Subsidiary treated as consenting to consolidated return despite missing Form 1122

Plain-English summary

A parent corporation mistakenly continued treating its former qualified subchapter S subsidiary as disregarded after revoking the parent's S election. The parent included all of the subsidiary's income and deductions on its returns, but it did not mark the first return as consolidated or attach Forms 851 and 1122. The subsidiary filed no separate return and intended to join the consolidated return. Based on those facts, the IRS treated the subsidiary as if it had filed Form 1122 and determined that the affiliated group satisfied the consolidated-return filing requirements. The parent must amend every open-year return as necessary to mark it consolidated and attach Form 851.

Ruling snapshot

• Question: May a subsidiary that omitted Form 1122 be treated as having joined its parent's consolidated return?
• Outcome: Approved, with amended returns required for open years
• 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: 202548030
Release Date: 11/28/2025
UIL Code: 1502.00-00

Third Party Communication: None
Date of Communication: N/A

In Re:

Person To Contact:

Telephone Number:

Date:
July 18, 2025

Legend:

Parent =

Sub 1 =

Date 1 =

Date 2 =

Date 3 =

Date 4 =

Date 5 =

Dear

This letter responds to correspondence dated Date 1 submitted on behalf of Parent, and
Sub 1 (the “Parent Affiliated Group” for purposes of this letter and to the extent these
entities meet the definition provided by Internal Revenue Code (“IRC”) section 1504(a)),
requesting that the Commissioner make a determination regarding the failure of Parent's
wholly owned subsidiary Sub 1 to have consented to the filing of a consolidated return
with Parent pursuant to, and in the manner provided by, Treas. Reg. § 1.1502-75(a)(1),
(b)(1) and (h)(2) for the taxable year ending on Date 4.

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

SUMMARY OF FACTS

Parent was formed on Date 2. Effective Date 2: (i) Parent elected to be taxed as an S
corporation (within the meaning of IRC section 1361(a)); (ii) owners of Sub 1 (a pre-
existing entity taxed as an S corporation) contributed all their shares of Sub 1 to Parent
in exchange for the same class and amounts of shares in Parent; and (iii) Parent elected
to treat Sub 1 as a qualified subchapter S subsidiary (within the meaning of IRC section
1361(b)(3)(B)). Later that same year, and effective at the end of Date 3, Parent revoked
its S corporation election.

As a result of revoking its S election, Parent filed its S corporation return for the period
beginning on Date 2 and ending on Date 3. Parent also filed a form 1120 for the short
period ending Date 4. Parent filed its form 1120 mistaking Sub 1 as a disregarded entity
for tax purposes.

On its tax return for the year ending on Date 4: (i) Parent did not check the “consolidated
return” box; and (ii) Parent did not attach either a Form 851 (“Affiliations Schedule”) or a
Form 1122 (“Authorization and Consent of Subsidiary Corporation to be Included in a
Consolidated Income Tax Return”).

Nevertheless, Parent reported any and all items of income, gain, deduction, and loss of
Sub 1 on Parent’s tax return for its taxable year ending on Date 4 and on all of Parent’s
subsequent tax returns to date. Sub 1 has not filed a separate tax return since becoming
affiliated with Parent after Date 3. However, on the return for the tax year ending on Date
5, Sub 1 was erroneously identified on Form 1120, Schedule K, question 5, as a 100-
percent owned domestic corporation not included on Form 851.

In this case, the Parent Affiliated Group does not satisfy the requirements to obtain
automatic relief under Rev. Proc. 2014-24. Consequently, Parent submitted a
determination letter request.

REPRESENTATIONS

Parent represents that its tax return for the taxable year ending on Date 4 and its tax
returns for all subsequent tax years to date contained any and all the income and
deductions of Sub 1.

Sub 1 has not filed a separate tax return since becoming affiliated with Parent after Date
3.

For the taxable year ending on Date 4, Sub 1 intended to consent to join in the making
of a consolidated return.

LAW

IRC section 1501 provides, in relevant part:

An affiliated group of corporations shall, subject to the provisions of this chapter, 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.

IRC section 1504(a) provides that the term “affiliated group” means: one or more chains
of includible corporations connected through stock ownership with a common Parent
corporation which is an includible corporation, but only if (i) the common Parent owns
directly 80 percent of the stock in at least one of the other includible corporations, and (ii)
80 percent of the stock in each of the includible corporations (except the common Parent)
is owned directly by one or more of the other includible corporations.

Treas. Reg. § 1.1502-75(a) provides:

(a) Privilege of filing consolidated returns—(1) Exercise of privilege for first consolidated
return year. 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. If a group wishes to
exercise its privilege of filing a consolidated return, such consolidated return must be filed
not later than the last day prescribed by law (including extensions of time) for the filing of
the common Parent's return. Such consolidated return may not be withdrawn after such
last day (but the group may change the basis of its return at any time prior to such last
day).

(2) Continued filing requirement. A group which filed (or was required to file) a
consolidated return for the immediately preceding taxable year is required to file a
consolidated return for the taxable year unless it has an election to discontinue filing
consolidated returns under paragraph (c) of this section.

Treas. Reg. § 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—(i) In general. 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.

Treatment of a member. 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) 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.

Treas. Reg. § 1.1502-75(d)(1) provides, in relevant part:

(d) When a group remains in existence—(1) General rule. A group remains in existence
for a tax year if the common Parent remains as the common Parent and at least one
subsidiary that was affiliated with it at the end of the prior year remains affiliated with it at
the beginning of the year, whether or not one or more corporations have ceased to be
subsidiaries at any time after the group was formed.

Treas. Reg. § 1.1502-75(h) provides, in relevant part:

(h) Method of filing return and forms—(1) Consolidated return made by common Parent
or agent. The consolidated return shall be made on Form 1120 U.S. Corporation Income
Tax Return (or any successor form) for the group by the common Parent....

(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.

Rev. Proc. 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.

DETERMINATION

Based solely on the information submitted and the representations made in the
determination letter request, it is determined that Treas. Reg. § 1.1502-75(b)(2) can be
applied in this case. Accordingly, Sub 1 shall be treated as if it had filed a Form 1122 in
the manner specified in Treas. Reg. § 1.1502-75(h)(2) for the taxable year ending on Date
4, and the Parent Affiliated Group shall be treated as satisfying the requirements for filing
a consolidated return for the taxable year ending on Date 4.

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

CAVEATS

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 penalty of perjury declaration executed
by an appropriate party.

PROCEDURAL MATTERS

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

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

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.

Sincerely,

Acting Director of Field Operations (WCPA – West)