Td 9451

REV. RUL. 2009–16 TABLE 5
Rate Under Section 7520 for June 2009
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest

Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of June 2009. See Rev. Rul. 2009-16, page 1058.

Section 1563.—Definitions
and Special Rules
26 CFR 1.1563–1: Definitions of controlled group
of corporations and component members and related
concepts.

T.D. 9451
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
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.
SUMMARY: 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

2009–23 I.R.B.

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).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
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 brother-sister
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.
Background and Explanation of
Provisions
On December 22, 2006, the IRS
and the Treasury Department published
several temporary regulations, including §1.1563–1T. See T.D. 9304 (71 FR
76904), 2007–1 C.B. 423. Also on December 22, 2006, the IRS and the Treasury

1060

2.8%

Department issued a notice of proposed
rulemaking cross-referencing those temporary regulations. See REG–161919–05
(71 FR 76955), 2007–1 C.B. 463. Section 1.1563–1T was also amended by
the publication of a temporary regulation on December 26, 2007. See T.D.
9369 (72 FR 72929), 2008–6 I.R.B. 394.
Also on December 26, 2007, the IRS and
Treasury Department issued a notice of
proposed rulemaking cross-referencing
that temporary regulation.
See
REG–104713–07 (72 FR 72970), 2008–6
I.R.B. 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 T.D. 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 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 T.D. 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

June 8, 2009

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.
*****
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 * * *
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

June 8, 2009

(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 parent-subsidiary 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 parent-subsidiary 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

1061

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 parent-subsidiary 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 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

2009–23 I.R.B.

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 own-

ership 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:

Individuals

P (%)

W (%)

X (%)

Y (%)

Z (%)

Identical Ownership

A

55

51

55

55

55

51

B

45

49

(45% in P and W)

C

45

D

45

E
Total

45
100

100

(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

Individuals

100

100

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.

100
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
X (%)

Y (%)

A

12

12

B

12

12

C

12

12

D

12

12

E

13

13

F

13

13

G

13

13

H

13

13

Total

100

100

(ii) Any group of five of the shareholders will own
more than 50 percent of the stock in each corporation, in identical holdings. However, X and Y are not
members of a brother-sister controlled group because

Individuals

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
X

Y

A

100% voting; 60% value

75% voting; 60% value

B

0% voting; 10% value

25% voting; 10% value

(ii) No other shareholder of X owns (or is considered to own) any stock in Y. X and Y are a brothersister controlled group of corporations. The group
meets the more-than-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 more-than-50 percent identical ownership
requirement because of A’s voting stock ownership.)
The group meets the 80 percent requirement because

2009–23 I.R.B.

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 brother-sister
controlled group of corporations. The group meets
the more-than-50 percent identical ownership requirement because A owns more than 50 percent

1062

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-than-50 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

June 8, 2009

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 T.D. 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—
(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 parent-subsidiary
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 parent-subsidiary
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 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.

June 8, 2009

(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 L1 and Y,
and L has owned all the stock of corporation X. On
1
January 1, 2005, Y acquired all of the stock of corporation L . Since L and L are members of a par2
1
2
ent-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 and L are
1
2
not members of a separate life insurance controlled
group. Instead, P, X, Y, L and L constitute one
1
2
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 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.

1063

(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 short-year 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.
(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

2009–23 I.R.B.

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 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).

2009–23 I.R.B.

(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 Decemst
ber 31 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 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

1064

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 L , L , X, and Y.
1 2
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, L and L are domestic life insurance
1
2
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, L , L , X, and Y are members of a
1
2
parent-subsidiary controlled group of corporations.
However, under paragraph (b)(2)(ii) of this section,
M, F, L , and L are treated as excluded members
1
2
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 L and L being treated as excluded
1
2
members of a life insurance controlled group, L1
and L are component members of a life insurance
2
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 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

June 8, 2009

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-least-80 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
Individuals

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
(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:

Corporations
X (%)

Y (%)

Z (%)

A

55

40

5

B

40

20

40

C

5

40

55

(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 compo-

June 8, 2009

nent 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 determine the group in which Y is to be included.

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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:

2009–23 I.R.B.

Individuals

Corporations
V

W

X

Y

Z

D

52

52

52

52

52

E

40

2

2

2

2

F

2

40

2

2

2

G

2

2

40

2

2

H

2

2

2

40

2

I

2

2

2

2

40

(ii) On December 31, 1970, the more-than-50
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 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 T.D. 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,

2009–23 I.R.B.

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 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—

1066

(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)—
(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 T.D. 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 compo-

June 8, 2009

nent member of more than one brother-sister controlled group (not including an old
group) on the 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.

PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT

§1.1563–1T [Removed]

Par. 5. The authority citation for part
602 continues to read as follows:
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:

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.

§602.101 OMB Control Numbers.
*****
(b) * * *

CFR part or section where
identified and described

Current OMB
control No.

*****
...........................................................

1.1563–1T

1545–2019

*****
2. The following entry is added in numerical order to the table:

§602.101 OMB Control Numbers.

(b) * * *

*****

CFR part or section where
identified and described

Current OMB
control No.

*****
...........................................................

1.1563–1

1545–2019

*****
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved May 20, 2009.

Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of June 2009. See Rev. Rul. 2009-16, page 1058.

Michael F. Mundaca,
Acting Assistant Secretary
of the Treasury (Tax Policy).

Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of June 2009. See Rev. Rul. 2009-16, page 1058.

(Filed by the Office of the Federal Register on May 26, 2009,
8:45 a.m., and published in the issue of the Federal Register
for May 27, 2009, 74 F.R. 25147)

June 8, 2009

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2009–23 I.R.B.