Exhibit 10.5

 

FEDERAL INCOME TAX SHARING AGREEMENT

 

Effective as of December 1, 2010, this Federal Income Tax Sharing Agreement
(“Agreement”) replaces all prior Federal Income Tax Sharing Agreements between
or among Ameriprise Financial, Inc. (“Ameriprise” and/or “Parent”) and its
subsidiaries listed on the attached Schedule A.  Collectively, Ameriprise and
its subsidiaries listed on Schedule A are the “Parties” to this Agreement.

 

The Parties file a consolidated Federal income tax return, as provided in
Sections 1501 through 1504 of the Internal Revenue Code of 1986, as amended (the
“Code”).  The Parties to this Agreement are all members of the Federal
consolidated filing group (the “Consolidated Group”).  Ameriprise, as the parent
corporation of the Consolidated Group, is required under the Code and Treasury
Regulations on Income Tax (the “Treasury Regulations”) to pay any taxes owed as
the result of filing the consolidated return.  The Parties must allocate the
federal income tax liability of the Consolidated Group among the members of the
Consolidated Group, and must settle any inter-company balances of amounts “due
and from” under this Agreement.

 

NOW THEREFORE, the Parties agree as follows:

 

1.             Agent of the Consolidated Group.  Ameriprise, as the common
parent of the Consolidated Group, shall act as the sole agent of the
Consolidated Group, and shall act for each member of the Consolidated Group and
any successor of the Consolidated Group with respect to all matters relating to
the tax liability for the Consolidated Group under the rules set forth in
Section 1.1502-77 of the Treasury Regulations.

 

2.             Allocation of Tax Liability to Members.

 

A.            General Rule for Allocation of Tax Among Members.  The Parties
have elected to use the “percentage method” of tax allocation described in
Treasury Regulation Sections 1.1552-1(a)(2)(ii) and 1.1502-33(d)(3).

 

i.              A member’s portion of the tax liability of the Consolidated
Group shall be an amount equal to the tax liability of the Consolidated Group,
multiplied by a fraction, the numerator of which is the separate return
liability of the member, and the denominator of which is the sum of the separate
return liabilities of all members.

 

ii.             A member’s tax allocation is increased by 100% of the excess, if
any, of the member’s separate return tax liability over the member’s tax
allocation determined under paragraph 2.A.i.  This amount represents the
member’s marginal benefit from filing a consolidated return, where the member’s
tax liability is reduced by its use of another member’s losses or tax credits.

 

iii.            The separate return tax liability of a member is its tax
liability computed as if it has filed a separate return for the year except
that—

 

1)             Gains and losses on intercompany transactions shall be taken into
account as if a consolidated return had been filed for the year;

 

1

--------------------------------------------------------------------------------

 

2)             Transactions with respect to stock, bonds, or other obligations
of members shall be reflected as if a consolidated return had been filed for the
year;

 

3)             Excess losses (as defined in Treasury Regulation
Section 1.1502-19) shall be included in income as if a consolidated return had
been filed for the year;

 

4)             the computation of the depreciation deduction (Code Section167),
property shall not lose its character as new property as a result of a transfer
from one member to another member during the year;

 

5)             A dividend distributed by one member to another member during the
year shall not be taken into account in computing the deductions for dividends
received and paid;

 

6)             Basis shall be determined under Treasury Regulation Sections
1.1502-31 and 1.1502-32, and earnings and profits shall be determined under
Treasury Regulation Sections 1.1502-33 and 1.1502-1(a)(2)(ii); and

 

7)             Treasury Regulation Section 1.1502-3(f)(2) shall apply.

 

B.            Use of Tax Benefits.

 

i.              “Tax Benefits” Defined.  For purposes of this Agreement, the
term “tax benefits” means tax credits, losses, loss carryforwards, and loss
carrybacks.

 

ii.             Payment from Parent to Member for Use of Member’s Tax Benefits. 
The Parent shall pay a member for any tax benefits that the member generates, to
the extent that the Consolidated Group uses those benefits to reduce its tax
liability.  If multiple members generate tax benefits, and the Consolidated
Group uses some or all of those tax benefits to reduce its tax liability, Parent
shall allocate payments for tax benefits among the members that generated the
tax benefits in a manner that reasonably reflects the absorption of the tax
benefits, consistent with Treasury Regulation Section 1.1502-33.  Once a member
of the Consolidated Group is paid for its tax benefits it cannot use such tax
benefits in calculating its separate return tax liability.

 

iii.            Unused Tax Benefits.  If the member’s tax benefits are not used
to reduce the Consolidated Group’s tax liability on the consolidated return, the
member shall retain the tax benefits for possible future use.

 

C.            Limitations on Allocation of Tax Among Members.

 

i.              Separate Return Limitation.  In no event shall the amount of tax
allocated to any member under the agreement be more than the member would have
paid if it had filed on a separate return basis.

 

ii.             Deferred Tax Liabilities and Assets.  In no event shall any
Party pay or otherwise transfer to any other Party any amount for a deferred tax
asset or deferred tax liability.  In no event shall a parent forgive any
deferred tax liability of a subsidiary.

 

2

--------------------------------------------------------------------------------

 

iii.            New York Member Limitations.  Any member of the Consolidated
Group licensed as an insurance company in the State of New York will be
considered a “New York member”.  New York members are subject to additional
limitations on the allocation of tax among members of the Consolidated Group, as
described in this paragraph and New York Insurance Department Circular Letter
No. 33 (1979), paragraph 3, method (B).

 

1)             The tax charge to the New York member shall not be more than it
would have paid if it had filed on a separate return basis.  The New York member
shall be “paid” for any foreign tax credits, investments credits, losses or any
loss carry over (collectively herein referred to as credits) generated by it, to
the extent actually used in the consolidated return.  Payment shall be equal to
the “savings” generated by its credits.  All payments shall be recorded on the
New York member’s books as contributed surplus.

 

2)             Once an insurer is “paid” for its credits it cannot use such
credits in the calculation of its tax liability under the separate return
basis.  Any of the New York member’s credits which are not used in the
consolidated return and for which it has not been paid shall be retained by the
New York member for possible future use.

 

3)             If the amount paid by any New York member to Ameriprise for
federal income taxes is greater than the actual payment made by Ameriprise to
the Internal Revenue Service, the difference shall be placed by Ameriprise in an
escrow account established under an escrow agreement substantially in the form
attached hereto as Exhibit A, consisting of assets eligible as an investment for
the New York member.  The escrow account shall be established and maintained by
Ameriprise in an amount equal to the excess of the amount paid by the New York
member to Ameriprise for federal income taxes over the actual payment made by
Ameriprise to the Internal Revenue Service.  Assets may be released to
Ameriprise from the escrow account at such time as the permissible period for
loss carrybacks has elapsed.

 

D.            Examples.  For examples demonstrating the allocation of tax among
members of the Consolidated Group, see the attached Exhibit B.

 

3.             Settlement of Intercompany Tax Obligations.  Any obligation of a
member of the Consolidated Group as determined under this Agreement owed to
another member of the Consolidated Group shall be paid by the member owing such
amount within thirty (30) days of the payment of any tax due (including
estimated taxes or taxes owed in the event of a redetermination of taxes as
determined in Paragraph 4) or within thirty (30) days of any tax refund actually
received.  In the event that the amount of any obligation owed by one member to
another member results from a calculation error made by the common parent, such
member shall be liable for any underpayment resulting from such error but shall
not be liable for any interest on such underpayment (or any penalties imposed by
the Internal Revenue Service) that may apply.

 

4.             Redetermination of Tax.  If the taxes owed by the Consolidated
Group or any member of the Consolidated Group are re-determined by the Internal
Revenue Service, by the Consolidated Group through the filing of an amended
return, by a court, or by any other means, the amount of tax owed by each member
of the Consolidated Group shall be recalculated.  Interest on these subsequent
adjustments shall be paid at the same rate that is either paid to the Internal
Revenue

 

3

--------------------------------------------------------------------------------

 

Service in the event of additional tax owed or is paid by the Internal Revenue
Service to the Consolidated Group or member of the Consolidated Group.  For
purposes of determining the interest rate, netting of payments and refunds shall
be made to the extent allowed under the Code.

 

5.             Amending This Agreement.  This Agreement may be amended from time
to time by agreement in writing executed by all of the members that at such time
constitute the Consolidated Group.

 

6.             Terminating This Agreement.  This Agreement shall remain in force
unless any one of the three following conditions is met:

 

A.            All of the parties to this Agreement agree in writing to the
termination of this Agreement;

 

B.            Membership in the Consolidated Group ceases or terminates for any
reason, in which case this Agreement only terminates with respect to the
member(s) leaving the Consolidated Group; or

 

C.            The Consolidated Group fails to file a consolidated return for a
taxable year.

 

Notwithstanding the termination of this Agreement, its provisions will remain in
effect for any period of time during the tax year in which termination occurs
for which the income of the terminating party must be included in the
consolidated return, and this Agreement will remain in effect in any prior
period for which the terminating party is a member of the Consolidated Group.

 

7.             Consistency with Law and Regulations.  The Parties will interpret
the Agreement in a manner consistent with all applicable law and regulations. 
Notwithstanding anything in this Agreement to the contrary, no party hereto
shall be obligated to perform any of its obligations under this Agreement to the
extent that such performance would violate any provision of law or regulation
applicable to such party as in effect from time to time, including without
limitation:

 

·      Sections 23A and 23B of the Federal Reserve Act and Regulation W pursuant
thereto;

·      The Interagency Policy Statement of Income Tax Allocation in a Holding
Company Structure, dated November 5, 1998, available at 63 Fed. Reg. 64757,
November 23, 1998; and

·      New York Insurance Department Circular Letter No. 33 (1979).

 

8.             Admittance of New Parties to This Agreement.

 

A.            Admittance by Operation of Law.  Any company that is owned by
another member or other members of the Consolidated Group that becomes part of
the Consolidated Group by operation of the Code or Treasury Regulations and that
is required to file as a member of the Consolidated Group shall automatically
become a Party to this Agreement.

 

B.            Admittance by Consent.  If the preceding paragraph (8.A.) does not
apply, any direct or indirect subsidiary or other entity controlled directly or
indirectly by Ameriprise may

 

4

--------------------------------------------------------------------------------

 

become a party hereto effective as of the date specified in writing by the
adopting subsidiary or other entity, with the consent of Ameriprise (as
evidenced in writing by action of the Board of Directors or any officer of
Ameriprise).  Any subsidiary or other entity adopting this Agreement shall be
bound by the provisions of this Agreement in effect at the time of adoption, and
any subsequent amendment thereto.

 

C.            Coordination with the State Income Tax Sharing Agreement.  The
State Income Tax Sharing Agreement between the Parties is described in a
separate document.  Any member admitted to this Agreement is also simultaneously
admitted to the State Income Tax Sharing Agreement.

 

9.             Assignment of This Agreement.  This Agreement shall not be
assignable by any party, without the prior written consent of the other parties.

 

10.           Tax Returns and Supporting Documents.  Notwithstanding its
termination, all material relating to a consolidated federal tax return filed in
accordance with this Agreement including, but not limited to, returns,
supporting schedules, workpapers, correspondence and other documents shall be
made available to any party to this Agreement during regular business hours.

 

11.           Arbitration of Controversies.  Any controversy arising under this
Agreement shall be settled by arbitration in Minneapolis, Minnesota.  All
controversies shall be settled in accordance with the American Arbitration
Association rules then in effect, and any award rendered thereon shall be
enforceable in any court of competent jurisdiction.

 

12.           Scope of This Agreement.

 

A.            This Agreement sets forth the entire understanding of the parties
and supersedes any prior agreement on the subject matter hereof.

 

B.            State Income Tax Sharing Agreement.  The Parties have also adopted
a State Income Tax Sharing Agreement, which is described in a separate document,
and is not incorporated into this Agreement except as otherwise provided in this
Agreement.

 

C.            FIN 48 Agreement.  The Parties may also adopt a FIN 48 Agreement,
described in a separate document, which would allow the Parties to compute
taxable income under this Agreement by taking into account Financial Accounting
Standards Board Interpretation Number 48 (“FIN 48”).

 

D.            Limited Liability Companies.  Ameriprise and its subsidiaries own
100% of the membership interests in several limited liability companies
(“wholly-owned LLCs”).  Those wholly-owned LLCs that are disregarded for Federal
income tax purposes under Treasury Regulation §301.7701-3 are not Parties to
this Agreement, unless specifically listed in Schedule A or otherwise admitted
to this Agreement as provided in paragraph 8.  Those wholly-owned LLCs that have
elected taxation as a corporation for Federal income tax purposes under Treasury
Regulation §301.7701-3 are Parties to this Agreement.

 

E.             Partnerships.  Ameriprise and its subsidiaries own controlling
interests in several entities which are treated as partnerships for Federal
income tax purposes.  Those partnerships are not taxed as separate legal
entities, and therefore, are not Parties to this Agreement, unless

 

5

--------------------------------------------------------------------------------

 

specifically listed in Schedule A or otherwise admitted to this Agreement as
provided in paragraph 8.

 

13.           IN WITNESS WHEREOF, the Parties hereto execute this Agreement as
of the day and year first above written.

 

Advisory Capital Strategies Group Inc.,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

American Enterprise Investment Services, Inc.,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

Ameriprise Advisor Capital, LLC,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

Ameriprise Advisor Services, Inc.,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

Ameriprise Auto & Home Insurance Agency, Inc.,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

Ameriprise Bank, FSB,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

Ameriprise Captive Insurance Company,

 

 

 

 

 

BY:

/s/ John J. Hirsch

 

 

 

Ameriprise Certificate Company,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

6

--------------------------------------------------------------------------------

 

Ameriprise Financial, Inc.,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

Ameriprise Financial Services, Inc.,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

Ameriprise Holdings, Inc.,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

Ameriprise Insurance Agency of Massachusetts, Inc.,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

Ameriprise Insurance Company,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

Ameriprise Trust Company,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

AMPF Holding Corporation,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

AMPF Property Corporation,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

AMPF Realty Corporation,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

7

--------------------------------------------------------------------------------

 

Brecek & Young Advisors, Inc.,

 

 

 

 

 

BY:

/s/ Kelly J Windorski

 

 

 

Brecek & Young Financial Services Group of Montana, Inc.,

 

 

 

 

 

BY:

/s/ Kelly J Windorski

 

 

 

Brecek & Young Financial Group Insurance Agency of Texas, Inc.,

 

 

 

 

 

BY:

/s/ Kelly J Windorski

 

 

 

Columbia Management Investment Distributors, Inc,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

Columbia Management Investment Services Corp.,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

IDS Management Corporation,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

IDS Futures Corporation,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

IDS Property Casualty Insurance Company,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

IDS Capital Holdings Inc.,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

8

--------------------------------------------------------------------------------

 

Investors Syndicate Development Corporation,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

J. & W. Seligman & Co., Inc.,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

RiverSource Distributors, Inc.,

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

RiverSource Life Insurance Company,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

RiverSource Life Insurance Company of New York,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

RiverSource Tax Advantaged Investments, Inc.,

 

 

 

 

 

BY:

/s/ Richard N. Bush

 

 

 

Securities America Financial Corporation,

 

 

 

 

 

BY:

/s/ Kelly J. Windorski

 

 

 

Securities America, Inc.,

 

 

 

 

 

BY:

/s/ Kelly J. Windorski

 

 

 

Securities America Advisors, Inc.,

 

 

 

 

 

BY:

/s/ Kelly J. Windorski

 

 

9

--------------------------------------------------------------------------------

 

Seligman Asia, Inc.

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

 

WAM Acquisition GP, Inc.

 

 

 

 

 

BY:

/s/ Michael Gilmore

 

 

10

--------------------------------------------------------------------------------

 

Schedule A:

Ameriprise Financial, Inc. subsidiaries joining in the Federal Income Tax
Sharing Agreement

 

The following companies are subsidiaries of Ameriprise Financial, Inc., joining
in the Federal Income Tax Sharing Agreement:

 

Advisory Capital Strategies Group Inc.,

American Enterprise Investment Services, Inc.,

Ameriprise Advisor Capital, LLC,

Ameriprise Advisor Services, Inc.,

Ameriprise Auto & Home Insurance Agency, Inc.,

Ameriprise Bank, FSB,

Ameriprise Captive Insurance Company,

Ameriprise Certificate Company,

Ameriprise Financial Services, Inc.,

Ameriprise Holdings, Inc.,

Ameriprise Insurance Agency of Massachusetts, Inc.,

Ameriprise Insurance Company,

Ameriprise Trust Company,

AMPF Holding Corporation,

AMPF Property Corporation,

AMPF Realty Corporation,

Brecek & Young Advisors, Inc.,

Brecek & Young Financial Services Group of Montana, Inc.,

Brecek & Young Financial Group Insurance Agency of Texas, Inc.,

Columbia Management Investment Distributors, Inc,

Columbia Management Investment Services Corp.,

IDS Management Corporation,

IDS Futures Corporation,

IDS Property Casualty Insurance Company,

IDS Capital Holdings Inc.,

Investors Syndicate Development Corp.,

J. & W. Seligman & Co., Inc.,

RiverSource Distributors, Inc.,

RiverSource Life Insurance Company,

RiverSource Life Insurance Company of New York,

RiverSource Tax Advantaged Investments, Inc.,

Securities America Financial Corporation,

Securities America, Inc.,

Securities America Advisors, Inc.,

Seligman Asia, Inc.

WAM Acquisition GP, Inc.

 

11

--------------------------------------------------------------------------------

 

Exhibit A:

Escrow Agreement for New York Members

 

This is an ESCROW AGREEMENT, dated ______________ among Ameriprise
Financial, Inc. (“Ameriprise”), RiverSource Life Insurance Co. of New York
“(RSLICNY”), and _______________ as Escrow Agent (collectively, the “Parties”).

 

RSLICNY is a life insurance company doing business in the State of New York. 
Ameriprise is required by New York State law to establish and maintain a special
account consisting of assets eligible as an investment for a New York life
insurer in an amount equal to the excess of the amount paid by RSLICNY to
Ameriprise for federal income taxes over the actual tax payment made by
Ameriprise.  Escrow assets may be released to Ameriprise from the special
account at such time as the permissible period for loss carrybacks has expired. 
Ameriprise desires to deposit securities with the Escrow Agent for such purpose.

 

In consideration of the mutual agreements and other valuable considerations and
the provisions herein contained, it is hereby agreed by and among the Parties
that Ameriprise shall establish and maintain a special account with the Escrow
Agent pursuant to the following conditions:

 

1.             Securities placed in the special account shall be held by the
Escrow Agent, its successors or assigns, in trust, exclusively for the benefit
of RSLICNY and free of any lien or other claim of the Escrow Agent or any
judgment, creditor, or other claimant of Ameriprise.

 

2.             Except as hereinafter provided, no securities in this account or
any principal cash account held pursuant to this Agreement shall be released by
the Escrow Agent except (i) upon receipt of a written request of RSLICNY and
Ameriprise, and (ii) upon substitution of other securities satisfying the
provisions of this Agreement.

 

3.             Upon maturity of any security held hereunder, the Escrow Agent
may surrender the same for payment and hold the proceeds thereof in a principal
cash account that is to be maintained as part of this account in accordance with
this Agreement.  The principal cash account shall be invested pursuant to the
instructions of Ameriprise.

 

4.             Unless and until the Escrow Agent is notified to the contrary by
RSLICNY and Ameriprise, all income collected on or received from the securities
held hereunder is to be paid to or upon the order of Ameriprise.

 

5.             The Escrow Agent shall be accountable to RSLICNY and Ameriprise,
as their interests may appear, for the safekeeping of the securities and cash
reserves held by it hereunder.

 

6.             The Escrow Agent shall send advices with respect to all security
and principal cash transactions, within ten (10) days after said transactions
take place, to RSLICNY and Ameriprise.

 

12

--------------------------------------------------------------------------------

 

7.             On or before March 1 of each year, RSLICNY shall advise the
Escrow Agent and Ameriprise if the permissible period for use of any tax loss as
a carryback has expired and shall authorize the Escrow Agent to release to
Ameriprise, from the special account, such amounts as were deposited in the
special account with respect to such tax loss.

 

8.             The Escrow Agent may cancel this Agreement, effective not less
than thirty (30) days after delivery of notice thereof to RSLICNY and
Ameriprise, and RSLICNY or Ameriprise may cancel this Agreement at any time
without assigning any reason therefore, effective upon delivery of notice
thereof to the Escrow Agent and the other Parties; provided no cancellation by
any party shall be effective until either (a) a new escrow agreement is executed
by Ameriprise with another escrow agent and approved by RSLICNY, and the
securities and cash principal in the special account are transferred to the
newly designated escrow agent in accordance with written instructions from
Ameriprise approved by RSLICNY, or (b) a letter of credit, acceptable to the New
York State Insurance Department, is delivered to RSLICNY in substitution for the
foregoing special account.

 

9.             Any successor in interest of the Escrow Agent, or receiver,
liquidator, or other public officer appointed to administer the affairs of the
Escrow Agent, shall succeed to all the obligations assumed hereunder by the
Escrow Agent.

 

10.           This Agreement shall be construed and enforced in accordance with
the laws of the State of New York.

 

11.           All notices and other communications which shall be or may be
given hereunder shall be in writing and shall be deemed to have been duly given
if delivered or mailed to the Parties at their respective addresses.

 

12.           Any controversy arising under this Agreement shall be settled by
arbitration in New York City in accordance with the American Arbitration
Association rules then in effect, and any award rendered thereon shall be
enforceable in any court of competent jurisdiction.

 

13.           This Agreement sets forth the entire understanding of the Parties
and supersedes any prior agreement on the subject matter hereof and may not be
changed or terminated by an agreement in writing signed by the Parties.

 

The Parties hereto execute this Agreement as of the day and year first above
written.

 

Ameriprise Financial, Inc.

 

 

By:

 

 

 

13

--------------------------------------------------------------------------------

 

RiverSource Life Insurance Co. of New York

 

 

By:

 

 

 

 

 

 

 

 

[Name of Escrow Agent]

 

 

By:

 

 

 

 

 

 

 

 

Title:

 

 

 

14

--------------------------------------------------------------------------------

 

Exhibit B:

Examples of Tax Allocation under Paragraph 2

 

 

 

1 - Easy

 

2 - Group Loss

 

 

 

A

 

B

 

Group

 

A

 

B

 

Group

 

Income/(Loss)

 

400

 

100

 

500

 

(400

)

200

 

(200

)

(NOL Carryforward / Carryback)

 

—

 

—

 

—

 

—

 

—

 

—

 

Net Income / (loss)

 

400

 

100

 

500

 

(400

)

200

 

(200

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tentative Tax

 

140

 

35

 

175

 

—

 

70

 

—

 

(Tax Credits)

 

—

 

—

 

—

 

—

 

—

 

—

 

Tax - Separate Return

 

140

 

35

 

 

 

—

 

70

 

 

 

Tax - Group

 

 

 

 

 

175

 

 

 

 

 

—

 

Tax - Allocated - Par. 2.A.i.

 

140

 

35

 

 

 

—

 

—

 

 

 

Tax - Allocated - Par. 2.A.ii.

 

—

 

—

 

 

 

—

 

70

 

 

 

Tax - Allocated - Total

 

140

 

35

 

 

 

—

 

70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Payment from Parent for Loss)

 

—

 

—

 

 

 

(70

)

—

 

 

 

(Payment from Parent for Credit)

 

—

 

—

 

 

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOL Carryforward

 

—

 

—

 

—

 

(200

)

—

 

(200

)

Credit Carryforward

 

—

 

—

 

—

 

—

 

—

 

—

 

 

The following examples assume that companies A, B, (and later, C) and Parent
(the “Group”) file a consolidated federal income tax return.  A and B are 100%
subsidiaries of Parent.  Parent is a holding company with no income, deductions,
or credits.  The federal income tax rate is always 35%.

 

Example 1 — Group Income.  A has income of $400, B has income of $100, and the
Group has combined net income of $500.  The Group’s tax liability is $175 ($500
* .35).  If A and B filed separate income tax returns, A would have a tax
liability of $140, and B would have a tax liability of $35.  Under paragraph
2.A.i., $140 of the Group’s $175 tax liability is allocated to A ($175 * $140 /
($140 + $35), and the remaining $35 is allocated to B ($175 * $35 / ($140 +
$35).

 

15

--------------------------------------------------------------------------------

 

Example 2 — Group Loss.  A has a $400 loss (-$400), B has income of $200, and
the Group has a combined net operating loss of $200 (-$200).  The Group has no
tax liability and a $200 NOL carryforward.  If A and B filed separate income tax
returns, A would have a no tax liability and a $400 NOL carryforward, and B
would have a tax liability of $70 ($200 * .35).  Under paragraph 2.A.i., neither
A nor B is allocated any Group tax liability because the Group has no tax
liability to allocate.  Under paragraph 2.A.ii., B pays $70 of tax ($70 separate
return liability - $0) to Parent because the Group saved $70 in tax by using
$200 of A’s $400 loss to offset B’s $200 of income.  Under Paragraph B.ii.,
Parent pays $70 to A as compensation for $200 of A’s losses, which the Group
used to offset B’s $200 of income.  The remaining $200 of losses are allocated
to A for use as a NOL carryforward.

 

 

 

3 - Credits

 

4 - Multiple Losses

 

 

 

A

 

B

 

Group

 

A

 

B

 

C

 

Group

 

Income/(Loss)

 

400

 

200

 

600

 

100

 

(200

)

(500

)

(600

)

(NOL Carryforward / Carryback)

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

Net Income / (loss)

 

400

 

200

 

600

 

100

 

(200

)

(500

)

(600

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tentative Tax

 

140

 

70

 

210

 

35

 

—

 

—

 

—

 

(Tax Credits)

 

—

 

(100

)

(100

)

—

 

—

 

—

 

—

 

Tax - Separate Return

 

140

 

—

 

 

 

35

 

—

 

—

 

 

 

Tax - Group

 

 

 

 

 

110

 

 

 

 

 

 

 

—

 

Tax - Allocated - Par. 2.A.i.

 

110

 

—

 

 

 

—

 

—

 

—

 

 

 

Tax - Allocated - Par. 2.A.ii.

 

30

 

—

 

 

 

35

 

—

 

—

 

 

 

Tax - Allocated - Total

 

140

 

—

 

 

 

35

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Payment from Parent for Loss)

 

—

 

—

 

 

 

—

 

(10

)

(25

)

 

 

(Payment from Parent for Credit)

 

—

 

(30

)

 

 

—

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOL Carryforward

 

—

 

—

 

—

 

—

 

(171

)

(429

)

(600

)

Credit Carryforward

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

Example 3 — Credits.  A has $400 of income, B has $200 of income, and the Group
has net income of $600.  B generates $100 of tax credits.  The Group tax
liability is $110 ([$600 * .35] - $100).  If A and B filed separate income tax
returns, A would have a $140 tax liability, and B would have no tax liability
and $30 of unused tax credits to carry forward.  Under paragraph 2.A.i., A is
allocated all of the $110 Group tax liability ($110 * $140 / [$140 + 0]), and B
is allocated $0.  Under paragraph 2.A.ii., A pays an additional $30 of tax ($140
separate return liability - $110 of tax allocated under 2.A.i.) to Parent
because A saved $30 in tax by using $30 of B’s $100 credit.  Under Paragraph
B.ii., Parent pays $30 to B as compensation for $30 of B’s losses, which the
Group used to offset $30 of A’s tax.  The Group uses all of B’s credits, and B
has no remaining credits to carry forward.

 

Example 4 — Multiple Losses.  A has $100 of income, B has a $200 loss, C has a
$500 loss, and the Group has a $600 NOL.  If A, B, and C filed separate income
tax returns, A would have a $35 tax liability, B would have no tax liability and
a $200 NOL carryforward, and C would have no tax liability and a $500 NOL
carryforward.  Under paragraph 2.A.i., the Group has no tax liability to
allocate.  Under paragraph 2.A.ii., A pays $35 of tax ($35 separate return
liability - $0 of tax allocated under 2.A.i.) to Parent because A saved $35 in
tax by using $100 of B and C’s $700 combined loss.  Under Paragraph B.ii.,
Parent must pay $35 among B and C ($100 * .35) because the Group used $100 of
their losses to offset A’s $100 of income.  Parent allocates the $35 between B
and C proportionate with their respective shares of the loss, 2/7ths to B and
5/7ths to C.  Parent pays $10 to B as compensation for $29 of B’s losses, which
the Group used to offset $10 of A’s tax, and Parent pays $25 to C as
compensation for $71 of C’s losses, which the Group used to offset $25 of A’s
tax.  B has $171 of remaining losses to carry forward ($200 - $29), and C has
$429 of remaining losses to carry forward ($500 - $71).  The Group has a $600
NOL carryforward.

 

16

--------------------------------------------------------------------------------

 

 

 

5 - Multiple Credits

 

6 - Credits & Losses

 

 

 

A

 

B

 

C

 

Group

 

A

 

B

 

C

 

Group

 

Income/(Loss)

 

400

 

286

 

100

 

786

 

200

 

(100

)

100

 

200

 

Net Income / (loss)

 

400

 

286

 

100

 

786

 

200

 

(100

)

100

 

200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tentative Tax

 

140

 

100

 

35

 

275

 

70

 

—

 

35

 

70

 

(Tax Credits)

 

—

 

(100

)

(100

)

(200

)

—

 

(70

)

(70

)

(140

)

Tax - Separate Return

 

140

 

—

 

—

 

 

 

70

 

—

 

—

 

 

 

Tax - Group

 

 

 

 

 

 

 

75

 

 

 

 

 

 

 

—

 

Tax - Allocated - Par. 2.A.i.

 

75

 

—

 

—

 

 

 

—

 

—

 

—

 

 

 

Tax - Allocated - Par. 2.A.ii.

 

65

 

—

 

—

 

 

 

70

 

—

 

—

 

 

 

Tax - Allocated - Total

 

140

 

—

 

—

 

 

 

70

 

—

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Payment from Parent for Loss)

 

—

 

—

 

—

 

 

 

—

 

(35

)

—

 

 

 

(Payment from Parent for Credit)

 

—

 

—

 

(65

)

 

 

—

 

(35

)

(35

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOL Carryforward

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

Credit Carryforward

 

—

 

—

 

—

 

—

 

—

 

(35

)

(35

)

(70

)

 

Example 5 — Multiple Credits.  A has $400 of income, B has $286 of income, C has
$100 of income, and the Group has $786 of net income.  B and C each generate
$100 of tax credits, so the Group has a $200 tax credit.  If A, B, and C filed
separate income tax returns, A would have a $140 tax liability, B and C would
have no tax liabilities, and C would have a $65 credit carryforward.  Under
paragraph 2.A.i., all $75 of Group tax is allocated to A ($75 * $140 / [$140 +
$0 + $0]).  Under paragraph 2.A.ii., A pays an additional $65 of tax ($140
separate return liability - $75 of tax allocated under 2.A.i.) to Parent because
A saved $65 in tax by using $65 of the Group’s credit.  Under Paragraph B.ii.,
Parent must pay $65 among B and C because the Group used $65 of their credits to
offset $65 of A’s tax liability.  Parent allocates the entire $65 to C as
compensation for $65 of C’s credits because C would have had a $65 credit
carryforward if it filed a separate return, while B would have used all of its
tax credits.  The Group uses all $200 of credits, and has no credits to carry
forward.

 

Example 6 — Credits & Losses.  A has $200 of income, B has a $100 loss, C has
$100 of income, and the Group has $200 of income.  B and C each generate $70 of
tax credits, so the Group has a $140 tax credit.  The $140 credit offsets all of
the $70 Group tax ($200 * .35), and leaves $70 of credits to carry forward.  If
A, B, and C filed separate income tax returns, A would have a $70 tax liability,
B would have no tax liability, a $100 NOL carryforward and a $70 credit
carryforward, and C would have no tax liability and a $35 credit carryforward. 
Under paragraph 2.A.i., there is no Group tax to allocate.  Under paragraph
2.A.ii., A pays $70 of tax ($70 separate return liability - $0 of tax allocated
under 2.A.i.) to Parent because A saved $70 in tax by using B’s losses and
credits and C’s credits.  Under Paragraph B.ii., Parent must pay $35 to B
because the Group used $100 of B’s losses to offset $100 of A and C’s income. 
Also under Paragraph B.ii., Parent must pay $70 among B and C because the Group
used $70 of their credits to offset $70 of the Group’s tax liability.  Parent
pays $35 to B as compensation for $35 of B’s credits, and pays $35 to C as
compensation for $35 of C’s credits.  B and C each have $35 of remaining credits
to carry forward.  The Group has a $70 credit carryforward.

 

17

--------------------------------------------------------------------------------