Rev. Rul. 71-440

Corporation P, a common parent corporation, filed a consolidated return for the fiscal year ending on August 31, 1969. On September 29, 1969, S, a subsidiary that joined in the filing of such return, merged with corporation N which was not a member of the group.

Section 1.1502-76(b)(5)(ii) of the Income Tax Regulations provides that if during a consolidated return year of a group, a corporation (other than a corporation created or organized in such year by a member of the group) has been a member of such group for a period of 30 days or less, then such corporation may at its option be considered as not having been a member of the group during such year. The examples in section 1.1502-76(b)(6) of the regulations illustrating the provisions of section 1.1502-76(b)(5) of the regulations deal with factual situations wherein a corporation joins the group during a consolidated return year of a group.

Held, section 1.1502-76(b)(5)(ii) of the regulations also applies if during a consolidated return year of a group, a corporation leaves the group and has been a member of such group for a period of 30 days or less. Thus, S may at its option be considered as not having been a member of the group during the fiscal year of the group ending on August 31, 1970. If such option is exercised, then for purposes of the restoration of intercompany items such as deferred intercompany gains, excess loss accounts, etc., S is treated as having ceased to be a member of the group as of August 31, 1969.