Td 9451

Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations
§ 522.1290

Luprostiol.

Paperwork Reduction Act

(a) Specifications. Each milliliter of
solution contains 7.5 milligrams (mg)
luprostiol.
(b) Sponsor. See No. 051311 in
§ 510.600(c) of this chapter.
*
*
*
*
*
(d) Conditions of use in horses—(1)
Amount. 7.5 mg by intramuscular
injection.
(2) Indications for use. For estrus
control and termination of pregnancy in
mares.
(3) Limitations. Federal law restricts
this drug to use by or on the order of
a licensed veterinarian. Do not use in
horses intended for human
consumption.
Dated: May 12, 2009.
Steven D. Vaughn,
Director, Office of New Animal Drug
Evaluation, Center for Veterinary Medicine.
[FR Doc. E9–12269 Filed 5–26–09; 8:45 am]
BILLING CODE 4160–01–S

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1

Background and Explanation of
Provisions

[TD 9451]
RIN 1545–BF25

Guidance Necessary To Facilitate
Business Election Filing; Finalization
of Controlled Group Qualification
Rules
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulation and removal of
temporary regulation.

This document contains a
final regulation that provides guidance
to taxpayers for determining which
corporations are included in a
controlled group of corporations. This
regulation is being published to replace
an expiring temporary regulation.
DATES: Effective Date: This regulation is
effective on May 27, 2009.
Applicability Date: Section 1.1563–
1T(c)(2)(i)–(iii) expired on May 26,
2009, pursuant to section 7805(e)(2) and
§ 1.1563–1T(e)(2). In accordance with
section 7805(b)(1)(B), this regulation
applies to taxable years beginning on or
after May 26, 2009. However, taxpayers
may apply this regulation to taxable
years beginning before May 26, 2009.
See § 1.1563–1(e).
FOR FURTHER INFORMATION CONTACT: Grid
Glyer, (202) 622–7930 (not a toll-free
number).

PWALKER on PROD1PC71 with RULES

SUMMARY:

SUPPLEMENTARY INFORMATION:

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16:09 May 26, 2009

The collection of information
contained in this final regulation has
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545–
2019.
This collection of information is in
§ 1.1563–1(c)(2). This information is
required if a taxpayer or taxpayers could
be a member of more than one brothersister controlled group and does not
elect which group to be a member of. In
that case, the IRS would designate a
group.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number by the
Office of Management and Budget.
Books or records relating to a
collection of information must be
retained as long as their contents might
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.

Jkt 217001

On December 22, 2006, the IRS and
the Treasury Department published
several temporary regulations, including
§ 1.1563–1T. See TD 9304 (71 FR
76904), 2007–1 CB 423. Also on
December 22, 2006, the IRS and the
Treasury Department issued a notice of
proposed rulemaking cross-referencing
those temporary regulations. See REG–
161919–05 (71 FR 76955), 2007–1 CB
463. Section 1.1563–1T was also
amended by the publication of a
temporary regulation on December 26,
2007. See TD 9369 (72 FR 72929), 2008–
6 IRB 394. Also on December 26, 2007,
the IRS and Treasury Department issued
a notice of proposed rulemaking crossreferencing that temporary regulation.
See REG–104713–07 (72 FR 72970),
2008–6 IRB 409.
Section 1.1563–1T republished
§ 1.1563–1 to conform it to current
formatting conventions. It was not
intended that any such reformatting
constitute a substantive change. See
§ 3.A of the preamble to TD 9304.
Treasury decision 9304 also removed
§ 1.1563–1. Section 1.1563–1T provides
guidance to taxpayers for determining
which corporations are included in a
controlled group of corporations.
This Treasury decision adopts the
proposed regulation § 1.1563–1 with no
substantive changes. In addition, this

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25147

Treasury decision removes the
corresponding temporary regulation,
§ 1.1563–1T.
This Treasury decision does not adopt
the other proposed regulations that were
published as part of TD 9304. Those
proposed regulations are now found in
REG–113688–09, and their status will be
addressed at a later date.
The IRS and the Treasury Department
received no written or electronic
comments from the public in response
to the notice of proposed rulemaking
and no public hearing was requested or
held.
Special Analysis
It has been determined that this
Treasury Decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
has also been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to this regulation. Pursuant to the
Regulatory Flexibility Act (5 U.S.C.
chapter 6), it is hereby certified that this
rule will not have a significant
economic impact on a substantial
number of small entities. This
certification is based on the fact that this
regulation primarily affects large
corporations (which are members of
either controlled or consolidated
groups). Accordingly, a regulatory
flexibility analysis is not required.
Pursuant to section 7805(f) of the
Internal Revenue Code, the notice of
proposed rulemaking preceding this
regulation was submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on their impact on small business.
Drafting Information
The principal author of this regulation
is Grid Glyer, Office of Associate Chief
Counsel (Corporate). However, other
personnel from the IRS and the Treasury
Department participated in its
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulation
Accordingly, 26 CFR part 1 is
amended as follows:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by removing the
entry for § 1.1563–1T to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *

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Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations

Par. 2. Section 1.1563–1 is added to
read as follows:

■

§ 1.1563–1 Definition of controlled group
of corporations and component members
and related concepts.

(a) Controlled group of corporations—
(1) In general—(i) Types of controlled
groups. For purposes of sections 1561
through 1563, the term controlled group
of corporations means any group of
corporations which is—
(A) A parent-subsidiary controlled
group (as defined in paragraph (a)(2) of
this section);
(B) A brother-sister controlled group
(as defined in paragraph (a)(3)(i) of this
section);
(C) A combined group (as defined in
paragraph (a)(4) of this section); or
(D) A life insurance controlled group
(as defined in paragraph (a)(5) of this
section).
(ii) Cross reference. For the exclusion
of certain stock for purposes of applying
the definitions contained in this
paragraph, see section 1563(c) and
§ 1.1563–2.
(2) Parent-subsidiary controlled
group—(i) Definition. The term parentsubsidiary controlled group means one
or more chains of corporations
connected through stock ownership
with a common parent corporation if—
(A) Stock possessing at least 80
percent of the total combined voting
power of all classes of stock entitled to
vote or at least 80 percent of the total
value of shares of all classes of stock of
each of the corporations, except the
common parent corporation, is owned
(directly and with the application of
§ 1.1563–3(b)(1), relating to options) by
one or more of the other corporations;
and
(B) The common parent corporation
owns (directly and with the application
of § 1.1563–3(b)(1), relating to options)
stock possessing at least 80 percent of
the total combined voting power of all
classes of stock entitled to vote or at
least 80 percent of the total value of
shares of all classes of stock of at least
one of the other corporations, excluding,
in computing such voting power or
value, stock owned directly by such
other corporations.

(ii) Examples. The definition of a
parent-subsidiary controlled group of
corporations may be illustrated by the
following examples:
Example 1. P Corporation owns stock
possessing 80 percent of the total combined
voting power of all classes of stock entitled
to vote of S Corporation. P is the common
parent of a parent-subsidiary controlled
group consisting of member corporations P
and S.
Example 2. Assume the same facts as in
Example 1. Assume further that S owns stock
possessing 80 percent of the total value of
shares of all classes of stock of X Corporation.
P is the common parent of a parentsubsidiary controlled group consisting of
member corporations P, S, and X. The result
would be the same if P, rather than S, owned
the X stock.
Example 3. P Corporation owns 80 percent
of the only class of stock of S Corporation
and S, in turn, owns 40 percent of the only
class of stock of X Corporation. P also owns
80 percent of the only class of stock of Y
Corporation and Y, in turn, owns 40 percent
of the only class of stock of X. P is the
common parent of a parent-subsidiary
controlled group consisting of member
corporations P, S, X, and Y.
Example 4. P Corporation owns 75 percent
of the only class of stock of Y and Z
Corporations; Y owns all the remaining stock
of Z; and Z owns all the remaining stock of
Y. Since intercompany stockholdings are
excluded (that is, are not treated as
outstanding) for purposes of determining
whether P owns stock possessing at least 80
percent of the voting power or value of at
least one of the other corporations, P is
treated as the owner of stock possessing 100
percent of the voting power and value of Y
and of Z for purposes of paragraph (a)(2)(i)(B)
of this section. Also, stock possessing 100
percent of the voting power and value of Y
and Z is owned by the other corporations in
the group within the meaning of paragraph
(a)(2)(i)(A) of this section. (P and Y together
own stock possessing 100 percent of the
voting power and value of Z, and P and Z
together own stock possessing 100 percent of
the voting power and value of Y.) Therefore,
P is the common parent of a parentsubsidiary controlled group of corporations
consisting of member corporations P, Y, and
Z.

(3) Brother-sister controlled group—(i)
Definition. The term brother-sister
controlled group means two or more
corporations if the same five or fewer
persons who are individuals, estates, or
trusts own (directly and with the

PWALKER on PROD1PC71 with RULES

Individuals
A
B
C
D
E

application of the rules contained in
§ 1.1563–3(b)) stock possessing more
than 50 percent of the total combined
voting power of all classes of stock
entitled to vote or more than 50 percent
of the total value of shares of all classes
of stock of each corporation, taking into
account the stock ownership of each
such person only to the extent such
stock ownership is identical with
respect to each such corporation.
(ii) Additional stock ownership
requirement for purposes of certain
other provisions of law. For purposes of
any provision of law (other than
sections 1561 through 1563) that
incorporates the section 1563(a)
definition of a controlled group, the
term brother-sister controlled group
means two or more corporations if the
same five or fewer persons who are
individuals, estates, or trusts own
(directly and with the application of the
rules contained in § 1.1563–3(b)) stock
possessing—
(A) At least 80 percent of the total
combined voting power of all classes of
stock entitled to vote or at least 80
percent of the total value of shares of all
classes of stock of each corporation (the
80 percent requirement);
(B) More than 50 percent of the total
combined voting power of all classes of
stock entitled to vote or more than 50
percent of the total value of shares of all
classes of stock of each corporation,
taking into account the stock ownership
of each such person only to the extent
such stock ownership is identical with
respect to each such corporation (the
more-than-50 percent identical
ownership requirement); and
(C) The five or fewer persons whose
stock ownership is considered for
purposes of the 80 percent requirement
must be the same persons whose stock
ownership is considered for purposes of
the more-than-50 percent identical
ownership requirement.
(iii) Examples. The principles of
paragraph (a)(3)(ii) of this section may
be illustrated by the following
examples:
Example 1. (i) The outstanding stock of
corporations P, W, X, Y, and Z, which have
only one class of stock outstanding, is owned
by the following unrelated individuals:

P (%)

W (%)

X (%)

Y (%)

Z (%)

.........................................................................
.........................................................................
.........................................................................
.........................................................................
.........................................................................

55
45
....................
....................
....................

51
49
....................
....................
....................

55
....................
45
....................
....................

55
....................
....................
45
....................

55
....................
....................
....................
45

Total ............................................................

100

100

100

100

100

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Identical
ownership
51.
(45% in P and W).

Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations
(ii) Corporations P and W are members of
a brother-sister controlled group of
corporations. Although the more-than-50
percent identical ownership requirement is
met for all 5 corporations, corporations X, Y,
and Z are not members because at least 80
percent of the stock of each of those
corporations is not owned by the same 5 or
fewer persons whose stock ownership is
considered for purposes of the more-than-50
percent identical ownership requirement.
Example 2. (i) The outstanding stock of
corporations X and Y, which have only one
class of stock outstanding, is owned by the
following unrelated individuals:

Corporations
Individuals
X (%)

Y (%)

A .......................
B .......................
C .......................
D .......................
E .......................
F ........................
G .......................
H .......................

12
12
12
12
13
13
13
13

12
12
12
12
13
13
13
13

Total ...........

100

100

(ii) Any group of five of the shareholders
will own more than 50 percent of the stock

25149

in each corporation, in identical holdings.
However, X and Y are not members of a
brother-sister controlled group because at
least 80 percent of the stock of each
corporation is not owned by the same five or
fewer persons.
Example 3. (i) Corporation X and Y each
have two classes of stock outstanding, voting
common and non-voting common. (None of
this stock is excluded from the definition of
stock under section 1563(c).) Unrelated
individuals A and B own the following
percentages of the class of stock entitled to
vote (voting) and of the total value of shares
of all classes of stock (value) in each of
corporations X and Y:

Corporations
Individuals
X
A ...........................................
B ...........................................

100% voting; 60% value .................................................
0% voting; 10% value .....................................................

PWALKER on PROD1PC71 with RULES

(ii) No other shareholder of X owns (or is
considered to own) any stock in Y. X and Y
are a brother-sister controlled group of
corporations. The group meets the morethan-50 percent identical ownership
requirement because A and B own more than
50 percent of the total value of shares of all
classes of stock of X and Y in identical
holdings. (The group also meets the morethan-50 percent identical ownership
requirement because of A’s voting stock
ownership.) The group meets the 80 percent
requirement because A and B own at least 80
percent of the total combined voting power
of all classes of stock entitled to vote.
Example 4. Assume the same facts as in
Example 3 except that the value of the stock
owned by A and B is not more than 50
percent of the total value of shares of all
classes of stock of each corporation in
identical holdings. X and Y are not a brothersister controlled group of corporations. The
group meets the more-than-50 percent
identical ownership requirement because A
owns more than 50 percent of the total
combined voting power of the voting stock of
each corporation. For purposes of the 80
percent requirement, B’s voting stock in Y
cannot be combined with A’s voting stock in
Y since B, who does not own any voting
stock in X, is not a person whose ownership
is considered for purposes of the more-than50 percent identical ownership requirement.
Because no other shareholder owns stock in
both X and Y, these other shareholders’ stock
ownership is not counted towards meeting
either the more-than-50 percent identical
ownership requirement or the 80 percent
ownership requirement.

(iv) Special rule if prior law applies.
Paragraph (a)(3)(ii) of this section, as
amended by TD 8179, applies to taxable
years ending on or after December 31,
1970. See, however, the transitional rule
in paragraph (d) of this section.
(4) Combined group—(i) Definition.
The term combined group means any
group of three or more corporations if—

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Y

16:09 May 26, 2009

Jkt 217001

75% voting; 60% value.
25% voting; 10% value.

(A) Each such corporation is a
member of either a parent-subsidiary
controlled group of corporations or a
brother-sister controlled group of
corporations; and
(B) At least one of such corporations
is the common parent of a parentsubsidiary controlled group and also is
a member of a brother-sister controlled
group.
(ii) Examples. The definition of a
combined group of corporations may be
illustrated by the following examples:
Example 1. A, an individual, owns stock
possessing 80 percent of the total combined
voting power of all classes of the stock of
corporations X and Y. Y, in turn, owns stock
possessing 80 percent of the total combined
voting power of all classes of the stock of
corporation Z. X, Y, and Z are members of
the same combined group since—
(i) X, Y, and Z are each members of either
a parent-subsidiary or brother-sister
controlled group of corporations; and
(ii) Y is the common parent of a parentsubsidiary controlled group of corporations
consisting of Y and Z, and also is a member
of a brother-sister controlled group of
corporations consisting of X and Y.
Example 2. Assume the same facts as in
Example 1, and further assume that
corporation X owns 80 percent of the total
value of shares of all classes of stock of
corporation S. X, Y, Z, and S are members
of the same combined group.

(5) Life insurance controlled group—
(i) Definition. The term life insurance
controlled group means two or more life
insurance companies each of which is a
member of a controlled group of
corporations described in paragraph
(a)(2), (a)(3)(i), or (a)(4) of this section
and to which § 1.1502–47(f)(6) does not
apply. Such insurance companies shall
be treated as a controlled group of
corporations separate from any other

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corporations which are members of a
controlled group described in such
paragraph (a)(2), (a)(3)(i), or (a)(4) of this
section. For purposes of this section, the
common parent of the controlled group
described in paragraph (a)(2) of this
section shall be referred to as the
common parent of the life insurance
controlled group.
(ii) Examples. The following
examples illustrate the definition of a
life insurance controlled group. In these
examples, L indicates a life company,
another letter indicates a nonlife
company and each corporation uses the
calendar year as its taxable year:
Example 1. Since January 1, 1999,
corporation P has owned all the stock of
corporations L 1 and Y, and L 1 has owned all
the stock of corporation X. On January 1,
2005, Y acquired all of the stock of
corporation L 2. Since L 1 and L 2 are members
of a parent-subsidiary controlled group of
corporations, such companies are treated as
members of a life insurance controlled group
separate from the parent-subsidiary
controlled group consisting of P, X and Y.
For purposes of this section, P is referred to
as the common parent of the life insurance
controlled group even though P is not a
member of such group.
Example 2. The facts are the same as in
Example 1, except that, beginning with the
2005 tax year, the P affiliated group elected
to file a consolidated return and P made a
section 1504(c)(2) election. Pursuant to
paragraph (a)(5)(i) of this section, L 1 and L 2
are not members of a separate life insurance
controlled group. Instead, P, X, Y, L 1 and L 2
constitute one controlled group. See
§ 1.1502–47(f)(6).

(6) Voting power of stock. For
purposes of this section, and §§ 1.1563–
2 and 1.1563–3, in determining whether
the stock owned by a person (or
persons) possesses a certain percentage

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Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations

of the total combined voting power of
all classes of stock entitled to vote of a
corporation, consideration will be given
to all the facts and circumstances of
each case. A share of stock will
generally be considered as possessing
the voting power accorded to such share
by the corporate charter, by-laws, or
share certificate. On the other hand, if
there is any agreement, whether express
or implied, that a shareholder will not
vote his stock in a corporation, the
formal voting rights possessed by his
stock may be disregarded in
determining the percentage of the total
combined voting power possessed by
the stock owned by other shareholders
in the corporation, if the result is that
the corporation becomes a component
member of a controlled group of
corporations. Moreover, if a shareholder
agrees to vote his stock in a corporation
in the manner specified by another
shareholder in the corporation, the
voting rights possessed by the stock
owned by the first shareholder may be
considered to be possessed by the stock
owned by such other shareholder if the
result is that the corporation becomes a
component member of a controlled
group of corporations.
(b) Component members—(1) In
general—(i) Definition. For purposes of
sections 1561 through 1563, a
corporation is with respect to its taxable
year a component member of a
controlled group of corporations for the
group’s testing date if such
corporation—
(A) Is a member of such controlled
group on such testing date and is not
treated as an excluded member under
paragraph (b)(2) of this section; or
(B) Is not a member of such controlled
group on such testing date but is treated
as an additional member under
paragraph (b)(3) of this section.
(ii) Member of a controlled group of
corporations. For purposes of sections
1561 through 1563, a member of a
controlled group is a corporation
connected with other member(s) of a
controlled group under the stock
ownership rules and the stock
qualification rules set forth in section
1563. Under these rules, for a
corporation to qualify as a component
member of the group with respect to a
group’s December 31st testing date (or
the short-year testing date for a shortyear member), that corporation does not
have to be a member of that group on
that group’s testing date. In addition, a
corporation that is a member of a
controlled group on the group’s testing
date does not necessarily qualify as a
component member of that group with
respect to that testing date.

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16:09 May 26, 2009

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(iii) Additional concepts used in
applying the controlled group rules.
(A) The term testing date means the
date used for determining the status of
controlled group members as either
component members or excluded
members. That testing date is then also
used to determine which taxable years
of those component members are to be
subjected to the controlled group rules.
Generally, a member’s testing date is the
December 31st date included within
that member’s taxable year, whether
such member is on a calendar or fiscal
taxable year. However, if a component
member of a controlled group has a
short taxable year that does not include
a December 31st date, then the last day
of that short taxable year becomes that
member’s testing date.
(B) The term testing period means the
time period used for determining the
status of controlled group members as
either component members or excluded
members. The testing period begins on
the first day of a member’s taxable year
and ends on the day before its testing
date. (Generally, the testing date is
December 31st, but for a component
member having a short taxable year not
ending on December 31st, the testing
date for the short taxable year of that
member (and only that member)
becomes the last day of that member’s
short taxable year.) Thus, for a member
on a fiscal taxable year, the portion of
its taxable year beginning on December
31st and ending on the last day of its
taxable year is not taken into account for
determining its status as a component
member or an excluded member.
(2) Excluded members—(i) Temporal
test. A corporation, which is a member
of a controlled group of corporations on
the group’s testing date, a date included
within that member’s taxable year, but
who was a member of such group for
less than one-half of the number of days
of its testing period, shall be treated as
an excluded member of such group for
that group’s testing date.
(ii) Qualification test. A corporation
which is a member of a controlled group
of corporations on a testing date shall be
treated as an excluded member of such
group on such date if, for its taxable
year including such date, such
corporation is—
(A) Exempt from taxation under
section 501(a) (except a corporation
which is subject to tax on its unrelated
business taxable income under section
511) or 521 for such taxable year;
(B) A foreign corporation not subject
to taxation under section 882(a) for the
taxable year;
(C) An S corporation (as defined in
section 1361) for purposes of any tax

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benefit item described in section 1561(a)
to which it is not subject;
(D) A franchised corporation (as
defined in section 1563(f)(4) and
§ 1.1563–4); or
(E) An insurance company subject to
taxation under section 801, unless such
insurance company (without regard to
this paragraph (b)(2)(ii)(E)) is a
component member of a life insurance
controlled group described in paragraph
(a)(5)(i) of this section or unless
§ 1.1502–47(f)(6) applies (which treats a
life insurance company, for which a
section 1504(c)(2) election is effective,
as a member (whether eligible or
ineligible) of a life-nonlife affiliated
group).
(3) Additional members. A
corporation shall be treated as an
additional member of a controlled group
of corporations, that is, an additional
component member, on the group’s
testing date if it—
(i) Is not a member of such group on
such date;
(ii) Is not described, with respect to
such taxable year, in paragraph
(b)(2)(ii)(A), (b)(2)(ii)(B), (b)(2)(ii)(C),
(b)(2)(ii)(D), or (b)(2)(ii)(E) of this
section; and
(iii) Was a member of such group for
one-half (or more) of the number of days
in its testing period.
(4) Examples. The provisions of this
paragraph (b) may be illustrated by the
following examples:
Example 1. B, an individual, owns all of
the stock of corporations W and X on each
day of 1964. W and X each use the calendar
year as their taxable year. On January 1, 1964,
B also owns all the stock of corporation Y (a
fiscal year corporation with a taxable year
beginning on July 1, 1964, and ending on
June 30, 1965), which stock he sells on
October 15, 1964. On December 1, 1964, B
purchases all the stock of corporation Z (a
fiscal year corporation with a taxable year
beginning on September 1, 1964, and ending
on August 31, 1965). On December 31, 1964,
W, X, and Z are members of the same
controlled group. However, the component
members of the group on such December 31st
are W, X, and Y. Under paragraph (b)(2)(i) of
this section, Z is treated as an excluded
member of the group on December 31, 1964,
since Z was a member of the group for less
than one-half of the number of days (29 out
of 121 days) during the period beginning on
September 1, 1964 (the first day of its taxable
year) and ending on December 30, 1964.
Under paragraph (b)(3) of this section, Y is
treated as an additional member of the group
on December 31, 1964, since Y was a member
of the group for at least one-half of the
number of days (107 out of 183 days) during
the period beginning on July 1, 1964 (the first
day of its taxable year) and ending on
December 30, 1964.
Example 2. On January 1, 1964,
corporation P owns all the stock of
corporation S, which in turn owns all the

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stock of corporation S–1. On November 1,
1964, P purchases all of the stock of
corporation X from the public and sells all
of the stock of S to the public. Corporation
X owns all the stock of corporation Y during
1964. P, S, S–1, X, and Y file their returns
on the basis of the calendar year. On
December 31, 1964, P, X, and Y are members
of a parent-subsidiary controlled group of
corporations; also, corporations S and S–1
are members of a different parent-subsidiary
controlled group on such date. However,
since X and Y have been members of the
parent-subsidiary controlled group of which
P is the common parent for less than one-half
the number of days during the period January
1 through December 30, 1964, they are not
component members of such group on such
date. On the other hand, X and Y have been
members of a parent-subsidiary controlled
group of which X is the common parent for
at least one-half the number of days during
the period January 1 through December 30,
1964, and therefore they are component
members of such group on December 31,
1964. Also since S and S–1 were members of
the parent-subsidiary controlled group of
which P is the common parent for at least
one-half the number of days in the taxable
years of each such corporation during the
period January 1 through December 30, 1964,
P, S, and S–1 are component members of
such group on December 31, 1964.
Example 3. Throughout 1964, corporation
M owns all the stock of corporation F which,
in turn, owns all the stock of corporations L1,
L2, X, and Y. M is a domestic mutual
insurance company subject to taxation under
section 821, F is a foreign corporation not
engaged in a trade or business within the
United States, L1 and L2 are domestic life
insurance companies subject to taxation
under section 802, and X and Y are domestic
corporations subject to tax under section 11
of the Code. Each corporation uses the
calendar year as its taxable year. On
December 31, 1964, M, F, L1, L2, X, and Y
are members of a parent-subsidiary
controlled group of corporations. However,
under paragraph (b)(2)(ii) of this section, M,
F, L1, and L2 are treated as excluded members
of the group on December 31, 1964. Thus, on
December 31, 1964, the component members
of the parent-subsidiary controlled group of
which M is the common parent include only
X and Y.
Furthermore, since paragraph (b)(2)(ii)(E)
of this section does not result in L1 and L2
being treated as excluded members of a life
insurance controlled group, L1 and L2 are
component members of a life insurance
controlled group on December 31, 1964.

(5) Application of constructive
ownership rules. For purposes of
paragraphs (b)(2)(i) and (b)(3)(iii) of this
section, it is necessary to determine
whether a corporation was a member of
a controlled group of corporations for
one-half (or more) of the number of days
in its taxable year which precede the
December 31st falling within such
taxable year. Therefore, the constructive
ownership rules contained in § 1.1563–
3(b) (to the extent applicable in making
such determination) must be applied on

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a day-by-day basis. For example, if P
Corporation owns all the stock of X
Corporation on each day of 1964, and on
December 30, 1964, acquires an option
to purchase all the stock of Y
Corporation (a calendar-year taxpayer
which has been in existence on each
day of 1964), the application of
§ 1.1563–3(b)(1) on a day-by-day basis
results in Y being a member of the
brother-sister controlled group on only
one day of Y’s 1964 year which
precedes December 31, 1964.
Accordingly, since Y is not a member of
such group for one-half or more of the
number of days in its 1964 year
preceding December 31, 1964, Y is
treated as an excluded member of such
group on December 31, 1964.
(c) Overlapping groups—(1) In
general. If on a December 31st a
corporation is a component member of
a controlled group of corporations by
reason of ownership of stock possessing
at least 80 percent of the total value of
shares of all classes of stock of the
corporation, and if on such December
31st such corporation is also a
component member of another
controlled group of corporations by
reason of ownership of other stock (that
is, stock not used to satisfy the at-least80 percent total value test) possessing at
least 80 percent of the total combined
voting power of all classes of stock of
the corporation entitled to vote, then
such corporation shall be treated as a
component member only of the
controlled group of which it is a
component member by reason of the
ownership of at least 80 percent of the
total value of its shares.
(2) Brother-sister controlled groups—
(i) One corporation. If on a December
31st, a corporation would, without the
application of this paragraph (c)(2), be a
component member of more than one
brother-sister controlled group on such
date, the corporation will be treated as
a component member of only one such
group on such date. Such corporation
may elect the group in which it is to be
included by including on or with its
income tax return for the taxable year
that includes such date a statement
entitled, ‘‘STATEMENT TO ELECT
CONTROLLED GROUP PURSUANT TO
§ 1.1563–1(c)(2).’’ This statement must
include—
(A) A description of each of the
controlled groups in which the
corporation could be included. The
description must include the name and
employer identification number of each
component member of each such group
and the stock ownership of the
component members of each such
group; and

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(B) The following representation:
[INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER OF
CORPORATION] ELECTS TO BE
TREATED AS A COMPONENT
MEMBER OF THE [INSERT
DESIGNATION OF GROUP].
(ii) Multiple corporations. If more
than one corporation would, without
the application of this paragraph (c)(2),
be a component member of more than
one controlled group, those corporations
electing to be component members of
the same group must file a single
statement. The statement must contain
the information described in paragraph
(c)(2)(i) of this section, plus the names
and employer identification numbers of
all other corporations designating the
same group. The original statement
must be included on or with the original
Federal income tax return (including
any amended return filed on or before
the due date (including extensions) of
such return) of the corporation that,
among those corporations which would
(without the application of this
paragraph (c)(2)) belong to more than
one group, has the taxable year
including such December 31st which
ends on the earliest date. That
corporation must provide a copy of the
statement to each other corporation
included in the statement and represent
in its statement that it has done so.
Either the original or a copy of the
statement must be retained by each
corporation as part of its records. See
§ 1.6001–1(e) of this chapter.
(iii) Election. (A) An election filed
under this paragraph (c)(2) is
irrevocable and effective until a change
in the stock ownership of the
corporation results in termination of
membership in the controlled group in
which such corporation has been
included.
(B) In the event no election is filed in
accordance with the provisions of this
paragraph (c)(2), then the Internal
Revenue Service will determine the
group in which such corporation is to be
included. Such determination will be
binding for all subsequent years unless
the corporation files a valid election
with respect to any such subsequent
year or until a change in the stock
ownership of the corporation results in
termination of membership in the
controlled group in which such
corporation has been included.
(iv) Examples. The provisions of this
paragraph (c)(2) may be illustrated by
the following examples (in which it is
assumed that all the individuals are
unrelated):
Example 1. (i) On each day of 1970 all the
outstanding stock of corporations X, Y, and
Z is held in the following manner:

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Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations
Corporations
Individuals
X (%)

A ...............................................................................................................................................................
B ...............................................................................................................................................................
C ..............................................................................................................................................................

(ii) Since the more-than-50 percent
identical ownership requirement of section
1563(a)(2) is met with respect to corporations
X and Y and with respect to corporations Y
and Z, but not with respect to corporations
X, Y, and Z, corporation Y would, without

the application of this paragraph (c)(2), be a
component member on December 31, 1970,
of overlapping groups consisting of X and Y
and of Y and Z. If Y does not file an election
in accordance with paragraph (c)(2)(i) of this
section, the Internal Revenue Service will

Y (%)
55
40
5

Z (%)
40
20
40

5
40
55

determine the group in which Y is to be
included.
Example 2. (i) On each day of 1970, all the
outstanding stock of corporations V, W, X, Y,
and Z is held in the following manner:
Corporations

Individuals
V
D ..............................................................................................................
E ...............................................................................................................
F ...............................................................................................................
G ..............................................................................................................
H ..............................................................................................................
I ................................................................................................................

PWALKER on PROD1PC71 with RULES

(ii) On December 31, 1970, the more-than50 percent identical ownership requirement
of section 1563(a)(2) may be met with regard
to any combination of the corporations but
all five corporations cannot be included as
component members of a single controlled
group because the inclusion of all the
corporations in a single group would be
dependent upon taking into account the
stock ownership of more than five persons.
Therefore, if the corporations do not file a
statement in accordance with paragraph
(c)(2)(ii) of this section, the Internal Revenue
Service will determine the group in which
each corporation is to be included. The
corporations or the Internal Revenue Service,
as the case may be, may designate that three
corporations be included in one group and
two corporations in another, or that any four
corporations be included in one group and
that the remaining corporation not be
included in any group.

(d) Transitional rules—(1) In general.
Treasury decision 8179 amended
paragraph (a)(3)(ii) of this section to
revise the definition of a brother-sister
controlled group of corporations. In
general, those amendments are effective
for taxable years ending on or after
December 31, 1970.
(2) Limited nonretroactivity—(i) Old
group. Under the authority of section
7805(b), the Internal Revenue Service
will treat an old group as a brother-sister
controlled group corporations for
purposes of applying sections 401,
404(a), 408(k), 409A, 410, 411, 412, 414,
415, and 4971 of the Internal Revenue
Code (Code) and sections 202, 203, 204,
and 302 of the Employment Retirement
Income Security Act of 1974 (ERISA) in
a plan year or taxable year beginning
before March 2, 1988, to the extent
necessary to prevent an adverse effect

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W
52
40
2
2
2
2

on any old member (or any other
corporation), or on any plan or other
entity described in such sections
(including plans, etc., of corporations
not part of such old group), that would
result solely from the retroactive effect
of the amendment to this section by TD
8179. An adverse effect includes the
disqualification of a plan or the
disallowance of a deduction or credit for
a contribution to a plan. The Internal
Revenue Service, however, will not treat
an old member as a member of an old
group to the extent that such treatment
will have an adverse effect on that old
member.
(ii) Old member of old group. Section
7805(b) will not be applied pursuant to
paragraph (d)(2)(i) of this section to treat
an old member of an old group as a
member of a brother-sister controlled
group to prevent an adverse effect for a
taxable year if, for that taxable year, that
old member treats or has treated itself as
not being a member of that old group for
purposes of sections 401, 404(a), 408(k),
409A, 410, 411, 412, 414, 415, and 4971
of the Code and sections 202, 203, 204,
and 302 and Title IV of ERISA for such
taxable year (such as by filing, with
respect to such taxable year, a return,
amended return, or claim for credit or
refund in which the amount of any
deduction, credit, limitation, or tax due
is determined by treating itself as not
being a member of the old group for
purposes of those sections). However,
the fact that one or more (but not all) of
the old members do not qualify for
section 7805(b) treatment because of the
preceding sentence will not preclude
that old member (or members) from

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52
2
40
2
2
2

Y
52
2
2
40
2
2

Z
52
2
2
2
40
2

52
2
2
2
2
40

being treated as a member of the old
group under paragraph (d)(2)(i) of this
section in order to prevent the
disallowance of a deduction or credit of
another old member (or other
corporation) or to prevent the
disqualification of, or other adverse
effect on, another old member’s plan (or
other entity) described in the sections of
the Code and ERISA enumerated in
such paragraph.
(3) Election of general
nonretroactivity. In the case of a taxable
year ending on or after December 31,
1970, and before March 2, 1988, an old
group will be treated as a brother-sister
controlled group of corporations for all
purposes of the Code for such taxable
year if—
(i) Each old member files a statement
consenting to such treatment for such
taxable year with the District Director
having audit jurisdiction over its return
within six months after March 2, 1988;
and
(ii) No old member—
(A) Files or has filed, with respect to
such taxable year, a return, amended
return, or claim for credit or refund in
which the amount of any deduction,
credit, limitation, or tax due is
determined by treating any old member
as not a member of the old group; or
(B) Treats the employees of all
members of the old group as not being
employed by a single employer for
purposes of sections 401, 404(a), 408(k),
409A, 410, 411, 412, 414, 415, and 4971
of the Code and sections 202, 203, 204,
and 302 of ERISA for such taxable year.
(4) Definitions. For purposes of this
paragraph (d)—

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Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations
(i) An old group is a brother-sister
controlled group of corporations,
determined by applying paragraph
(a)(3)(ii) of this section as in effect
before the amendments made by TD
8179, that is not a brother-sister
controlled group of corporations,
determined by applying paragraph
(a)(3)(ii) of this section as amended by
such Treasury decision; and
(ii) An old member is any corporation
that is a member of an old group.
(5) Election to choose between
membership in more than one
controlled group—(i) In general. A
corporation may make an election under
paragraph (c)(2) of this section by filing
an amended return on or before
September 2, 1988 if—
(A) An old member has filed an
election under paragraph (c)(2) of this
section to be treated as a component
member of an old group for a December
31st before March 2, 1988; and
(B) That corporation would (without
regard to such paragraph (c)(2)) be a
component member of more than one
brother-sister controlled group (not
including an old group) on December
31st.
(ii) Exception. This paragraph (d)(5)
does not apply to a corporation that is
treated as a member of an old group
under paragraph (d)(3) of this section.
(6) Refunds. See section 6511(a) for
period of limitation on filing claims for
credit or refund.
(e) Effective/applicability date. This
section applies to taxable years
beginning on or after May 26, 2009.
However, taxpayers may apply this
section to taxable years beginning before
May 26, 2009. For taxable years
beginning before May 26, 2009, see
§ 1.1563–1T as contained in 26 CFR part
1 in effect on April 1, 2009.
§ 1.1563–1T
■

[Removed]

Par. 3. Section 1.1563–1T is removed.

§ 1.1563–3

[Amended]

Par. 4. Section 1.1563–3(d)(3),
Example 3, is amended by removing the
language ‘‘§ 1.1563–1T’’ and adding
‘‘§ 1.1563–1’’ in its place.

■

PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 5. The authority citation for part
602 continues to read as follows:

PWALKER on PROD1PC71 with RULES

■

Authority: 26 U.S.C. 7805.

Par. 6. In § 602.101, paragraph (b) is
amended as follows:
■ 1. The following entry to the tables is
removed:
■

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§ 602.101

OMB Control Numbers.

25153

attainment date, the area is not subject
to the requirement to implement
contingency measures for failure to
attain the standard by its attainment
Current
date. In addition, EPA finds that the
CFR part or section where
OMB control area is not subject to the Clean Air Act
identified or described
No.
penalty fee requirements for severe and
extreme ozone nonattainment areas that
have not attained the 1-hour standard by
*
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*
1.1563–1T .................................
1545–2019 the applicable attainment date.
DATES: This rule is effective on July 27,
*
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2009 without further notice, unless EPA
receives adverse comments by June 26,
■ 2. The following entry is added in
2009. If we receive such comments, we
numerical order to the table:
will publish a timely withdrawal in the
Federal Register to notify the public
§ 602.101 OMB Control Numbers.
that this direct final rule does not take
*
*
*
*
*
effect.
(b) * * *
ADDRESSES: Submit your comments,
identified by Docket ID No. EPA-R09–
Current
CFR part or section where
OMB control OAR–2009–0133, by one of the
identified or described
No.
following methods:
1. http://www.regulations.gov. Follow
the on-line instructions for submitting
*
*
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*
1.1563–1 ...................................
1545–2019 comments.
2. E-mail: nudd.gregory@epa.gov.
3. Fax: (415) 947–3579.
*
*
*
*
*
4. Mail or Delivery: Greg Nudd (AIR–
2), U.S. Environmental Protection
Linda E. Stiff,
Agency Region IX, 75 Hawthorne Street,
Deputy Commissioner for Services and
San Francisco, CA 94105–3901.
Enforcement.
Instructions: Direct your comments to
Approved: May 20, 2009.
Docket ID No. EPA–R09–OAR-2009–
Michael F. Mundaca,
0133. EPA’s policy is that all comments
Acting Assistant Secretary of the Treasury
received will be included in the public
(Tax Policy).
docket without change and may be
[FR Doc. E9–12296 Filed 5–26–09; 8:45 am]
made available online at http://
BILLING CODE 4830–01–P
www.regulations.gov, including any
personal information provided, unless a
comment includes information claimed
to be Confidential Business Information
ENVIRONMENTAL PROTECTION
(CBI) or other information whose
AGENCY
disclosure is restricted by statute. Do
not submit information that you
40 CFR Part 52
consider to be CBI or otherwise
[EPA–R09–OAR–2009–0133; FRL–8909–6]
protected through http://
www.regulations.gov or e-mail. The
Approval and Promulgation of Air
http://www.regulations.gov Web site is
Quality Implementation Plans;
California; Determination of Attainment an ‘‘anonymous access’’ system, which
means EPA will not know your identity
of the 1-Hour Ozone Standard for the
or contact information unless you
Ventura County Area
provide it in the body of your comment.
AGENCY: Environmental Protection
If you send an e-mail comment directly
Agency (EPA).
to EPA without going through http://
www.regulations.gov, your e-mail
ACTION: Direct final rule.
address will be automatically captured
SUMMARY: On April 15, 2009, the
and included as part of the comment
California Air Resources Board (CARB)
that is placed in the public docket and
requested that EPA find that the Ventura made available on the Internet. If you
County ozone nonattainment area has
submit an electronic comment, EPA
attained the revoked 1-hour ozone
recommends that you include your
National Ambient Air Quality Standard
name and other contact information in
(NAAQS). After a review of this
the body of your comment and with any
submission and of the relevant
disk or CD–ROM you submit. If EPA
monitoring data, EPA is making such a
cannot read your comment due to
finding.
technical difficulties and cannot contact
Because the area has attained the 1you for clarification, EPA may not be
hour standard by the applicable
able to consider your comment.
*

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