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.”). The 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

2009–27 I.R.B. 107 July 6, 2009

§ 1.1502–13(e)(3). If an item is not applicable, the letters “N.A.” should be inserted after that item. The presentation of the information should follow the format of this revenue procedure as closely as possible.

.02 Information needed in order to make a determination regarding a request for consent to treat some or all intercompany transactions on a separate entity basis:

(1) The date the consolidated group

elected to file consolidated returns. (2) The taxable year used by the

consolidated group. (3) A calculation of the difference,

for the consent year and for each of the two taxable years preceding the consent year, between (a) CTI and CTL computed by treating all intercompany transactions on a single entity basis and (b) CTI and CTL, respectively, computed by treating those intercompany transactions for which consent is requested, and those intercompany transactions for which consent has previously been obtained, on a separate entity basis. For any taxable year, the percentage difference between (a) and (b) in the preceding sentence is hereinafter referred to as the “Effect on CTI or CTL.” (4) An analysis of all intercompany

transactions for the consent year and for each of the two taxable years preceding the consent year. This analysis must include the number and a description of all intercompany transactions and the dollar amounts thereof. (5) An analysis of the effect of

treating those intercompany transactions for which consent is requested on a separate entity basis on the following items for the consent year: (a) Net operating loss carry overs. (b) Capital loss carryovers. (c) Tax credits (for example, for eign tax credits) in the consent year as well as carryovers to the consent year.

.03 Section 5 provides a checklist which is substantially similar to the checklist set forth in Rev. Proc. 97–49 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. The sole revision to such checklist is the reference to CTL in addition to CTI. 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). This section has been revised to include a reference to CTL in addition to CTI. Additionally, the threshold for determining “Effect on CTI or CTL”, as defined in section 5, has been reduced from 10 percent to 5 percent.

.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 8.01, as revised, provides that consent to treat intercompany transactions on a separate entity basis under § 1.1502–13(e)(3) is revoked automatically for any taxable year in which the effect on CTI or CTL, when averaged with the effect on CTI or CTL for each of the two preceding taxable years, is greater than 5 percent. In addition, section 8.03, as revised, provides that the factors and guidelines in section 6, which are used in considering the request for consent, will also be considered in determining whether to revoke consent where such consent is not automatically revoked under section 8.01.

.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. 2009–1, 2009–1 I.R.B. 1, or its succes

sor, and are applicable to requests under § 1.1502–13(e)(3).