Legal Ruling 1958-80

Federal Waivers: Effect of Parent Corporations Waiver on Subsidiaries

When the parent corporation files a consolidated Federal return and subsequently signs a Federal waiver the effect, for purposes of section 25663a of the Bank and Corporation Tax Law, is the same as if the subsidiary itself had given a Federal waiver.

Taxpayer is a subsidiary of X Corporation. For the years 1942, 1943 and 1944 taxpayer's income was included in consolidated returns filed by the parent for Federal tax purposes. However, for franchise tax purposes, taxpayer filed separate returns. The parent signed a Federal waiver holding open through June, 1953, the period for assessing deficiencies upon the affiliated group for the above years. No Federal or State waivers were signed by the taxpayer. Advice is requested whether the fact that the parent gave Federal waivers keeps open the statute of limitations on the separate return of taxpayer for state tax purposes.

Under the Federal law, a waiver given by the common parent corporation of an affiliated group, in respect to the tax for a consolidated return period, is applicable to each member corporation of the affiliated group. The Federal Regulations also provide that the privilege of filing consolidated returns is conditioned upon all members of the affiliated group consenting to the applicable regulations. This consent must be given in writing along with written authorization for the common parent to make a consolidated return. Section 25663a of the Bank and Corporation Tax Law provides for extension of the period for mailing notices of proposed assessments if a taxpayer agrees to an extension or renewal of the period for proposing and assessing deficiencies for federal income tax purposes.

In view of the above it is concluded that where the taxpayer is a member of an affiliated group which has filed a consolidated Federal return for the years involved, and the common parent has executed a Federal waiver, under Federal Regulations the taxpayer, acting through its agent, the parent, is considered as having made the agreement. Therefore, section 25663a is satisfied and the period during which additional assessment can be proposed as to the taxpayer is extended. Likewise, the period in which the taxpayer may claim a refund or credit of an overpayment is extended.