Subsidiary was treated as consenting to parent's consolidated return

Plain-English summary

A medical-device parent formed a domestic subsidiary to acquire another business's assets. Its tax preparer mistakenly believed the subsidiary was a disregarded entity, so the parent filed a standalone Form 1120 and omitted Forms 851 and 1122 and the consolidated-return checkbox. Even so, the return included all of the subsidiary's income, deductions, gains, losses, and credits, and the subsidiary never filed a separate return. The companies represented that they formed an affiliated group and that the subsidiary intended to join the consolidated return. Based on those facts, the IRS treated the subsidiary as though it had filed Form 1122 and allowed the group to be treated as satisfying the consolidated-return requirements. The parent must amend open-year returns to mark them as consolidated and attach Form 851 as needed.

Ruling snapshot

• Question: May a subsidiary be treated as joining a consolidated return when its tax preparer mistakenly omitted the consent and affiliation forms?
• Outcome: Approved
• Key authorities: IRC §§ 1501, 1502, 1504(a); Treas. Reg. § 1.1502-75; Rev. Proc. 2014-24

Full text (IRS public release)

Internal Revenue Service
Large Business & International
Western Compliance Practice Area

Department of the Treasury
Washington, DC 20224

Release Number: 202540029 Third Party Communication: None
Release Date: 10/3/2025 Date of Communication: N/A
UIL Code: 1502.00-00

In Re:

Person To Contact:

Telephone Number:

Date:
July 10, 2025

Legend:

Parent =

Subsidiary =

Date 1 =

Date 2 =

Date 3 =

Dear :

This letter responds to the letter dated Date 1, submitted on behalf of Parent and
Subsidiary (together, the “Affiliated Group” for purposes of this letter and to the extent
these entities meet the definition provided by I.R.C. § 1504(a)), requesting that the
Commissioner make a determination regarding Subsidiary’s failure to have consented
to the filing of a consolidated return with Parent for the taxable year ended Date 2,
pursuant to, and in the manner provided by, Treas. Reg. § 1.1502-75(a)(1), (b)(1), and
(h)(2).

SUMMARY OF FACTS

Parent and Subsidiary are domestic corporations engaged in the medical device
industry. Subsidiary was formed in 2021 to facilitate an acquisition. Prior to the formation
of Subsidiary, Parent did not own any domestic entities and filed its own standalone
return. On Date 3, Parent, Subsidiary and Seller entered into an Asset Purchase
Agreement under which Subsidiary purchased the assets of Seller.

Determination Letter Under Treasury Regulation 1.1502-75

Parent does not have in-house tax professionals or expertise in preparing Federal income
tax returns. Parent engaged a tax preparer to assist with tax preparation, but preparer
mistakenly believed the Subsidiary was a disregarded entity. Under this mistaken belief,
the tax preparer prepared Parents Form 1120 tax return as a standalone corporation and
did not prepare a separate return for the Subsidiary.

Additionally, Subsidiary was not included on the Forms 7004, Application for
Automatic Extension of Time To File Certain Business Income Tax, Information, and
Other Returns as Tax Advisor mistakenly believed Subsidiary was a disregarded entity.
Taxpayer and Subsidiary also failed to file Form 851, Affiliations Schedule, and Form
1122, Authorization and Consent of Subsidiary Corporation to be Included in a
Consolidated Income Tax Return, for tax year Date 2, and Parent did not check the
“consolidated return” box on Form 1120, U.S. Corporation Income Tax Return, for tax
year Date 2.

Though not reported as a corporation on the Date 2 return, the activities of
Subsidiary were reflected on Parents Date 2 Form 1120, including all of Subsidiary’s
items of income, gain, deductions, loss, and credits. Furthermore, Form 8594, Asset
Acquisition Statement Under Section 1060, was included in the Date 2 Form 1120,
treating Parent as the direct acquirer of the assets of Seller. Subsidiary did not
separately file a Form 1120 for the taxable year ended Date 2.

REPRESENTATIONS

Parent and Subsidiary represent that (1) Parent's U.S. federal income tax return for the
taxable year ended Date 2 included all items of income and deduction of Subsidiary,
(2) Subsidiary has never filed a separate U.S. federal income tax return, (3) Parent and
Subsidiary constitute an affiliated group as defined by I.R.C. § 1504(a), and (4)
Subsidiary intended to consent to join in the making of a consolidated return for the
taxable year ended Date 2.

LAW

Internal Revenue Code § 1501 provides:

An affiliated group of corporations shall . . . have the privilege of making a
consolidated return with respect to the income tax imposed by chapter 1 for
the taxable year in lieu of separate returns. The making of a consolidated
return shall be upon the condition that all corporations which at any time
during the taxable year have been members of the affiliated group consent
to all the consolidated return regulations prescribed under section 1502
prior to the last day prescribed by law for the filing of such return. The
making of a consolidated return shall be considered as such consent. . . .

Internal Revenue Code § 1504(a) provides that the term “affiliated group” means: one or
more chains of includible corporations connected through stock ownership with a

2

Determination Letter Under Treasury Regulation 1.1502-75

common Parent corporation which is an includible corporation, where (i) the common
Parent directly owns at least 80% of the stock, by vote and value, in at least one of the
other includible corporations, and (ii) one or more of the other includible corporations
directly owns at least 80% of the stock, by vote and value, in each of the other includible
corporations except the common Parent.

Treasury Regulation § 1.1502-75(a)(1) provides:

A group which did not file a consolidated return for the immediately
preceding taxable year may file a consolidated return in lieu of separate
returns for the taxable year, provided that each corporation which has been
a member during any part of the taxable year for which the consolidated
return is to be filed consents (in the manner provided in paragraph (b) of
this section) to the regulations under section 1502. . . .

Treasury Regulation § 1.1502-75(b) provides:

(b) How consent for first consolidated year exercised—(1) General
rule. The consent of a corporation referred to in paragraph (a)(1) of this
section shall be made by such corporation joining in the making of the
consolidated return for such year. A corporation shall be deemed to have
joined in the making of such return for such year if it files a Form 1122 in
the manner specified in paragraph (h)(2) of this section.

(2) Consent under facts and circumstances. If a member of the group
fails to file Form 1122, the Commissioner may under the facts and
circumstances determine that such member has joined in the making of a
consolidated return by such group. The following circumstances, among
others, will be taken into account in making this determination:

(i) Whether or not the income and deductions of the member were
included in the consolidated return;

(ii) Whether or not a separate return was filed by the member for that
taxable year; and

(iii) Whether or not the member was included in the affiliations
schedule, Form 851.

If the Commissioner determines that the member has joined in the making
of the consolidated return, such member shall be treated as if it had filed a
Form 1122 for such year for purposes of paragraph (h)(2) of this section.

(3) Failure to consent due to mistake. If any member has failed to
join in the making of a consolidated return under either subparagraph (1)

3

Determination Letter Under Treasury Regulation 1.1502-75

or (2) of this paragraph, then the tax liability of each member of the group
shall be determined on the basis of separate returns unless the common
Parent corporation establishes to the satisfaction of the Commissioner that
the failure of such member to join in the making of the consolidated return
was due to a mistake of law or fact, or to inadvertence. In such case, such
member shall be treated as if it had filed a Form 1122 for such year for
purposes of paragraph (h)(2) of this section, and thus joined in the making
of the consolidated return for such year.

Treasury Regulation § 1.1502-75(h)(1) and (2) provide:

(h) Method of filing return and forms—(1) Consolidated return made
by common Parent corporation. The consolidated return shall be made on
Form 1120 for the group by the common Parent corporation. . . .

(2) Filing of Form 1122 for first year. If, under the provisions of
paragraph (a)(1) of this section, a group wishes to file a consolidated return
for a taxable year, then a Form 1122 (“Authorization and Consent of
Subsidiary Corporation To Be Included in a Consolidated Income Tax
Return”) must be executed by each Subsidiary. . . . Form 1122 is not
required for a taxable year if a consolidated return was filed (or was required
to be filed) by the group for the immediately preceding taxable year.

Revenue Procedure 2014-24, 2014-13 I.R.B. 879, allows an affiliated group that satisfies
certain requirements to obtain an automatic determination to treat a Subsidiary member
of the affiliated group as if it filed a Form 1122, even though it failed to do so. Section 1.03
of Rev. Proc. 2014-24 provides that if an affiliated group cannot satisfy such
requirements, a determination by the Commissioner under Treas. Reg. § 1.1502-75(b) is
available only pursuant to a determination letter issued by a Director. In this case, the
Affiliated Group does not satisfy the requirements to obtain automatic relief under Rev.
Proc. 2014-24.

DETERMINATION

Based solely on the information submitted and the representations made in the letter
dated Date 1, it is determined that Treas. Reg. § 1.1502-75(b)(2) can be applied in this
case. Accordingly, Subsidiary shall be treated as if it had filed a Form 1122 in the manner
specified in Treas. Reg. § 1.1502-75(h)(2), and the Affiliated Group shall be treated as
satisfying the requirements for filing a consolidated return for the taxable year ended Date
2.

CAVEATS

4

Determination Letter Under Treasury Regulation 1.1502-75

Except as expressly provided herein, no opinion is expressed or implied concerning the
U.S. income tax consequences of any aspect of any transaction or item discussed or
referenced in this letter or about the tax treatment of any condition existing at the time of,
or effects resulting from, any transaction or item that is not specifically covered by the
above determination.

The determination contained in this letter is based upon information and representations
submitted by the taxpayers and accompanied by a penalties of perjury statement
executed by an appropriate party.

PROCEDURAL MATTERS

This determination is directed only to the taxpayers who requested it. Internal Revenue
Code § 6110(k)(3) provides that it may not be used or cited as precedent.

Parent must file an amended income tax return for any open year to both check the
“consolidated return” box on the face of the return and attach a Form 851 as necessary.

A copy of this determination 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 returns that provides the date and control
number of the determination letter.

This office will associate a copy of this determination letter with Parent’s U.S. income tax
returns. A copy of this determination letter should be kept in Parent’s permanent records.

Sincerely,

Acting Director of Field Operations (WCPA – West)

5