terminate 
for purposes of this section notwithstanding the general rule of 
section 338(a)(2). Therefore, new P remains the agent for the P 
group for Year 1 and the period ending March 31 of Year 2 (short 
Year 2) regardless of the election under section 338(g).
    Example 6. Change in the agent for the group's Federal income 
tax classification to a partnership and the resulting partnership 
continues as the agent for the group.  (i) P, a State M limited 
liability partnership with two partners, makes an initial entity 
classification election to be an association taxable as a 
corporation for Federal income tax purposes. P is the common parent 
and agent for the P consolidated group consisting of P and its two 
subsidiary corporations, S and S-1. P files consolidated returns for 
the P group in Years 1 through 5. On January 1 of Year 6, P elects 
pursuant to Treas. Reg. Sec.  301.7701-3(c) to be treated as a 
partnership. P remains in existence under applicable law.
    (ii) The P group terminates and P is no longer the common parent 
of a consolidated group after its election to be treated as a 
partnership for Federal income tax purposes. Because P remains in 
existence under applicable law, P is the agent for the P group under 
paragraph (a) of this section for Years 1 through 5. The results 
would be the same if P merged into a foreign partnership because the 
foreign partnership would be P's default successor and agent for the 
P group for Years 1 through 5. See paragraphs (b)(4) and (c)(1) of 
this section.
    Example 7. Forward triangular merger of agent for the group--
successor as default successor.  As of January 1 of Year 1, P, a 
domestic corporation, is the common parent and agent for the P 
consolidated group consisting of P and its two subsidiary 
corporations, S and S-1. P files consolidated returns for the P 
group in Years 1 and 2. On January 1 of Year 3, P merges with and 
into Z-1 corporation, a subsidiary of Z corporation, in a forward 
triangular merger described in section 368(a)(1)(A) and (a)(2)(D). 
The transaction constitutes a reverse acquisition under Sec.  
1.1502-75(d)(3)(i) because P's shareholders receive more than 50 
percent of Z's stock in exchange for all of P's stock. Z-1, the 
corporation that survives the merger and the successor of P, is the 
default successor for the P group for Years 1 and 2. Although Z is 
the new common parent and agent for the P group (which continues 
pursuant to Sec.  1.1502-75(d)(3)(i)) for years after the merger, P 
may not designate Z, S or S-1 as the agent for Years 1 or 2 because 
Z-1 is P's default successor and the agent for the P group for Years 
1 and 2. See paragraphs (b)(4) and (c)(1) of this section.
    Example 8. Merger of the agent for the group into a disregarded 
entity in exchange for stock of owner in a transaction qualifying as 
a reorganization under section 368(a)(1)(F) where successor is the 
default successor.  (i) As of January 1 of Year 1, P, a domestic 
corporation, is the common parent and agent for the P consolidated 
group consisting of P and its two subsidiary corporations, S and S-
1. P files a consolidated return for the P group in Year 1. On 
January 1 of Year 2, the shareholders of P form Y, a State M 
corporation. On the same date, Y forms Y-1, a State M limited 
liability company that is a disregarded entity (within the meaning 
of paragraph (b)(3) of this section) for Federal income tax 
purposes, and P merges into Y-1. In the merger, the P shareholders 
receive all of the Y stock. For Federal income tax purposes, Y is 
treated as succeeding to P in a transaction qualifying under section 
368(a)(1)(F), and the P group continues under Treas. Reg. Sec.  
1.1502-75(d)(2) with Y as the common parent and agent for the group 
for Year 2.
    (ii) In Year 4, the IRS seeks to extend the period of 
limitations on assessment with respect to Year 1 of the P 
consolidated group. As a result of the January 1, Year 2 merger, Y-1 
is P's default successor and the agent for the P group for Year 1. 
See paragraphs (b)(4) and (c)(1) of this section. Therefore, Y-1 is 
the only party that can sign the extension with respect to the P 
group for Year 1.
    (iii) In Year 5, the IRS seeks to extend the period of 
limitations on assessment with respect to Year 1 of the P group and 
Year 2 of the Y group (formerly the P group). Y-1 remains as the 
default successor to P for Year 1 and therefore is the only party 
that can sign the extension with respect to the P group for Year 1. 
Furthermore, because the merger transaction qualified as a 
reorganization under section 368(a)(1)(F), the P group remains in 
existence with Y as the common parent. Therefore, Y is the agent for 
the group for Year 2 and is the only party that can sign the 
extension with respect to the Y group for that year. See paragraphs 
(a) and (c)(1) of this section.
    Example 9. Designation of agent where there is no default 
successor. (i) P is a corporation formed under the laws of State X. 
Fifty percent of its stock is owned at all times by A, an 
individual, and 50 percent by BCD, a partnership. On January 1 of 
Year 1, P forms two subsidiary corporations, S and T. P files 
consolidated returns for the P group beginning in Year 1. On 
November 30 of Year 3, P dissolves under X law. Under X law, A and 
BCD are primarily liable for the Federal income tax liability of 
dissolved corporation P. State X law allows the officers of a 
dissolved corporation to perform certain actions incident to the 
winding up of its affairs after its dissolution, including the 
filing of tax returns.
    (ii) Upon its dissolution, there is no default successor to P 
because there are two successors. Prior to its dissolution on 
November 30 of Year 3, P may designate an agent for the P group for 
Years 1 and 2 and the short taxable year ending on November 30 of 
Year 3, to be effective upon P's dissolution. P may designate S or T 
(because they are members of the former group) or BCD (because it is 
an entity that is a successor to P). P cannot designate A because A 
is not an entity. The officers of P cannot designate an agent for 
the P group after P dissolves on November 30 of Year 3, 
notwithstanding the winding up provisions of State X law. 
Accordingly, P should designate an agent prior to its dissolution to 
ensure that there is an agent for the group authorized to file the 
short Year 3 consolidated return. If P does not designate an agent 
prior to dissolution, the Commissioner may designate an agent from 
among S, T or BCD, upon their request or otherwise. If any of S, T, 
A or BCD realizes that P has dissolved without designating an agent 
for the group, it should request a designation of an agent by the 
Commissioner as soon as possible.
    Example 10. Fraudulent conveyance of assets.  As of January 1 of 
Year 1, P, a domestic corporation, is the common parent and agent 
for the P consolidated group consisting of P and its two subsidiary 
corporations, S and S-1. On March 15 of Year 2, P files a 
consolidated return that includes the income of S and S-1 for Year 
1. On December 1 of Year 2, S-1 transfers assets having a fair 
market value of $ 100x to U in exchange for $10x. This transfer of 
assets for less than fair market value constitutes a fraudulent 
conveyance under applicable state law. On March 1 of Year 5, P 
executes a waiver extending to December 31 of Year 6 the period of 
limitations on assessment with respect to the group's Year 1 
consolidated return. On February 1 of Year 6, the Commissioner 
issues a notice of deficiency to P asserting a deficiency of $ 30x 
for the P group's Year 1 consolidated tax liability. P does not file 
a petition for redetermination in the Tax Court, and the 
Commissioner makes a timely assessment against the P group. P, S and 
S-1 are all insolvent and are unable to pay the deficiency. On 
February 1 of Year 8, the Commissioner sends a notice of transferee 
liability to U, which does not file a petition in the Tax Court. On 
August 1 of Year 8, the Commissioner assesses the amount of the P 
group's deficiency against U. Under section 6901(c), the 
Commissioner may assess U's transferee liability within one year 
after the expiration of the period of limitations against the 
transferor S-1. By operation of section 6213(a) and 6503(a), the 
issuance of the notice of deficiency to P and the expiration of the 
90-day period for filing a petition in the Tax Court have the effect 
of further extending by 150 days the P group's limitations period on 
assessment from the previously extended date of December 31 of Year 
6 to May 30 of Year 7. Pursuant to paragraph (a) of this section, 
the waiver executed by P on March 1 of Year 5 to extend the period 
of limitations on assessment to December 31 of Year 6 and the 
further extension of the P group's limitations period to May 30 of 
Year 7 (by operation of sections 6213(a) and 6503(a)) have the 
derivative effect of extending the period of limitations on 
assessment of U's transferee liability to May 30 of Year 8. By 
operation of section 6901(f), the issuance of the notice of 
transferee liability to U and the expiration of the 90-day period 
for filing a petition in the Tax Court have the effect of further 
extending the limitations period on assessment of U's liability as a 
transferee by 150 days, from May 30 of Year 8 to October 27 of Year 
8. Accordingly, the Commissioner may send a notice of transferee 
liability to U at any time on or before May 30 of Year 8 and assess 
the

[[Page 31794]]

unpaid liability against U at any time on or before October 27 of 
Year 8. The result would be the same even if S-1 ceased to exist 
before March 1 of Year 5, the date P executed the waiver.
    Example 11. Consent to extend the statute of limitations for a 
partnership where a member of the consolidated group is a partner of 
such partnership subject to the provisions of sections 6221 through 
6234 and the tax matters partner is not a member of the group. (i) 
P, a domestic corporation, is the common parent and agent for the P 
consolidated group consisting of P and its two subsidiary 
corporations, S and S-1. The P group has a November 30 fiscal year 
end and P files consolidated returns for the P group for the years 
ending November 30, Year 1 and November 30, Year 2. S-1 is a partner 
in the PRS partnership which is subject to the provisions of 
sections 6221 through 6234. PRS has a calendar year end and A, an 
individual, is the tax matters partner of the PRS partnership. PRS 
files a partnership return for the year ending December 31, Year 1. 
On January 10, Year 5, A, as the tax matters partner for the PRS 
partnership, executes a consent to extend the period for assessment 
of partnership items of PRS for all partners, and the Service co-
executes the consent on the same day for the year ending December 
31, Year 1.
    (ii) A's consent to extend the statute of limitations for the 
partnership items of PRS partnership for the year ending December 
31, Year 1, extends the statute of limitations with respect to the 
partnership items for all members of the P group, including P, S and 
S-1 for the consolidated return year ending November 30, Year 2. 
This is because S-1 is a partner in the PRS partnership for which A, 
the tax matters partner for the PRS partnership, consents to extend 
the statute of limitations for the year ending December 31, Year 1. 
However, under paragraph (f)(2)(iii), such agreement with respect to 
the statute of limitations for the PRS partnership for the year 
ending December 31, Year 1 does not obviate the need to obtain a 
consent from P, the agent for the P consolidated group, to extend 
the statute of limitations for the P consolidated group for the P 
group's consolidated return years ending November 30, Year 1 and 
November 30, Year 2 regarding any items other than partnership items 
or affected items of the PRS partnership.
    Example 12. Contacting subsidiary member in order to facilitate 
the conduct of an examination, appeal or settlement where a member 
of the consolidated group is a partner of a partnership subject to 
the provisions of sections 6221 through 6234.  (i) P, a domestic 
corporation, is the common parent and agent for the P consolidated 
group consisting of P and its two subsidiary corporations, S and S-
1. The P group has a November 30 fiscal year end, and P files 
consolidated returns for the P group for the years ending November 
30, Year 1 and November 30, Year 2. S-1 is a partner in the PRS 
partnership which is subject to the provisions of sections 6221 
through 6234. PRS has a calendar year end and A, an individual, is 
the tax matters partner of the PRS partnership. PRS files a 
partnership return for the year ending December 31, Year 1. The 
Commissioner, on January 10, Year 4, in the course of an examination 
of the PRS partnership for the year ending December 31, Year 1, 
seeks to obtain information in the course of that examination in 
order to resolve the audit.
    (ii) Because the direct contact with a subsidiary member of a 
consolidated group that is a partner in a partnership subject to the 
provisions under sections 6221 through 6234 may facilitate the 
conduct of an examination, appeal or settlement, the Commissioner, 
under paragraph (f)(2)(iii) of this section, may communicate 
directly with either S-1, P or A regarding the PRS partnership 
without breaking agency pursuant to paragraph (f)(2)(i) of this 
section. However, if the Commissioner were instead seeking to 
execute a settlement agreement with respect to S-1 as a partner with 
respect to its liability as a partner in PRS partnership, P would 
need to execute such settlement agreement for all members of the 
group including the partner subsidiary.
    (i) [Reserved]
    (j) Cross-reference. For further rules applicable to groups that 
include insolvent financial institutions, see Sec.  301.6402-7 of this 
chapter.
    (k) Effective/applicability date. The rules of this section apply 
to taxable years ending on or after the date of publication of the 
Treasury decision adopting these rules as final regulations in the 
Federal Register.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2012-13056 Filed 5-29-12; 8:45 am]
BILLING CODE 4830-01-P