Rev. Rul. 68-641

Advice has been requested as to who may elect or take an action under section 1.964-1(c)(3) of the Income Tax Regulations, with respect to a foreign corporation controlled by a domestic corporation that is a member of an affiliated group filing consolidated returns under section 1501 of the Internal Revenue Code of 1954.

An affiliated group of domestic corporations has elected to file consolidated returns under section 1501 of the Code. X corporation, a member of the affiliated group of corporations, is the controlling United States shareholder, within the meaning of section 1.964-1(c)(5) of the regulations, of a controlled foreign corporation Z. Y corporation, the parent corporation of the affiliated group has not elected, under section 963(e)(3) of the Code, that the group be treated as a single United States shareholder for purposes of applying the minimum distribution provisions of section 963 of the Code, nor has Y , under section 964 of the Code, made any election or taken any action with respect to Z .

The question presented is whether X may elect or take an action under section 1.964-1(c)(3) of the regulations on behalf of Z , the foreign corporation of which X is the controlling United States shareholder.

Section 1.1502-77(a) of the regulations provides, in general, that the common parent corporation, shall, in all matters relating to the tax liability for the consolidated return year, be the sole agent for each subsidiary in the group. For example, any election available to a subsidiary corporation in the computation of its separate taxable income must be made by the common parent.

Section 1.964-1(c)(3) of the regulations provides, in general, that an election shall be deemed made, or an adoption or change in method of accounting deemed effectuated, on behalf of a controlled foreign

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the currently outstanding portions group of domestic corporations which makes a consolidated return under section 1501 of the Code for the taxable year shall be treated as a single United States shareholder for purposes of applying section 963 of the Code for such year if the common parent corporation in its return for such affiliated group makes any first-tier election, chain election, or group election under section 963 of the Code for such affiliated group. In such case, no member of such affiliated group may separately make any first-tier election, chain election, or group election under section 963 of the Code for the taxable year.

Section 1.963-1(a)(4) of the regulations also provides that if the common parent of such an affiliated group making a consolidated return under section 1501 of the Code makes no first-tier election, chain election, or group election for such affiliated group, then any member of such group may make a first-tier election, chain election, or group election to the same extent that it could so elect if the affiliated group had not filed a consolidated return. In such case, the affiliated group will not be treated as a single United States shareholder.

On the basis of section 1.1502-77(a) of the regulations and because of the relationship between, and hence the need for consistent treatment under sections 963 and 964 of the Code, in any case where an affiliated group is treated as a single United States shareholder on the basis of any election, with respect to a controlled foreign corporation, made under section 1.963-1(a)(4) of the regulations by the common parent corporation, any election or action under section 1.964-1(c)(3) of the regulations with respect to the same controlled foreign corporation must also be made by the common parent corporation. On the basis of section 1.1502-77(a) of the regulations, in any case where an affiliated group makes a consolidated return under section 1501 of the Code (whether or not such group is treated as a single United States shareholder under section 1.963-1(a)(4) of the regulations) the common parent corporation of such group has the prerogative of making any election or taking any action under section 1.964-1(c)(3) of the regulations with respect to a controlled foreign corporation of a member of the group. However, consistent with section 1.963-1(a)(4) of the regulations, if in any such case no election is made or action is taken by the common parent corporation, under sections 963 or 964 of the Code or regulations thereunder, then the member of the affiliated group that is a controlling United States shareholder with respect to a foreign corporation may make any election or take any action permitted under section 1.964-1(c)(3) of the regulations.

Accordingly, under the facts in this case, X may make elections or take actions under section 1.964-1(c)(3) of the regulations with respect to Z , the foreign corporation of which it is the controlling United States shareholder.