Section

[Code of Federal Regulations]
[Title 26, Volume 13]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR]

[Page 39-47]

TITLE 26--INTERNAL REVENUE

CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
(CONTINUED)

RELATED RULES--Table of Contents

Sec. 1.1563-1 Definition of controlled group of corporations and
component members.

(a) Controlled group of corporations--(1) In general. For purposes
of sections

[[Page 40]]

1561 through 1563 and the regulations thereunder, the term ``controlled
group of corporations'' means any group of corporations which is either
a ``parent-subsidiary controlled group'' (as defined in subparagraph (2)
of this paragraph), a ``brother-sister controlled group'' (as defined in
subparagraph (3) of this paragraph), a ``combined group'' (as defined in
subparagraph (4) of this paragraph), or an ``insurance group'' (as
defined in subparagraph (5) of this paragraph). For the exclusion of
certain stock for purposes of applying the definitions contained in this
paragraph, see section 1563(c) and Sec. 1.1563-2.
(2) Parent-subsidiary controlled group. (i) 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 paragraph (b)(1) of Sec. 1.1563-
3, relating to options) by one or more of the other corporations; and
(b) The common parent corporation owns (directly and with the
application of paragraph (b)(1) of Sec. 1.1563-3, 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) 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 T Corporation. P is the common parent of a
parent-subsidiary controlled group consisting of member corporations P,
S, and T. The result would be the same if P, rather than S, owned the T
stock.
Example (3). L Corporation owns 80 percent of the only class of
stock of M Corporation and M, in turn, owns 40 percent of the only class
of stock of O Corporation. L also owns 80 percent of the only class of
stock of N Corporation and N, in turn, owns 40 percent of the only class
of stock of O. L is the common parent of a parent-subsidiary controlled
group consisting of member corporations L, M, N, and O.
Example (4). X 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 X owns stock possessing at least 80 percent of the
voting power or value of at least one of the other corporations, X is
treated as the owner of stock possessing 100 percent of the voting power
and value of Y and of Z for purposes of subdivision (i)(b) of this
subparagraph. 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 subdivision (i)(a) of this subparagraph. (X and Y
together own stock possessing 100 percent of the voting power and value
of Z, and X and Z together own stock possessing 100 percent of the
voting power and value of Y.) Therefore, X is the common parent of a
parent-subsidiary controlled group of corporations consisting of member
corporations X, Y, and Z.

(3) Brother-sister controlled group. (i) 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 paragraph (b) of Sec.
1.1563-3) 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 the stock of each corporation; and
(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.

[[Page 41]]

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
requirement.
(ii) The principles of this subparagraph may be illustrated by the
following examples:

Example (1). The outstanding stock of corporations P, Q, R, S, and
T, which have only one class of stock outstanding is owned by the
following unrelated individuals:

Corporations
----------------------------------------------------------------------------------------------------------------
Individuals P Q R S T Identical ownership
----------------------------------------------------------------------------------------------------------------
A......................................... 55% 51% 55% 55% 55% 51%.
B......................................... 45% 49% ...... ...... ...... (45% in P & Q).
C......................................... ...... ...... 45% ...... ...... ............................
D......................................... ...... ...... ...... 45% ...... ............................
E......................................... ...... ...... ...... ...... 45% ............................
---------
Total................................... 100% 100% 100% 100% 100% ............................
----------------------------------------------------------------------------------------------------------------

Corporations P and Q 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 R, S, and T are
not members becasue 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). The outstanding stock of corporations U and V, which
have only one class of stock outstanding, is owned by the following
unrelated individuals:

------------------------------------------------------------------------
Corporations
---------------------
Individuals U V
(percent) (percent)
------------------------------------------------------------------------
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
------------------------------------------------------------------------

Any group of five of the shareholders will own more than 50 percent of
the stock in each corporation, in identical holdings. However, U and V
are not members of 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). 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 owns 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 Y
------------------------------------------------------------------------
A............................... 100% voting, 60% 75% voting, 60%
value. value.
B............................... 0% voting, 10% 25% voting, 10%
value. value.
------------------------------------------------------------------------

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 more-than-50 percent ownership requirements 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 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 brother-sister controlled group of
corporations. The group meets the more-than-50 percent 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-than-50 percent 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 ownership
requirement or the 80-percent ownership requirement.

(iii) Paragraph (a)(3) 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.

[[Page 42]]

(4) Combined group. (i) 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) The definition of a combined group of corporations may be
illustrated by the following examples:

Example (1). Smith, 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. Since:
(a) X, Y, and Z are each members of either a parent-subsidiary or
brother-sister controlled group of corporations, and
(b) 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,

X, Y, and Z are members of the same combined group.
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 T, X, Y, Z, and T are members of
the same combined group.

(5) Insurance group. (i) The term ``insurance group'' means two or
more insurance companies subject to taxation under section 802 each of
which is a member of a controlled group of corporations described in
subparagraph (2), (3), or (4) of this paragraph. Such insurance
companies shall be treated as a controlled group of corporations
separate from any other corporations which are members of the controlled
group described in such subparagraph (2), (3), or (4). For purposes of
this section and Sec. 1.1562-5, the common parent of the controlled
group described in subparagraph (2) of this paragraph shall be referred
to as the common parent of the insurance group.
(ii) The definition of an insurance group may be illustrated by the
following example:

Example. Corporation P owns all the stock of corporation I which, in
turn, owns all the stock of corporation X. P also owns all the stock of
corporation Y which, in turn, owns all the stock of corporation J. I and
J are life insurance companies subject to taxation under section 802 of
the Code. Since I and J are members of a parent-subsidiary controlled
group of corporations, such companies are treated as members of an
insurance group separate from the parent-subsidiary controlled group
consisting of P, X, and Y. For purposes of this section and Sec.
1.1562-5, P is referred to as the common parent of the insurance group
even though P is not a member of such group.

(6) Voting power of stock. For purposes of Sec. 1.1562-5, this
section, and Sec. Sec. 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.
(b) Component members--(1) In general. For purposes of sections 1561
through 1563 and the regulations thereunder, a corporation is a
component member of a controlled group of corporations on a December 31
(and with respect to the taxable year which includes such December 31)
if such corporation:

[[Page 43]]

(i) Is a member of such controlled group on such December 31 and is
not treated as an excluded member under subparagraph (2) of this
paragraph, or
(ii) Is not a member of such controlled group on such December 31
but is treated as an additional member under subparagraph (3) of this
paragraph.
(2) Excluded members. (i) A corporation, which is a member of a
controlled group of corporations on the December 31 included within its
taxable year, but was a member of such group for less than one-half of
the number of days in such taxable year which precede such December 31,
shall be treated as an excluded member of such group on such December
31.
(ii) A corporation which is a member of a controlled group of
corporations on any December 31 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 has unrelated business taxable income for such taxable year which
is subject to tax under section 511) or 521,
(b) A foreign corporation not subject to taxation under section
882(a) for the taxable year,
(c) An electing small business corporation (as defined in section
1371(b)) not subject to the tax imposed by section 1378,
(d) A franchised corporation (as defined in section 1563(f)(4) and
Sec. 1.1563- 4), or
(e) An insurance company subject to taxation under section 802 or
821, except that an insurance company taxable under section 802 which
(without regard to this subdivision) is a component member of an
insurance group described in paragraph (a)(5) of this section shall not
be treated as an excluded member of such insurance group.
(iii) A corporation which has a taxable year ending on December 31,
1963, shall be treated as an excluded member of a controlled group on
such date.
(3) Additional members. A corporation which:
(i) Is not a member of a controlled group of corporations on the
December 31 included within its taxable year, and
(ii) Is not described, with respect to such taxable year, in
subparagraph (2)(ii) (a), (b), (c), (d), or (e), or (2)(iii) of this
paragraph,

shall be treated as an additional member of such group on such December
31 if it was a member of such group for one-half (or more) of the number
of days in such taxable year which precede such December 31.
(4) Examples. The provisions of this paragraph may be illustrated by
the following examples:

Example (1). Brown, an individual, owns all of the stock of
corporations W and X on each day of 1964. W and X each uses the calendar
year as its taxable year. On January 1, 1964, Brown 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 31, 1964, Brown 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 31 are W,
X, and Y. Under subparagraph (2)(i) of this paragraph, 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
subparagraph (3) of this paragraph, 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.

[[Page 44]]

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 L-1, L-
2, X, and Y. M is a domestic mutual insurance company subject to
taxation under section 821, F is a foreign corporation not engaged in
trade or business within the United States, L-1 and L-2 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, L-1, L-2, X, and Y are members of a parent-
subsidiary controlled group of corporations. However, under subparagraph
(2)(ii) of this paragraph, M, F, L-1, and L-2 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
subparagraph (2)(ii)(e) of this paragraph does not result in L-1 and L-2
being treated as excluded members of an insurance group, L-1 and L-2 are
component members of an insurance group on December 31, 1964.

(5) Application of constructive ownership rules. For purposes of
subparagraphs (2)(i) and (3) of this paragraph, 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 31 falling within such taxable year.
Therefore, the constructive ownership rules contained in paragraph (b)
of Sec. 1.1563-3 (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 paragraph (b)(1) of Sec. 1.1563-3
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 31 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 31 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) If on a December 31, a
corporation would, without application of this subparagraph, be a
component member of more than one brother-sister controlled group on
such date, such corporation shall be treated as a component member of
only one such group on such date. Such a corporation may select which
group in which it is to be included by filing an election as provided in
this subparagraph. The election shall be in the form of a statement
designating the group in which the corporation is to be included. The
statement shall provide all the information with respect to stock
ownership which is reasonably necessary to satisfy the Internal Revenue
officer with whom it is filed that the corporation would, but for the
election, be a component member of more than one controlled group. Once
filed, the election is irrevocable and effective until such time that a
change in the stock ownership of the corporation results in termination
of

[[Page 45]]

membership in the controlled group in which such corporation has been
included.
(ii) Except as provided in subdivision (iii) of this subparagraph,
the statement shall be signed by a person duly authorized to act on
behalf of such corporation and shall be filed on or before the due date
(including extension of time) for the filing of the income tax return of
such corporation for the taxable year. However, in the case of an
election with respect to December 31, 1970, the statement shall be
considered as timely filed if filed on or before December 15, 1971. In
the event no election is filed in accordance with the provisions of this
subdivision, then the district director with audit jurisdiction of such
corporation's return for the taxable year which includes such December
31 shall determine the group in which such corporation is to be
included, and such determination shall be binding for all subsequent
years unless the corporation files a valid election with respect to any
such subsequent year.
(iii) If more than one corporation would, without application of
this subparagraph, be a component member of more than one controlled
group, a single statement shall be signed by persons duly authorized to
act on behalf of each such corporation. Such statement shall designate
the group in which each corporation is to be included. The statement
shall be attached to the income tax return of the corporation that,
among those corporations which would (without the application of this
subparagraph) belong to more than one group, has the taxable year
including such December 31 which ends on the earliest date. However, in
the case of an election with respect to December 31, 1970, the statement
may be filed by December 15, 1971, with the service center director with
whom such corporation's return is filed for the taxable year which
includes such December 31. In the event no election is filed in
accordance with the provisions of this subdivision, then the district
director with audit jurisdiction of such corporation's return for the
taxable year that includes such December 31 shall determine the group in
which each corporation is to be included, and such determination shall
be binding for all subsequent years unless the corporations file a valid
election with respect to any such subsequent year.
(iv) The provisions of this subparagraph may be illustrated by the
following examples (in which it is assumed that all the individuals are
unrelated):

Example (1). On each day of 1970 all the outstanding stock of
corporations M, N, and P is held in the following manner:

------------------------------------------------------------------------
Corporations
Individuals -----------------------
M N P
------------------------------------------------------------------------
A............................................... 55% 40% 5%
B............................................... 40% 20% 40%
C............................................... 5% 40% 55%
------------------------------------------------------------------------

Since the more-than-50-percent stock ownership requirement of section
1563(a)(2)(B) is met with respect to corporations M and N and with
respect to corporations N and P, but not with respect to corporations M,
N, and P, corporation N would, without the application of this
subparagraph, be a component member on December 31, 1970, of overlapping
groups consisting of M and N and of N and P. If N does not file an
election in accordance with subdivision (ii) of this subparagraph, the
district director with audit jurisdiction of N's return will determine
the group in which N is to be included.
Example (2). On each day of 1970, all the outstanding stock of
corporations S, T, W, X, and Z is held in the following manner:

------------------------------------------------------------------------
Corporations
Individuals ----------------------------------
S T W X 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%
------------------------------------------------------------------------

On December 31, 1970, the more-than-50-percent stock ownership
requirement of section 1563(a)(2)(B) 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 subdivision (iii) of this subparagraph, the district director with
audit jurisdiction of the return of the corporation whose taxable year
ends on the earliest date will determine the group in which each
corporation is to be included. The corporations

[[Page 46]]

or the district director, 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) 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) 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 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, 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) 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 section 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--
(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) of this
section--
(i) An ``old group'' is a brother-sister controlled group of
corporations, determined by applying paragraph (a)(3) of this section as
in effect before the amendments made by Treasury decision 8179, that is
not a brother-sister controlled group of corporations, determined by
applying paragraph (a)(3) of this section as amended by such Treasury
decision, and

[[Page 47]]

(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. If--
(i) 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 31 before March 2, 1988, and
(ii) That corporation would (without regard to such paragraph) be a
component member of more than one brother-sister controlled group (not
including an old group) on the December 31, that corporation may make an
election under that paragraph by filing an amended return on or before
September 2, 1988. 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.

[T.D. 6845, 30 FR 9751, Aug. 5, 1965, as amended by T.D. 6960, 33 FR
9302, June 25, 1968; T.D. 7181, 37 FR 8068, Apr. 25, 1972; T.D. 7293, 38
FR 32803, Nov. 28, 1973; T.D. 8179, 53 FR 6612, Mar. 2, 1988; 53 FR
8302, Mar. 14, 1988]