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Page 5 of 9 Fileid: Instructions/I1120SCHO/2012/A/XML/Cycle03/source 15:54 - 16-Nov-2012
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
their additional taxes based on their Combined taxable income. All the taxes. These corporations have this
own combined income. component members of a controlled responsibility even if none of the
AMT calculation. If a component group, to which any part of a tax corporations that were component
member has a short tax year, whether bracket was apportioned, must members of the group in the
or not that tax year includes a combine their taxable incomes for adjustment year remain as
December 31 testing date, see the their tax years that are subject to the component members of the group.
annualization rule of section 443(d) for same December 31 testing date. Determining the amount of addi-
calculating the member's AMT. Each corporation that is a component tional taxes. After the component
See section 1561 and the related member of a controlled group must members of a controlled group have
regulations for additional details include its income for its entire tax determined their combined taxable
regarding apportionment plans and a year (their tax years that are subject to income, those members must
listing of some of the tax-benefit the same December 31 testing date) determine if they are liable for any
items. in the calculation of the combined additional taxes imposed by section
taxable income, even if it was not a 11(b)(1) in the following manner.
Exceptions. This special member of the group for each day of If that combined taxable income
apportionment rule does not apply if a that tax year. exceeds $100,000, but is not greater
component member has a short tax than $335,000, the total amount of the
year that includes the December 31 In determining the additional taxes,
testing date in its short tax year. For only the positive taxable incomes of liability for additional tax of such
example, Corporation Y is a fiscal those component members of a members is the lesser amount of 5%
year taxpayer with a tax year ending controlled group, to which any part of of such excess or $11,750 (the 5%
on September 30. On January 31, a tax bracket amount were additional tax).
2012, Corporation Y is liquidated. apportioned, are combined for If that combined taxable income
Corporation Y's tax year beginning on purposes of determining the liability of exceeds $335,000, but is not greater
October 1, 2011, and ending on those members. If a component than $15,000,000, the total amount of
January 31, 2012, is not a short tax member incurs a loss for the tax year, the liability for the 5% additional tax of
year within the meaning of section the member is treated as having zero such members will be reflected in its
1561(b). Thus, the normal taxable income for purposes of aggregate income tax liability. No
apportionment rules apply. determining the controlled group's allocation is necessary and no such
combined taxable income. allocation needs to be reported in Part
This special allocation rule also III of Schedule O.
does not apply if a member of a Example. A controlled group If that combined taxable income
controlled group has a short tax year includes Corporations X, Y, and Z. For exceeds $15,000,000, but is not
and is a member of a consolidated the current calendar tax year, greater than $18,333,333, the total
group. Instead, such corporation's Corporation X has taxable income of amount for that additional tax liability
income for the short tax year is $80,000, Corporation Y has taxable is the lesser of 3% of such excess, or
included in the consolidated return income of $70,000, and Corporation Z $100,000 (the 3% additional tax).
filed by the consolidated group for that incurred a loss of ($60,000). Under Thus, a controlled group with a
corporation's tax year. the XYZ apportionment plan, combined taxable income that
Corporation Z was apportioned $1 of exceeds $15,000,000 will be liable for
Component Member's Liability the $50,000 amount under the 15% not only the 3% additional tax, but
for its Additional Taxes tax bracket and Corporations X and Y also the full amount of the 5%
To determine a component member's were equally apportioned the additional tax, or $11,750.
liability for its additional taxes remaining amount. The combined A controlled group with a combined
imposed by section 11(b)(1), each of taxable income of the XYZ controlled taxable income that exceeds
the component members of a group is $150,000 ($80,000 + $18,333,333 will be liable for the full
controlled group, for their tax years $70,000). Thus, the XYZ group is amount of the additional taxes, or
that are subject to the same liable for the additional taxes. $111,750. That amount will be
December 31 testing date, must: Corporation Z's loss is not taken into reflected in the group's aggregate
Combine their taxable incomes account in determining the combined income tax liability and is not required
from such tax years, taxable income of the controlled to be separately reported in Part III of
Determine the amount of the group. Schedule O. The additional taxes will
additional taxes imposed by section not require any apportionment among
11(b)(1) by applying the appropriate Note. If a component member has
the component members of the group.
tax rate (see Determining the amount subsequent positive adjustments to its
of additional taxes, later) to the taxable income (for example, the See the tax rate schedule in
amount of such combined taxable result of an IRS audit), for a tax year TIP the Instructions for Form
income, and (the adjustment year), all the 1120, U.S. Corporation
Apportion that amount among members of the controlled group for Income Tax Return, which effectively
those members by applying the their tax years that share the same incorporates both of the additional
proportionate method (defined later), testing date as that adjustment year, taxes imposed by section 11(b)(1) by
unless all of those members instead must redetermine the amount of any imposing a 39% tax on taxable
elect to apply the FIFO method additional taxes imposed by section income over $100,000, but not over
(defined later). 11(b)(1) and pay those additional $335,000, and also imposing a 38%
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