The purpose of this article is to identify some of the federal tax issues that should be considered in the development or revision of a tax-granting agreement. There are many ways to write tax allocation agreements and these differences can have significant economic consequences. IRS information exchange programs save state resources through partnerships between the IRS and local and local authorities. The aim of these programmes is to improve voluntary compliance with tax legislation. One of the advantages of filing a consolidated tax return is that losses suffered by members can be used to protect the income of other members; However, if the loss of a member is absorbed by the consolidated group, the member cannot use that loss to protect the income it will generate in the future. Therefore, tax allocation agreements should address the question of whether and how group members are compensated for the use of their tax attributes (e.g. B operating losses, excess capital losses, tax credits). Because consolidated groups are not static, additional problems may arise when a member leaves a group that has an agreement that adopts a "wait and see" approach. If .B. the tax allocation agreement adopts a "wait and see" approach to compensate members for the use of their losses and that subsidiary 2 is de-detached from the group at the end of year 2, it is likely that subsidiary 2 will never be compensated for the use of the loss by the group.
To solve this problem, many tax allocation agreements have de-de-force provisions. An agreement could, for example, require the parent company 2 to compensate subsidiary 2 immediately after the de-de-force of the tax benefit of its losses previously absorbed by the group or the year of the de-force of the parent company by the group. In addition, the agreement could require Subsidiary 2 to reimburse all tax premiums that would be imposed on it in a post-consolidation year if the liabilities had not been contracted, if subsidiary 2 had retained its separate business attributes, previously taken over by the group. Tax allocation agreements should also look at what happens when a member joins a consolidated group and has distinct attributes. B corporate tax (e.g. transfers of losses and credits) that can benefit the group. The Treasury Regulations Section 1.1502-33 (d) contains different methods of allocating consolidated tax debt between group members for income and profit purposes, and Section 1.1502-32 (b) (iv) (4) (d) provides that a parent company`s taxable base can be calculated on a subsidiary`s portfolio. However, there is no indication in tax law whether and how some members actually own their share of the group`s tax debt.