(1)
Definition. The term "common parent" as used in these rules
shall have the same general meaning as when used in the federal income tax
regulation. However, where the common parent is not subject to the Iowa income
tax because of the provisions of 701-subrule 52.1(1) or because of specific
exemption under Iowa Code section
42234.,
the common parent shall designate as the agent for the affiliated group, one of
its subsidiaries subject to the Iowa income tax and shall notify the director
of the same in writing. Where the common parent has designated one of its
subsidiaries to act as agent for the affiliated group, reference in this rule
to "common parent" shall mean the designated agent.
Unless otherwise distinctly expressed, the terms used in this
rule shall have the same meaning as when used in a comparable context in the
federal income tax regulations for consolidated returns except for determining
whether an affiliated group had exercised its privilege of filing a
consolidated return. All references to the "commissioner" or "district
director" in the federal regulations shall be construed to mean the director
for purposes of the Iowa rules.
a. An
affiliated group of corporations which did not file a consolidated return for
the immediately preceding taxable year may file a consolidated return in lieu
of separate returns for the taxable year. Each corporation which is subject to
the Iowa corporation income tax and has been a member during any part of the
taxable year for which the consolidated return is to be filed must consent (as
provided in paragraph 53.15(1) "J" ) to the filing of the consolidated
return.
b. If a group wishes to
exercise its privilege of filing a consolidated return, the consolidated return
must be filed not later than the date prescribed by Iowa Code section
42221.
(including extensions of time) for the filing of the common parent's return.
The consolidated return may not be withdrawn after the last day for filing
(including extensions of time) but the group may change the basis of its return
at any time prior to the last day.
c. The consolidated return shall be made on
Form IA-1120 for the group by the common parent corporation. The common parent
corporation of the group must attach a copy of the federal Form 851
(Affiliations Schedule) to the consolidated return.
d. If a group wishes to exercise its
privilege of filing a consolidated return, each subsidiary must consent to the
filing of the consolidated return for the year. The subsidiaries must consent
to the filing of an Iowa consolidated return by joining in the filing of an
Iowa consolidated return on or before the due date (including any extensions of
time). If both separate and consolidated returns are filed on or before the due
date (including any extensions of time), the latest returns filed will be
considered as the taxpayers' election in regards to the filing of separate or
consolidated returns.
e. The common
parent, for all purposes other than the making of the consent required by
subrule 53.15(1)"a, " shall be the sole agent for each
subsidiary in the group, duly authorized to act in its own name in all matters
relating to the tax liability for the consolidated return year. No subsidiary
shall have authority to act for or to represent itself in any matter. The
provisions of this paragraph shall apply whether or not a consolidated return
is made for any subsequent year and whether or not one or more subsidiaries
have become or have ceased to be members of the group at any time. If a
subsidiary has ceased to be a member of the group and if the subsidiary files
written notice of the cessation with the director, then upon request of the
subsidiary, the director will furnish it with a copy of any notice of
deficiency in respect of the tax for a consolidated return year for which it
was a member. The filing of the written notification and request by a
corporation shall not have the effect of limiting the scope of the agency of
the common parent.
f. Unless the
director agrees to the contrary, an agreement entered into by the common parent
extending the time within which a notice of deficiency may be issued, or a levy
or a proceeding in court begun in respect of the tax for a consolidated return
year shall be applicable to each corporation which was a member of the group
during any part of the taxable year and to each corporation, the income of
which was included in the consolidated return for the taxable year,
notwithstanding that the liability of the corporation is subsequently computed
on the basis of a separate return under these rules.
g. If the common parent corporation
contemplates dissolution, or is about to be dissolved, or if for any other
reason its existence is about to terminate, it shall forthwith notify the
director of that fact and designate another member to act as its agent in its
place to the same extent and subject to the same conditions and limitations as
are applicable to the common parent. If this notice is not given by the common
parent, the remaining members may, subject to the approval of the director,
designate another member to act as agent, and notice of the designation shall
be given to the director. Until a notice in writing designating a new agent has
been approved by the director, any notice of deficiency or other communications
mailed to the common parent shall be considered as having been properly mailed
to the agent of the group. If the director has reasons to believe that the
existence of the common parent has terminated, the director may, if deemed
advisable, deal directly with any member in respect of its liability.
(2)
When
director may require consolidated return. In accordance with the
provisions of rule
701-5315.
(422), the director may require a consolidated return for those members of an
affiliated group of corporations which would be eligible to elect to
consolidate their incomes under Iowa Code section
42237. if
the filing of separate returns for such corporations would improperly reflect
the taxable incomes of said corporations or of said group.
(3)
Discontinuance of filing
consolidated returns.
a. An
affiliated group which filed (or was required to file) a consolidated return
for the immediately preceding taxable year is required to file a consolidated
return for the taxable year unless it is allowed to discontinue filing
consolidated returns, or unless a federal consolidated return is not filed by
the group.
b. In the event that a
consolidated filing for Iowa tax purposes is discontinued for any reason, the
common parent shall so notify the department by letter. The mere filing of
separate returns does not, in itself, constitute sufficient notice.
c. The following constitute factors for
determining when consolidated filing for Iowa tax purposes can be discontinued:
(1) If the filing of separate returns will
more clearly disclose the taxable income of each member of the affiliated
group. Corporations should note that such determination is vested in the
director. Therefore, corporations should make application to the director
within a reasonable time prior to the due date of the return (including
extensions of time). Normally, this would be not later than 90 days prior to
said due date. The application should set forth in detail the taxable income on
both a consolidated and separate basis together with the reasons why separate
returns would more clearly disclose Iowa taxable income. The mere fact that the
consolidated tax liability is greater or less than the combined separate
liabilities is not, of itself, a ground for discontinuance of consolidated
filing.
(2) If one or more of the
members of the affiliated group cease to be subject to Iowa corporate income
tax, consolidation may be discontinued in whole or in part.
(3) If one or more of the members of the
affiliated group change in character so that they are no longer taxable under
the Iowa corporate income tax law.
EXAMPLE: Common parent A is a manufacturer. Subsidiary B is a
company engaged in small loans. A and B file consolidated Iowa returns. In a
subsequent taxable year, B changes its business by surrendering its small loan
company license and obtains a state bank charter. Even though A and B continue
to file federal consolidated returns, B is now a corporation exempt from tax
under Iowa Code section
42234..
Therefore A and B should discontinue filing Iowa consolidated returns.
(4) If the affiliated group is
purchased by another corporation or affiliated group so that after the purchase
the stockholders own less than 5 0 percent of the fair market value of all
classes of outstanding stock of the new corporation or affiliated group then
the old group must discontinue filing Iowa consolidated returns. The new group
may exercise its privilege of filing a consolidated return.
d. If a group is allowed to
discontinue filing consolidated returns for any taxable year, then each member
of the affiliated group subject to Iowa tax must file a separate return for
such year on or before the last day prescribed by law (including extensions of
time) for the filing of the consolidated return for such year.
e. A group shall be considered as remaining
in existence, for the purposes of the Code, in accordance with the rules
prescribed in Treasury Regulation Section 1.1502 -75(d).
f. If a consolidated return erroneously
includes the income of one or more corporations which were not members of the
group at any time during the consolidated return year, the tax liability of
such corporations will be determined upon the basis of separate returns (or a
consolidated return of another group, if paragraph 53.15(1)"c"
or 53.15(3)"a" applies) and the consolidated return will be
considered as including only the income of the corporations which were members
of the group during that taxable year.
g. In any case in which amounts have been
assessed and paid upon the basis of a consolidated return, and where the tax
liability of one or more of the corporations included in the consolidated
return is to be computed in the manner described in paragraph
53.15(3)"f," the amounts so paid shall be allocated between
the group composed of the corporations properly included in the consolidated
return and each of the corporations, whose tax liability is to be computed on a
separate basis (or on the basis of a consolidated return of another group) in
such manner as the corporations which were included in the consolidated return,
and where the tax liability of one or more of the corporations included absence
of an agreement, the tax liability of the group shall be allocated under
subrule 53.12(4).
h. The taxable
year of members of the group, including rules for changing the parent's taxable
year, income to be included in the separate returns, and the time for making
separate returns for periods not included in a consolidated return for the
purposes of the Iowa Code, shall be in accordance with the rules prescribed in
Treasury Regulation Section 1.1502 -76(a)-(c).
(4)
Determination of consolidated
Iowa income.
a. Unless otherwise
provided by these rules or manifestly inconsistent with the provisions of the
Iowa Code, the consolidated taxable income for a consolidated return year under
the Iowa Code shall be determined in the same manner and under the same
procedures, including intercompany adjustments and eliminations, as are
required by the federal income tax regulations in the case of a federal
consolidated return.
b. If the Iowa
affiliated group differs in its members from the federal affiliated group, such
nonqualifying member(s) shall not be considered includable corporations and all
computations hereunder shall be made as if such member(s) were not members of
the affiliated group. The consolidated federal income tax liability shall be
allocated between includable corporations and nonincludable corporations by
subrule 53.12(4).
c. The
apportionment provisions of Iowa Code section
42233.
shall be taken into account by an affiliated group doing business within and
without Iowa. All members of an affiliated group which join in the filing of an
Iowa consolidated return shall determine the portion of the consolidated net
income earned within and without Iowa by the same method. All intercompany
transactions shall be eliminated in the determination of the apportionment
factors.
The gross receipts of each corporation which joins in the
filing of an Iowa consolidated corporation income tax return shall be included
in the computation of the business activity ratio. The gross receipts of each
corporation shall be included in the numerator of the business activity ratio
to the extent that it has nexus in Iowa and its gross receipts are not
eliminated by intercompany adjustments and are considered Iowa gross receipts
by rules
701-542.
(422) to
701-548.
(422). The gross receipts of each corporation shall be included in the
denominator of the business activity ratio to the extent its gross receipts are
not eliminated by intercompany adjustments.
d. On or after January 1,2016, see
701-Chapter 242 for requirements of an out-of-state business to be a part of an
affiliated group filing an Iowa consolidated return that enters Iowa to perform
disaster and emergency-related work during a disaster response period as those
terms are defined in Iowa Code section 29C.24.
(5)
Schedules. Supporting
schedules shall be filed with the consolidated return. The statement of gross
income and deductions and other schedules required for each corporation shall
be prepared and filed in columnar form so that the details of the items of
gross income, deductions, and credits for each member may be readily
ascertained. A column shall also be provided giving effect to any eliminations
and adjustments. The items included in the column for eliminations and
adjustments should be symbolized to identify contra items affected, and
suitable explanations appended, if necessary. Similar schedules shall contain
in columnar form a reconciliation of retained earnings for each corporation,
together with a reconciliation of consolidated retained earnings. Consolidated
balance sheets at the beginning and close of the taxable year of the group
shall accompany the consolidated return prepared in a form similar to that
required for other schedules. Transactions with a subsidiary which is not
included as part of the Iowa consolidated return shall not be considered as
intercompany transactions for elimination purposes in computing the
consolidated Iowa taxable income for the return period.
(6)
Liability for tax.
a. Except as provided in paragraph
53.15(6)"b," the common parent corporation and each subsidiary
subject to the Iowa corporation income tax which was a member of the affiliated
group during any part of the consolidated return year shall be severally liable
for the tax for the year computed in accordance with Iowa Code chapter 422, on
or before the due date (not including extensions of time) for the filing of the
consolidated return for that year.
b. If a subsidiary has ceased to be a member
of the group and if the cessation resulted from a bona fide sale or exchange of
its stock for fair value and occurred prior to the date upon which any
deficiency is assessed, the director may make an assessment and collection of
the deficiency from the former subsidiary in an amount not exceeding the
portion of the deficiency which the director may determine to be allocable to
it. If the director makes assessment and collection of any part of a deficiency
from the former subsidiary, then for purposes of any credit or refund of the
amount collected from the former subsidiary the agency of the common parent
under the provisions of paragraph 53.15(1)"e" shall not
apply.
c. No agreement entered into
by one or more members of the affiliated group with any other member of the
group shall in any case have the effect of reducing the liability prescribed
under this subrule.
(7)
Computation of contribution. Computation of a separate
corporation's contribution to consolidated income or net operating loss subject
to Iowa tax for purposes of net operating loss carryover and carryback
limitations shall be as follows:
A = Separate corporation gross sales within and without Iowa
after elimination of all intercompany transactions.
B = Consolidated gross sales within and without Iowa after
elimination of all intercompany transactions.
C = Iowa consolidated net income subject to
apportionment.
D = Separate corporation gross sales within Iowa after
elimination of all intercompany transactions.
E = Separate corporation income allocable to Iowa.
(8)
Limitations on net
operating loss carryover and carryback.
a.
Definitions.
(1) The term "separate return year" means a
year in which a corporation filed a separate return and also a year for which
it joined (or was required to join) in the filing of an Iowa consolidated
return by another affiliated group.
(2) The term "separate return limitation
year" means any separate return year of a member of the group or of a
predecessor of the member.
b.
Limitation on net operating loss
carryover. A net operating loss from a separate return limitation year
of a member of the group may be carried over only to the extent that the member
contributed to the Iowa consolidated taxable income as computed under subrule
53.15(7). A net operating loss carryover from a separate return limitation year
cannot create or increase a consolidated net operating loss which is carried
back for tax years beginning prior to January 1, 2009.
A consolidated net operating loss may be carried over to a
consolidated return year without limitation even though in the carryover year
the affiliated group contains members which were not members of the group in
the loss year.
If a member of the affiliated group in the loss year leaves
the group through the sale of its stock or because it is now a corporation
exempt from tax under Iowa Code section
42234.,
its share, as determined by subrule 53.15(7), of the unabsorbed consolidated
net operating loss at the end of the consolidated return year during which the
member left the group or became exempt from tax may not be carried forward to a
subsequent consolidated return.
c.
Limitation on net operating loss
carryback for tax periods beginning prior to January 1, 2009. A
member's share of an Iowa consolidated net operating loss as computed under
subrule 53.15(7) must be carried back to a separate return year, unless the
affiliated group elected to carry the net operating loss forward. However, if
the member was not in existence in the carryback year but had been a member of
the group for every tax year of its existence, its share of the Iowa
consolidated loss may be carried back to a separate return year of the common
parent.
If a consolidated net operating loss is carried back to a
consolidated return year and all members of the affiliated group are the same
in the carryback year as in the loss year, the consolidated net operating loss
may be carried back without limitation. If there are members of the affiliated
group in the loss year which were not members in the carryback year, then the
formula in subrule 53.15(7) must be used to determine the portion of the
consolidated net operating loss attributable to the members in existence in the
carryback year and which may be carried back. Any member of the affiliated
group which was a member of the loss-year affiliated group which has been a
member of the group since its formation will be regarded as having been a
member of the group in the carryback year even though it was not then in
existence. A merger or liquidation of members within the affiliated group will
be disregarded in determining whether there has been a change in the group
between the loss year and the carryback year.
The amount of net operating loss that may be carried back
from a separate return year to a consolidated return year is limited to the
extent that the former member contributed to the Iowa consolidated taxable
income as computed under subrule 53.15(7).
This rule is intended to implement Iowa Code section
42235.
as amended by 2009 Iowa Acts, Senate File 483, and section
422.37.
