Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations 25147 

§ 522.1290 Luprostiol. 

(a) Specifications. Each milliliter of 

solution contains 7.5 milligrams (mg) 

luprostiol. 

(b) Sponsor. See No. 051311 in 

§ 510.600(c) of this chapter. 

* * * * * 

(d) Conditions of use in horses—(1) 

Amount. 7.5 mg by intramuscular 

injection. 

(2) Indications for use. For estrus 

control and termination of pregnancy in 

mares. 

(3) Limitations. Federal law restricts 

this drug to use by or on the order of 

a licensed veterinarian. Do not use in 

horses intended for human 

consumption. 

Dated: May 12, 2009. 

Steven D. Vaughn, 

Director, Office of New Animal Drug 

Evaluation, Center for Veterinary Medicine. 

[FR Doc. E9–12269 Filed 5–26–09; 8:45 am] 

BILLING CODE 4160–01–S 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9451] 

RIN 1545–BF25 

Guidance Necessary To Facilitate 

Business Election Filing; Finalization 

of Controlled Group Qualification 

Rules 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulation and removal of 

temporary regulation. 

SUMMARY: This document contains a 

final regulation that provides guidance 

to taxpayers for determining which 

corporations are included in a 

controlled group of corporations. This 

regulation is being published to replace 

an expiring temporary regulation. 

DATES: Effective Date: This regulation is 

effective on May 27, 2009. 

Applicability Date: Section 1.1563– 

1T(c)(2)(i)–(iii) expired on May 26, 

2009, pursuant to section 7805(e)(2) and 

§ 1.1563–1T(e)(2). In accordance with 

section 7805(b)(1)(B), this regulation 

applies to taxable years beginning on or 

after May 26, 2009. However, taxpayers 

may apply this regulation to taxable 

years beginning before May 26, 2009. 

See § 1.1563–1(e). 

FOR FURTHER INFORMATION CONTACT: Grid 

Glyer, (202) 622–7930 (not a toll-free 

number). 

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act 

The collection of information 

contained in this final regulation has 

been reviewed and approved by the 

Office of Management and Budget in 

accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

3507(d)) under control number 1545– 

2019. 

This collection of information is in 

§ 1.1563–1(c)(2). This information is 

required if a taxpayer or taxpayers could 

be a member of more than one brothersister controlled group and does not 

elect which group to be a member of. In 

that case, the IRS would designate a 

group. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless the collection of information 

displays a valid control number by the 

Office of Management and Budget. 

Books or records relating to a 

collection of information must be 

retained as long as their contents might 

become material in the administration 

of any internal revenue law. Generally, 

tax returns and tax return information 

are confidential, as required by 26 

U.S.C. 6103. 

Background and Explanation of 

Provisions 

On December 22, 2006, the IRS and 

the Treasury Department published 

several temporary regulations, including 

§ 1.1563–1T. See TD 9304 (71 FR 

76904), 2007–1 CB 423. Also on 

December 22, 2006, the IRS and the 

Treasury Department issued a notice of 

proposed rulemaking cross-referencing 

those temporary regulations. See REG– 

161919–05 (71 FR 76955), 2007–1 CB 

463. Section 1.1563–1T was also 

amended by the publication of a 

temporary regulation on December 26, 

2007. See TD 9369 (72 FR 72929), 2008– 

6 IRB 394. Also on December 26, 2007, 

the IRS and Treasury Department issued 

a notice of proposed rulemaking crossreferencing that temporary regulation. 

See REG–104713–07 (72 FR 72970), 

2008–6 IRB 409. 

Section 1.1563–1T republished 

§ 1.1563–1 to conform it to current 

formatting conventions. It was not 

intended that any such reformatting 

constitute a substantive change. See 

§ 3.A of the preamble to TD 9304. 

Treasury decision 9304 also removed 

§ 1.1563–1. Section 1.1563–1T provides 

guidance to taxpayers for determining 

which corporations are included in a 

controlled group of corporations. 

This Treasury decision adopts the 

proposed regulation § 1.1563–1 with no 

substantive changes. In addition, this 

Treasury decision removes the 

corresponding temporary regulation, 

§ 1.1563–1T. 

This Treasury decision does not adopt 

the other proposed regulations that were 

published as part of TD 9304. Those 

proposed regulations are now found in 

REG–113688–09, and their status will be 

addressed at a later date. 

The IRS and the Treasury Department 

received no written or electronic 

comments from the public in response 

to the notice of proposed rulemaking 

and no public hearing was requested or 

held. 

Special Analysis 

It has been determined that this 

Treasury Decision is not a significant 

regulatory action as defined in 

Executive Order 12866. Therefore, a 

regulatory assessment is not required. It 

has also been determined that section 

553(b) of the Administrative Procedure 

Act (5 U.S.C. chapter 5) does not apply 

to this regulation. Pursuant to the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6), it is hereby certified that this 

rule will not have a significant 

economic impact on a substantial 

number of small entities. This 

certification is based on the fact that this 

regulation primarily affects large 

corporations (which are members of 

either controlled or consolidated 

groups). Accordingly, a regulatory 

flexibility analysis is not required. 

Pursuant to section 7805(f) of the 

Internal Revenue Code, the notice of 

proposed rulemaking preceding this 

regulation was submitted to the Chief 

Counsel for Advocacy of the Small 

Business Administration for comment 

on their impact on small business. 

Drafting Information 

The principal author of this regulation 

is Grid Glyer, Office of Associate Chief 

Counsel (Corporate). However, other 

personnel from the IRS and the Treasury 

Department participated in its 

development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Adoption of Amendments to the 

Regulation 

■ Accordingly, 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by removing the 

entry for § 1.1563–1T to read in part as 

follows: 

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


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25148 Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations 

■ Par. 2. Section 1.1563–1 is added to 

read as follows: 

§ 1.1563–1 Definition of controlled group 

of corporations and component members 

and related concepts. 

(a) Controlled group of corporations— 

(1) In general—(i) Types of controlled 

groups. For purposes of sections 1561 

through 1563, the term controlled group 

of corporations means any group of 

corporations which is— 

(A) A parent-subsidiary controlled 

group (as defined in paragraph (a)(2) of 

this section); 

(B) A brother-sister controlled group 

(as defined in paragraph (a)(3)(i) of this 

section); 

(C) A combined group (as defined in 

paragraph (a)(4) of this section); or 

(D) A life insurance controlled group 

(as defined in paragraph (a)(5) of this 

section). 

(ii) Cross reference. For the exclusion 

of certain stock for purposes of applying 

the definitions contained in this 

paragraph, see section 1563(c) and 

§ 1.1563–2. 

(2) Parent-subsidiary controlled 

group—(i) Definition. The term parentsubsidiary controlled group means one 

or more chains of corporations 

connected through stock ownership 

with a common parent corporation if— 

(A) Stock possessing at least 80 

percent of the total combined voting 

power of all classes of stock entitled to 

vote or at least 80 percent of the total 

value of shares of all classes of stock of 

each of the corporations, except the 

common parent corporation, is owned 

(directly and with the application of 

§ 1.1563–3(b)(1), relating to options) by 

one or more of the other corporations; 

and 

(B) The common parent corporation 

owns (directly and with the application 

of § 1.1563–3(b)(1), relating to options) 

stock possessing at least 80 percent of 

the total combined voting power of all 

classes of stock entitled to vote or at 

least 80 percent of the total value of 

shares of all classes of stock of at least 

one of the other corporations, excluding, 

in computing such voting power or 

value, stock owned directly by such 

other corporations. 

(ii) Examples. The definition of a 

parent-subsidiary controlled group of 

corporations may be illustrated by the 

following examples: 

Example 1. P Corporation owns stock 

possessing 80 percent of the total combined 

voting power of all classes of stock entitled 

to vote of S Corporation. P is the common 

parent of a parent-subsidiary controlled 

group consisting of member corporations P 

and S. 

Example 2. Assume the same facts as in 

Example 1. Assume further that S owns stock 

possessing 80 percent of the total value of 

shares of all classes of stock of X Corporation. 

P is the common parent of a parentsubsidiary controlled group consisting of 

member corporations P, S, and X. The result 

would be the same if P, rather than S, owned 

the X stock. 

Example 3. P Corporation owns 80 percent 

of the only class of stock of S Corporation 

and S, in turn, owns 40 percent of the only 

class of stock of X Corporation. P also owns 

80 percent of the only class of stock of Y 

Corporation and Y, in turn, owns 40 percent 

of the only class of stock of X. P is the 

common parent of a parent-subsidiary 

controlled group consisting of member 

corporations P, S, X, and Y. 

Example 4. P Corporation owns 75 percent 

of the only class of stock of Y and Z 

Corporations; Y owns all the remaining stock 

of Z; and Z owns all the remaining stock of 

Y. Since intercompany stockholdings are 

excluded (that is, are not treated as 

outstanding) for purposes of determining 

whether P owns stock possessing at least 80 

percent of the voting power or value of at 

least one of the other corporations, P is 

treated as the owner of stock possessing 100 

percent of the voting power and value of Y 

and of Z for purposes of paragraph (a)(2)(i)(B) 

of this section. Also, stock possessing 100 

percent of the voting power and value of Y 

and Z is owned by the other corporations in 

the group within the meaning of paragraph 

(a)(2)(i)(A) of this section. (P and Y together 

own stock possessing 100 percent of the 

voting power and value of Z, and P and Z 

together own stock possessing 100 percent of 

the voting power and value of Y.) Therefore, 

P is the common parent of a parentsubsidiary controlled group of corporations 

consisting of member corporations P, Y, and 

Z. 

(3) Brother-sister controlled group—(i) 

Definition. The term brother-sister 

controlled group means two or more 

corporations if the same five or fewer 

persons who are individuals, estates, or 

trusts own (directly and with the 

application of the rules contained in 

§ 1.1563–3(b)) stock possessing more 

than 50 percent of the total combined 

voting power of all classes of stock 

entitled to vote or more than 50 percent 

of the total value of shares of all classes 

of stock of each corporation, taking into 

account the stock ownership of each 

such person only to the extent such 

stock ownership is identical with 

respect to each such corporation. 

(ii) Additional stock ownership 

requirement for purposes of certain 

other provisions of law. For purposes of 

any provision of law (other than 

sections 1561 through 1563) that 

incorporates the section 1563(a) 

definition of a controlled group, the 

term brother-sister controlled group 

means two or more corporations if the 

same five or fewer persons who are 

individuals, estates, or trusts own 

(directly and with the application of the 

rules contained in § 1.1563–3(b)) stock 

possessing— 

(A) At least 80 percent of the total 

combined voting power of all classes of 

stock entitled to vote or at least 80 

percent of the total value of shares of all 

classes of stock of each corporation (the 

80 percent requirement); 

(B) More than 50 percent of the total 

combined voting power of all classes of 

stock entitled to vote or more than 50 

percent of the total value of shares of all 

classes of stock of each corporation, 

taking into account the stock ownership 

of each such person only to the extent 

such stock ownership is identical with 

respect to each such corporation (the 

more-than-50 percent identical 

ownership requirement); and 

(C) The five or fewer persons whose 

stock ownership is considered for 

purposes of the 80 percent requirement 

must be the same persons whose stock 

ownership is considered for purposes of 

the more-than-50 percent identical 

ownership requirement. 

(iii) Examples. The principles of 

paragraph (a)(3)(ii) of this section may 

be illustrated by the following 

examples: 

Example 1. (i) The outstanding stock of 

corporations P, W, X, Y, and Z, which have 

only one class of stock outstanding, is owned 

by the following unrelated individuals: 

Individuals P (%) W (%) X (%) Y (%) Z (%) Identical 

ownership 

A ......................................................................... 55 51 55 55 55 51. 

B ......................................................................... 45 49 .................... .................... .................... (45% in P and W). 

C ......................................................................... .................... .................... 45 .................... ....................

D ......................................................................... .................... .................... .................... 45 ....................

E ......................................................................... .................... .................... .................... .................... 45 

Total ............................................................ 100 100 100 100 100 


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Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations 25149 

(ii) Corporations P and W are members of 

a brother-sister controlled group of 

corporations. Although the more-than-50 

percent identical ownership requirement is 

met for all 5 corporations, corporations X, Y, 

and Z are not members because at least 80 

percent of the stock of each of those 

corporations is not owned by the same 5 or 

fewer persons whose stock ownership is 

considered for purposes of the more-than-50 

percent identical ownership requirement. 

Example 2. (i) The outstanding stock of 

corporations X and Y, which have only one 

class of stock outstanding, is owned by the 

following unrelated individuals: 

Individuals 

Corporations 

X (%) Y (%) 

A ....................... 12 12 

B ....................... 12 12 

C ....................... 12 12 

D ....................... 12 12 

E ....................... 13 13 

F ........................ 13 13 

G ....................... 13 13 

H ....................... 13 13 

Total ........... 100 100 

(ii) Any group of five of the shareholders 

will own more than 50 percent of the stock 

in each corporation, in identical holdings. 

However, X and Y are not members of a 

brother-sister controlled group because at 

least 80 percent of the stock of each 

corporation is not owned by the same five or 

fewer persons. 

Example 3. (i) Corporation X and Y each 

have two classes of stock outstanding, voting 

common and non-voting common. (None of 

this stock is excluded from the definition of 

stock under section 1563(c).) Unrelated 

individuals A and B own the following 

percentages of the class of stock entitled to 

vote (voting) and of the total value of shares 

of all classes of stock (value) in each of 

corporations X and Y: 

Individuals 

Corporations 

X Y 

A ........................................... 100% voting; 60% value ................................................. 75% voting; 60% value. 

B ........................................... 0% voting; 10% value ..................................................... 25% voting; 10% value. 

(ii) No other shareholder of X owns (or is 

considered to own) any stock in Y. X and Y 

are a brother-sister controlled group of 

corporations. The group meets the morethan-50 percent identical ownership 

requirement because A and B own more than 

50 percent of the total value of shares of all 

classes of stock of X and Y in identical 

holdings. (The group also meets the morethan-50 percent identical ownership 

requirement because of A’s voting stock 

ownership.) The group meets the 80 percent 

requirement because A and B own at least 80 

percent of the total combined voting power 

of all classes of stock entitled to vote. 

Example 4. Assume the same facts as in 

Example 3 except that the value of the stock 

owned by A and B is not more than 50 

percent of the total value of shares of all 

classes of stock of each corporation in 

identical holdings. X and Y are not a brothersister controlled group of corporations. The 

group meets the more-than-50 percent 

identical ownership requirement because A 

owns more than 50 percent of the total 

combined voting power of the voting stock of 

each corporation. For purposes of the 80 

percent requirement, B’s voting stock in Y 

cannot be combined with A’s voting stock in 

Y since B, who does not own any voting 

stock in X, is not a person whose ownership 

is considered for purposes of the more-than50 percent identical ownership requirement. 

Because no other shareholder owns stock in 

both X and Y, these other shareholders’ stock 

ownership is not counted towards meeting 

either the more-than-50 percent identical 

ownership requirement or the 80 percent 

ownership requirement. 

(iv) Special rule if prior law applies. 

Paragraph (a)(3)(ii) of this section, as 

amended by TD 8179, applies to taxable 

years ending on or after December 31, 

1970. See, however, the transitional rule 

in paragraph (d) of this section. 

(4) Combined group—(i) Definition. 

The term combined group means any 

group of three or more corporations if— 

(A) Each such corporation is a 

member of either a parent-subsidiary 

controlled group of corporations or a 

brother-sister controlled group of 

corporations; and 

(B) At least one of such corporations 

is the common parent of a parentsubsidiary controlled group and also is 

a member of a brother-sister controlled 

group. 

(ii) Examples. The definition of a 

combined group of corporations may be 

illustrated by the following examples: 

Example 1. A, an individual, owns stock 

possessing 80 percent of the total combined 

voting power of all classes of the stock of 

corporations X and Y. Y, in turn, owns stock 

possessing 80 percent of the total combined 

voting power of all classes of the stock of 

corporation Z. X, Y, and Z are members of 

the same combined group since— 

(i) X, Y, and Z are each members of either 

a parent-subsidiary or brother-sister 

controlled group of corporations; and 

(ii) Y is the common parent of a parentsubsidiary controlled group of corporations 

consisting of Y and Z, and also is a member 

of a brother-sister controlled group of 

corporations consisting of X and Y. 

Example 2. Assume the same facts as in 

Example 1, and further assume that 

corporation X owns 80 percent of the total 

value of shares of all classes of stock of 

corporation S. X, Y, Z, and S are members 

of the same combined group. 

(5) Life insurance controlled group— 

(i) Definition. The term life insurance 

controlled group means two or more life 

insurance companies each of which is a 

member of a controlled group of 

corporations described in paragraph 

(a)(2), (a)(3)(i), or (a)(4) of this section 

and to which § 1.1502–47(f)(6) does not 

apply. Such insurance companies shall 

be treated as a controlled group of 

corporations separate from any other 

corporations which are members of a 

controlled group described in such 

paragraph (a)(2), (a)(3)(i), or (a)(4) of this 

section. For purposes of this section, the 

common parent of the controlled group 

described in paragraph (a)(2) of this 

section shall be referred to as the 

common parent of the life insurance 

controlled group. 

(ii) Examples. The following 

examples illustrate the definition of a 

life insurance controlled group. In these 

examples, L indicates a life company, 

another letter indicates a nonlife 

company and each corporation uses the 

calendar year as its taxable year: 

Example 1. Since January 1, 1999, 

corporation P has owned all the stock of 

corporations L 1 and Y, and L 1 has owned all 

the stock of corporation X. On January 1, 

2005, Y acquired all of the stock of 

corporation L 2. Since L 1 and L 2 are members 

of a parent-subsidiary controlled group of 

corporations, such companies are treated as 

members of a life insurance controlled group 

separate from the parent-subsidiary 

controlled group consisting of P, X and Y. 

For purposes of this section, P is referred to 

as the common parent of the life insurance 

controlled group even though P is not a 

member of such group. 

Example 2. The facts are the same as in 

Example 1, except that, beginning with the 

2005 tax year, the P affiliated group elected 

to file a consolidated return and P made a 

section 1504(c)(2) election. Pursuant to 

paragraph (a)(5)(i) of this section, L 1 and L 2

are not members of a separate life insurance 

controlled group. Instead, P, X, Y, L 1 and L 2

constitute one controlled group. See 

§ 1.1502–47(f)(6). 

(6) Voting power of stock. For 

purposes of this section, and §§ 1.1563– 

2 and 1.1563–3, in determining whether 

the stock owned by a person (or 

persons) possesses a certain percentage 


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25150 Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations 

of the total combined voting power of 

all classes of stock entitled to vote of a 

corporation, consideration will be given 

to all the facts and circumstances of 

each case. A share of stock will 

generally be considered as possessing 

the voting power accorded to such share 

by the corporate charter, by-laws, or 

share certificate. On the other hand, if 

there is any agreement, whether express 

or implied, that a shareholder will not 

vote his stock in a corporation, the 

formal voting rights possessed by his 

stock may be disregarded in 

determining the percentage of the total 

combined voting power possessed by 

the stock owned by other shareholders 

in the corporation, if the result is that 

the corporation becomes a component 

member of a controlled group of 

corporations. Moreover, if a shareholder 

agrees to vote his stock in a corporation 

in the manner specified by another 

shareholder in the corporation, the 

voting rights possessed by the stock 

owned by the first shareholder may be 

considered to be possessed by the stock 

owned by such other shareholder if the 

result is that the corporation becomes a 

component member of a controlled 

group of corporations. 

(b) Component members—(1) In 

general—(i) Definition. For purposes of 

sections 1561 through 1563, a 

corporation is with respect to its taxable 

year a component member of a 

controlled group of corporations for the 

group’s testing date if such 

corporation— 

(A) Is a member of such controlled 

group on such testing date and is not 

treated as an excluded member under 

paragraph (b)(2) of this section; or 

(B) Is not a member of such controlled 

group on such testing date but is treated 

as an additional member under 

paragraph (b)(3) of this section. 

(ii) Member of a controlled group of 

corporations. For purposes of sections 

1561 through 1563, a member of a 

controlled group is a corporation 

connected with other member(s) of a 

controlled group under the stock 

ownership rules and the stock 

qualification rules set forth in section 

1563. Under these rules, for a 

corporation to qualify as a component 

member of the group with respect to a 

group’s December 31st testing date (or 

the short-year testing date for a shortyear member), that corporation does not 

have to be a member of that group on 

that group’s testing date. In addition, a 

corporation that is a member of a 

controlled group on the group’s testing 

date does not necessarily qualify as a 

component member of that group with 

respect to that testing date. 

(iii) Additional concepts used in 

applying the controlled group rules. 

(A) The term testing date means the 

date used for determining the status of 

controlled group members as either 

component members or excluded 

members. That testing date is then also 

used to determine which taxable years 

of those component members are to be 

subjected to the controlled group rules. 

Generally, a member’s testing date is the 

December 31st date included within 

that member’s taxable year, whether 

such member is on a calendar or fiscal 

taxable year. However, if a component 

member of a controlled group has a 

short taxable year that does not include 

a December 31st date, then the last day 

of that short taxable year becomes that 

member’s testing date. 

(B) The term testing period means the 

time period used for determining the 

status of controlled group members as 

either component members or excluded 

members. The testing period begins on 

the first day of a member’s taxable year 

and ends on the day before its testing 

date. (Generally, the testing date is 

December 31st, but for a component 

member having a short taxable year not 

ending on December 31st, the testing 

date for the short taxable year of that 

member (and only that member) 

becomes the last day of that member’s 

short taxable year.) Thus, for a member 

on a fiscal taxable year, the portion of 

its taxable year beginning on December 

31st and ending on the last day of its 

taxable year is not taken into account for 

determining its status as a component 

member or an excluded member. 

(2) Excluded members—(i) Temporal 

test. A corporation, which is a member 

of a controlled group of corporations on 

the group’s testing date, a date included 

within that member’s taxable year, but 

who was a member of such group for 

less than one-half of the number of days 

of its testing period, shall be treated as 

an excluded member of such group for 

that group’s testing date. 

(ii) Qualification test. A corporation 

which is a member of a controlled group 

of corporations on a testing date shall be 

treated as an excluded member of such 

group on such date if, for its taxable 

year including such date, such 

corporation is— 

(A) Exempt from taxation under 

section 501(a) (except a corporation 

which is subject to tax on its unrelated 

business taxable income under section 

511) or 521 for such taxable year; 

(B) A foreign corporation not subject 

to taxation under section 882(a) for the 

taxable year; 

(C) An S corporation (as defined in 

section 1361) for purposes of any tax 

benefit item described in section 1561(a) 

to which it is not subject; 

(D) A franchised corporation (as 

defined in section 1563(f)(4) and 

§ 1.1563–4); or 

(E) An insurance company subject to 

taxation under section 801, unless such 

insurance company (without regard to 

this paragraph (b)(2)(ii)(E)) is a 

component member of a life insurance 

controlled group described in paragraph 

(a)(5)(i) of this section or unless 

§ 1.1502–47(f)(6) applies (which treats a 

life insurance company, for which a 

section 1504(c)(2) election is effective, 

as a member (whether eligible or 

ineligible) of a life-nonlife affiliated 

group). 

(3) Additional members. A 

corporation shall be treated as an 

additional member of a controlled group 

of corporations, that is, an additional 

component member, on the group’s 

testing date if it— 

(i) Is not a member of such group on 

such date; 

(ii) Is not described, with respect to 

such taxable year, in paragraph 

(b)(2)(ii)(A), (b)(2)(ii)(B), (b)(2)(ii)(C), 

(b)(2)(ii)(D), or (b)(2)(ii)(E) of this 

section; and 

(iii) Was a member of such group for 

one-half (or more) of the number of days 

in its testing period. 

(4) Examples. The provisions of this 

paragraph (b) may be illustrated by the 

following examples: 

Example 1. B, an individual, owns all of 

the stock of corporations W and X on each 

day of 1964. W and X each use the calendar 

year as their taxable year. On January 1, 1964, 

B also owns all the stock of corporation Y (a 

fiscal year corporation with a taxable year 

beginning on July 1, 1964, and ending on 

June 30, 1965), which stock he sells on 

October 15, 1964. On December 1, 1964, B 

purchases all the stock of corporation Z (a 

fiscal year corporation with a taxable year 

beginning on September 1, 1964, and ending 

on August 31, 1965). On December 31, 1964, 

W, X, and Z are members of the same 

controlled group. However, the component 

members of the group on such December 31st 

are W, X, and Y. Under paragraph (b)(2)(i) of 

this section, Z is treated as an excluded 

member of the group on December 31, 1964, 

since Z was a member of the group for less 

than one-half of the number of days (29 out 

of 121 days) during the period beginning on 

September 1, 1964 (the first day of its taxable 

year) and ending on December 30, 1964. 

Under paragraph (b)(3) of this section, Y is 

treated as an additional member of the group 

on December 31, 1964, since Y was a member 

of the group for at least one-half of the 

number of days (107 out of 183 days) during 

the period beginning on July 1, 1964 (the first 

day of its taxable year) and ending on 

December 30, 1964. 

Example 2. On January 1, 1964, 

corporation P owns all the stock of 

corporation S, which in turn owns all the 


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Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations 25151 

stock of corporation S–1. On November 1, 

1964, P purchases all of the stock of 

corporation X from the public and sells all 

of the stock of S to the public. Corporation 

X owns all the stock of corporation Y during 

1964. P, S, S–1, X, and Y file their returns 

on the basis of the calendar year. On 

December 31, 1964, P, X, and Y are members 

of a parent-subsidiary controlled group of 

corporations; also, corporations S and S–1 

are members of a different parent-subsidiary 

controlled group on such date. However, 

since X and Y have been members of the 

parent-subsidiary controlled group of which 

P is the common parent for less than one-half 

the number of days during the period January 

1 through December 30, 1964, they are not 

component members of such group on such 

date. On the other hand, X and Y have been 

members of a parent-subsidiary controlled 

group of which X is the common parent for 

at least one-half the number of days during 

the period January 1 through December 30, 

1964, and therefore they are component 

members of such group on December 31, 

1964. Also since S and S–1 were members of 

the parent-subsidiary controlled group of 

which P is the common parent for at least 

one-half the number of days in the taxable 

years of each such corporation during the 

period January 1 through December 30, 1964, 

P, S, and S–1 are component members of 

such group on December 31, 1964. 

Example 3. Throughout 1964, corporation 

M owns all the stock of corporation F which, 

in turn, owns all the stock of corporations L1, 

L2, X, and Y. M is a domestic mutual 

insurance company subject to taxation under 

section 821, F is a foreign corporation not 

engaged in a trade or business within the 

United States, L1 and L2 are domestic life 

insurance companies subject to taxation 

under section 802, and X and Y are domestic 

corporations subject to tax under section 11 

of the Code. Each corporation uses the 

calendar year as its taxable year. On 

December 31, 1964, M, F, L1, L2, X, and Y 

are members of a parent-subsidiary 

controlled group of corporations. However, 

under paragraph (b)(2)(ii) of this section, M, 

F, L1, and L2 are treated as excluded members 

of the group on December 31, 1964. Thus, on 

December 31, 1964, the component members 

of the parent-subsidiary controlled group of 

which M is the common parent include only 

X and Y. 

Furthermore, since paragraph (b)(2)(ii)(E) 

of this section does not result in L1 and L2

being treated as excluded members of a life 

insurance controlled group, L1 and L2 are 

component members of a life insurance 

controlled group on December 31, 1964. 

(5) Application of constructive 

ownership rules. For purposes of 

paragraphs (b)(2)(i) and (b)(3)(iii) of this 

section, it is necessary to determine 

whether a corporation was a member of 

a controlled group of corporations for 

one-half (or more) of the number of days 

in its taxable year which precede the 

December 31st falling within such 

taxable year. Therefore, the constructive 

ownership rules contained in § 1.1563– 

3(b) (to the extent applicable in making 

such determination) must be applied on 

a day-by-day basis. For example, if P 

Corporation owns all the stock of X 

Corporation on each day of 1964, and on 

December 30, 1964, acquires an option 

to purchase all the stock of Y 

Corporation (a calendar-year taxpayer 

which has been in existence on each 

day of 1964), the application of 

§ 1.1563–3(b)(1) on a day-by-day basis 

results in Y being a member of the 

brother-sister controlled group on only 

one day of Y’s 1964 year which 

precedes December 31, 1964. 

Accordingly, since Y is not a member of 

such group for one-half or more of the 

number of days in its 1964 year 

preceding December 31, 1964, Y is 

treated as an excluded member of such 

group on December 31, 1964. 

(c) Overlapping groups—(1) In 

general. If on a December 31st a 

corporation is a component member of 

a controlled group of corporations by 

reason of ownership of stock possessing 

at least 80 percent of the total value of 

shares of all classes of stock of the 

corporation, and if on such December 

31st such corporation is also a 

component member of another 

controlled group of corporations by 

reason of ownership of other stock (that 

is, stock not used to satisfy the at-least80 percent total value test) possessing at 

least 80 percent of the total combined 

voting power of all classes of stock of 

the corporation entitled to vote, then 

such corporation shall be treated as a 

component member only of the 

controlled group of which it is a 

component member by reason of the 

ownership of at least 80 percent of the 

total value of its shares. 

(2) Brother-sister controlled groups— 

(i) One corporation. If on a December 

31st, a corporation would, without the 

application of this paragraph (c)(2), be a 

component member of more than one 

brother-sister controlled group on such 

date, the corporation will be treated as 

a component member of only one such 

group on such date. Such corporation 

may elect the group in which it is to be 

included by including on or with its 

income tax return for the taxable year 

that includes such date a statement 

entitled, ‘‘STATEMENT TO ELECT 

CONTROLLED GROUP PURSUANT TO 

§ 1.1563–1(c)(2).’’ This statement must 

include— 

(A) A description of each of the 

controlled groups in which the 

corporation could be included. The 

description must include the name and 

employer identification number of each 

component member of each such group 

and the stock ownership of the 

component members of each such 

group; and 

(B) The following representation: 

[INSERT NAME AND EMPLOYER 

IDENTIFICATION NUMBER OF 

CORPORATION] ELECTS TO BE 

TREATED AS A COMPONENT 

MEMBER OF THE [INSERT 

DESIGNATION OF GROUP]. 

(ii) Multiple corporations. If more 

than one corporation would, without 

the application of this paragraph (c)(2), 

be a component member of more than 

one controlled group, those corporations 

electing to be component members of 

the same group must file a single 

statement. The statement must contain 

the information described in paragraph 

(c)(2)(i) of this section, plus the names 

and employer identification numbers of 

all other corporations designating the 

same group. The original statement 

must be included on or with the original 

Federal income tax return (including 

any amended return filed on or before 

the due date (including extensions) of 

such return) of the corporation that, 

among those corporations which would 

(without the application of this 

paragraph (c)(2)) belong to more than 

one group, has the taxable year 

including such December 31st which 

ends on the earliest date. That 

corporation must provide a copy of the 

statement to each other corporation 

included in the statement and represent 

in its statement that it has done so. 

Either the original or a copy of the 

statement must be retained by each 

corporation as part of its records. See 

§ 1.6001–1(e) of this chapter. 

(iii) Election. (A) An election filed 

under this paragraph (c)(2) is 

irrevocable and effective until a change 

in the stock ownership of the 

corporation results in termination of 

membership in the controlled group in 

which such corporation has been 

included. 

(B) In the event no election is filed in 

accordance with the provisions of this 

paragraph (c)(2), then the Internal 

Revenue Service will determine the 

group in which such corporation is to be 

included. Such determination will be 

binding for all subsequent years unless 

the corporation files a valid election 

with respect to any such subsequent 

year or until a change in the stock 

ownership of the corporation results in 

termination of membership in the 

controlled group in which such 

corporation has been included. 

(iv) Examples. The provisions of this 

paragraph (c)(2) may be illustrated by 

the following examples (in which it is 

assumed that all the individuals are 

unrelated): 

Example 1. (i) On each day of 1970 all the 

outstanding stock of corporations X, Y, and 

Z is held in the following manner: 


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25152 Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations 

Individuals 

Corporations 

X (%) Y (%) Z (%) 

A ............................................................................................................................................................... 55 40 5 

B ............................................................................................................................................................... 40 20 40 

C .............................................................................................................................................................. 5 40 55 

(ii) Since the more-than-50 percent 

identical ownership requirement of section 

1563(a)(2) is met with respect to corporations 

X and Y and with respect to corporations Y 

and Z, but not with respect to corporations 

X, Y, and Z, corporation Y would, without 

the application of this paragraph (c)(2), be a 

component member on December 31, 1970, 

of overlapping groups consisting of X and Y 

and of Y and Z. If Y does not file an election 

in accordance with paragraph (c)(2)(i) of this 

section, the Internal Revenue Service will 

determine the group in which Y is to be 

included. 

Example 2. (i) On each day of 1970, all the 

outstanding stock of corporations V, W, X, Y, 

and Z is held in the following manner: 

Individuals 

Corporations 

V W X Y Z 

D .............................................................................................................. 52 52 52 52 52 

E ............................................................................................................... 40 2 2 2 2 

F ............................................................................................................... 2 40 2 2 2 

G .............................................................................................................. 2 2 40 2 2 

H .............................................................................................................. 2 2 2 40 2 

I ................................................................................................................ 2 2 2 2 40 

(ii) On December 31, 1970, the more-than50 percent identical ownership requirement 

of section 1563(a)(2) may be met with regard 

to any combination of the corporations but 

all five corporations cannot be included as 

component members of a single controlled 

group because the inclusion of all the 

corporations in a single group would be 

dependent upon taking into account the 

stock ownership of more than five persons. 

Therefore, if the corporations do not file a 

statement in accordance with paragraph 

(c)(2)(ii) of this section, the Internal Revenue 

Service will determine the group in which 

each corporation is to be included. The 

corporations or the Internal Revenue Service, 

as the case may be, may designate that three 

corporations be included in one group and 

two corporations in another, or that any four 

corporations be included in one group and 

that the remaining corporation not be 

included in any group. 

(d) Transitional rules—(1) In general. 

Treasury decision 8179 amended 

paragraph (a)(3)(ii) of this section to 

revise the definition of a brother-sister 

controlled group of corporations. In 

general, those amendments are effective 

for taxable years ending on or after 

December 31, 1970. 

(2) Limited nonretroactivity—(i) Old 

group. Under the authority of section 

7805(b), the Internal Revenue Service 

will treat an old group as a brother-sister 

controlled group corporations for 

purposes of applying sections 401, 

404(a), 408(k), 409A, 410, 411, 412, 414, 

415, and 4971 of the Internal Revenue 

Code (Code) and sections 202, 203, 204, 

and 302 of the Employment Retirement 

Income Security Act of 1974 (ERISA) in 

a plan year or taxable year beginning 

before March 2, 1988, to the extent 

necessary to prevent an adverse effect 

on any old member (or any other 

corporation), or on any plan or other 

entity described in such sections 

(including plans, etc., of corporations 

not part of such old group), that would 

result solely from the retroactive effect 

of the amendment to this section by TD 

8179. An adverse effect includes the 

disqualification of a plan or the 

disallowance of a deduction or credit for 

a contribution to a plan. The Internal 

Revenue Service, however, will not treat 

an old member as a member of an old 

group to the extent that such treatment 

will have an adverse effect on that old 

member. 

(ii) Old member of old group. Section 

7805(b) will not be applied pursuant to 

paragraph (d)(2)(i) of this section to treat 

an old member of an old group as a 

member of a brother-sister controlled 

group to prevent an adverse effect for a 

taxable year if, for that taxable year, that 

old member treats or has treated itself as 

not being a member of that old group for 

purposes of sections 401, 404(a), 408(k), 

409A, 410, 411, 412, 414, 415, and 4971 

of the Code and sections 202, 203, 204, 

and 302 and Title IV of ERISA for such 

taxable year (such as by filing, with 

respect to such taxable year, a return, 

amended return, or claim for credit or 

refund in which the amount of any 

deduction, credit, limitation, or tax due 

is determined by treating itself as not 

being a member of the old group for 

purposes of those sections). However, 

the fact that one or more (but not all) of 

the old members do not qualify for 

section 7805(b) treatment because of the 

preceding sentence will not preclude 

that old member (or members) from 

being treated as a member of the old 

group under paragraph (d)(2)(i) of this 

section in order to prevent the 

disallowance of a deduction or credit of 

another old member (or other 

corporation) or to prevent the 

disqualification of, or other adverse 

effect on, another old member’s plan (or 

other entity) described in the sections of 

the Code and ERISA enumerated in 

such paragraph. 

(3) Election of general 

nonretroactivity. In the case of a taxable 

year ending on or after December 31, 

1970, and before March 2, 1988, an old 

group will be treated as a brother-sister 

controlled group of corporations for all 

purposes of the Code for such taxable 

year if— 

(i) Each old member files a statement 

consenting to such treatment for such 

taxable year with the District Director 

having audit jurisdiction over its return 

within six months after March 2, 1988; 

and 

(ii) No old member— 

(A) Files or has filed, with respect to 

such taxable year, a return, amended 

return, or claim for credit or refund in 

which the amount of any deduction, 

credit, limitation, or tax due is 

determined by treating any old member 

as not a member of the old group; or 

(B) Treats the employees of all 

members of the old group as not being 

employed by a single employer for 

purposes of sections 401, 404(a), 408(k), 

409A, 410, 411, 412, 414, 415, and 4971 

of the Code and sections 202, 203, 204, 

and 302 of ERISA for such taxable year. 

(4) Definitions. For purposes of this 

paragraph (d)— 


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Federal Register / Vol. 74, No. 100 / Wednesday, May 27, 2009 / Rules and Regulations 25153 

(i) An old group is a brother-sister 

controlled group of corporations, 

determined by applying paragraph 

(a)(3)(ii) of this section as in effect 

before the amendments made by TD 

8179, that is not a brother-sister 

controlled group of corporations, 

determined by applying paragraph 

(a)(3)(ii) of this section as amended by 

such Treasury decision; and 

(ii) An old member is any corporation 

that is a member of an old group. 

(5) Election to choose between 

membership in more than one 

controlled group—(i) In general. A 

corporation may make an election under 

paragraph (c)(2) of this section by filing 

an amended return on or before 

September 2, 1988 if— 

(A) An old member has filed an 

election under paragraph (c)(2) of this 

section to be treated as a component 

member of an old group for a December 

31st before March 2, 1988; and 

(B) That corporation would (without 

regard to such paragraph (c)(2)) be a 

component member of more than one 

brother-sister controlled group (not 

including an old group) on December 

31st. 

(ii) Exception. This paragraph (d)(5) 

does not apply to a corporation that is 

treated as a member of an old group 

under paragraph (d)(3) of this section. 

(6) Refunds. See section 6511(a) for 

period of limitation on filing claims for 

credit or refund. 

(e) Effective/applicability date. This 

section applies to taxable years 

beginning on or after May 26, 2009. 

However, taxpayers may apply this 

section to taxable years beginning before 

May 26, 2009. For taxable years 

beginning before May 26, 2009, see 

§ 1.1563–1T as contained in 26 CFR part 

1 in effect on April 1, 2009. 

§ 1.1563–1T [Removed] 

■ Par. 3. Section 1.1563–1T is removed. 

§ 1.1563–3 [Amended] 

■ Par. 4. Section 1.1563–3(d)(3), 

Example 3, is amended by removing the 

language ‘‘§ 1.1563–1T’’ and adding 

‘‘§ 1.1563–1’’ in its place. 

PART 602—OMB CONTROL NUMBERS 

UNDER THE PAPERWORK 

REDUCTION ACT 

■ Par. 5. The authority citation for part 

602 continues to read as follows: 

Authority: 26 U.S.C. 7805. 

■ Par. 6. In § 602.101, paragraph (b) is 

amended as follows: 

■ 1. The following entry to the tables is 

removed: 

§ 602.101 OMB Control Numbers. 

* * * * * 

(b) * * * 

CFR part or section where 

identified or described 

Current 

OMB control 

No. 

* * * * * 

1.1563–1T ................................. 1545–2019 

* * * * * 

■ 2. The following entry is added in 

numerical order to the table: 

§ 602.101 OMB Control Numbers. 

* * * * * 

(b) * * * 

CFR part or section where 

identified or described 

Current 

OMB control 

No. 

* * * * * 

1.1563–1 ................................... 1545–2019 

* * * * * 

Linda E. Stiff, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: May 20, 2009. 

Michael F. Mundaca, 

Acting Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. E9–12296 Filed 5–26–09; 8:45 am] 

BILLING CODE 4830–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R09–OAR–2009–0133; FRL–8909–6] 

Approval and Promulgation of Air 

Quality Implementation Plans; 

California; Determination of Attainment 

of the 1-Hour Ozone Standard for the 

Ventura County Area 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Direct final rule. 

SUMMARY: On April 15, 2009, the 

California Air Resources Board (CARB) 

requested that EPA find that the Ventura 

County ozone nonattainment area has 

attained the revoked 1-hour ozone 

National Ambient Air Quality Standard 

(NAAQS). After a review of this 

submission and of the relevant 

monitoring data, EPA is making such a 

finding. 

Because the area has attained the 1- 

hour standard by the applicable 

attainment date, the area is not subject 

to the requirement to implement 

contingency measures for failure to 

attain the standard by its attainment 

date. In addition, EPA finds that the 

area is not subject to the Clean Air Act 

penalty fee requirements for severe and 

extreme ozone nonattainment areas that 

have not attained the 1-hour standard by 

the applicable attainment date. 

DATES: This rule is effective on July 27, 

2009 without further notice, unless EPA 

receives adverse comments by June 26, 

2009. If we receive such comments, we 

will publish a timely withdrawal in the 

Federal Register to notify the public 

that this direct final rule does not take 

effect. 

ADDRESSES: Submit your comments, 

identified by Docket ID No. EPA-R09– 

OAR–2009–0133, by one of the 

following methods: 

1. http://www.regulations.gov. Follow 

the on-line instructions for submitting 

comments. 

2. E-mail: nudd.gregory@epa.gov. 

3. Fax: (415) 947–3579. 

4. Mail or Delivery: Greg Nudd (AIR– 

2), U.S. Environmental Protection 

Agency Region IX, 75 Hawthorne Street, 

San Francisco, CA 94105–3901. 

Instructions: Direct your comments to 

Docket ID No. EPA–R09–OAR-2009– 

0133. EPA’s policy is that all comments 

received will be included in the public 

docket without change and may be 

made available online at http:// 

www.regulations.gov, including any 

personal information provided, unless a 

comment includes information claimed 

to be Confidential Business Information 

(CBI) or other information whose 

disclosure is restricted by statute. Do 

not submit information that you 

consider to be CBI or otherwise 

protected through http:// 

www.regulations.gov or e-mail. The 

http://www.regulations.gov Web site is 

an ‘‘anonymous access’’ system, which 

means EPA will not know your identity 

or contact information unless you 

provide it in the body of your comment. 

If you send an e-mail comment directly 

to EPA without going through http:// 

www.regulations.gov, your e-mail 

address will be automatically captured 

and included as part of the comment 

that is placed in the public docket and 

made available on the Internet. If you 

submit an electronic comment, EPA 

recommends that you include your 

name and other contact information in 

the body of your comment and with any 

disk or CD–ROM you submit. If EPA 

cannot read your comment due to 

technical difficulties and cannot contact 

you for clarification, EPA may not be 

able to consider your comment. 


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