Rev. Proc. 82-36

SECTION 1. PURPOSE.

The purpose of this revenue procedure is to set forth a checklist questionnaire of the information needed and the guidelines used by the Commissioner of Internal Revenue in considering requests for consent to elect not to defer gain or loss on deferred intercompany transactions under section 1.1502-13(c)(3) of the Income Tax Regulations, and the time for filing these requests.

This revenue procedure modifies and supersedes Rev. Proc. 74-35, 1974-2 C.B. 490 and supersedes Rev. Proc. 76-14, 1976-1 C.B. 553.

Sec. 2. BACKGROUND.

.01 The consolidated return regulations generally require that gains or losses resulting from intercompany transactions be deferred. The concept of "deferred intercompany transactions" is an integral part of the over-all tax treatment of affiliated groups filing consolidated returns under section 1502 of the Internal Revenue Code. Deferral is required in most cases to clearly reflect consolidated taxable income. However, in certain circumstances, the Commissioner may exercise discretion and grant consent, under section 1.1502-13(c)(3) of the regulations, to a consolidated return group to elect not to defer gains or losses on deferred intercompany transactions.

.02 The Internal Revenue Service receives requests for consent to an election not to defer gain or loss on deferred intercompany transactions during consolidated return years in which the information furnished is not complete enough to justify approval of the election. In such cases it is necessary to secure additional facts from the taxpayer before the request can be considered. This checklist, which is substantially similar to the checklist set forth in Rev. Proc. 74-35, will facilitate the filing and handling of requests under section 1.1502-13(c)(3) of the regulations by specifying the information that should be included so that the application will be as complete as possible when originally filed. However, because the information necessary to rule on a particular case depends upon all the facts and circumstances, information in addition to that listed in this revenue procedure may be required.

.03 Section 4 sets forth certain additional factors and guidelines used by the Commissioner in considering requests for consent to elect not to defer gain or loss on any deferred intercompany transactions under section 1.1502-13(c)(3) of the regulations.

.04 Section 5 sets forth the time for filing an application for consent under section 1.1502-13(c)(3) of the regulations and is a restatement of Rev. Proc. 76-14.

.05 The authority and general procedures with respect to the issuance of advance rulings are set forth in Rev. Proc. 82-37, page 491, this Bulletin, and are applicable to requests under section 1.1502-13(c)(3) of the regulations.

SEC. 3. INFORMATION TO BE INCLUDED IN REQUEST FOR RULINGS UNDER SECTION 1.1502-13(c)(3) OF THE REGULATIONS

.01 Each of the items included in this Section must be specifically dealt with in the application. If an item is not applicable, the letters "N.A." must be inserted after that item to so indicate. It is requested that presentation of the information should follow the format of this revenue procedure as closely as possible.

.02 Information needed in order to make determination:

1. The date the affiliated group elected to file consolidated returns.

2. A comparison of consolidated taxable income with deferred intercompany gains or losses and without deferred intercompany gains or losses for the first taxable year for which the election would apply.

3. An analysis of intercompany transactions for the three taxable years immediately preceding the taxable year for which the election would apply. For purposes of this section, "analysis" shall include the number and a description of intercompany transactions and the dollar amounts thereof.

4. An analysis of the effect of not deferring intercompany gain or loss on the following items for the first taxable year to which the election would apply:

(a) Net operating loss carryovers.

(b) Capital loss carryovers.

(c) Investment and foreign tax credits in the current year as well as carryovers to the current year.

With respect to any carryovers referred to in item (a) through (c) above, the analysis should include amounts for each of the carryover years and the date of expiration of the losses or credits.

5. A statement as to whether any sales of property between members of the group that would be depreciable or depletable property in the hands of the purchasing member would result in long-term capital gain to the seller member, taking into account the provisions of sections 1245 and 1250 of the Internal Revenue Code relating to gain from dispositions of certain depreciable property or certain depreciable realty.

6. A statement as to whether any of the members involved in the deferred intercompany transactions are subject to the separate returns limitation year rules or the consolidated return change of ownership rules.

7. A statement as to the type or types of property involved in the election.

8. A statement as to the frequency of the intercompany transactions and whether they occur in the ordinary course of the taxpayer's business, providing examples thereof.

9. A complete statement as to the reasons why the election is being made and why the group believes it should not be required to defer gain or loss on deferred intercompany transactions.

Sec. 4. ADDITIONAL FACTORS AND GUIDELINES USED BY THE COMMISSIONER IN CONSIDERING REQUESTS FOR RULINGS UNDER SECTION 1.1502-13(c)(3) OF THE REGULATIONS.

.01 Whether it is difficult to account for deferred gains and losses accurately and, if so, please explain.

.02 Whether consolidated taxable income computed under an election not to defer gain or loss on intercompany transactions will differ by more than 10 percent from consolidated taxable income computed by deferring gain or loss for the taxable year of the proposed election not to defer.

.03 Whether the affiliated group will secure the benefit of any deduction, credit or other allowance that it would not otherwise secure if the gains or losses that are the subject of the election were deferred under section 1.1502-13(c)(3) of the regulations.

.04 Whether the gains and losses that are the subject of the election not to defer have resulted from arms-length charges or prices in intercompany transactions, notwithstanding the application of section 482 of the Code to the affiliated group.

Sec. 5. TIME FOR FILING AN APPLICATION FOR CONSENT UNDER SECTION 1.1502-13(c)(3) OF THE REGULATIONS.

.01 Section 1.1502-13(c)(3) of the regulations provides that applications for consent not to defer gain or loss on any deferred intercompany transactions must be filed with the Commissioner on or before the due date of the consolidated return (not including extensions of time) for the taxable year to which the election is to apply. An election shall, unless revoked with the consent of the Commissioner, apply to all members of the group for the consolidated return year for which made and all subsequent consolidated return years ending prior to the first year for which such group does not file a consolidated return.

.02 The filing requirement of section 1.1502-13(c)(3) of the regulations will be deemed satisfied where the election not to defer is timely filed with the Commissioner with an attachment containing all available information and stating that any omitted information has not been finalized and will be forwarded; and such omitted information is submitted not later than the earlier of the following two dates: (1) 90 days after the original due date of the return, or (2) the date the consolidated return is filed with the Internal Revenue Service Center where the taxpayer is required to file such return.

Sec. 6. TERMINATION OF CONSENT UNDER SECTION 1.1502-13(c)(3) OF THE REGULATIONS.

.01 Notwithstanding the granting of consent under section 1.1502-13(c)(3) of the regulations, the Service may, upon examination of tax returns for years subsequent to the year of election not to defer, terminate the election not to defer gains or losses if the conditions and circumstances under which the consent was granted have changed and it is determined that deferral is necessary in order to clearly reflect the consolidated taxable income under section 446 of the Code.

Sec. 7. EFFECT ON OTHER DOCUMENTS.

Rev. Proc. 74-35 is modified and superseded.

Rev. Proc. 76-14 is superseded.