The IRS has proposed new regulations (REG-142561-07) under Treas. Reg. Sec. 1.1502-77 for determining the agent for a consolidated group.
Under the existing regulations, the common parent is typically the default agent for the group. The agent for the group has the authority to enter into agreements and extensions with the IRS, and is the member with whom the IRS will directly interact. The consolidated group may elect, however, a substitute agent. Moreover, there are existing rules for determining a successor agent in situations such as a common parent's ceasing to be a domestic entity (for example, after an inversion where such entity is "offshored"). The proposed regulations simplify and streamline these rules given changes in other parts of the Internal Revenue Code (chiefly with regard to issues surrounding disregarded entities).
The proposed regulations provide default successor rules that largely eliminate the confusion from prior rules that allowed taxpayers and/or the IRS to select a successor. The default successor is the one primarily liable under applicable law for the tax liability of the former agent. Thus, for example, if the common parent for a consolidated group makes a formless conversion into an LLC that is disregarded for federal income tax purposes, that LLC will be the default successor for tax issues for the prior periods when it was the common parent and agent for the group.
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