26 U.S.C. § 1504: Definitions

1 or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation, but only if— the common parent owns directly stock meeting the requirements of paragraph (2) in at least 1 of the other includible corporations, and stock meeting the requirements of paragraph (2) in each of the includible corporations (except the common parent) is owned directly by 1 or more of the other includible corporations. possesses at least 80 percent of the total voting power of the stock of such corporation, and has a value equal to at least 80 percent of the total value of the stock of such corporation. a corporation is included (or required to be included) in a consolidated return filed by an affiliated group, and such corporation ceases to be a member of such group, The Secretary may waive the application of subparagraph (A) to any corporation for any period subject to such conditions as the Secretary may prescribe. is not entitled to vote, is limited and preferred as to dividends and does not participate in corporate growth to any significant extent, has redemption and liquidation rights which do not exceed the issue price of such stock (except for a reasonable redemption or liquidation premium), and is not convertible into another class of stock. which treat warrants, obligations convertible into stock, and other similar interests as stock, and stock as not stock, which treat options to acquire or sell stock as having been exercised, which provide that the requirements of paragraph (2)(B) shall be treated as met if the affiliated group, in reliance on a good faith determination of value, treated such requirements as met, which disregard an inadvertent ceasing to meet the requirements of paragraph (2)(B) by reason of changes in relative values of different classes of stock, which provide that transfers of stock within the group shall not be taken into account in determining whether a corporation ceases to be a member of an affiliated group, and which disregard changes in voting power to the extent such changes are disproportionate to related changes in value. Corporations exempt from taxation under section 501. Insurance companies subject to taxation under section 801. Foreign corporations. Regulated investment companies and real estate investment trusts subject to tax under subchapter M of chapter 1. A DISC (as defined in section 992(a)(1)). An S corporation. Two or more domestic insurance companies each of which is subject to tax under section 801 shall be treated as includible corporations for purposes of applying subsection (a) to such insurance companies alone. If an affiliated group (determined without regard to subsection (b)(2)) includes one or more domestic insurance companies taxed under section 801, the common parent of such group may elect (pursuant to regulations prescribed by the Secretary) to treat all such companies as includible corporations for purposes of applying subsection (a) except that no such company shall be so treated until it has been a member of the affiliated group for the 5 taxable years immediately preceding the taxable year for which the consolidated return is filed. section 243(b)(3) and the exception provided under section 243(b)(2) with respect to subsections (b)(2) and (c) of this section, section 542(b)(5), and subsection (a)(4) and (b)(2)(D) of section 1563, and the reference to section 1563(b)(2)(D) contained in section 1563(b)(3)(C), In the case of a domestic corporation owning or controlling, directly or indirectly, 100 percent of the capital stock (exclusive of directors’ qualifying shares) of a corporation organized under the laws of a contiguous foreign country and maintained solely for the purpose of complying with the laws of such country as to title and operation of property, such foreign corporation may, at the option of the domestic corporation, be treated for the purpose of this subtitle as a domestic corporation. Despite the provisions of paragraph (1) of subsection (b), two or more organizations exempt from taxation under section 501, one or more of which is described in section 501(c)(2) and the others of which derive income from such 501(c)(2) organizations, shall be considered as includible corporations for the purpose of the application of subsection (a) to such organizations alone. any distribution (or deemed distribution) of accumulated DISC income which was not treated as previously taxed income under section 805(b)(2)(A) of the Tax Reform Act of 1984, and any amount treated as received under section 805(b)(3) of such Act. Except as otherwise provided in this subsection, the amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1984 . In the case of a corporation which on June 22, 1984 , is a member of an affiliated group which files a consolidated return for such corporation’s taxable year which includes June 22, 1984 , for purposes of determining whether such corporation continues to be a member of such group for taxable years beginning before January 1, 1988 , the amendment made by subsection (a) [amending this section] shall not apply. The preceding sentence shall cease to apply as of the first day after June 22, 1984 , on which such corporation does not qualify as a member of such group under section 1504(a) of the Internal Revenue Code of 1954 [now 1986] (as in effect on the day before the date of the enactment of this Act [ July 18, 1984 ]). the requirements of paragraph (2) are satisfied with respect to a corporation, is sold or exchanged (including in a redemption), or is issued, the requirements of the amendment made by subsection (a) are not satisfied after such sale, exchange, or issuance, Subsection (b)(2) (and not subsection (b)(3)) will apply to a corporation if such corporation issues or sells stock after June 22, 1984 , pursuant to a registration statement filed with the Securities and Exchange Commission on or before June 22, 1984 , but only if the requirements of the amendment made by subsection (a) [amending this section] (substituting ‘more than 50 percent’ for ‘at least 80 percent’ in paragraph (2)(B) of section 1504(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) are satisfied immediately after such issuance or sale and at all times thereafter until the first day of the first taxable year beginning after December 31, 1987 . For purposes of the preceding sentence, if there is a letter of intent between a corporation and a securities underwriter entered into on or before June 22, 1984 , and the subsequent issuance or sale is effected pursuant to a registration statement filed with the Securities and Exchange Commission, such stock shall be treated as issued or sold pursuant to a registration statement filed with the Securities and Exchange Commission on or before June 22, 1984 . the amendment made by subsection (a) [amending this section] shall not apply, and the requirements for affiliation under section 1504(a) of the Internal Revenue Code of 1986 before the amendment made by subsection (a) shall be applied solely according to the provisions expressly contained therein, without regard to escrow arrangements, redemption rights, or similar provisions. Except as provided in subparagraph (C), during the period described in subparagraph (A), no provision of the Internal Revenue Code of 1986 (including sections 269 and 482) or principle of law shall apply to deny the benefit or use of losses incurred or credits earned by a corporation described in subparagraph (A) to the affiliated group of which the Native Corporation is the common parent. Losses incurred or credits earned by a corporation described in subparagraph (A) shall be subject to the general consolidated return regulations, including the provisions relating to separate return limitation years, and to sections 382 and 383 of the Internal Revenue Code of 1986. Losses incurred and credits earned by a corporation which is affiliated with a corporation described in subparagraph (A) shall be treated as having been incurred or earned in a separate return limitation year, unless the corporation incurring the losses or earning the credits satisfies the affiliation requirements of section 1504(a) without application of subparagraph (A). has as its common parent a Minnesota corporation incorporated on April 23, 1940 , and has a member which is a New York corporation incorporated on November 13, 1969 , If the common parent of any group makes an election under this paragraph, notwithstanding any other provision of this subsection, the amendments made by subsection (a) [amending this section] shall apply to such group for taxable years beginning after December 31, 1983 . Any such election, once made, shall be irrevocable. a corporation (hereinafter in this paragraph referred to as the ‘parent’) was incorporated in 1968 and filed consolidated returns as the parent of an affiliated group for each of its taxable years ending after 1969 and before 1985, another corporation (hereinafter in this paragraph referred to as the ‘subsidiary’) became a member of the parent’s affiliated group in 1978 by reason of a recapitalization pursuant to which the parent increased its voting interest in the subsidiary from not less than 56 percent to not less than 85 percent, and such subsidiary is engaged (or was on September 27, 1985 , engaged) in manufacturing and distributing a broad line of business systems and related supplies for binding, laminating, shredding, graphics, and providing secure identification, included as a common parent on December 31, 1971 , a Delaware corporation incorporated on August 26, 1969 , and included as a member thereof a Delaware corporation incorporated on November 8, 1971 , shall allow any loss (or credit) of any corporation which arises after April 26, 1988 , to be used to offset the income (or tax) of another corporation if such use would not be allowable without regard to such section 60(b)(5) as so amended, or shall allow any loss (or credit) of any corporation which arises on or before such date to be used to offset disqualified income (or tax attributable to such income) of another corporation if such use would not be allowable without regard to such section 60(b)(5) as so amended. such corporation was in existence on April 26, 1988 , and such loss (or credit) is used to offset income assigned (or attributable to property contributed) pursuant to a binding contract entered into before July 26, 1988 . The aggregate amount of losses (and the deduction equivalent of credits as determined in the same manner as under section 469(j)(5) of the 1986 Code) to which paragraph (1) applies with respect to any corporation shall not exceed $40,000,000. For purposes of this paragraph, a Native Corporation and all other corporations all of the stock of which is owned directly by such corporation shall be treated as 1 corporation. paragraph (1)(B) shall be applied by substituting the date 1 year after the date of the enactment of this Act [ Nov. 10, 1988 ] for ‘ July 26, 1988 ’, paragraph (1) shall not apply to any loss or credit which arises on or after the date 1 year after the date of the enactment of this Act, and paragraph (2) shall be applied by substituting ‘$99,000,000’ for ‘$40,000,000’. of the tax liability of a taxpayer which has contracted with the Native Corporation (or other corporation all of the stock of which is owned directly by the Native Corporation) for the use of losses of such Native Corporation (or such other corporation), and which is attributable to an asserted overstatement of losses by, or misassignment of income (or income attributable to property contributed) to, an affiliated group of which the Native Corporation (or such other corporation) is a member. submit to the Secretary of the Treasury or his delegate a written statement regarding the proposed adjustment, and meet with the Secretary of the Treasury or his delegate with respect to such proposed adjustment. Subparagraph (A) shall not apply if the Secretary of the Treasury or his delegate determines that an extension of the statute of limitation[s] is necessary to permit the participation described in subparagraph (A) and the taxpayer and the Secretary or his delegate have not agreed to such extension. In the case of any proceeding in a Federal court or the United States Tax Court involving a proposed adjustment under paragraph (1), the Native Corporation, subject to the rules of such court, may file an amicus brief concerning such adjustment. For purposes of the 1986 Code, any failure by the Secretary of the Treasury or his delegate to comply with the provisions of this subsection shall not affect the validity of the determination of the Internal Revenue Service of any adjustment of tax liability of any taxpayer described in paragraph (1). For purposes of subsection (a), the term ‘disqualified income’ means any income assigned (or attributable to property contributed) after April 26, 1988 , by a person who is not a Native Corporation or a corporation all the stock of which is owned directly by a Native Corporation. For purposes of determining basis for Federal tax purposes, no provision in any law enacted after the date of the enactment of this Act [ Nov. 10, 1988 ] shall affect the date on which the transfer to the Native Corporation is made. The preceding sentence shall apply to all taxable years whether beginning before, on, or after such date of enactment.” If an affiliated group elects to file a consolidated return pursuant to section 1501(c)(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] a carryover of a loss or credit from a taxable year ending before January 1, 1981 , and losses or credits which may be carried back to taxable years ending before such date, shall be taken into account as if this section had not been enacted. The mere election to file a consolidated return pursuant to such section 1504(c)(2) shall not cause the termination of an affiliated group filing consolidated returns.”