Instructions for Schedule O (Form 1120)

Transcription

1 Instructions for Schedule O (Form 1120) (Rev. December 2009) Consent Plan and Apportionment Schedule for a Controlled Group Department of the Treasury Internal Revenue Service Section references are to the Internal income tax return, one Schedule O apportionment methodology (for Revenue Code unless otherwise noted. on behalf of the members of that example, percentages) for each tax consolidated group. No subsidiary of General Instructions that consolidated group should file benefit item that is apportioned. Schedule O on its own behalf. The Purpose of Schedule Definitions and Special Schedule O should contain the A corporation that is a component required consolidated information for Rules member (defined on page 2) of a all members of the consolidated controlled group must use Schedule group. See Identifying Information on Types of Controlled Groups O to report the apportionment of page 6. Parent-subsidiary group. A taxable income, income tax, and Exception. If all of the members parent-subsidiary group is one or certain tax benefits between all of a parent-subsidiary controlled more chains of corporations component members of the group. group that are required to file a U.S. connected through stock ownership These members will be subject to tax return join in filing the same with a common parent corporation if: limitations on the use of certain tax consolidated tax return, then the Stock possessing at least 80% of benefits for their applicable tax year. parent of that group does not have to the total combined voting power of all See Apportionment of Tax Benefit file Schedule O on behalf of the classes of stock entitled to vote or at Items on page 4. group. least 80% of the total value of shares Also use Schedule O to indicate of all classes of stock of each of the that the member filing this return Completing and Filing corporations, except the common consents to and represents that all Schedule O parent corporation, is directly or the other component members of the In completing Schedule O, the indirectly owned by one or more of controlled group: following apply. the other corporations; and Are adopting an apportionment The filing of Schedule O by a The common parent corporation plan, effective for the current tax year; component member provides the directly or indirectly owns stock Are amending the existing required information as to the status possessing at least 80% of the total apportionment plan; of the group s apportionment plan. combined voting power of all classes Are terminating the existing Such information must indicate, when of stock entitled to vote or at least apportionment plan and not adopting applicable, whether all the component 80% of the total value of shares of all a new plan; members of the controlled group are classes of stock of at least one of the Are terminating the existing adopting, amending, or terminating other corporations, excluding, in apportionment plan and adopting a an apportionment plan. computing such voting power or new plan; If all such members complete the value, stock owned directly by such Have no apportionment plan in required written agreement setting other corporations. effect and are not adopting an forth the terms of the adopted or apportionment plan; or For purposes of determining amended apportionment plan (or an Already have an apportionment whether a corporation is a member of agreement to terminate a previously plan in effect. a parent-subsidiary controlled group adopted plan), then each member of of corporations within the meaning of that group may rely on this section 1563(a)(1), stock owned by a Who Must File agreement as the member s basis for corporation means: A corporation must file Schedule O representing on its Schedule O that Stock owned directly by the with its income tax return, amended the other component members of the corporation, and return, or claim for refund for each tax group have also consented to year that the corporation is a Stock constructively owned by that adopting, amending, or terminating component member of a controlled corporation under sections the apportionment plan. 1563(e)(1), (2), and (3). group, even if (1) no apportionment The agreement must be signed by plan is in effect, or (2) the amounts a person authorized to sign on behalf Brother-sister group. A apportioned have not changed from of each component member of the brother-sister group generally is two the previous tax year. See Definitions controlled group and retained. No or more corporations where the same and Special Rules, below. member should attach this agreement five or fewer persons who are Consolidated groups. If any of the (or a copy of it) to their federal individuals, estates, or trusts directly component members of a controlled income tax returns. Each component or indirectly own stock possessing: group are also members of a member must keep, as part of its At least 80% of the total combined consolidated group, then the common records, either the original or a copy voting power of all classes of stock parent of that consolidated group of the signed agreement. The entitled to vote or at least 80% of the must file, as part of its consolidated agreement must contain the group s total value of shares of all classes of Cat. No V

2 the stock of each corporation (the insurance company, and Corporation Additional member. A member of a 80% test), and Y, a non-life insurance company controlled group is treated as an More than 50% of the total owns all the stock of Corporation C, a additional member if the corporation: combined voting power of all classes life insurance company. Was a member of the controlled of stock entitled to vote or more than group at any time during a calendar 50% of the total value of shares of all Exception for life-nonlife year, classes of stock of each corporation, consolidated group. The rule Was not a member of the taking into account the stock above does not apply to any life controlled group on that testing date, ownership of each such person only insurance company that is a member Was a member of the controlled to the extent such stock ownership is (whether eligible or ineligible to join in group for at least one-half the number identical with respect to each such filing a consolidated return) of a of days of its testing period, and corporation (the 50% test). life-nonlife affiliated group for which a Is not an excluded member Brother-sister group for section 1504(c)(2) election is in (defined next). purposes of certain tax attributes. effect. Instead, an eligible life insurance company will be treated as Any member of a controlled group For purposes of allocating the a member of a life-nonlife that is treated as an additional following, a brother-sister group is consolidated group, and an ineligible member is also treated as a defined using only the 50% test life insurance company will be treated component member of that group. above: as a member of a life-nonlife Excluded member. A corporation is The taxable income brackets, controlled group (deemed to treated as an excluded member of a The additional taxes, constitute a parent-subsidiary controlled group of corporations on The alternative minimum tax (AMT) controlled group). the December 31 testing date for its exemption amount, tax year that includes that December The reduction of the AMT Component Member 31 testing date, if the corporation is: exemption amount, and A member of such group for less The accumulated earnings credit. A corporation qualifies as a than one-half the number of days in For purposes of determining component member of a controlled its testing period, whether a corporation is a member of group of corporations, for a tax year, Exempt from tax under section a brother-sister controlled group of if the corporation: 501(a) (except a corporation which is corporations within the meaning of Is not a member of the controlled subject to tax on its unrelated section 1563(a)(2), stock owned by a group on the applicable December 31 business taxable income) for such person who is an individual, estate, or testing date (defined on page 3), but year, trust includes: is treated as an additional member A foreign corporation not subject to Stock owned directly by such (defined below); or tax under section 882(a) for such tax person, and Is a member of the controlled year, Stock constructively owned under group on the applicable December 31 A life insurance company subject to section 1563(e). testing date and is not treated as an tax under section 801 other than Combined group. A combined excluded member (defined below). either a life insurance company which controlled group is three or more is a member of a life insurance In general, in determining if a corporations each of which is a controlled group or a life insurance member of a controlled group is a member of either a parent-subsidiary company which is a member component member of that group, the group or a brother-sister group, and (whether eligible or ineligible) of a applicable tax year of that corporation at least one of which is both the life-nonlife affiliated group for which a must be tested to determine if it was common parent of a section 1504(c)(2) election is in a member of the controlled group for parent-subsidiary group and also a effect, at least one-half of the number of member of a brother-sister group. Not a franchised corporation as days in its testing period. Also, in Life insurance companies only defined in section 1563(f)(4), or order to determine the applicable tax group. Two or more life insurance An S corporation, as defined in year of the member being tested, the companies subject to tax under section group s testing date must be section 801 which are members of determined. See Testing date and Any member of a controlled group any parent-subsidiary, brother-sister, Testing period on page 3. that is treated as an excluded or combined controlled group will be member is not a component member, treated as a controlled group of Note. If a controlled group has an but is a member of the group. corporations separate from any other apportionment plan in effect and However, no tax benefit items should type of controlled group to which some of the members of that be apportioned to an excluded these corporations would otherwise controlled group join in filing a member. And, an excluded member s belong if they were not life insurance consolidated return, then the taxable income is not taken into companies. The life insurance members of that consolidated group account in determining the additional companies that make up a life are treated, together, as if they were taxes liability imposed by section insurance controlled group do not a single member of the controlled 11(b)(1). Also, an excluded member s have to be in a direct ownership group. If a controlled group does not alternative minimum taxable income relationship with each other. For have an apportionment plan in effect (AMTI) is not taken into account in example, life insurance companies and any of the members of that group determining the phase-out of the AMT Corporation X and Corporation Z join in filing a consolidated return, exemption amount. If an excluded make up a life insurance company then each member of that member of the group owns a only group, where Corporation X, a consolidated group will be treated as controlling interest in a corporation life insurance company, owns all the a separate member of the controlled that meets the entity status stock of Corporation Y, a non-life group. requirements for being a component -2-

3 member, that corporation is a component member of that group on connected through stock ownership component member of the group. a particular December 31 date, it will based on excluded stock. Excluded Example. Domestic corporation P be required to limit its use of certain stock includes: owns all of the stock of domestic specified tax benefits with regard to a Nonvoting stock which is limited corporation S. Domestic corporation tax year that includes a December 31 and preferred as to dividends, S owns all of the stock of foreign date. Each member of the group uses Treasury stock, and corporation F. Foreign corporation F the December 31 date included within Stock which is treated as excluded owns all of the stock of domestic that member s tax year as its testing stock under section 1563(c)(2)(A) for corporation X. Corporations P, S, and date, whether such member uses a a parent-subsidiary controlled group X are component members of a calendar, or fiscal, tax year. However, or section 1563(c)(2)(B) for a controlled group. if a component member of a brother-sister controlled group. controlled group has a short tax year Exception. A corporation that (1) that does not include a December 31 Apportionment Plan was included in a controlled group at date, then the last day of that short An apportionment plan is an any time during its tax year, (2) was tax year will be the testing date for agreement between the component not included in that controlled group that member. See Special allocation members of a controlled group of on the group s December 31 testing rules for a short tax year on page 4. corporations for apportioning certain date, and (3) was not included in the Each member of a controlled group corporate tax benefits among the controlled group for at least one-half will apply those limitations to that tax members of that group, such as the the number of days of its testing year that is governed by the apportioning of bracketed income period, is not treated as a component applicable December 31 testing date amounts entitled to different tax rates. member, additional member, or applied to that group. By contrast, a tax sharing agreement excluded member. Testing period. The testing period is an agreement entered into between Example. For years prior to 2009, is the time period for determining members of an affiliated group of Corporation X has been a component whether a particular member of a corporations which have joined in the member of controlled group XYZ. controlled group qualifies either as a filing of a consolidated tax return. Corporations X, Y, and Z do not file component member, or as an Such an agreement generally consolidated tax returns. Corporation excluded member. The testing period provides that the members of the X is on a calendar tax year. On begins on the first day of that affiliated group will compensate each February 28, 2009, Corporation X member s tax year and ends on the other for certain tax benefits incurred was sold to an unrelated party that is day before its testing date. However, by members separately and shared not a member of any consolidated for a component member having a by all members on the consolidated group. Corporation X remained in short tax year not including a tax return. existence throughout its entire 2009 December 31 date, the last day of its short tax year is deemed to function An apportionment plan becomes calendar year. For the period from as the December 31 testing date for effective for a controlled group when January 1, 2009, through February that member only. For a member on a it is adopted by all the component 28, 2009, Corporation X is a member full fiscal tax year, the portion of its members of that group for their tax of that controlled group which tax year beginning on the December years which are subject to the same includes Corporations Y and Z and 31 testing date and ending on the last December 31 testing date. Once the which has a testing date of December day of its tax year is not taken into members of a controlled group adopt 31, However, Corporation X is account for determining its status an apportionment plan, it remains in not a component member, additional either as a component member or as effect until it is terminated. member, or excluded member of that group for that testing period. an excluded member. In determining Amending or terminating an Corporations Y and Z therefore are how many days comprise a member s apportionment plan. An not required to include any testing period, the group takes into apportionment plan is amended when information about Corporation X in account the day that the member is the same component members (for their respective 2009 Schedules O, sold, but does not take into account example, when no component filed with their 2009 income tax either the day that such member is members have left or joined the returns. Further, Corporation X does acquired, or the member s December group during their testing periods not have to file Schedule O with its 31 testing date. governed by the applicable 2009 income tax return, for the Overlapping Groups December 31 testing date) make any controlled group that includes different apportionment of the Corporations Y and Z. If a corporation is a component specified tax-benefit items among member of more than one controlled themselves. Testing date. The testing date is the group of corporations with respect to date for determining whether any tax year, that corporation will be An apportionment plan is amounts of certain tax benefits treated as a component member of terminated when each component otherwise available to a corporation, only one controlled group. The member of the controlled group will be limited in their use with regard determination as to the group of consents or is deemed to consent to to a particular tax year of a which such corporation is a the termination of that plan. Each component member of a controlled component member shall be made such member is deemed to have group. Each member of the group under regulations prescribed by the consented to the termination of the uses a December 31 date, when Secretary. plan for a tax year if: possible, as its testing date, whether The controlled group ceased to such member uses a calendar, or Excluded Stock remain in existence (within the fiscal, tax year. When a member of a To be a member of a controlled meaning of section 1563) as of the controlled group qualifies as a group, a corporation cannot be testing date for that calendar year, -3-

4 A corporation that was a Example. The Controlled Group their apportionment plan, apportion a component member of the group on ABCDE consists of Corporations A, full amount of each specified the testing date in the preceding tax B, C, D, and E. Corporations B, C, D, tax-benefit item between those year is not a component member on and E file a consolidated return. corporations which are the the testing date in the current tax However, since the controlled group component members of the group as year, or does not have an apportionment plan of the ensuing December 31 testing A corporation that was not a in effect, each member of the date. component member of the group on consolidated group is treated as a Calculation of the additional the testing date in the preceding tax separate member of the controlled taxes. A component member with a year is a component member on the group. Therefore, corporations A, B, short tax year determines its liability testing date in the current tax year. C, D, and E are required to allocate for additional taxes imposed by one-fifth of the tax-bracketed income section 11(b)(1) solely for its own Exception. If the members of a amounts between them in the taxable income. The remaining consolidated return group are treated following manner: component members will determine as if they are one component $10,000 (one-fifth of $50,000) on their additional taxes based on their member, then changes as to the Part II, column (c), own combined income. members which belong to that $5,000 (one-fifth of $25,000) on consolidated group (as long as that Part II, column (d), and AMT calculation. If a component consolidated group remains in $1,985,000 (one-fifth of member has a short tax year, existence within the meaning of $9,925,000) on Part II, column (e). whether or not that tax year includes a December 31 testing date, see the Regulations section (d)) will Special allocation rules for a short annualization rule of section 443(d) not serve to terminate the group s tax year. Special apportionment for calculating the member s AMT. apportionment plan. rules apply to the tax bracket amount and the accumulated earnings credit, See section 1561 and the related Apportionment of Tax if a component member has a short regulations for additional details tax year that does not include a regarding apportionment plans and a Benefit Items December 31 date. A corporation s listing of some of the tax-benefit Apportionment plan in effect. If tax year will end before the last day items. the component members of a of its annual tax year and will have a Exceptions. This special controlled group have an short tax year if: apportionment rule does not apply if a apportionment plan in effect, they The corporation is sold to a component member has a short tax must apportion the specified consolidated group, or year that includes the December 31 tax-benefit items, such as the tax The corporation is merged or testing date in its short tax year. For bracket amounts, according to the liquidated, including a deemed example, Corporation Y is a fiscal terms of that plan. The component liquidation resulting from a section year taxpayer with a tax year ending members of a group are not required 338 election. on September 30. On January 31, to apportion equally any tax-benefit Example. For years prior to 2009, 2009, Corporation Y is liquidated. item among each of them. Nor is any Corporation X has been a member of Corporation Y s tax year beginning on component member required to adopt controlled group XYZ and has a October 1, 2008, and ending on the same percentage of calendar tax year. On May 31, 2009, January 31, 2009, is not a short tax apportionment for each tax-benefit Corporation X is liquidated. year within the meaning of section item. A group therefore may Corporation X has a short tax year 1561(b). Thus, the normal apportion all, some, or none of the that begins on January 1, 2009, and apportionment rules apply. amount of any these tax-benefit items ends on May 31, Corporation X This special allocation rule also to a component member. However, therefore applies the special does not apply if a member of a except for a member with a short tax allocation rule to the tax bracket controlled group has a short tax year year that does not include a amount and the accumulated and is a member of a consolidated December 31 testing date, the total earnings credit. group. Instead, such corporation s amount of a tax-benefit item Determining the amount to be income for the short tax year is apportioned to all the component apportioned. A short-year member included in the consolidated return members of the group cannot be cannot use the group s apportionment filed by the consolidated group for more than the total amount of a tax method for determining the amount of that corporation s tax year. item that would be allowed to a corporation that is not subject to the a tax-benefit item to be apportioned Component Member s limitations imposed on the members to it for its short tax year, even though Liability for its Additional of a controlled group. See Special that method has been adopted by the allocation rules for a short tax year, group under its existing Taxes below. apportionment plan. Rather, the To determine a component member s short-year member must divide the liability for its additional taxes No apportionment plan in effect. If full amount of the tax-benefit item by imposed by section 11(b)(1), each of no apportionment plan is adopted or the number of component members the component members of a in effect, the component members of in the controlled group as of the last controlled group, for their tax years a controlled group must divide the day of that member s short tax year. that are subject to the same amount of any tax-benefit item That amount is the amount of that December 31 testing date, must: equally among themselves (without tax-benefit item to be allocated to that Combine their taxable incomes regard to whether any members are member (and only to that member). from such tax years, also members of a consolidated The remaining component members Determine the amount of the return group). will, in accordance with the terms of additional taxes imposed by section -4-

5 11(b)(1) by applying the appropriate members of the controlled group for imposing a 39% tax on taxable tax rate (see Determining the amount their tax years that share the same income over $100,000, but not over of additional taxes, later) to the testing date as that adjustment year, $335,000, and also imposing a 38% amount of such combined taxable must redetermine the amount of any tax on taxable income over income, and additional taxes imposed by section $15,000,000, but not over Apportion that amount among 11(b)(1) and pay those additional $18,333,333. those members by applying the taxes. These corporations have this Apportioning the additional taxes. proportionate method (defined later in responsibility even if none of the The additional taxes imposed by these instructions), unless all of those corporations that were component section 11(b)(1) must be apportioned members instead elect to apply the members of the group in the among the component members in FIFO method (defined later in these adjustment year still remain as the same manner as the applicable instructions). component members of the group. tax bracket amount is apportioned. Combined taxable income. All the Determining the amount of The component members are component members of a controlled additional taxes. After the required to use the proportionate group, to which any part of a tax component members of a controlled method unless all component bracket was apportioned, must group have determined their members affirmatively elect to adopt combine their taxable incomes for combined taxable income, those the FIFO method by checking the box their tax years that are subject to the members must determine if they are on line 7b. See the instructions for same December 31 testing date. liable for any additional taxes line 7 on page 7. Each corporation that is a component imposed by section 11(b)(1) in the The proportionate method. member of a controlled group must following manner. Under the proportionate method, the include its income for its entire tax If that combined taxable income additional taxes are allocated to each year (their tax years that are subject exceeds $100,000, but is not greater component member to which a tax to the same December 31 testing than $335,000, the total amount of bracket amount was apportioned, in date) in the calculation of the the liability for additional tax of such the same proportion as the portion of combined taxable income, even if it members is the lesser amount of 5% the tax-benefit from that tax bracket was not a member of the group for of such excess or $11,750 (the 5% which was allocated bears to the total each day of that tax year. additional tax). tax-benefit amount provided to all In determining the additional taxes, If that combined taxable income members from the use of that tax only the positive taxable incomes of exceeds $335,000, but is not greater bracket. These tax-benefits are those component members of a than $15,000,000, the total amount of attributable to the tax savings that the controlled group, to which any part of the liability for the 5% additional tax of members of the group realized from a tax bracket amount were such members will be reflected in its having tax bracket amounts taxed at apportioned, are combined for aggregate income tax liability. No a lower rate instead of the higher tax purposes of determining the liability of allocation is necessary and no such rates to which income of the group those members. If a component allocation needs to be reported in would otherwise be subject. member incurs a loss for the tax year, Part III of Schedule O. The steps for applying the the member is treated as having zero If that combined taxable income proportionate method are as follows: taxable income for purposes of exceeds $15,000,000, but is not determining the controlled group s greater than $18,333,333, the total Step 1. The regular tax (not combined taxable income. amount for that additional tax liability including the additional taxes is the lesser of 3% of such excess, or imposed by section 11(b)(1)) owed by Example. A controlled group $100,000 (the 3% additional tax). a component member under a includes Corporations X, Y, and Z. Thus, a controlled group with a particular tax bracket is divided by the For the 2009 calendar tax year, combined taxable income that total tax owed by all component Corporation X has taxable income of exceeds $15,000,000 will be liable for members under that tax bracket. $80,000, Corporation Y has taxable income of $70,000, and Corporation not only the 3% additional tax, but The maximum amount of tax that a Z incurred a loss of ($60,000). Under also the full amount of the 5% corporation owes under the 15% tax the XYZ apportionment plan, additional tax, or $11,750. bracket is $7,500. The maximum Corporation Z was apportioned $1 of A controlled group with a combined amount of tax that a corporation owes the $50,000 amount under the 15% taxable income that exceeds under the 25% tax bracket is $6,250. tax bracket and Corporations X and Y $18,333,333 will be liable for the full The maximum amount of tax that a were equally apportioned the amount of the additional taxes, or corporation owes under the 34% tax remaining amount. The combined $111,750. That amount will be bracket is $3,374,500. taxable income of the XYZ controlled reflected in the group s aggregate Step 2. The percentage calculated group is $150,000 ($80,000 + income tax liability and is not required under step 1 is multiplied by the total $70,000). Thus, the XYZ group is to be separately reported in Part III of tax-benefit amount received by all the liable for the additional taxes. Schedule O. The additional taxes will members of the group from their use Corporation Z s loss is not taken into not require any apportionment among of this tax bracket. This computed account in determining the combined the component members of the amount equals the portion of the taxable income of the controlled group. group s tax-benefit amount received group. See the tax rate schedule in by a particular member from using its Note. If a component member has TIP the Instructions for Form portion of this tax bracket. subsequent positive adjustments to 1120, U.S. Corporation Step 3. The amount determined its taxable income (for example, the Income Tax Return, which effectively under step 2 is divided by the total result of an IRS audit), for a tax year incorporates both of the additional tax-benefit amount, received by all (the adjustment year), all the taxes imposed by section 11(b)(1) by the component members of the group -5-

6 from using all the tax brackets to exemption amount. For a controlled (a), line 1, enter only the name of the which any component member s group of corporations, the AMT component member. income was subject. exemption amount must be Other component members of the Step 4. The percentage calculated apportioned among the component controlled group. For Parts II, III, under step 3 is multiplied by the members of the group. That amount and IV, column (a), lines 2 through amount of the group s additional must be divided equally among the 10, and Part II, column (b), enter the taxes. The amount determined under component members for those tax corresponding information for each of this step 4 equals the amount of the years, which are subject to the same the other component members of the additional taxes apportioned to such December 31 testing date, except controlled group, in the same manner component member for that tax where all those members have as the member filing this Schedule O. bracket. adopted an apportionment plan If more space is needed, attach providing for an unequal Step 5. If a component member is additional sheets. apportionment of the AMT exemption liable for regular tax (not including the Consolidated groups. If several amount. If so, the component additional taxes imposed by section component members are also members of the group will apportion 11(b)(1)) under more than one tax members of a single consolidated the AMT exemption amount bracket, that member must calculate group, then with respect to those according to the terms of that the amount of additional taxes with members, in Parts II, III, and IV, apportionment plan. respect to each tax bracket to be column (a), and Part II, column (b), apportioned to that member. The $40,000 AMT exemption enter only the information of the Accordingly, steps 1 through 4 amount shall be reduced, but not common parent of the consolidated must be applied for each tax bracket below zero, as the amount of AMTI group. applicable to that member. The sum increases. For a controlled group of If any component members of of all the amounts of additional taxes corporations, to compute the amount TIP the controlled group are also apportioned to a component member of this reduction to the AMT members of a consolidated from each tax bracket, to which that exemption amount, the AMTI of all group, the parent of such member is subject, is the total component members must be consolidated group should file only amount of the additional taxes combined in order to compute the one Schedule O on behalf of all such apportioned to that member. amount of that reduction. This members of the controlled group. exemption amount completely phases The FIFO method. Under a Such form must contain the required out when a controlled group s first-in-first-out (FIFO) method for information for each such member. combined AMTI is at least $310,000. allocating the additional taxes among See Regulations section This reduction to the AMT exemption the component members of the (a)(2). amount will effectively be allocated to controlled group, the first dollars of each of the component members to additional taxes imposed by section which the exemption amount was Part I. Apportionment 11(b)(1) owed by the component apportioned and will effectively be Plan Information members of a controlled group are to apportioned to the component be allocated proportionately to those members in the same manner as is Line 1. Type of controlled group. members availing themselves of the the exemption amount. A component member of a controlled lowest tax bracket (the first tax group must check the applicable box bracket), up to the amount of the Only the positive AMTI of those to indicate the type of group. For tax-benefit received by those component members of a controlled more information, see Types of members from having availed group are combined for purposes of Controlled Groups on page 1. themselves of that tax-bracket determining those members For a brother-sister controlled amount. Any remaining amount of reduction of the AMT exemption group, check box 1b whether that unallocated additional taxes is then amount. group is a brother-sister group for allocated proportionately among the Report the AMT exemption amount purposes of applying only the 50% component members which avail and the phaseout of the exemption test, or for purposes of applying both themselves of the next higher tax amount in Part IV, columns (c) and the 80% and 50% test. bracket, and so on, until the entire (d), respectively. Line 2. Member status. If a amount of the additional taxes has corporation was not a component been fully apportioned among the member of the group for each day of component members. For example, its tax year, check box 2b and provide the first $9,500 of additional tax Specific Instructions the required information. If the liability of a controlled group is taxable year of this corporation does apportioned entirely to the component Identifying Information not include a December 31 date, a members that availed themselves of special apportionment rule applies. the benefit of the 15% tax bracket. Component member filing See Special allocation rules for a Schedule O. On page 1, enter the Allocation of AMT Exemption short tax year on page 4. name and employer identification Amount and the Reduction number (EIN) of the component Line 3. Consent and represent. If member filing this Schedule O. all the component members consent of the AMT Exemption to adopt an apportionment plan, Amount In Part II, column (a), line 1, enter check box 3a. By checking box 3a, In determining the AMT liability of a the component member s name and this corporation is consenting to the corporation, the amount of AMTI to EIN. In column (b), enter the adoption of an apportionment plan which the AMT rate is applied is member s tax year ending date and is also representing that the other reduced by the $40,000 AMT (Yr-Mo). In Parts III and IV, column component members of the group are -6-

7 also consenting to the adoption of If box 3c or 3d is checked, If box 5a is checked, then the that plan. See Completing and Filing complete Parts II, III, and IV under component members must share all Schedule O on page 1. either of the following circumstances. tax-benefits equally and tax-benefit If all the component members If a corporation which is joining or information is to be reported in Parts consent to amend an apportionment leaving the group still qualifies as a II, III, and IV. plan, check box 3b. By checking box component member for its tax year, Line 6. Statute of limitations. An 3b this corporation is consenting to complete Parts II, III, and IV apportionment plan may not be the amendment of an apportionment according to the terms of any adopted or amended for a tax year of plan and is also representing that the applicable apportionment plan. a component member unless there is other component members of the If a corporation which is joining or at least one year remaining in the group are consenting to the leaving the group will not qualify as a statutory period (including any amendment of that plan. However, to component member for its tax year extensions) for assessing a amend a plan both of the following then, following the corporation s deficiency against the corporation for conditions must be satisfied. name in column (a), enter the that tax year, but only where the tax The controlled group already has notation (E) for excluded member. liability for such tax year of that an apportionment plan in effect, and In Part II, column (b), enter the corporation would be increased by There has been no change in the ending date of the tax year (Yr-Mo) adopting such plan. component-member composition of and enter 0 in the remaining columns, as applicable. The If there is less than one year the group from the previous taxable remaining component members of remaining in the statutory period, the year. the group will apportion the various corporation must have entered into If the component members of a tax items according to terms of any an agreement with the IRS extending group are either adopting a new newly adopted apportionment plan, in the statutory period for the limited apportionment plan or amending an the event a new apportionment plan purpose of assessing any deficiency existing apportionment plan that is adopted by those remaining against that corporation for a tax year involves prior tax years of those members. affected by the adoption or the component members, at least one amendment of an apportionment year must remain on each of the Note. Do not check more than one plan. See Regulations section statutes of limitations for assessing a box on line 3. If a corporation does (c)(2). tax deficiency against all of the not adopt an apportionment plan, amend a previous apportionment Line 7. Required information and component members of the group for plan, or terminate an existing elections under section The such prior tax years. See the apportionment plan, skip line 3 and component members of a controlled instructions for line 6 below. go to line 5. group must determine their additional If the apportionment plan for the taxes liability, as imposed by section component members of a controlled Line 4. Reason for termination of 11(b)(1), for their tax years that are group is terminated: existing apportionment plan. subject to the same December 31 Check box 3c, if the remaining Check box 4a if all the component testing date by combining their component members choose not to members of a controlled group of taxable incomes for such tax years adopt (or are not able to adopt) a new corporations are consenting to and then apportioning the additional apportionment plan; or terminate the apportionment plan. taxes among such component Check box 3d, if the remaining Check box 4b if: members in the same manner that component members choose to adopt The controlled group has ceased to the tax brackets were so allocated. a new apportionment plan. remain in existence within the See Component Member s Liability With regard to box 3c, the meaning of section 1563, for its Additional Taxes on page 4. remaining component members will A corporation that was a If a corporation does not know the not be able to adopt a new component member of the group on combined taxable income of the other apportionment plan if, for example, the testing date for the preceding tax component members of its group (for such component members have left year is no longer a component example, because those other the group. member in the current tax year, or component members have adopted A corporation that was not a Example. For years prior to 2009, substantially different tax years), it component member of the group on Corporation X has been a member of can avoid underpayment of tax by the testing date for the preceding tax controlled group XYZ and has a applying the maximum tax rate of year is a component member for the calendar tax year. Corporations X, Y, 35% to the entire amount of its current tax year. and Z are component members of a taxable income. If the corporation controlled group and each has a Line 5. Status of apportionment later determines its tax liability is less, calendar tax year. On August 31, plan. Check the applicable box to it may file a claim for refund of 2009, X is sold to an unrelated party. indicate the status of any overpayment. Even though X will not be a member apportionment plan of the controlled Line 7a. A corporation choosing of the group on its December 31, group. to compute its tax liability by applying 2009, testing date, it is treated as an Check box 5a, if the controlled the maximum 35% rate to the entire additional member of the group on group does not have an amount of its taxable income should that date. Consequently, for 2009 the apportionment plan in effect and is check box 7a. Further, a corporation XYZ controlled group must apportion not adopting one. checking box 7a does not have to the tax-benefit items according to the Check box 5b, if the controlled provide taxable income or tax terms of its apportionment plan. group already has an apportionment apportionment information with Therefore, X, Y, and Z would each plan in effect and is not amending or respect to the other component check box 3c on its 2009 Schedule O. terminating this plan. members of the group. Instead, only -7-

8 provide the identifying information (for shown on Form 1120, page 1, line 30, For purposes of apportioning the example, name, EIN, and ending date or on the comparable line of the amounts included in column (e) and, of the tax year) for these other corporation s income tax return) except as provided elsewhere in the members. Enter zero in the other minus the amounts entered for this Internal Revenue Code, in column (f), columns for these members. corporation in columns (c) and (d), or determine the component members Line 7b. The controlled group the corporation s computed share of of a brother-sister controlled group may elect to apportion their additional the $9,925,000 bracket. using both the 50% and 80% tests as taxes liability under the FIFO method, Column (f). Enter the corporation s provided in section 1563(f)(5). See rather than the proportionate method. taxable income (Form 1120, page 1, Brother-sister group on page 1. To make this election, each line 30, or the comparable line of the Column (a). If a corporation component member of the group corporation s income tax return) qualifies as a component member of must check box 7b. If the members minus the amounts entered for this a brother-sister controlled group, do not check box 7b, they will be corporation in columns (c) through solely because it satisfies only the required to apportion their additional (e). 50% ownership affiliation test, insert taxes liability using the proportionate Column (g). Enter the total the notation (50) after that method of allocation. See The allocated taxable income amounts of corporation s name. If a corporation is proportionate method on page 5 and each component member (add a component member of that group The FIFO method on page 6. columns (c) through (f)). Each total in because it satisfies both the 50% and Line 7c. If a component member Part II, column (g), for each 80% ownership affiliation tests, no of a controlled group of corporations component member must equal Form notation is necessary. has a short tax year that does not 1120, page 1, line 30, or the Column (b). The component include a December 31 date, check comparable line of such component members of a controlled group may box 7c. If a corporation checks box member s income tax return. allocate the $250,000 accumulated 7c, it does not have to provide earnings credit unequally if they taxable income or tax apportionment Part III. Income Tax adopt an apportionment plan or have information with regard to the other an apportionment plan in effect. Apportionment component members of the group. Note. If any component member of Instead, only provide the identifying Column (b). Multiply the taxable a controlled group is the type of information (for example, name, EIN, income amount in Part II, column (c) service corporation described in and ending date of the tax year) for by 15% (0.15) and enter the result section 535(c)(2)(B), the amount to these other members. See Special here. be apportioned among the allocation rules for a short tax year on Column (c). Multiply the taxable component members is $150,000 page 4. income amount in Part II, column (d) (rather than $250,000). by 25% (0.25) and enter the result Part II. Taxable Income Column (c). The component here. members of a controlled group may Apportionment Column (d). Multiply the taxable allocate the $40,000 AMT exemption Enter each component member s income amount in Part II, column (e) amount unequally if they adopt an share of the taxable income used by 34% (0.34) and enter the result apportionment plan or have an from each tax bracket, as is here. apportionment plan in effect. applicable. The component members Column (e). Multiply the taxable Column (d). The component of a controlled group, collectively, are income amount in Part II, column (f) members of a controlled group must entitled to one $50,000, one $25,000, by 35% (0.35) and enter the result apportion the reduction to the AMT and one $9,925,000 taxable income here. exemption amount to the same bracket amount (in that order) for Column (f) and (g). A corporation s corporations, and in the same columns (c), (d), and (e). share of any additional taxes liability proportions, as the AMT exemption Note. If a corporation has a loss, imposed by section 11(b)(1) is amount was apportioned in Column enter zero in columns (c) through (g). determined as explained in (c). If the combined AMTI of the Determining the amount of additional members of the group is at least Column (c). Enter the lesser of the taxes on page 5. $310,000, the corporation is not corporation s taxable income (as Column (h). Enter here the total required to complete columns (c) and shown on Form 1120, page 1, line 30, apportioned income tax for each (d) of Part IV, since the exemption or on the comparable line of the component member. Combine all the amount phases out at $310,000. See corporation s income tax return) or amounts of apportioned tax of each Allocation of AMT Exemption Amount the corporation s computed share of such member, as shown in columns and the Reduction of the AMT the $50,000 bracket. (b) through (g). Exemption Amount on page 6. Column (d). Enter the lesser of the Column (e). For purposes of corporation s taxable income (as Part IV. Other determining whether the component shown on Form 1120, page 1, line 30, members of a controlled group are Apportionments or on the comparable line of the subject to a penalty for failure to pay corporation s income tax return) Brother-sister controlled group. the correct amount of estimated tax minus the amount entered for this For purposes of apportioning the under section 6655(g), those corporation in column (c), or the amounts included in columns (b) component members of a controlled corporation s computed share of the through (d), determine the component group must combine their taxable $25,000 bracket. members of a brother-sister incomes for their tax years that were Column (e). Enter the lesser of the controlled group, using only the 50% subject to the same December 31 corporation s taxable income (as test as provided in section 1563(a)(2). testing date. If that amount is at least -8-

9 $1 million for any tax year during the tax-benefit items not included in component members of any testing period (as defined in section columns (b) through (e). Provide the deduction for certain depreciable 6655(g)(2)(B)(i)), those members applicable Internal Revenue Code property for which a section 179 must then divide that $1 million section followed by the amount expense election has been made. amount equally unless they have an apportioned to that member. Report this apportionment as required apportionment plan in effect. Note. Do not include on Schedule O under section 179. See Regulations Column (f). Enter each component an apportionment among the section (b)(7). member s share of any other -9-