The Consolidated Tax Return: Principles, Practice, Planning, 5th ed.

• Author: McCormally, Timothy J.

The Consolidated Tax Return: Principles, Practice, Planning, by Jack Crestol, Kevin M. Hennessey, and Richard F. Yates (Warren, Gorham & Lamont, Fifth Edition, 1993) ($175, supplemented twice yearly).(*)

I.

In 1993, the U.S. income tax system celebrated its 80th birthday, and for nearly all its four score years (beginning in 1917), the concept of consolidated returns has been part of it. Like the tax system as a whole, however, consolidated return principles have not become simpler and more understandable over time. Indeed, complexity has been piled upon complexity, change upon change, and the regulations emanating from the fairly simple mandate of section 1502 of the Internal Revenue Code--"The Secretary shall prescribe such regulations as he may deem necessary..."-- without question dwarf most other regulations in scope and intricacy. (Perhaps only section 482 has generated a greater pages-of-regulations to words-of-statute ratio. ) The web of consolidated return provisions can, pardon the pun, tax the most seasoned tax professional, and can leave the novice with his or her head aching.

The current consolidated return regulations can trace their origin to 1966, but the rules that have been amended, revised, and clarified so many times since their original promulgation that many would argue that not much remains of 1966 regulations. Consider, for instance, the overwhelmingly complex set of rules that have come on the scene since the Tax Reform Act of 1986. Final regulations have been issued on the disallowance of subsidiary stock losses, dual consolidated losses, the nonapplication of section 304 to intercompany stock transfers, and the effect of options on affiliated group status. The Department of the Treasury and Internal Revenue Service have also developed special restoration rules for deferred gains in section 1031 exchanges, installment sales, and intercompany sales of partnership interests, as well as on dividend stripping. There have also been rules issued on exceptionally narrow subjects such as refunds resulting from insolvent financial institutions that are group members and the consolidation of Blue Cross/Blue Shield organizations.

If all tax practitioners had to do at any one time was worry about the rules that are in effect (and to determine to what periods they apply), the tax law would still not be simple, but it would be easier to deal with than it is today. In point of fact, that is not all practitioners have to contend...