SEC. 2. BACKGROUND

.01 Section 1.1502–75(a)(2) of the Income Tax Regulations generally provides that a group that filed (or was required to file) a consolidated return for the immediately preceding taxable year is required to file a consolidated return for subsequent taxable years unless it has received permission to discontinue filing consolidated returns.

.02 Under § 1.1502–75(c)(2)(i), the Service has discretion to grant all groups permission to discontinue filing consolidated returns if an amendment to the Internal Revenue Code or regulations could have a substantial adverse effect on the filing of consolidated returns by substantially all groups, relative to the filing of separate returns. Ordinarily, the permission to discontinue applies with respect to the taxable year of each group that includes the effective date of the amendment.

.03 On July 12, 1995, final regulations were filed with the Federal Register as T.D. 8597 (‘‘final regulations’’). The final regulations amend the intercompany transaction system of the consolidated return regulations. The final regulations also revise the regulations under § 267(f) of the Internal Revenue Code, limiting losses and deductions from transactions between members of a controlled group. The amendments to the consolidated return regulations reflected in T.D. 8597 generally apply to transactions in tax years beginning on or after July 12, 1995. .04 The Preamble to T.D. 8597 states that guidance is intended to be issued pursuant to which groups may receive permission to deconsolidate. The Preamble also states that permission to deconsolidate will be granted under terms and conditions similar to those set forth in Rev. Proc. 95–11, 1995–1 C.B. 505. .05 The Service has determined that it is generally appropriate to grant permission to discontinue filing consolidated returns as a result of the amendments made by the final regulations. To lessen taxpayer burden and ease administrability, the Service has decided to grant all electing consolidated groups permission, subject to the terms of this revenue procedure, to discontinue filing consolidated returns.

(4) The term ‘‘successor’’ means a person that, during the 60-month period, acquires any material asset of a former member if that person’s basis in the asset is determined in whole or in part, directly or indirectly, by reference to the former member’s basis in the asset.

(5) Unless the context otherwise requires, any reference to ‘‘former member’’ includes any successor to the former member.

(6) The term ‘‘new group’’ means an affiliated group that, during the 60month period, includes at least one former member and less than all of whose members are former members of the same electing consolidated group.

(7) The term ‘‘material asset’’ means an asset (or group of assets) that is material to either the person acquiring the asset or the person disposing of the asset.

(8) Any reference to the term ‘‘return’’ includes an amended return, as appropriate.