N.Y. Comp. Codes R. & Regs. tit. 20 § 6-2.7

Current through Register Vol. 46, No. 25, June 18, 2024

Section 6-2.7 - Commonly owned group election

(Tax Law, section 210-C)

(a)

(1) Subject to the restrictions in section 6-2.6 of this Subpart, a taxpayer may elect to treat as its combined group all corporations that meet the capital stock requirement (such corporations are collectively referred to as the "commonly owned group"). If the election is made, all of the corporations that are members of the commonly owned group are bound by the election and will be treated as the members of a single combined group for combined reporting purposes, regardless of whether:

(i) these corporations are included in more than one Federal consolidated return filed by more than one Federal consolidated group, or

(ii) these corporations in fact are engaged in one or more unitary businesses.

(2) Upon making the election, the commonly owned group must calculate the combined group's combined business income, and combined capital of all members of the commonly owned group, and the fixed dollar minimum base tax of all taxpayers in the commonly owned group.

(3) Upon making the election, the commonly owned group is deemed to be engaged in a single unitary business for all purposes, including for purposes of calculating business and investment capital, business and investment income and the apportionment factor.

(4) Example.

Corporation A is in the business of producing paper, packaging and office supplies. It has three wholly owned subsidiaries. Corporation B is in the business of producing school supplies. Corporation C is in the business of selling the paper, packaging, office and school supplies produced by Corporations A and B. Corporation D is in the business of operating an electronic legal research service that it sells to law firms. In 2015 and 2016, Corporations A, B and C properly file a combined report as a unitary business and Corporation D properly files a separate report. The dividends Corporation A receives from Corporation D are properly treated as investment income on the combined report as income received from stock in a non-unitary corporation that qualifies as investment capital. In 2017, Corporation A makes the commonly owned group election and Corporations A, B, C and D file a combined report. As Corporation D is included in the combined report, its stock cannot be investment capital. On that report, the dividends Corporation A receives from Corporation D are properly eliminated in computing combined business income. In 2018, Corporation A sells all of its stock in Corporation D to a third-party, realizing a capital gain on the sale. Corporation A's capital gain on the sale of its stock in Corporation D is treated as a capital gain from the sale of a unitary member of the combined group and is properly reported as business income on the combined report of the commonly owned group.

(b) Mechanics of making the election. A commonly owned group election must be made by the designated agent of the combined group, acting on behalf of all the corporations in the commonly owned group. The election must be made on an original, timely filed report, determined with regard to extensions of time for filing. Any commonly owned group election made on a report that is filed late will be invalid and ineffective.

(c) Effect of election in subsequent tax years. A commonly owned group election is binding for and applicable to the taxable year for which it is made and for the next six taxable years (if the first year is not a short taxable year) or the next seven taxable years (if the first year is a short taxable year). The election is binding on all corporations that meet the capital stock requirement and continues in place regardless of whether any Federal consolidated group to which members of the combined group belong discontinues the filing of a Federal consolidated return or the designated agent of the group changes. Any corporation that enters a commonly owned group by acquisition or creation during the time that the commonly owned group election is in effect must be included in the combined group beginning with the taxable year during which the corporation enters the group, and the corporation entering the group shall be considered to have consented to the application of the election and to have waived any objection to its inclusion in the combined group. The disposition of or the failure to meet the capital stock requirement of one or more members of a combined group will not sever an election for the remaining members of the group and the leaving member or members are not bound by the election. However, reverse acquisition rules based on the Federal rules set forth in 26 CFR 1.1502-75(d)(3) will be applied in determining whether a corporation is bound by a commonly owned group election. The entrance or departure of a corporation from the commonly owned group does not change the effective periods as defined in subdivision (d) of this section.

(d) Revocation, renewal of election. A commonly owned group election, once made, cannot be revoked until after it has been effective for seven taxable years (if the election is not made on a short period return) or eight taxable years (if the election is made on a short period return), such periods hereinafter referred to as the "effective period". When an election is made, it will continue to be automatically renewed after the effective period for another effective period indefinitely, unless the designated agent of the commonly owned group, acting on behalf of all the corporations included in the commonly owned group, affirmatively revokes the election at the end of the effective period. In the case of a revocation, a new election will not be permitted in any of the three taxable years immediately following the revocation. A revocation will be effective for the first taxable year (whether or not that taxable year is a short taxable year) after the completion of the effective period for which the prior election was in place and must be made by the designated agent on an original, timely filed report, determined with regard to extensions of time for filing, for that first subsequent taxable year. Every corporation that is a member of the commonly owned group is bound by such revocation. If a commonly owned group election is affirmatively revoked after the effective period, the election will terminate for the subsequent taxable year, and no commonly owned group election by any member of that commonly owned group will apply for that year and the subsequent two taxable years (if revoked on a report that is not a short period report) or the subsequent three taxable years (if revoked on a report that is a short period report). In such cases, the designated agent of that commonly owned group may make a new election beginning in the third or fourth taxable year after the revocation.

(e) In determining the effective periods described in this section, short taxable years will not be considered or counted. However, the election or revocation may be made on a report for a short taxable year.

(1) Example.

Corporation A is a calendar year taxpayer for Federal income tax purposes. On April 1, 2015, Corporation A, which has 25 wholly owned subsidiaries, purchases an office building in New York State. Prior to April 1, 2015, neither Corporation A nor any of its subsidiaries had nexus with New York. Thus, Corporation A's first taxable year in New York is a short taxable year (4/1/15-12/31/15). Corporation A, as the designated agent, makes the commonly owned group election on its first report and includes all of its 25 wholly owned subsidiaries in a combined report. Although the commonly owned group election can be made on the short period 2015 report, such period does not count in determining the seven-year period for which the election is in effect. As such, the commonly owned group election will apply from April 1, 2015, until the tax year ending on December 31, 2022, assuming there are no other short taxable years during this time period.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 6-2.7

Adopted New York State Register December 27, 2023/Volume XLV, Issue 52, eff. 12/27/2023