1464.91 Letter form of request for renegotiation on consolidated basis (affiliated group). 1464.91 Letter form of request for renegotiation on consolidated basis (related group). AUTHORITY: §§ 1464.1 to 1464.91 issued under sec. 109, Pub. Law 9, 82d Cong. Interpret or apply sec. 105, Pub. Law 9, 82d Cong.

1464.1 Consolidated renegotiation of affiliated group.-(a) Statutory provision.— Section 105 (a) of the act provides in part as follows:

Renegotiation shall be conducted on a consolidated basis with a parent and its subsidiary corporations which constitute an affiliated group under section 141 (d) of the Internal Revenue Code if all of the corporations included in such affiliated group request renegotiation on such basis and consent to such regulations as the Board shall prescribe with respect to (1) the determination and elimination of excessive profits of such affiliated group, and (2) the determination of the amount of the excessive profits of such affiliated group allocable, for the purposes of section 3806 of the Internal Revenue Code, to each corporation included in such affiliated group.

(b) Definition of "affiliated group".—(1) Section 141 (d) of the Internal Revenue Code of 1939 provides as follows:

(d) Definition of "affiliated group". As used in this section, an "affiliated group" means one or more chains

of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation if

(1) Stock possessing at least 95 per centum of the voting power of all classes of stock and at least 95 per centum of each class of the nonvoting stock of each of the includible corporations (except the common parent corporation) is owned directly by one or more of the other includible corporations; and

(2) The common parent corporation owns directly stock possessing at least 95 per centum of the voting power of all classes of stock and at least 95 per centum of each class of the nonvoting stock of at least one of the other includible corporations.

As used in this subsection, the term "stock" does not include nonvoting stock which is limited and preferred as to dividends.

(2) Section 1504 (a) of the Internal Revenue Code of 1954 (corresponding with section 141 (d) of the Internal Revenue Code of 1939 and incorporated in the act by the provisions of section 7852 (b) of the Internal Revenue Code of 1954) provides as follows:

(a) Definition of "affiliated group". As used in this chapter, the term "affiliated group" means one or more chains of includible corporations connected through stock ownership with a common parent corporation which is an includible corporation if

(1) Stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of each of the includible corporations (except the common parent corporation) is owned directly by one or more of the other includible corporations; and

(2) The common parent corporation owns directly stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of at least one of the other includible corporations.

As used in this subsection, the term "stock" does not include nonvoting stock which is limited and preferred as to dividends.

(3) The term "affiliated group" as used in this part means a group of corporations which qualify under the definition quoted in subparagraph (1) of this paragraph, with respect to fiscal years to which the Internal Revenue Code of 1939 is applicable, or under the defi

nition quoted in subparagraph (2) of this paragraph, with respect to fiscal years to which the Internal Revenue Code of 1954 is applicable. A corporation cannot be a member of an affiliated group unless it is an "includible corporation" as defined in subsections (e), (f), (g) and (j) of section 141 of the Internal Revenue Code of 1939, or subsections (b), (c), and (d) of section 1504 of the Internal Revenue Code of 1954, whichever is applicable (see § 1451.33 of this subchapter).

(c) Fiscal year of an affiliated group. The fiscal year of an affiliated group for the purpose of consolidated renegotiation shall be the fiscal year of the common parent corporation.

1464.2 Request for consolidated renegotiation of affiliated group; when approved.The Board will approve a request for consolidated renegotiation of all members of an affiliated group who qualify therefor. A member of an affiliated group other than the common parent corporation shall not be deemed to qualify for consolidated renegotiation unless:

(a) Such member had renegotiable receipts or accruals during the fiscal year under review; (b) Except as provided hereafter in this paragraph, such member was a member of the affiliated group during the entire fiscal year of the common parent corporation and its fiscal year for Federal income tax purposes ended on the same date as the fiscal year of the common parent corporation. The foregoing limitation shall not disqualify a member; (1) if the fiscal period of such member ended on the same date as the fiscal year of the other member or members but began on a later date because such member was incorporated during such fiscal year, and if such member during its entire first fiscal period was a member of the group; or (2) if the fiscal period of such member began on the same date as the fiscal year of the other member or members but ended on an earlier date because such member was dissolved during such fiscal year and if such member during its entire last fiscal period was a member of the group.

1464.3 Consolidated renegotiation of a related group.-(a) Statutory provision.Section 105 (a) of the act provides in part as follows:

By agreement with any contractor or subcontractor, and pursuant to regulations promulgated by it, the

Board may in its discretion conduct renegotiation on a consolidated basis in order properly to reflect excessive profits or two or more related contractors or subcontractors.

(b) Definition of "related group.”—A “related group" means two or more related contractors, one of whom controls the other, or others, or who are under common control (see § 1451.31 of this subchapter). The members of the group may consist of persons including corporations, partnerships, joint ventures, associations, sole proprietorship, or a combination of some or all of these.

(c) Fiscal year of a related group.-The fiscal year of a related group shall be the fiscal year of the member of the related group designated as agent in accordance with § 1464.7 (b), except that the Board may, upon application of the group made with the letter requesting consolidated renegotiation (§ 1464.91), permit such related group to adopt a different fiscal year unless adoption of such different fiscal year would hinder conduct of the renegotiation. The fiscal year of the agent or the fiscal year adopted, as the case may be, will be referred to hereafter in this part as the related group's fiscal year.

1464.4 Request for consolidated renegotiation of related group; when granted.-In order properly to reflect excessive profits, the Board may, in its discretion, grant a request for a consolidated proceeding with respect to a related group if all the following conditions exist:

(a) Each member of the group had renegotiable receipts or accruals during the fiscal year of the member designated as agent pursuant to § 1464.7 (b), and no amounts included in the consolidation were received or accrued by a member in a fiscal year of such member ending more than 3 months after the close of the fiscal year of such agent.

(b) Each of such persons who participated in a consolidated renegotiation for a prior fiscal year and whose fiscal year differed from the fiscal year of the related group in that renegotiation has, before the close of the renegotiation proceeding for the related group's fiscal year under review, adopted under the Internal Revenue Code a fiscal year in conformity with the related group's fiscal year: Provided, however, That this requirement may be waived by the Board, in its discretion, in the case of any

contractor who for any reason has ceased to engage in renegotiable business before the close of the renegotiation proceeding for the related group's fiscal year under review.

(c) Stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of each corporate member of the group (except the common parent, if any), and the right to at least 80 percent of the profits of each unincorporated member of the group (except the common parent, if any), are owned directly or indirectly by one or more of the other members of the group, or by the same person or persons other than a member or members of the group.

1464.5 Partial fiscal years. If during a related group's fiscal year under review a person came under control of, acquired control over or came under common control with another member or members of such group, such person may, in the discretion of the Board, be included in the consolidated proceeding with respect to his receipts or accruals from the date such control became effective, if such person otherwise meets the qualifications for consolidated renegotiation set forth in § 1464.4. Similarly, if during a related group's fiscal year under review such control ceases with respect to a person who is a member of such group, such person may, in the discretion of the Board, be included in the consolidated proceeding with respect to his receipts or accruals up to the date such control ceased, if such person otherwise meets the qualifications for consolidated renegotiation set forth in § 1464.4.

1464.6 Effect of consolidation.-Once the Board has granted a request for renegotiation of an affiliated group or related group on a consolidated basis, then, except as otherwise provided herein, the proceeding will remain consolidated for all purposes, regardless of whether a clearance issues or excessive profits are determined by agreement or order. However, on request of any member of the group or on its own motion, the Board may discontinue the consolidated proceeding and convert it to separate renegotiation proceedings or consolidate a different group, if satisfied that the consolidation was improperly effected pursuant to the regulations in this subchapter or, if satisfied in the case of a related group, one or more of

whose members has a fiscal year not conforming with the related group's fiscal year, that the accounting records of such member or members do not properly reflect excessive profits for the related group's fiscal year.

1464.7 Miscellaneous provisions applicable to consolidated renegotiation.-A request for consolidated renegotiation proceedings shall conform to the following requirements:

(a) A request made by an affiliated group shall be made in the form prescribed by § 1464.18. A request made by a related group shall be made in the form prescribed by § 1464.19. A request by either group shall include a consolidating income account showing separately the renegotiable and nonrenegotiable business of each member of the group in the detail specified in the Standard Form of Contractor's Report. See § 1470.3 (h) of this subchapter. A request by either group shall constitute a consent by each member of such group to the application of the regulations governing consolidated renegotiation. The request shall be duly executed by each eligible member of the affiliated group or by each member of the related group. The request shall be filed with the Board on or before the first date on which any member of the group completes the filing of the Standard Form of Contractor's Report. The Board may grant requests filed after that date if no inconvenience to the Board will result.

(b) A request filed by the members of an affiliated group shall designate the common parent corporation as agent of the group and shall authorize such parent corporation to represent all members of the group in all respects in connection with the consolidated proceeding. A request filed by the members of a related group shall designate one member of the group as agent of the group and shall authorize such member to represent all members of the group in all respects in connection with the consolidated proceeding. Such authorization in either case shall be irrevocable as long as renegotiation is conducted on a consolidated basis, and shall apply to all phases of the proceeding including commencement of renegotiation, submission of data, the making and execution of renegotiation agreements, administrative review, and petition to the Court of Claims.

(c) The Board will commence renegotiation with an affiliated group on a consolidated basis

by sending a registered letter to the common parent corporation of such group, and such letter will constitute an acknowledgment by the Board that the group has complied with the regulations of the Board with respect to (1) the determination and elimination of excessive profits of such affiliated group, and (2) the determination of the amount of excessive profits of such affiliated group allocable, for the purposes of section 1481 of the Internal Revenue Code, to each member of such affiliated group unless the Board has previously made such an acknowledgment. The Board will commence renegotiation with a related group on a consolidated basis by sending a registered letter to the member of such group designated as agent pursuant to paragraph (b) of this section, and such letter will constitute the granting by the Board of the request of such related group for renegotiation on a consolidated basis, unless the Board has previously granted such request.

1464.8 Allocation of excessive profits.Excessive profits, whether determined by agreement or order, will be allocated among the members of the consolidated group and when necessary among different fiscal years of any member in an equitable manner, and the agreement or order will disclose the allocation. The excessive profits will be so allocated even though some or all of the members of the consolidated group participate in filing a consolidated Federal tax return. If excessive profits have been realized and if the renegotiation agreement or order were to impose liability generally on the entire consolidated group for the profits found to be excessive, without fixing the separate allocations, the members of the group might not be allowed appropriate deductions for Federal income and excess profits tax purposes under section 1481 of the Internal Revenue Code.

1464.9 Liability of members of affiliated or related groups. Although excessive profits to be eliminated will be allocated to members of an affiliated or related group, each member of the affiliated or related group shall be jointly and severally liable for the total amount of excessive profits, if any, to be eliminated as determined in the consolidated proceeding.

1464.10 When consolidated basis not used. Whenever the members of an affili

ated group or a related group are renegotiated separately, renegotiations with the individual members of such group will if practicable be conducted concurrently.

1464.11 Separate renegotiation of partial fiscal years.-When amounts received or accrued during a portion of a person's fiscal year or years are included in a consolidated proceeding, such person shall, notwithstanding the provisions of § 1470.3 (h) of this subchapter, file in full a Standard Form of Contractor's Report for each of such fiscal years. Such Standard Form of Contractor's Report shall reflect separately the amounts received or accrued by such person which are included in the consolidated proceeding. Such person will be renegotiated separately with respect to the receipts or accruals reflected on such Standard Form of Contractor's Report which are not included in the consolidated proceeding: Provided, however, That such separate renegotiation will be conducted concurrently with the consolidated proceeding, if practicable.

1464.12 Renegotiation losses of consolidated contractors.-(a) Scope and effect of section. This section explains how a renegotiation loss sustained by a contractor in a fiscal year prior to the fiscal year under review will be treated pursuant to section 103 (m) of the act when such contractor (1) was a member of a consolidated group in the loss year, or (2) is a member of a consolidated group in the fiscal year under review. For regulations pertaining to the carry forward of a renegotiation loss sustained by a single contractor, see § 1457.9 of this subchapter.

(b) Definitions. As used in this section:

(1) The term "consolidated renegotiation loss" means the amount by which the aggregate costs paid or incurred by the members of a consolidated group with respect to renegotiable receipts or accruals in a fiscal year exceed the aggregate renegotiable receipts or accruals of such group in such fiscal year.

(2) The term "loss member" means a contractor which sustains a renegotiation loss for a fiscal year in which it is a member of a group that sustains a consolidated renegotiation loss. (c) Carryforward for loss member of a consolidated group.-If a contractor who was the

sole loss member of a consolidated group in a loss year is renegotiated separately for subsequent fiscal years, the amount of the consolidated renegotiation loss sustained by the group shall be a renegotiation loss carryforward for such contractor to each of the 5 fiscal years following the loss year, and shall be subject to the provisions of this section and § 1457.9 of this subchapter. If the group included more than one loss member and the members are renegotiated separatedly thereafter, the consolidated renegotiation loss will be allocated among the loss members in proportion to the amount of loss sustained by each, and the share so allocated to each loss member shall be a renegotiation loss carryforward for such contractor to each of the 5 fiscal years following the loss year, and shall be subject to the provisions of this section and § 1457.9 of this subchapter.

Example. In Year 1, A, B, and C were members of a consolidated group. A realized renegotiable profits of $240,000; B sustained a renegotiation loss of $200,000; and C sustained a renegotiation loss of $100,000. The consolidated renegotiation loss of the group was $60,000. If the members are renegotiated separately in Year 2, $40,000 will be allowed as a cost to B and $20,000 to C.

No amount of a consolidated renegotiation loss will be allowed as a carryforward (1) if such loss resulted from gross inefficiency; and (2) unless it is shown that any loss member of such group has reasonably pursued available remedies for obtaining relief from such loss.

(d) Carryforward to consolidated group. (1) When group was identical in loss year. If a group consolidated in the fiscal year under review sustained a consolidated renegotiation loss in a prior fiscal year, the amount of such loss shall be a renegotiation loss carryforward for the group to each of the 5 fiscal years following the loss year, and shall be carried forward in the manner provided in this section and § 1457.9 of this subchapter.

(2) When members were separate or in different groups in loss year.-If the members of a group consolidated in the fiscal year under review did not constitute a consolidated group of identical membership in a prior fiscal year in which one or more of such contractors sustained renegotiation

losses, such losses shall be carried forward as provided in this section and § 1457.9 of this subchapter. Such losses will be allowed as carryforwards to the consolidated group in the fiscal year under review; but no such amount will be so allowed unless the members of such group would have qualified for consolidation in the loss year, and and the aggregate amount so allowed will be limited to the amount, if any, which would have been the consolidated renegotiation loss of such group in the loss year. In computing such amount, if any member of the consolidated group was not a renegotiable contractor in the loss year, but succeeded thereafter to the business of a renegotiable contractor and was owned during the fiscal year under review by the same person or substantially the same persons who owned such predecessor in the loss year, the receipts or accruals and costs of such predecessor will be included in the computation. The following examples illustrate how the limitation in this subparagraph is computed and applied:

(i) Members were all separate in loss year.-In Year 1, A, B, and C would have qualified for consolidated renegotiation, but were not consolidated. A realized renegotiable profits of $240,000; B sustained a renegotiation loss of $200,000; and C sustained a renegotiation loss of $100,000. If A, B, and C were renegotiated separately in Year 2, $200,000 would be allowed as a cost to B and $100,000 to C. However, A, B, and C are a consolidated group in Year 2, with renegotiable profits of $40,000. Had they been consolidate in Year 1, the consolidated renegotiation loss of the group would have been only $60,000. It is this amount of $60,000, and not the aggregate of $300,000 of renegotiation losses sustained by B and C, which is allowed as a cost to the consolidated group in Year 2. The $20,000 of loss remaining after such allowance is carried forward to Year 3 and is allowed as a cost to the consolidated group in that year.

(ii) Members were in different groups in loss year.-In Year 1, A, B, and C were members of a consolidated group; D and E were members of another consolidated group; and all five would have qualified for consoli