Compliance with short-period return rules can stave off penalties and rejection of elections as untimely.

• Author: Wyzik, Ryan

The unextended due date of the return of a domestic corporation, Form 1120, U.S. Corporation Income Tax Return, generally is the 15th day of the third month following the close of the corporations tax year (Regs. Sec. 1.6072-2(a)). However, when a target corporation joins the consolidated group of a purchasing corporation on a date other than the first day of the target corporation's tax year, the due date for the target corporation's short-period final return is determined without regard to the last day of the short period (Regs. Sec. 1.1502-76(b)(4)).

At the time of this writing, the IRS had just issued proposed regulations under Regs. Sec. 1.1502-76 that would amend paragraph (b)(4) to clarify that the short-period return due date for a target corporation that ceases to exist in the same consolidated-return year in which it becomes a member of a consolidated group is determined without regard to the target's ceasing to exist that year (REG-100400-14). The new regulations are proposed to be prospectively effective; they would apply only to transactions occurring in consolidated-return years that begin after final regulations are published. Even after the IRS finalizes those regulations, however, the uncertainty addressed in this item will continue to exist.

Under the short-period return due-date rules in Regs. Sec. 1.1502-76(c), the due date for the short-period return is determined based on the close of the target corporation's regular tax year as if the year had not ended early due to the acquisition. If the IRS is not informed as part of the target's final short-period return that the return is being filed under this regulatory provision, the IRS may conclude the return was filed late, potentially affecting whether elections required to be made on the return are considered timely. A short-period return that is not timely filed also may trigger failure-to-file and failure-to-pay penalties under Sec. 6651(a), as well as civil penalties if certain international information returns--such as Forms 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations; 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business', and 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships--are required to be attached to a timely filed return.

When a target corporation becomes a member of a consolidated group and the target corporation has a...