SECTION 2. BACKGROUND

.01 The consolidated return regulations generally require that intercompany transactions be treated in a manner that produces the effect of transactions between divisions of a single corporation (that is, the regulations treat intercompany transactions on a “single entity basis”). T h e single entity approach for intercompany transactions is an integral part of the overall tax treatment of affiliated groups filing consolidated returns (“consolidated groups”) under § 1502 of the Internal Revenue Code. Treating intercompany transactions on a single entity basis is required to clearly reflect consolidated taxable income (“CTI”). However, in certain circumstances, the Service may exercise discretion and grant consent, under § 1.1502–13(e)(3), to a consolidated group to treat some or all intercompany transactions (other than intercompany transactions with respect to stock or obligations of members of a consolidated group) on a separate entity basis (that is, without the application of § 1.1502–13). Consent under § 1.1502–13(e)(3) may require changes in the methods of accounting for intercompany transactions of members of a consolidated group.

.02 Section 4 sets forth the time and manner in which requests for consent under § 1.1502–13(e)(3) must be filed.

.03 Section 5 provides a checklist which is similar to the checklist set forth in Rev. Proc. 82–36 to facilitate the filing and handling of requests under § 1.1502–13(e)(3) by specifying the information that should be included so that applications will be as complete as possible when originally filed. However, because the information necessary to rule on a particular case depends upon all the facts and circumstances, information in addition to that listed in this revenue procedure may be requested by the Service prior to determining whether consent will be granted.

.04 Section 6 sets forth certain factors and guidelines used by the Service in considering requests for consent under § 1.1502–13(e)(3).

.05 Section 7 sets forth the effect of receiving the Service’s consent under § 1.1502–13(e)(3).

.06 Section 8 describes the procedures applicable to the revocation of consent under § 1.1502–13(e)(3). Section 8 provides that consent will generally not be revoked simply because the effect of the consent causes a substantial increase or decrease in CTI in any one taxable year. When consent was granted under Rev. Proc. 82–36, the Service typically stated in the ruling letter that the consent would be revoked whenever the effect of the consent would cause a substantial increase or decrease in CTI.

.07 Section 9 sets forth the manner in which requests for consent to change from separate entity reporting to single entity reporting must be filed in cases where a valid consent from the Service to report intercompany transactions on a separate entity basis was not previously obtained.

.08 The authority and general procedures with respect to the issuance of advance rulings are set forth in Rev. Proc. 97–1, 1997–1 I.R.B. 11, or its successor, and are applicable to requests under § 1.1502–13(e)(3).