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1122 Form: What You Should Know

The announcement followed the guidance of U.S. Tax Court, United States v. First American Sugar, Inc. A court of appeals declared that the form was invalid because the corporation did not comply with the IRS's Form 1122 provisions. The Tax Court declared that any affiliated group of corporations that did not file Form 1122, as a condition to  substantial compliance with the income tax reporting and payment provisions of the Code, and to avoid the penalties for failing to do so, may be exempt from the form's requirement to authorize a qualifying subsidiary to be included in the entity's consolidated income. (See IRS Letter dated December 18, 2013, noting that First Americans did file the form and that, since the case was not filed to contest the validity of Form 1122 itself, any additional information needed to complete the form was provided. The new procedures, however, do not apply to cases involving corporations whose failure to file Form 1122 is due solely to noncompliance with the requirements of the tax laws, such as failure of a parent corporation to file Form 11b- Part A or an amended Form 11b-Part A to apply on an amended Form 11b-Part A. IRS's new procedure requires that the Form 114 or 11, Part 15, of the Form 1122 have been filed by the affiliated group of corporations for the  specified period, and include the approval of the company's general corporate officer authorizing such Form 114 or 11, Part 15, to be used for a subsidiary. The approval must be in the company's original signed or written language, which verifies  that the company has complied with the requirements of the Code. The proposed change does not apply to cases where the non-filing was due solely to noncompliance with the  required Form 1122 provisions of the Tax Code, such as failure of a parent corporation to file Form 11b- Part A.  “The Court's ruling means that corporations will still need to file the appropriate  Form 114 or 11, Part 15 (or other appropriate form) if they want to be exempt from the corporate tax Reporting and Payment of Corporate Income and Additional Corporate Tax (CFA) on income earned by non-corporate participants,” the IRS said in a “Final Treasury Brief.

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