SECTION 13. DETERMINING

APPLICABLE CORPORATION STATUS

.01 Purpose . The Treasury Department and the IRS intend to propose rules in forthcoming proposed regulations consistent with the interim guidance provided in this section 13, which provides corporations with additional clarity in determining whether they are an Applicable Corporation under § 59(k) prior to forthcoming proposed regulations.

.02 Aggregation rules under § 59(k)(1) (D) .

(1) In general . Section 59(k)(1)(D) provides that, solely for purposes of determining whether a corporation is an Applicable Corporation, all AFSI of persons treated as a single employer with the corporation under § 52(a) or (b) is treated as AFSI of that corporation (Section 52 Aggregation).

(2) Application of § 52(a) to aggrega- tion of corporations .

(a) In general . Section 52(a) generally provides that corporations that are members of a controlled group of corporations are treated as a single employer. Section 52(a) provides that a controlled group of corporations is defined with reference to § 1563(a), with certain modifications. ⁴ Section 1563(a)(1), (2), and (3) provide that a controlled group of corporations

may be a parent-subsidiary controlled group, a brother-sister controlled group, or a combined group of corporations.

(b) Section 1563(d) sets forth the rules for determining stock ownership under § 1563(a) and provides that stock owned directly or indirectly by application of the constructive ownership rules under § 1563(e) is taken into account in determining whether an organization is a member of a controlled group. Section 1563(d)(1) provides that in the case of a parent-subsidiary group, the constructive ownership rules under § 1563(e)(1), (2), and (3), relating to options, partnerships, and estates or trusts, respectively, are taken into account. ⁵ Under § 1563(e)(2), stock owned, directly or indirectly, by or for a partnership is considered to be owned by any partner having an interest of five percent or more in either the capital or profits of the partnership in proportion to the partner’s interest in capital or profits, whichever such proportion is the greater. Thus, under § 52(a), a corporate partner with an interest of five percent or more in the capital or profits of a partnership is considered to own stock owned by the partnership based on the application of the constructive ownership rules under § 1563(d)(1) and (e)(2). For example, if Corporation A owns an interest of five percent or more in the profits of a partnership and the partnership owns stock in Corporation B, then Corporation A would be deemed to own the stock of Corporation B, in proportion to Corporation A’s profits interest in the partnership, in determining whether Corporation A and Corporation B are treated as a single employer for purposes of applying § 59(k)(1)(D).

(c) Section 52(a) applies to the mem- bers of a controlled group, and not to the component members of a controlled group defined in § 1563(b). In particular, § 1563(b)(1)(A) and (b)(2) do not apply to exclude certain corporate members from the controlled group, including foreign corporations subject to Federal income tax under § 881. See § 1563(b)(2)(C). Under § 1.1563-1(a)(1)(ii), in determining whether a corporation is included in a controlled

4 The clause “more than 50 percent” is substituted for the clause “at least 80 percent” each place “at least 80 percent” appears in § 1563(a)(1). In addition, § 1563(a)(4) (relating to certain insurance companies) and (e)(3)(C) (relating to certain estate or trust attribution rules) are disregarded.

5 Section 1563(d)(2)(B) and (e) provide that, for brother-sister groups, in addition to attribution from options, partnerships, estates, or trusts, attribution from corporations, spouses, and children, grandchildren, parents, and grandparents also applies.

October 2, 2023 988 Bulletin No. 2023–40

group of corporations, § 1563(b) and § 1.1563-1(b), relating to component members of a controlled group of corporations, are not taken into account. Thus, under § 52(a), a foreign corporation may be a member of a controlled group that is treated as a single employer for purposes of applying § 59(k)(1)(D).

(3) Application of § 52(b) to part- nerships and other noncorporate organizations .

(a) Section 52(b) generally provides that trades or businesses that are partnerships, trusts, estates, corporations, or sole proprietorships under common control are members of a controlled group and are treated as a single employer. See § 1.52-1(b). Section 52(b) also requires the regulations under § 52(b) to be based on principles similar to the principles that apply for purposes of § 52(a). Section 52(b) and § 1.52-1 provide rules similar to those under § 52(a) but with certain modifications to account for different types of ownership interests.

(b) The constructive ownership rules under § 1563(d) and (e) described in section 13.02(2) of this notice also apply for purposes of § 52(b) in determining members of the controlled group. In addition, just as § 52(a) does not exclude foreign corporations, an organization that is a foreign entity (such as a foreign partnership or foreign trust) may be aggregated under § 52(b) in determining whether it is a member of a controlled group that is treated as single employer under § 52(b) for purposes of applying § 59(k)(1)(D).

(4) Application of § 52 to S corpo- rations, RICs, and REITs . As described in section 2.01(4)(a) of Notice 20237, S corporations, RICs, and REITs are excluded from the definition of an Applicable Corporation for purposes of §§ 55 through 59. However, § 52(a), the regulations under § 1563, and the regulations under § 52(b) do not exclude S corporations, RICs, or REITs from being members of a controlled group. ⁶ Because § 52 and the regulations thereunder do not exclude S corporations, RICs, or REITs, these organizations are taken into account in determining whether members

of a controlled group are treated as a single employer under § 52 for purposes of applying § 59(k)(1)(D).

.03 Determining Applicable Corporation status of members of a FPMG .

(1) Aggregation rule for corporations that are members of a FPMG . For purposes of applying the FPMG $1 Billion Test (as defined in section 2.04(1) of this notice), the AFSI of a Taxpayer being evaluated for Applicable Corporation status (Tested Corporation) that is a member of a FPMG includes both (i) the AFSI of all other members of the FPMG (FPMG Aggregation), and (ii) the AFSI of all persons treated as a single employer with the Tested Corporation by reason of Section 52 Aggregation to the extent such AFSI is not AFSI of a member of the FPMG.

(2) Calculation of AFSI for purposes of applying the FPMG $1 Billion Test . Under § 59(k)(2)(A), for purposes of applying the FPMG $1 Billion Test, the AFSI of a Taxpayer that is a member of a FPMG is calculated without regard to § 56A(c)(2)(D)(i), (c)(3), (c)(4), and (c) (11). As a result, in applying both Section 52 Aggregation and FPMG Aggregation for purposes of determining whether a Tested Corporation meets the FPMG $1 Billion Test, AFSI of all relevant persons, including persons that are not members of the Tested Corporation’s FPMG but that are treated as a single employer with the Tested Corporation under § 52(a) or (b), is determined without regard to § 56A(c)(2) (D)(i), (c)(3), (c)(4), and (c)(11).

.04 Disregarding the distributive share adjustment .

(1) In general . Section 7 of Notice 2023-7 provides that the adjustment to AFSI in § 56A(c)(2)(D)(i) is inapplicable in all circumstances in determining whether a corporation that is a partner in a partnership (whether directly or indirectly) is an Applicable Corporation. Accordingly, solely for purposes of § 59(k), a Taxpayer that is a partner in a partnership includes in its AFSI the FSI amount it reports with respect to its partnership investment (for example, under the fair value method or equity method),

rather than its “distributive share” of the AFSI of the partnership under § 56A(c)(2) (D)(i). See sections 5.02(3)(c)(iii)(B) and (vii) of this notice for the determination of a partner’s FSI with respect to its partnership investment when the partner and the partnership are members of the same AFS Group and the partner’s AFS is the Consolidated AFS of that AFS Group.

(2) Duplication of income or loss . If a Taxpayer is a partner in a partnership and all the AFSI of the partnership is treated as the AFSI of the Taxpayer under § 59(k) (1)(D) or § 59(k)(2)(A), as applicable, then solely for purposes of § 59(k), and in order to prevent duplication of income or loss from the partnership investment, the Taxpayer does not include in its AFSI the FSI amount it reports with respect to the partnership investment.