Filing carryback claims for consolidated groups.

• Author: O'Connell, Frank J., Jr.

On June 21, 2001, the IRS issued Regs. Sec. 1.1502-78, affecting consolidated groups. Under Regs. Sec. 1.1502-78(e), consolidated groups can determine when to file an application for a tentative carryback adjustment. In addition, Regs. Sec. 1.1502-78(e)(2) provides a special rule that allows certain corporations that become new members of a consolidated group to extend the deadline for filing an application for a tentative carryback adjustment, resulting from losses or credits arising in the new member's last separate return limitation year (SRLY). For these purposes, the consolidated group must treat the SRLY as ending on the same date as the end of its current tax year.

Sec. 6411(a) applies to filing an application for a tentative carryback adjustment by a consolidated group. The special rule for new members provides that, solely for purposes of complying with the 12-month requirement for making application under Sec. 6411 (a), the SRLY of a new qualified member shall be treated as ending on the same date as the end of the current tax year of the consolidated group that the qualified new member joins.

A new member is a corporation that, in the preceding tax year, did not qualify as a member (as defined in Regs. Sec. 1.1502-1(b)) of the consolidated group that it now joins. A new member of a consolidated group qualifies for purposes of these provisions if, immediately prior to becoming a new member, it was:

* The common parent of a consolidated group; or

* Not required to join in filing a consolidated return.

Two examples in Regs. Sec. 1.1502-78(e)(2)(iv) illustrate these provisions. In Example 1, Individual A owns 100% of the stock of X, a corporation that is not a member of a consolidated group and files separate returns on a calendar-year basis. On January 31 of year 1, X becomes a member of the Y consolidated group, which also files returns on a calendar-year basis. X is a qualified new member as defined in Regs. Sec. 1.1502-78(e)(2)(iii)(B), because, immediately prior to becoming a new member of Y, X was not required to join in filing a consolidated return. As a result of its becoming a new member of Y, X's separate return for the short tax year (January 1 of year 1-January 31 of year 1) is due September 15 of year 2 (with extensions) (see Regs. Sec. 1.1502-76(c)). Y's consolidated return is also due September 15 of year 2 (with extensions) (see Sec. 1.1502-76(c)). Solely for the purpose of complying with the 12-month requirement for...