Insurance subsidiary remained in consolidated group during receivership

Plain-English summary

A parent corporation wholly owned an insurance subsidiary that entered a court-ordered receivership and liquidation. The receiver obtained management authority and title to the subsidiary's property, but the parent continued to own at least 80 percent of the subsidiary's vote and value. The IRS ruled that the liquidation did not end the subsidiary's corporate status before final dissolution. It also ruled that the subsidiary remained a member of the parent's consolidated group unless the parent received permission to discontinue consolidated filing or its ownership fell below the 80-percent thresholds.

Ruling snapshot

• Question: Did the insurance subsidiary remain a corporation and a member of its parent's consolidated group while under court-ordered liquidation?
• Outcome: approved
• Key authorities: IRC §§ 1504, 6012; Treas. Reg. § 1.1502-75; Rev. Ruls. 63-104, 84-170

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 202423008                                            Third Party Communication: None
Release Date: 6/7/2024                                       Date of Communication: Not Applicable
Index Number: 1502.75-00, 1504.02-00,
              6012.03-04, 6012.04-00                         Person To Contact:
                                                             --------------------, ID No. -----------------
-------------------------------                              Telephone Number:
------------------------------------------------------       -------------------
--------------------------                                   Refer Reply To:
------------------------------------------                   CC:CORP:04
                                                             PLR-125178-23
                                                             Date:
                                                             March 11, 2024



Parent              = -----------------------------------------------------------------------------------------
                      -----------------------------------------------------------------------------------------
                      -----------------------
Subsidiary          = -----------------------------------------------------------------------------------------
                      -----------------------------------------------------------------------------------------
                      -----------------------
Date 1              = -----------------------

Date 2              = -------------------------

Date 3              = -------------------------

Date 4              = -------------------------

Date 5              = --------------------------

Department          = -----------------------------------------------------------------------------------------
                      ---------------------
Regulator           = --------------------------------------------------

State Officer       = ------------------------------------------------------------

Court               = -----------------------------------------------------------------------------------------
                      ---------
a                   = --

b                   = --

Statute             = -------------------------------------------------------------------
PLR-125178-23                                  2

Dear -------------:

       This letter responds to your authorized representatives’ letter dated December 22,
2023, requesting rulings on certain federal income tax consequences of a receivership.
The material information provided in that request and in subsequent correspondence is
summarized below.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted in
support of the request for rulings, it is subject to verification on examination.

                                    Summary of Facts

        Parent is the common parent of a consolidated group (“Parent Group”). Parent
directly owns all the stock of Subsidiary, an insurance company subject to tax under
section 831. Historically, Subsidiary has been a member of the Parent Group.

       On Date 1, Subsidiary executed a consent to an order of receivership for the
appointment of Department as receiver of Subsidiary. On Date 2, Regulator advised State
Officer that grounds existed for the initiation of delinquency proceedings against
Subsidiary. On Date 3, Department petitioned Court for the entry of a consent order
appointing Department as receiver of Subsidiary for purposes of liquidation, injunction,
and notice of automatic stay. On Date 4, Court ordered the appointment of Department
as receiver for the purpose of liquidating Subsidiary in accordance with applicable law
(the “Consent Order”). The Consent Order provided, in relevant part, that:

  i.    Department be appointed receiver of Subsidiary for purposes of liquidation,
        effective immediately upon the entry of the Consent Order;

  ii.   Department be granted all the powers of Subsidiary's officers, directors, and
        managers, all of whom were permanently discharged;

 iii.   Department be given full power to direct and manage the affairs of Subsidiary, to
        hire and discharge employees, and to deal with the property and business of
        Subsidiary;

 iv.    Department be vested with title to all property (real or personal), contracts, rights
        of action, and all books and records of Subsidiary wherever located; and

 v.     Department marshal the assets of Subsidiary and liquidate Subsidiary's business.

       Parent anticipates that Subsidiary will be in receivership for at least the next a
years, and possibly up to the next b years, as the payouts of claims on policies previously
issued by Subsidiary ultimately are resolved by Department. Neither Parent nor any of
PLR-125178-23                                3

Parent’s affiliates anticipate receiving or otherwise recovering any cash or other property
upon final dissolution of Subsidiary pursuant to the Consent Order.

                                    Representations

       Parent has made the following representations:

    1. The receivership and court-ordered liquidation of Subsidiary are governed by
      Statue.

    2. Parent anticipates that, for each taxable year with respect to which Subsidiary is
      contemplated to be a member of the Parent Group, beginning with the taxable year
      ending Date 5, Department will provide Parent with a balance sheet and income
      statement for Subsidiary and will prepare a pro forma tax return for Subsidiary to
      be included in the consolidated return for the Parent Group.

    3. Subject to the authority granted under the Consent Order, Parent owns 80 percent
      or greater of the vote and value of the shares of Subsidiary stock.

    4. Except for the final dissolution of Subsidiary pursuant to the Consent Order, Parent
      has no intention to sell or otherwise dispose of an amount of Subsidiary stock that
      would reduce Parent’s ownership of Subsidiary stock to less than 80 percent of the
      total voting power of all shares of Subsidiary stock or to a value less than 80
      percent of the total fair market value of all shares of Subsidiary stock.

    5. Parent anticipates that Subsidiary will hold an amount of assets until the time of
      the final dissolution of Subsidiary pursuant to the Consent Order.

    6. Parent has not claimed a worthless securities loss deduction under section 165(g)
      with respect to the stock of Subsidiary.

                                         Rulings

       Based solely on the information submitted and the representations set forth above,
we rule as follows:

    1. The court-ordered liquidation of Subsidiary will not cause Subsidiary to lose its
      status as a corporation for purposes of section 6012 prior to the completion of the
      final dissolution of Subsidiary pursuant to the Consent Order. Rev. Rul. 84-170,
      1984-2 C.B. 245.

    2. Subsidiary is a member of the Parent Group and must be included in the Parent
      Group’s consolidated return unless and until either (i) permission to discontinue
      filing consolidated returns is granted to Parent under Treas. Reg. § 1.1502-75(c)
      or (ii) Parent sells or otherwise disposed of an amount of Subsidiary stock that
      would reduce Parent’s ownership of Subsidiary stock to less than 80 percent of the
      total voting power of all shares of Subsidiary stock or to a value less than 80
PLR-125178-23                                  4

       percent of the total fair market value of all shares of Subsidiary stock. Rev. Rul.
       63-104, 1963-1 C.B. 172.

                                          Caveats

       Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

                                  Procedural Statements

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

       In accordance with the Power of Attorney on file with this office, a copy of this letter
is being sent to your authorized representatives.

       A copy of this letter must be attached to any income tax return to which it is
relevant. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to their return that provides the date and control
number (PLR-125178-23) of the letter ruling.

                                        Sincerely,



                                        Austin Diamond-Jones
                                        Austin Diamond-Jones
                                        Branch Chief, Branch 3
                                        Office of Associate Chief Counsel (Corporate)



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