Affirmation of Consolidated Return Regulation Authority

Sec. 1502 provides:

The Secretary shall prescribe such regulations as he may deem necessary in order that the tax liability of any affiliated group of corporations making a consolidated return and of each corporation in the group, both during and after the period of affiliation, may be returned, determined, computed, assessed, collected, and adjusted, in such manner as to clearly reflect the income tax liability and the various factors necessary for the determination of such tax liability.

New Law

ACJA Section 844 adds the following language to Sec. 1502: In carrying out the preceding sentence, the Secretary may prescribe rules that are different from the provisions of chapter 1 that would apply if such corporations filed separate returns. AJCA Section 844(b) further provides that, notwithstanding the above amendment, the loss duplication factor of Regs. Sec. 1.1502-20(c)(1)(iii), invalidated in Rite Aid Corp., 255 F3d 1357 (Fed. Cir. 2001), continues to be inapplicable to the factual situation in Rite Aid.

Effective Date

AJCA Section 844 is effective for all years, whether beginning before, on or after Oct. 22, 2004.

Implications

In direct response to language in the Rite Aid decision suggesting otherwise, this amendment confirms that consolidated return regulations may provide rules treating corporations differently than they would be treated in a separate return context. It is not clear whether AJCA Section 844(b) applies only to the taxpayer in Rite Aid, or whether it applies to all similarly situated taxpayers. The Conference Report arguably suggests the latter.

From Kirsten Simpson, Washington, DC