SECTION 2. BACKGROUND

.01 Section 1.1502–75(a)(1) provides that an affiliated group of corporations that 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, provided that each corporation that has been a member of the group during any part of the taxable year for which the consolidated return is to be filed consents to the regulations under § 1502 (in the manner prescribed in § 1.1502–75(b)). If a group wishes to exercise its privilege of filing a consolidated return, a consolidated return must be filed not later than the last day prescribed by law (including extensions of time) for the filing of the common parent’s tax return. The consolidated return may not be withdrawn after such last day (but the group may withdraw the consolidated return at any time prior to such last day).

.02 Section 1.1502–75(b)(1) provides, as a general rule, that a corporation’s consent shall be made by the corporation joining in the making of the consolidated return. A corporation shall be deemed to have joined in the making of a consolidated return if it files a Form 1122 in the manner specified in § 1.1502–75(h)(2).

.03 Section 1.1502–75(b)(2) provides that if a member of the group fails to file Form 1122, the Commissioner may under the facts and circumstances determine that the member has joined in the making of a consolidated return by the group. The fol

lowing circumstances, among others, will be taken into account in making this determination: (i) whether or not the income and deductions of the member were included in the consolidated return; (ii) whether or not a separate return was filed by the member for that taxable year; and (iii) whether or not the member was included on Form 851, Affiliations Sched- ule . If the Commissioner determines that the member has joined in the making of the consolidated return, the member shall be treated as if it had filed a Form 1122 for the year for purposes of § 1.1502– 75(h)(2). .04 Section 1.1502–75(b)(3) provides that if any member has failed to join in the making of a consolidated return under either § 1.1502–75(b)(1) or § 1.1502– 75(b)(2), then the tax liability of each member of the group shall be determined on the basis of separate returns unless the common parent corporation establishes to the satisfaction of the Commissioner that the failure of the member to join in the making of the consolidated return was due to a mistake of law or fact, or to inadvertence. In such case, the member shall be treated as if it had filed a Form 1122 for the year for purposes of § 1.1502– 75(h)(2), and thus joined in the making of the consolidated return for the year.

.05 Section 1.1502–75(h)(2) provides that if a group wishes to file a consolidated return for a taxable year, then a Form 1122 must be executed by each subsidiary. For taxable years beginning after December 31, 2002, the group must attach either executed Forms 1122 or unsigned copies of the completed Forms 1122 to the consolidated return. If the group submits unsigned Forms 1122 with its return, it must retain the signed originals in its records in the manner required by § 1.6001– 1(e). Form 1122 is not required for a taxable year if a consolidated return was filed (or was required to be filed) by the group for the immediately preceding taxable year.