18686 Federal Register / Vol. 77, No. 60 / Wednesday, March 28, 2012 / Rules and Regulations 

of the active pharmaceutical ingredient 

of the drug. 

* * * * * 

[FR Doc. 2012–7532 Filed 3–27–12; 8:45 am] 

BILLING CODE 1505–01–D 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

Apportionment of Tax Items Among 

the Members of a Controlled Group of 

Corporations 

CFR Correction 

In Title 26 of the Code of Federal 

Regulations, Part 1(§ 1.1551 to End of 

Part 1), revised as of April 1, 2011, on 

page 24, in § 1.1561–2, paragraphs (c) 

through (f) are added to read as follows: 

§ 1.1561–2 Special rules for allocating 

reductions of certain section 1561(a) taxbenefit items. 

* * * * * 

(c) Accumulated earnings credit. The 

component members of a controlled 

group of corporations are permitted to 

allocate the amount of the accumulated 

earnings credit unequally if they have 

an apportionment plan in effect. 

(d) [Reserved] 

(e) Short taxable years not including 

a December 31st date—(1) General rule. 

If a corporation has a short taxable year 

not including a December 31st date and, 

after applying the rules of section 

1561(b) and paragraph (e)(2)(i) of this 

section, it qualifies as a component 

member of the group with respect to its 

short taxable year (short-year member), 

then, for purposes of subtitle A of the 

Internal Revenue Code, the amount of 

any tax-benefit item described in section 

1561(b) allocated to that component 

member’s short taxable year shall be the 

amount specified in section 1561(a) for 

that item, divided by the number of 

corporations which are component 

members of that group on the last day 

of that component member’s short 

taxable year. The component members 

of such group may not apportion, by an 

apportionment plan, an amount of such 

tax-benefit item to any short-year 

member that differs from equal 

apportionment of that item. 

(2) Additional rules. For purposes of 

paragraph (e)(1) of this section— 

(i) Section 1563(b) shall be applied as 

if the last day of the taxable year of a 

short-year member were substituted for 

December 31st; and 

(ii) The term short taxable year does 

not refer to any portion of a tax year of 

a corporation for which its income is 

required to be included in a 

consolidated return pursuant to 

§ 1.1502–76(b). 

(3) Calculation of the additional tax. 

A short-year member (as defined in 

paragraph (e)(1) of this section) for its 

short taxable year calculates its 

additional tax liability imposed by 

section 11(b)(1) only on its own income, 

and therefore the subsequent calculation 

of the additional tax liability with 

regard to the remaining members of the 

group will not include the income of 

this short-year member. 

(4) Calculation of the alternative 

minimum tax. If a component member 

has a tax year of less than 12 months, 

whether or not such tax year includes a 

December 31st date, see section 443(d) 

for the annualization method required 

for calculating the alternative minimum 

tax. 

(5) Examples. The provisions of this 

paragraph (e) may be illustrated by the 

following examples: 

Example 1. Formation of a new member of 

a controlled group— (i) Facts. On January 2, 

2007, corporation X transfers cash to newly 

formed corporation Y (which begins business 

on that date) and receives all of the stock of 

Y in return. X also owns all of the stock of 

corporation Z on each day of 2006 and 2007. 

X, Y and Z have an apportionment plan in 

effect, apportioning the 15 percent taxbracket 

amount as follows: 40% ($20,000) to each of 

X and Y and 20% ($10,000) to Z. X, Y and 

Z each file a separate return with respect to 

the group’s December 31st, 2007 testing date. 

X is on a calendar tax year and Z is on a 

fiscal tax year ending on March 31. Y adopts 

a fiscal year ending on June 30 and timely 

files a tax return for its short taxable year 

beginning on January 2, 2007, and ending on 

June 30, 2007. 

(ii) Y’s short taxable year. On June 30, 

2007, Y is a component member of a 

parentsubsidiary controlled group of 

corporations composed of X, Y and Z. 

Pursuant to paragraph (e)(1) of this section, 

the group may not apportion any amount of 

the 15 percent tax bracket to Y’s short taxable 

year ending on June 30, 2007. Rather, Y is 

entitled to exactly 1⁄3 of such bracket amount, 

or $16,667. 

(iii) The members’ subsequent tax years. 

On December 31st, 2007, X, Y and Z are 

component members of a parent-subsidiary 

controlled group of corporations. For their 

tax years that include December 31st, 2007 

(X’s calendar year ending December 31st, 

2007, Z’s fiscal year ending March 31, 2008 

and Y’s fiscal year ending June 30, 2008), X, 

Y and Z apportion among themselves the full 

amount of all of the applicable tax brackets 

pursuant to their apportionment plan. For 

example, 40% of the 15 percent tax-bracket 

amount, or $20,000, was apportioned to each 

of X and Y, and the remaining 10%, or 

$10,000, was apportioned to Z. 

Example 2. Allocating a tax bracket to the 

short taxable year of a liquidated member of 

a controlled group— (i) Facts. On January 1, 

2007, corporation P owns all of the stock of 

corporations S1, S2 and S3 (the P group). Each 

of these four component members of the P 

group, with respect to the group’s December 

31st, 2007 testing date, files its separate 

return on a calendar year basis. These 

members have an apportionment plan in 

effect (the P group plan) under which S1 and 

S2 are each entitled to 40% of the 15 percent 

tax-bracket amount ($20,000), and P and S3

are each entitled to 10% of the 15 percent 

tax-bracket amount ($5,000). On May 31, 

2007, S1 liquidates and therefore files a 

return for the short taxable year beginning on 

January 1, 2007, and ending on May 31, 2007. 

On July 31, 2007, S2 liquidates and therefore 

files a return for the short taxable year 

beginning on January 1, 2007 and ending on 

July 31, 2007. P and S3 each file a return for 

their 2007 calendar tax years. 

(ii) Apportionment of the 15 percent tax 

bracket to S1 for its short taxable year. On 

May 31, 2007, S1 is a component member of 

the P group composed of P, S1, S2 and S3. 

Pursuant to paragraph (e)(1) of this section, 

the group may not apportion any amount of 

the 15 percent tax bracket to S1’s short 

taxable year ending on June 30, 2007. Rather, 

S1 is entitled to exactly 1⁄4 of such bracket 

amount, or $12,500. 

(iii) Apportionment of the 15 percent tax 

bracket to S2 for its short taxable year. On 

July 31, 2007, S2 is a component member of 

the P group composed of P, S2 and S3.

Pursuant to paragraph (e)(1) of this section, 

the group may not apportion any amount of 

the 15 percent tax bracket to S2’s short 

taxable year ending on June 30, 2007. Rather, 

S2 is entitled to exactly 1⁄4 of such bracket 

amount, or $16,667. 

(iv) Apportionment of the 15 percent tax 

bracket to P and S3 for each of their calendar 

tax years. On December 31st, 2007, P and S3

are component members of the P group. 

Accordingly, for P and S3’s 2007 calendar tax 

year, they are each apportioned $25,000 of 

the 15 percent tax bracket, pursuant to the 

applicable P group plan. 

Example 3. Liquidation of member after its 

transfer to another controlled group— (i) 

Facts. The facts are the same as in Example 

2, except that P, on April 30, 2007, sold all 

of the stock of S2 to the M–N controlled 

group. At the time of the sale, M and N are 

both unrelated to any members of the P 

group. As in Example 2, S2 liquidates on July 

31, 2007, and therefore files a tax return for 

its short taxable year beginning on January 1, 

2007, and ending on July 31, 2007. Pursuant 

to the sales agreement, the N–M group timely 

notified P that S2 had liquidated. 

(ii) Controlled group analysis. On April 30, 

2007, the date of the sale of S2, the P group 

reasonably expected that S2 would be treated 

as an excluded member with respect to its 

December 31st, 2007 testing date. On that 

April 30th date, S2 had been a member of the 

P group for less than one-half the number of 

days of what it expected would be a full 2007 

calendar tax year preceding December 31st, 

2007 (120 days (January 1–April 30) out of 

364 days (January 1–December 30)). Yet, as 

a result of S2’s subsequent liquidation by the 

M–N group prior to December 31st, 2007, S2

became a component member of the P group 

with respect to the P group’s December 31st, 

2007 testing date. With respect to that 


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Federal Register / Vol. 77, No. 60 / Wednesday, March 28, 2012 / Rules and Regulations 18687 

December 31st testing date, S2 thus was a 

member of the P group for more than one-half 

of the number of days of its tax year ending 

on July 31, 2007, which days proceeded 

December 31st, 2007 (120 days (January 1– 

April 30 of 2007) out of 211 days (January 1– 

July 30 of 2007)). The allocation of the 15 

percent tax-bracket amount to the P group 

members is determined in the same manner 

as in Example 2 and, therefore, the bracket 

amounts allocated to P, S1, S2 and S3 are the 

same as determined in Example 2. The 

allocation of the bracket amounts would be 

the same if, at the time P sold all of the S2

stock, the parties had made a section 

338(h)(10) election. 

Example 4. Short tax year including a 

December 31st date. Corporation X owns all 

of the stock of corporations Y and Z. X, Y and 

Z each file separate returns. X and Y are on 

a calendar tax year and Z is on a fiscal tax 

year beginning October 1 and ending 

September 30. On January 2, 2007, Z 

liquidates. Because Z’s final tax year 

(beginning on October 1, 2006 and ending on 

January 2, 2007) includes a December 31st 

date, that is, December 31, 2006, it is 

therefore not subject to the short taxable year 

rule provided by section 1561(b) and 

paragraph (e) of this section. Accordingly, Z 

is a component member of the X–Y–Z group, 

for the group’s December 31st, 2006 testing 

date. Thus, the rules of this paragraph (e) do 

not limit the amount of any of the tax-benefit 

items of section 1561(a) available to Z or to 

this controlled group. 

(f) Effective/applicability date. This section 

applies to any tax year beginning on or after 

December 21, 2009. However, taxpayers may 

apply this section to any Federal income tax 

return filed on or after December 21, 2009. 

For tax years beginning before December 21, 

2009, see § 1.1561–2T as contained in 26 CFR 

part 1 in effect on April 1, 2009. 

[FR Doc. 2012–7533 Filed 3–27–12; 8:45 am] 

BILLING CODE 1505–01–D 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9564] 

RIN 1545–BJ93 

Guidance Regarding Deduction and 

Capitalization of Expenditures Related 

to Tangible Property: Correction 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Temporary regulations; 

correcting amendment. 

SUMMARY: This document contains 

correcting amendments to temporary 

regulations (TD 9564), which were 

published in the Federal Register 

relating to guidance regarding deduction 

and capitalization of expenditures 

related to tangible property. 

DATES: Effective Date: March 28, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Merrill D. Feldstein (202) 622–4950 (not 

a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

The temporary regulations that are the 

subject of these corrections are under 

sections 162, 167, 168, and 263 of the 

Internal Revenue Code. 

Need for Correction 

As published on December 27, 2011 

(76 FR 81060), the temporary 

regulations (TD 9564), contain errors 

which may prove to be misleading and 

are in need of clarification. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Accordingly, 26 CFR Part 1 is 

corrected by making the following 

correcting amendments: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 1.162–3 is revised to 

read as follows: 

§ 1.162–3 Materials and Supplies 

(a) through (k) [Reserved]. For further 

guidance, see § 1.163–3T(a) through (k). 

■ Par. 2. Section 1.162–3T is amended 

by: 

■ 1. Revising the third sentence of 

paragraph (d)(3). 

■ 2. Redesignating paragraphs (i) and (j) 

as (j) and (k), respectively. 

■ 3. Redesignating the second paragraph 

(h), ‘‘Accounting method changes’’ as 

paragraph (i). 

■ 4. In newly redesignated paragraph (j) 

the second sentence is revised. 

The revisions read as follows: 

§ 1.162–3T Materials and supplies 

(temporary). 

* * * * * 

(d) * * * 

(3) * * * See § 1.263(a)–2T for the 

treatment of amounts paid to acquire or 

produce real or personal tangible 

property. * * * 

* * * * * 

(j) * * * However, a taxpayer may 

apply § 1.162–3T(e) (the optional 

method of accounting for rotable and 

temporary spare parts) to taxable years 

beginning on or after January 1, 2012. 

* * * 

* * * * * 

■ Par. 3. Section 1.168(i)–1T is 

amended by: 

■ 1. In paragraph (e)(3)(ii)(B), 

redesignating Example 2(iii) as Example 

2(ii). 

■ 2. Adding a new sentence at the end 

of paragraph (m)(2). 

The addition reads as follows: 

§ 1.168(i)–1T General asset accounts 

(temporary). 

* * * * * 

(m) * * * 

(2) * * * This paragraph (m)(2) does 

not apply to a change to comply with 

paragraph (e)(3)(ii), (e)(3)(iii) or 

paragraph (l) of this section. 

* * * * * 

■ Par. 4. Section 1.168(i)–8T is 

amended by: 

■ 1. Redesignating the second paragraph 

(c)(4)(ii)(E) as paragraph (c)(4)(ii)(F). 

■ 2. Revising the first sentence of 

paragraph (g)(3). 

The revision reads as follows: 

§ 1.168(i)–8T Dispositions of MACRS 

property (temporary). 

* * * * * 

(g) * * * 

(3) * * * This paragraph (g)(3) 

applies only to a taxpayer that uses a 

reasonable, consistent method to treat 

each of the asset’s components as the 

asset in accordance with paragraph 

(c)(4)(ii)(F) of this section. * * * 

* * * * * 

■ Par. 5. Section 1.263(a)–2T is 

amended by: 

■ 1. Revising the eighth sentence of 

paragraph (g)(8) Example 2. 

■ 2. Revising the last sentence of 

paragraph (k). 

The revisions read as follows: 

§ 1.263(a)–2T Amounts paid to improve 

tangible property (temporary). 

* * * * * 

(g) * * * 

* * * * * 

(8) Examples. * * * 

* * * * * 

Example 2. * * * Thus, in order to meet 

the criteria of paragraph (g)(1)(iv) of this 

section for Year 1, the total aggregate 

amounts paid and not capitalized by X under 

paragraphs (g)(1)(i), (ii), and (iii) of this 

section must be less than or equal to the 

greater of $125,000 (0.1 percent of X’s total 

gross receipts of $125,000,000) or $140,000 (2 

percent of X’s total depreciation and 

amortization of $7,000,000). * * * 

* * * * * 

(k) * * * For the applicability of 

regulations to taxable years beginning 

before January 1, 2012, see § 1.263(a)–2 

in effect prior to January 1, 2012 

(§ 1.263(a)–2 as contained in 26 CFR 

part 1 edition revised as of April 1, 

2011). 

* * * * * 


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