26 C.F.R. § 5.1561-1 Taxable years of component members of controlled group of corporations that include December 31, 1978.
Title 26 - Internal Revenue
(a) In general. This section prescribes a regulation for applying sections 301 (a) and (b) (19), and 106, of the Revenue Act of 1978 (the Act) in the case of certain taxable years of component members of a controlled group of corporations (as defined in section 1563 of the Internal Revenue Code). The section applies only to taxable years that include December 31, 1978, and only if the taxable year of at least one component member ends in 1979. (b) Background. Section 301(a) of the Act amends section 11 of the Code (relating to tax imposed on corporations) to provide for taxable income brackets that are subject to tax at rates less than the maximum rate of 46 percent. Section 301(b)(19) of the Act amends section 1561(a) of the Code (relating to limitations on certain multiple tax benefits in the case of certain controlled corporations) to limit the component members of a controlled group to an aggregate amount in each bracket which does not exceed the maximum amount in such bracket to which a corporation which is not a component member of a controlled group is entitled. Section 106 of the Act amends section 21 of the Code (relating to effect of changes in rate of tax) to provide that the amendments made by section 301 of the Act shall be treated as a change in a rate of tax. Since the amendments made by section 301 of the Act are effective for taxable years beginning after December 31, 1978, under the amendment to section 21 the effective date of the change in rate of tax is January 1, 1979. (c) No apportionment plan in effect. If no apportionment plan (see §1.1561–3 of the Income Tax Regulations) is in effect with respect to December 31, 1978, the single $50,000 surtax exemption available before January 1, 1979, and the single bracket amounts available after December 31, 1978, shall be equally divided among the component members of the controlled group on December 31, 1978. In the case of a controlled group which includes component members that join in the filing of a consolidated return and other component members that do not join in the filing of such a return, each component member of the group (including each component member that joins in filing the consolidated return) shall be treated as a separate corporation for purposes of equally apportioning the $50,000 surtax exemption in effect before January 1, 1979, and the bracket amounts in effect after December 31, 1978. In such a case, the surtax exemption and bracket amounts of the corporations filing the consolidated return shall be the sum of the amount apportioned to each component member that joins in filing the consolidated return. (d) Apportionment plan. (1) If one or more component members of the controlled group have a calendar taxable year and if an apportionment plan is adopted under §1.1561–3 apportioning the entire $50,000 surtax exemption available for 1978 to such calendar-year members, then the amount in each taxable income bracket available for fiscal-year members is zero. If only a part of the $50,000 surtax exemption is apportioned to calendar-year members, then a proportionate part of the $25,000 amount in each taxable income bracket is available for the fiscal-year members. For example, if $30,000 ( (2) The amount in each taxable income bracket available to fiscal-year members may be apportioned among such members in any manner the controlled group may select. For example, the available amount in the first bracket (subject to a 17-percent rate) may be allocated to one member, the amount in the second bracket (subject to a 20-percent rate) may be allocated to another member, and so on. Moreover, the available amount in each bracket may be divided among the members in any manner the group may select. (3) In computing 1978 tentative taxes under section 21, the total surtax exemption available to fiscal-year members for 1978 must be divided among such members in the same proportion as the sum of the available amount in each bracket is divided among them. Thus, if the sum of the available bracket amounts is $100,000 (i.e., $25,000 in each bracket), and if corporation X is apportioned 30 percent, or $30,000, of this amount (regardless of which brackets corporation X may select), then 30 percent of the surtax exemption available to the fiscal-year members for 1978 (i.e., 30 percent of $50,000, or $15,000) must be apportioned to corporation X. (e) Corporations affected. The provisions of section 1561 may reduce the surtax exemption or bracket amounts of any corporation which is a component member of a controlled group of corporations and which is subject to the tax imposed by section 11, or by any other provision of subtitle A of the Code if the tax under such other provisions is computed by reference to the tax imposed by section 11. Such other provisions include, for example, sections 511(a)(1), 594, 802, 831, 852, 857, 882, 1201, and 1378. (f) Example. This section may be illustrated by the following example: Example. Corporations X, Y, and Z are component members of a controlled group of corporations on December 31, 1978. X has taxable income of $10,000 for the taxable year ending December 31, 1978. Y has taxable income of $60,000 for the taxable year ending June 30, 1979. Z has taxable income of $90,000 for the taxable year ending September 30, 1979. The group files an apportionment plan under §1.1561–3 apportioning $10,000 (i.e., [T.D. 7583, 44 FR 872, Jan. 4, 1979]
Title 26: Internal Revenue
PART 5—TEMPORARY INCOME TAX REGULATIONS UNDER THE REVENUE ACT OF 1978
§ 5.1561-1 Taxable years of component members of controlled group of corporations that include December 31, 1978.
1979 TENTATIVE TAX Y ----------Taxable income............................................... $60,000 ==========Tax on amount in first bracket: 17 percent of $20,000........ 3,400Tax on amount in second bracket: 20 percent of $10,000....... 2,000Tax on remaining income: 46 percent of $30,000............... 13,800 ----------1979 tentative tax........................................... 19,200 ========== Z ----------Taxable income............................................... 90,000 ==========Tax on amount in second bracket: 20 percent of $10,000....... 2,000Tax on amount in third bracket: 30 percent of $20,000........ 6,000Tax on amount in fourth bracket: 40 percent of $20,000....... 8,000Tax on remaining income: 46 percent of $40,000............... 18,400 ----------1979 tentative tax........................................... 34,400 ==========
1978 TENTATIVE TAX Y ------------Taxable income............... 60,000 ============Normal tax: 20 percent of $7,500 (\3/8\ 1,500 of $20,000). 22 percent of $52,500...... 11,550 ------------ 13,050Surtax: Taxable income............ $60,000 Surtax exemption.......... 15,000 (\3/8\ of $40,000) ----------- $45,000 x26 percent........ 11,700 ----------1978 tentative tax........................................... 24,750 ============ Z ------------Taxable income............... 90,000 ============Normal tax: 20 percent of $12,500 (\5/ 2,500 8\ of $20,000). 22 percent of $77,500...... 17,050 ------------ 19,500Surtax: Taxable income............ $90,000 Surtax exemption.......... 25,000 (\5/8\ of $40,000) ----------- $65,000 x 26 percent....... 16,900 ----------1978 tentative tax........................................... 36,450 ============The 1978 and 1979 tentative taxes are apportioned as follows: Corporation Y: 1978_184/365 of $24,750. 12,477 1979_181/365 of $19,200. 9,521 ------------ Total tax for taxable year 21,998 ============Corporation Z: 1978_92/365 of $36,450..... 9,187 1979_273/365 of $34,400.... 25,729 Total tax for taxable 34,916 year. ============
