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... Or bankrupt parent.

In some cases the common parent corporation has filed in bankruptcy but other members of the affiliated group have not. The problem faced by the nonsolvent (nondebtor) subsidiaries is that, under Regs. Sec. 1.1502-77(a), only the common parent of an affiliated group is permitted to file a Tax Court petition in order to obtain a preassessment adjudication of a disputed tax liability. (See J&S Carburetor Co., 93 TC 166 (1989).) The solvent subsidiaries may request under Regs. Sec. 1.1502-77(a) (last sentence) that the cognizant district director deal directly with any affiliated group member. However, acceptance of this request is at the district director's discretion.

The preferred solution may be the formation of an agreement between the IRS and the common parent corporation, sometimes called a "Sutton Agreement," under which the Service would agree not to assess and collect the consolidated tax liability against the subsidiary, pending the outcome of the bankruptcy court proceedings, in exchange for the common parent's agreement not to rely on the stay of proceedings under Section 362(a)(6) of the Bankruptcy Act.
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Title Annotation:affiliated group
Author:Meyerer, Thomas H.
Publication:The Tax Adviser
Date:Jan 1, 1992
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