Angela owns all the stock of A, B, and P Corporations. P has owned all the stock of S1 Corporation for six years. The P-S1 affiliated group has filed a consolidated tax return in each of these six years using the calendar year as its tax year. On July 10 of the current year (a nonleap year). Angela sells her entire stock investment in A, which uses the calendar year as its tax year. No change takes place in Angela’s ownership of B stock during the tax year. At the close of business on November 25 of this year, S1 purchases 90% of the common stock and 80% of the nonconvertible, nonvoting preferred stock (measured by value) of S2 Corporation. A, P, S1, and S2 are includible corporations. Which corporations are included in the affiliated group? In the controlled group? What income is included in the various tax returns? How is the allocation of the income between tax years made if the books are not closed on the sale or acquisition dates? If no special allocations are made, what portion of the reduced tax rate benefits of Sec. 11(b) can be claimed in the current year by the affiliated group? In future years?
A partial list of resources includes:
• IRC Sec. 1504
• IRC Sec. 1563
• Reg. Sec. 1.1502-76
• Reg. Sec. 1.1561-2