Rev. Rul. 78-322

ISSUE

Can subsidiary corporations change their taxable years to a 52-53 week taxable year and file a consolidated federal income tax return with their common parent, which will remain on a fiscal year accounting period, where the taxable years of all members of the group will end within the same 7-day period?

FACTS

P corporation uses a taxable year ending on September 30. S-1, S-2, and S-3, wholly owned subsidiaries of P, uses a taxable year ending on November 30. S-4 and S-5, two other wholly owned subsidiaries of P, use a taxable year ending on December 31. All the subsidiaries wish to adopt a 52-53 week taxable year ending on the Sunday closest to September 30. In addition, P requests permission to file a consolidated federal income tax return with its subsidiaries, notwithstanding the fact that the subsidiaries will have a different taxable year from P.

LAW AND ANALYSIS

Section 441 of the Internal Revenue Code of 1954 governs accounting periods in general. Section 1502 and the regulations thereunder govern the filing of consolidated returns.

Section 1.441-2(c)(2) of the Income Tax Regulations provides that a taxpayer may change to a 52-53 week taxable year without the permission of the Commissioner if the 52-53 week taxable year ends with reference to the end of the same calendar month as that in which the former taxable year ended. If a taxpayer changing to a 52-53 week taxable year also wishes to change the month with reference to which the taxable year ends, section 1.441-2(c)(4) provides that the Commissioner's prior approval is required.

Pursuant to section 1.1502-76(a)(1), a group's consolidated return must be filed on the basis of the common parent's taxable year, and each subsidiary must adopt the common parent's accounting period for the first year the subsidiary's income is includible in the consolidated return. For members on a 52-53 week taxable year, this provision is deemed satisfied, with the Commissioner's prior approval, if the taxable years of all members end within the same 7-day period.

Rev. Rul. 72-184, 1972-1 C.B. 289, sets forth the conditions under which consent will be given for an affiliated group to file a consolidated return where some members are on a 52-53 week taxable year. Rev. Rul. 72-184 also sets forth conditions under which consent will be given for certain members of an affiliated group to use a 52-53 week taxable year while the remainder of the group remains on a calendar or fiscal year accounting period.

HOLDING

Provided the conditions set forth in Rev. Rul. 72-184 are met, and the Commissioner's approval is obtained, S-1 through S-5 may change to a 52-53 week taxable year ending on the Sunday closest to September 30, and join in filing a consolidated federal income tax return with P.