United States

LLC designated consolidated group agent by the IRS

IRS authorized the LLC to act in tax matters for consolidated returns

TAX ALERT  | 

In a recently released field attorney advice memorandum (FAA 20172501F), the IRS concluded that a limited liability company (LLC) would act as agent for a corporate consolidated group in tax matters even though the LLC was not a corporation. In doing so, the IRS applied to pre-2015 years an approach similar to the rule under regulations issued in 2015 that apply to taxable years beginning on or after April 1, 2015. This FAA serves as a reminder about consolidated return procedures and also may be helpful to taxpayers undergoing a tax audit in the event a similar situation should arise.  

The common parent of a consolidated group is usually the sole agent authorized to act for the group regarding federal income tax matters (Agent). As Agent, it can contest or settle tax disputes and agree to extend statutes of limitations. If the common parent ceases to exist, its ‘default successor’ becomes the Agent. If there is no default successor, the common parent may designate a successor Agent. If there is neither a default successor nor a common parent-designated successor, the IRS may designate a successor Agent.

Regulations issued in 2015 expressly authorize LLCs and other non-corporate entities to qualify as a default successor. Where the consolidated group goes out of existence and the former common parent converts to (or merges into) an LLC, that LLC generally would become the Agent for the group under the default successor provision.

This result did not occur automatically under the pre-2015 regulations addressed in the FAA. Instead of the default successor rule, the pre-2015 regulations had a ‘default substitute agent’ rule, which only applied to corporations. In the FAA, it fell to the IRS to designate the LLC as the group’s Agent. This LLC was the legal successor to the common parent, since the common parent had merged into it. The LLC would automatically qualify as Agent under the 2015 regulations. Because the pre-2015 regulations applied, however, the IRS was required to officially designate the LLC as the Agent in the FAA.

For guidance regarding tax controversy matters in general and consolidated group Agent arrangements and responsibilities in particular, taxpayers should consult with their tax advisors.

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