W. Va. Code R. § 110-13C-15

Current through Register Vol. XLI, No. 52, December 27, 2024

Section 110-13C-15 - Definition of controlled group of corporations

15.1. In general. - For purposes of W. Va. Code '11-13C-14 and the regulations thereunder, the term "controlled group of corporations" means any group of corporations which is either a "parent-subsidiary controlled group" (as defined in paragraph 15.2), a "brother- sister controlled group" (as defined in paragraph 15.3), or a "combined group" (as defined in paragraph 15.4). For the exclusion of certain stock for purposes of applying these definitions, see Section 15A of these regulations.

15.2. Parent-subsidiary controlled group. - The term "parent-subsidiary controlled group" means one or more chains of corporations connected through stock ownership with a common parent corporation if stock possessing at least fifty percent (50%) of the combined voting power of all classes of stock entitled to vote or at least fifty percent (50%) of the total value of shares of all classes of stock of each corporation (except the stock of the common parent corporation) is owned (directly or indirectly) by one or more of the other corporations; and the common parent corporation owns (directly or indirectly) stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote or at least fifty percent (50%) of the total value of shares of all classes of stock of at least one of the other corporations (excluding, in computing such voting power or value, stock owned directly by such other corporations). This definition of a parent-subsidiary controlled group of corporations is illustrated by the following examples:

Example (1). P Corporation owns stock possessing fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote of S Corporation. P is the common parent of a parent-subsidiary controlled group consisting of member corporations P and S.

Example (2). Assume the same facts as in example (1). Assume further that S owns stock possessing fifty percent (50%) of the total value of shares of all classes of stock of T Corporation. P is the common parent of a parent-subsidiary controlled group consisting of member corporations P, S, and T. The result would be the same if P, rather than S, owned the T stock.

Example (3). L Corporation owns eighty percent (80%) of the only class of stock of M Corporation and M, in turn, owns forty percent (40%) of the only class of stock of O corporation. L also owns fifty percent (50%) of the only class of stock of N Corporation and N, in turn, owns forty percent (40%) of the only class of stock of O. L is the common parent of a parent-subsidiary controlled group consisting of member corporations L, M, N, and O.

Example (4). X Corporation owns seventy-five percent (75%) of the only class of stock of Y and Z Corporations; Y owns all the remaining stock of Z; and Z owns all the remaining stock of Y. Since intercompany stockholdings are excluded (that is, are not treated as outstanding) for purposes of determining whether X owns stock possessing at least fifty percent (50%) of the voting power or value of at least one of the other corporations, X is treated as the owner of stock possessing one hundred percent (100%) of the voting power and value of Y and of Z for purposes of this paragraph. Also, stock possessing one hundred percent (100%) of the voting power and value of Y and Z is owned by the other corporations in the group within the meaning of this paragraph. (X and Y together own stock possessing one hundred percent (100%) of the voting power and value of Z, and X and Z together own stock possessing one hundred percent (100%) of the voting power and value of Y.) Therefore, X is the common parent of a parent- subsidiary controlled group of corporations consisting of member corporations X, Y and Z.

15.3. Brother-sister controlled group. - The term "brother-sister controlled group" means two or more corporations if the same five or fewer persons who are individuals, estates, or trusts own (directly or indirectly) singly or in combination, stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote or at least fifty percent (50%) of the total value of shares of all classes of stock of each corporation; and more than fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote or more than fifty percent (50%) of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation. This definition of a brother-sister controlled group of corporations is illustrated by the following examples:

Example (1). The outstanding stock of corporations P, Q, R, S, and T, which have only one class of stock outstanding, is owned by the following unrelated individuals:

Corporations
Individuals	P	Q	R	S	T	Identical Ownership
A	60%	60%	60%	60%	100%	60%
B	40%
C		40%
D			40%
E				40%
Total	100%	100%	100%	100%	100%	100%

Corporations P, Q, R, S, and T are members of a brother-sister controlled group.

Example (2). The outstanding stock of corporations U and V, which have only one class of stock outstanding, is owned by the following unrelated individuals:

Individuals	Corporations		Identical Ownership
	U	V
F	5%	...	...
G	10%	...	...
H	10%	...	...
I	20%	...	...
J	55%	55%	55%
K	...	10%	...
L	...	10%	...
M	...	10%	...
N	...	10%	...
O	...	5%	...
	____	____	____
TOTAL	100%	100%	55%

Corporations U and V are members of a brother-sister controlled group because at least fifty percent (50%) of the stock of each corporation is owned by the same five (5) or fewer persons.

15.4. Combined group. - The term "combined group" means any group of three (3) or more corporations, if each corporation is a member of either a parent-subsidiary controlled group of corporations or a brother-sister controlled group of corporations, and at least one of such corporations is the common parent of a parent-subsidiary controlled group and also is a member of a brother-sister controlled group. This definition of a combined group of corporations is illustrated by the following examples:

Example (1). Smith, an individual, owns stock possessing 80 percent of the total combined voting power of all classes of the stock of corporations X and Y. Y, in turn, owns stock possessing 80 percent of the total combined voting power of all classes of the stock of corporation Z. Since --

(a) X, Y, and Z are each members of either a parent-subsidiary or brother-sister controlled group of corporations, and

(b) Y is the common parent of a parent-subsidiary controlled group of corporations consisting of Y and Z, and also is a member of a brother-sister controlled group of corporations consisting of X and Y, X, Y, and Z are members of the same combined group.

Example (2). Assume the same facts as in example (1), and further assume that corporation X owns eighty percent (80) of the total value of shares of all classes of stock of corporation T. X, Y, and Z, and T are members of the same combined group.

15.5. Voting power of stock. - For purposes of paragraph 3.7, in determining whether the stock owned by a person (or persons) possesses a certain percentage of the total combined voting power of all classes of stock entitled to vote of a corporation, consideration will be given to all the facts and circumstances of each case. A share of stock will generally be considered as possessing the voting power accorded to such share by the corporate charter, by-laws, or share certificate. On the other hand, if there is any agreement, whether express or implied that a shareholder will not vote his stock in a corporation, the formal voting rights possessed by his stock may be disregarded in determining the percentage of the total combined voting power possessed by the stock owned by other shareholders in the corporation, if the result is that the corporation becomes a component member of a controlled group of corporations. Moreover, if a shareholder agrees to vote his stock in a corporation in the manner specified by another shareholder in the corporation, the voting rights possessed by the stock owned by the first shareholder may be considered to be possessed by the stock owned by such other shareholder if the result is that the corporation becomes a component member of a controlled group of corporations.

15.6. Component member.

15.6.1. In general. - For purposes of W. Va. Code '11-13C-14 and the regulations thereunder, a corporation is a component member of a controlled group of corporations on a December thirty-one (and with respect to the taxable year which includes such December thirty-one) if such corporation:

15.6.1.1. Is a member of such controlled group of corporations on the December thirty-one included in such year and is not treated as an excluded member under subparagraph 15.6.1.2, or

15.6.1.2. Is not a member of such controlled group of corporations on such December thirty-one included in such year but is treated as an additional member under paragraph 15.6.3.

15.6.2. Excluded member.

15.6.2.1. A corporation which is a member of a controlled group of corporations on December thirty-one of its taxable year shall be treated as an excluded member of such group for the taxable year including such December thirty-one if such corporation:

15.6.2.1.1. Is a member of such group for less than one-half the number of days in such taxable year which precede such December thirty-one,

15.6.2.1.2. Is exempt from federal income taxes under I.R.C. '501(a) (except a corporation which is subject to tax on its unrelated business taxable income under I.R.C. '511) for such taxable year,

15.6.2.1.3. Is a foreign corporation subject to federal income taxes under I.R.C. '881 for such taxable year,

15.6.2.1.4. Is an insurance company subject to federal income taxes under I.R.C. '801 (other than an insurance company which is a member of a controlled group under I.R.C. '1563(a)(4)), or

15.6.2.1.5. Is a franchised corporation, as defined in Section 110-13C-15C of these regulations.

15.6.3. Additional members. - A corporation which:

15.6.3.1. Was not a member of a controlled group of corporations on the December thirty-one included within its taxable year, and

15.6.3.2. Is not described with respect to such group, in subparagraphs 15.6.2.1.2, 15.6.2.1.3, 15.6.2.1.4 or 15.6.2.1.5, or 15.6.2.2 of this subsection, shall be treated as an additional member of such group on December thirty-one, for its taxable year including such December thirty-one, if it was a member of such group for one-half (or more) of the number of days in such taxable year which precede such December thirty-one. The provisions of this subparagraph 15.6.3 may be illustrated as follows:

Example (1). Brown, an individual, owns all of the stock of corporations W and X on each day of 1990. W and X each uses the calendar year as its taxable year. On January 1, 1990, Brown also owns all the stock of corporation Y (a fiscal year corporation with a taxable year beginning on July 1, 1990 and ending on July 30, 1991), which stock he sells on October 15, 1990. On December 1, 1990, Brown purchases all the stock of corporation Z (a fiscal year corporation with a taxable year beginning on September 1, 1990, and ending on August 31, 1991). On December 31, 1990, W, X, and Z are members of the same controlled group. However, the component members of the group on such December 31 are W, X, and Y. Under subparagraph 15.6.2.1, of this paragraph, Z is treated as an excluded member of the group on December 31, 1990, since Z was a member of the group for less than one-half of the number of days (twenty-nine (29) out of one hundred twenty-one (121) days) during the period beginning on September 1, 1990 (the first day of its taxable year) and ending on December 30, 1990. Under subparagraph 15.6.3.2, Y is treated as an additional member of the group on December 31, 1990, since Y was a member of the group for at least one-half of the number of days (one hundred seven (107) out of one hundred eighty-three (183) days) during the period beginning on July 1, 1990 (the first day of its taxable year) and ending on December 30, 1990.

Example (2). On January 1, 1990, corporation P owns all the stock of corporation S, which in turn owns all the stock of corporation S-1. On November 1, 1990, P purchases all the stock of corporation X from the public and sells all of the stock of S to the public. corporation X owns all the stock of corporation Y during 1990. P, S, S-1, X and Y file their returns on the basis of the calendar year. On December 31, 1990, P, X, and Y are members of a parent-subsidiary controlled group of corporations; also, corporations S and S-1 are members of a different parent-subsidiary controlled group of corporations; on such date. However, since X and Y have been members of the parent-subsidiary controlled group of which P is the common parent for less than one-half the number of days during the period January 1 through December 30, 1990, they are not component members of such group on such date. On the other hand, X and Y have been members of a parent-subsidiary controlled group of which X is the common parent for at least one-half the number of days during the period January 1 through December 30, 1990. Also since S and S-1 were members of the parent-subsidiary controlled group of which P is the common parent for at least one-half the number of days in the taxable years of each such corporation during the period January 1 through December 30, 1990, P, S, and S-1 are component members of such group on December 31, 1990.

Example (3). Throughout 1990, corporation M owns all the stock of corporation F which, in turn, owns all the stock of corporations L-1, L-2, X, and Y. M is a domestic mutual insurance company subject to taxation under I.R.C. '821, F is a foreign corporation not engaged in trade or business within the United States, L-1 and L-2 are domestic life insurance companies subject to taxation under I.R.C. '802, and X and Y are domestic corporations subject to West Virginia Corporation Net Income Taxes. Each corporation uses the calendar year as its taxable year. On December 31, 1990, M, F, L-1, L-2, X, and Y are members of a parent-subsidiary controlled group of corporations. However, under subparagraph 15.6.2.1.4, M, F, L-1, and L-2 are treated as excluded members of the group on December 31, 1990. Thus, on December 31, 1990, the component members of the parent-subsidiary controlled group of which P is the common parent include only X and Y. Furthermore, since subparagraph 15.6.2.1.4 does not result in L-1 and L-2 being treated as excluded members of an insurance group, L-1 and L-2 are component members of an insurance group on December 31, 1990.

15.6.4. Application of constructive ownership. - For purposes of paragraphs 15.6.2 and 15.6.3, it is necessary to determine whether a corporation was a member of a controlled group of corporations for one-half (or more) of the number of days in its taxable year which precede the December 31 falling within such taxable year. Therefore, the constructive ownership rules contained in Section 15B of these regulations (to the extent applicable in making such determination) must be applied on a day-by-day basis. For example, if P Corporation owns all the stock of X Corporation on each day of 1990, and on December 30, 1990, acquires an option to purchase all the stock of Y Corporation (a calendar-year taxpayer which has been in existence on each day of 1990), the application of the constructive ownership rules on a day-by-day basis results in Y being a member of the brother-sister controlled group on only one day of Y's 1990 year which precedes December 31, 1990. Accordingly, since Y is not a member of such group for one-half or more of the number of days in its 1990 year preceding December 31, 1990, Y is treated as an excluded member of such group on December 31, 1990.

15.7. Overlapping groups.

15.7.1. In general. - If on December thirty-one a corporation is a component member of a controlled group of corporations by reason of ownership of stock possessing at least fifty percent (50%) of the total value of shares of all classes of stock of the corporation, and if on such December thirty-one such corporation is also a component member of another controlled group of corporations by reason of ownership of other stock (that is stock not used to satisfy the at-least-fifty-percent (50%) total value test) possessing at least fifty percent (50%) of the total combined voting power of all classes of stock of the corporation entitled to vote, then such corporation shall be treated as a component member only of the controlled group of which it is a component member by reason of the ownership of at least fifty percent (50%) of the total value of its shares.

15.7.2. Brother-sister controlled groups.

15.7.2.1. If on December thirty-one, a corporation would, without application of this paragraph, be a component member of more than one brother-sister controlled group on such date, such corporation shall be treated as a component member of only one such group on such date. Such a corporation may select which group in which it is to be included by filing an election as provided in this paragraph. This election shall be in the form of a statement designating the group in which the corporation is to be included. The statement shall provide all the information with respect to stock ownership which is reasonably necessary to satisfy the Tax Commissioner that the corporation would, but for the election, be a component member of more than one controlled group. Once filed, the election is irrevocable and effective until such time that a change in the stock ownership of the corporation results in termination of membership in the controlled group in which such corporation has been included.

15.7.2.2. Except as provided in subparagraph 15.7.2.3, the statement shall be signed by a person duly authorized to act on behalf of such corporation and shall be filed on or before the due date (including extension of time) for the filing of the income tax return of such corporation of the taxable year. However, in the case of an election with respect to December 31, 1990, the statement shall be considered as timely filed if filed on or before December 15, 1991. In the event no election is filed in accordance with the provisions of subparagraph, then the Tax Commissioner shall determine the group in which such corporation is to be included, and such determination shall be binding for all subsequent years unless the corporation files a valid election with respect to any subsequent year.

15.7.2.3. If more than one corporation would, without application of this subparagraph, be a component member of more than one controlled group, a single statement shall be signed by person duly authorized to act on behalf of each such corporation. Such statement shall designate the group in which each corporation is to be included. The statement shall be attached to the income tax return of the corporation that, among those corporations which would (without the application of this subparagraph) belong to more than one group, has the taxable year including such December thirty-one which ends on the earliest date. However, in the case of an election with respect to December 31, 1990, the statement may be filed by December 15, 1991. In the event no election is filed in accordance with the provisions of this section, then the Tax Commissioner shall determine the group in which each corporation is to be included, and such determination shall be binding for all subsequent years unless the corporations file a valid election with respect to any such subsequent year.

15.7.2.4. The provisions of this subsection may be illustrated by the following examples (in which it is assumed that all the individuals are unrelated):

Example (1). On each day of 1990 all the outstanding stock of corporations M, N, and P is held in the following manner:

Individuals			Corporations
	M	N	P
A	60%	40%	0
B	40%	20%	40%
C	0	40%	60%

Since the more-than-50-percent stock ownership requirement is met with respect to corporations M and N and with respect to corporations N and P, but not with respect to corporations M, N, and P, corporation N would, without the application of this subparagraph, be a component member on December 31, 1990, of overlapping groups consisting of M and N and of N and P. If N does not file an election in accordance with this subsection, the Tax Commissioner will determine the group in which N is to be included.

Example (2). On each day of 1990, all the outstanding stock of corporations S, T, W, X, and Z is held in the following manner:

Individuals					Corporations
	S	T	W	X	Z
D	60%	60%	60%	60%	60%
E	40%	0	0	0	0
F	0	40%	0	0	0
G	0	0	40%	0	0
H	0	0	0	40%	0
I	0	0	0	0	40%

On December 31, 1990, the more-than-fifty-percent (50%) stock ownership requirement may be met with regard to any combination of the corporations but all five (5) corporations cannot be included as component members of a single controlled group because the inclusion of all the corporations in a single group would be dependent upon taking into account the stock ownership of more than five (5) persons. Therefore, if the corporations do not file a statement in accordance with subdivision 15.7.2.3, the Tax Commissioner will determine the group in which each corporation is to be included. The corporations or the Tax Commissioner, as the case may be, may designate that three (3) corporations be included in one group and two (2) corporations in another, or that any four corporations be included in one group and that the remaining corporation not be included in any group.

W. Va. Code R. § 110-13C-15