Rev. Rul. 75-212

Advice has been requested as to the amount of earnings and profits available for distribution under the circumstances described below.

S-1 corporation, a wholly owned subsidiary of P corporation, and S-2 corporation, a wholly owned subsidiary of S-1 corporation, are members of an affiliated group, as defined in section 1504 of the Internal Revenue Code of 1954. The affiliated group filed consolidated Federal income tax returns for the calendar years 1973 and 1974.

The group did not make an election under section 1.1502-33(c)(4)(iii) of the Income Tax Regulations on its return for 1973 to include the current earnings and profits of the subsidiaries in the current earnings and profits of their parents.

The earnings and profits data of each member is as follows:

          Accumulated Current

The specific question involves the computation of the amounts of current and accumulated earnings and profits available for distribution by P, S-1, and S-2 during 1974.

Section 1.1502-32(f)(2) of the regulations provides that the parent of a wholly owned subsidiary may elect, by submitting a statement on or before the due date of the consolidated return, to treat the subsidiary as having made a distribution (deemed dividend), on the first day of such taxable year, in an amount equal to and out of the subsidiary's accumulated earnings and profits on the last day of the preceding year.

Applying the foregoing principles to the facts of this case, the 1974 current earnings and profits of P and S-1 are increased by an amount equal to the accumulated earnings and profits on December 31, 1973 of S-1 and S-2 respectively.

Accordingly, current and accumulated earnings and profits of P, S-1, and S-2 available for distribution during 1974 are computed as follows:

                                               P S-1 S-2