The Cardinal Group had filed on a consolidated basis for several years with its wholly owned subsidiary, Swallow, Inc. The group used a calendar tax year.
On January 25, 2016, Heron acquired all of the stock of Cardinal, including its ownership in Swallow, an important supplier for Heron's manufacturing process. All parties in the new group intended to file on a consolidated basis immediately and, indeed, used consolidated amounts in filing the 2016 Heron Group return on September 10, 2017.
During the audit of Heron Group's 2016 tax return, the IRS disallowed the use of the consolidated method because no Forms 1122 had ever been filed for the affiliates in the new group. In a memo for the tax research file, summarize the possibilities for the Heron Group to be granted an extension to elect consolidated return status.
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TO: Tax research manager.
FROM: Jane Anderson,
DATE: 21st March 2017
SUBJECT: Heron Group: extension to elect consolidated return status
The possibilities for the Heron Group to be granted an extension to elect consolidated return status is provided.
According to IRC Section 1.1502-75 (b)(1) Form 1122 needs to be filed by the companies acquired by Heron Group. Specifically, it means that the Cardinal Group and Swallow should have filed Form 1122. These companies would have deemed to have joined in the making of a consolidated return if they filed Form 1122. However, since Cardinal and Swallow have not filed Form 1122, the Commissioner may examine the "facts and circumstances" under Section 1.1502-75 (2) and give his consent. The point is that the ...
This posting gives you a step-by-step explanation of consolidated tax returns . The response also contains the sources used.