Rev. Rul. 72-603

Advice has been requested whether, under the circumstances described below, an election once made, pursuant to section 1.1564-1(b) of the Income Tax Regulations, may be amended at a later date.

X and Y are component members of a controlled group of corporations within the meaning of section 1563 of the Internal Revenue Code of 1954. X and Y in previous years filed separate Federal income tax returns on a calendar year basis. For the year ended December 31, 1970, X and Y agreed to make an election pursuant to section 1.1564-1(b) of the regulations in which Y would receive the full $25,000 surtax exemption and X would receive a $20,833 surtax exemption provided by section 1564(a)(1) of the Code. X and Y filed returns for the period ended December 31, 1970, with the statements of consent as required under sections 1.1562-3(c) and 1.1564-1(b)(2) of the regulations.

Subsequent to the election, the controlled group desired to change its selection under section 1.1564-1(b) of the regulations to assign the $25,000 surtax exemption to X with Y receiving the $20,833 surtax exemption.

Section 1.1564-1(b)(2) of the regulations provides, in part, that the election shall be made with respect to a particular December 31 and shall be valid only if each corporation which is a component member of the controlled group on such December 31 gives its consent. The consents shall be made by means of a statement, signed by persons duly authorized to act on behalf of each of the component members (other than wholly-owned subsidiaries), stating which member has been selected to receive the full surtax exemption. The member so selected shall attach the statement to its income tax return for the taxable year including such December 31. The statement shall set forth the name, address, employer identification number, and taxable years of each of the other component members (including wholly-owned subsidiaries) of the controlled group. Such other members shall attach a copy of the statement to their income tax returns for their taxable years including such December 31. An election plan adopted by a controlled group with respect to a particular December 31 shall be valid only for the taxable year of each member of the group which includes such December 31.

Once an apportionment plan is selected, provisions for any subsequent changes are not covered by section 1564 of the Code and regulations thereunder. However, under similar circumstances, section 1561 of the Code and regulations thereunder contain rules for amending plans within that section.

Section 1.1561-3(a)(1) of the regulations provides that if a valid apportionment plan is adopted and subsequently changed to reflect a variance in the apportionment the affected income tax returns should be amended (or a claim for refund should be made) to reflect the change in the apportionment.

Section 1.1561-3(a)(2) of the regulations, pertaining to the apportionment of a $25,000 surtax exemption, provides in part, that a controlled group may adopt an apportionment plan with respect to a particular December 31 only if, at the time such plan is sought to be adopted, there is at least one year remaining in the statutory period for the assessment of a deficiency against any corporation the tax liability of which would be increased by the adoption of such plan. Furthermore, under section 1.1561-3(c) of the regulations, an apportionment plan adopted by a controlled group of corporations may be amended, but only if the amended plan is adopted in accordance with the rules prescribed in section 1.1561-3(a)(2) of the regulations.

Section 1564 of the Code provides, in part, that with respect to any December 31, after 1969 and before 1975, the amount of each additional $25,000 surtax exemption under section 1562 of the Code in excess of the first such exemption shall be reduced by certain specified amounts and that such amount shall be $20,833 for the taxable year ended December 31, 1970.

Accordingly, it is held that the controlled group may amend its selection of the member to receive the full $25,000 surtax exemption provided there is at least one year remaining in the statutory period for the assessment of additional tax due from Y, X indicates agreement with the new plan by filing a claim for refund if a refund is due or by filing an amended return if no refund is due, Y will file an amended return and pay additional tax due if any, and a statement is filed with the district director's office where the corporate returns are filed, signed by persons duly authorized to act on behalf of X and Y indicating consent to the amended selection.