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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 3806 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.

[17 F. R. 5983, July 3, 1952, as amended at 17 F.R. 8363, Sept. 17, 1952; 27 F.R. 3138, Mar. 31, 1962]

§ 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 3806 of the Internal Revenue Code.

§ 1464.9 Liability of members of affiliated or related group.

Although excessive profits to be eliminated will be allocated to members of an affilated 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 affiliated 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 carryforward 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 separately 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.

to (d) Carryforward 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 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 consolidated 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 consolidation as a single group. Their renegotiable profits and losses were as follows: A, profit $240,000; B, loss

$200,000; C, loss $100,000; D, profit $100,000; and E, loss $150,000. The consolidated renegotiation loss of A, B, and C was $60,000, allocable $40,000 to B and $20,000 to C. The consolidated renegotiation loss of D and E was $50,000, allocable entirely to E. In Year 2, A, B, D, and E form a consolidated group, without C. If A, B, D, and E had consolidated in Year 1, the consolidated renegotiation loss of the group would have been only $10,000. Although the allocable shares of B and E as shown above aggregate $90,000, the amount allowable to the consolidated group in Year 2 is limited to $10,000. The $20,000 allocable to C is allowable to C in that amount in Year 2.

(iii) Some members were separate and others were in different group in loss year. (a) In Year 1, A (loss $500,000), B (profit $100,000), and C (profit $300,000) were members of a consolidated group. The consolidated renegotiation loss of A, B, and C was $100,000, allocable entirely to A. D (profit $200,000) was renegotiated separately for the same year and made a renegotiation refund in the amount of $30,000, retaining $170,000 after renegotiation. E, a partnership (profit $40,000) was also renegotiated separately. In Year 2 the partners dissolved E and formed a corporation F, which continued the partnership business. Assume A, B, C, D and E would have qualified for consolidation in Year 1.

(b) In a Year 2 consolidated group composed of A, B, C, and D, no amount of loss carryforward would be allowed to the group because A, B, C, and D as a group in Year 1 would have realized a group profit of $70,000. In making this computation, D's profits are reduced by its $30,000 renegotiation refund.

(c) In a Year 2 consolidated group composed of A, B, and D, the full amount of the $100,000 consolidated renegotiation loss allocable to A would be allowed to the group.

(d) In a Year 2 consolidated group composed of A, B, C, and F, their consolidated renegotiation loss as a group in Year 1 would have been $60,000; hence that amount would be allowed as a loss carryforward to the group.

(e) Carryforward upon acquisition of business. The provisions of § 1457.9(e) of this subchapter shall apply to the carryforward of losses under this section. [32 F.R. 6972, May 6, 1967]

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The corporation or corporations listed above have not joined in this request because each such corporation (a) was not a member of such affiliated group during the entire fiscal year of the common parent corporation, or its fiscal year for Federal income tax purposes did not end on the same date as the fiscal year of the common parent corporation, and (b) does not qualify for consolidated renegotiation with the undersigned within the exceptions provided in § 1464.2 (b) of said regulations as set forth in Schedule A attached hereto; or because it had no renegotiable business during the year under review.

3. Each of the undersigned hereby consents, for said fiscal year, to the Renegotiation Board Regulations with respect to (a) the determination and elimination of excessive profits of the undersigned affiliated group and (b) the determination of the amount of the excessive profits of the undersigned affiliated group allocable, for the purposes of section 3806 of the Internal Revenue Code, to each of the undersigned.

4. (the common parent corporation of the undersigned affiliated group) is hereby designated as agent of the undersigned affiliated group and is hereby authorized to represent all members of the group in all respects in connection with the consolidated renegotiation proceedings requested herein for said fiscal year.

5. The undersigned represent that they (have) (have not) (delete inapplicable language) filed consolidated Federal income tax returns for said fiscal year; and that, except as indicated in Schedule A attached hereto, each of the undersigned was a member of the affiliated group during the entire fiscal year of the undersigned common parent corporation, and the fiscal year for Federal income tax purposes of each of the undersigned other than said common parent corporation ended on the same date as the fiscal year of said common parent corporation.

6. The undersigned represent that Schedule B attached hereto is a consolidating income account showing separately that renegotiable and nonrenegotiable business of each member of the group in the detail specified in the Standard Form of Contractor's Report.

7. The undersigned are aware that under section 105 (e) (1) of the Renegotiation Act of 1951, criminal penalties may be incurred by any person who knowingly furnishes any statement, information, records or data required under said section 105 (e) (1), containing information which is false or misleading in any material respect.

8. The person signing this request on behalf of each of the undersigned corporations declares, under the criminal penalties provided in section 105(e) (1) of the Renegotiation Act of 1951, that such corporation has authorized him to sign this request on its behalf.

In witness whereof, the undersigned corporations have executed this request as of the day of 19---- by

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their duly authorized representatives.

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(NOTE: For each corporation listed above, state applicable date of incorporation or dissolution and such other information as will clearly demonstrate that such corporation is entitled to be included in the consolidated proceeding. See § 1464.2 (b).) [17 F.R. 5983, July 3, 1952, as amended at 27 F.R. 3138, Mar. 31, 1962; 29 F.R. 9491, July 11, 1964]

§ 1464.91 Letter form of request for renegotiation on consolidated basis (related group).

The following letter form is prescribed for requesting consolidated renegotiation of a related group:

THE RENEGOTIATION BOARD

GENTLEMEN:

Washington 25, D. C.

1. Pursuant to the provisions of section 105 (a) of the Renegotiation Act of 1951 and Part 1464 of the Renegotiation Board Regulations, the undersigned hereby request renegotiation on a consolidated basis for the fiscal year ended

2. The undersigned represent that they constitute a "related group" as that term is defined in § 1464.3 (b) of the Renegotiation Board Regulations.

3. Each of the undersigned hereby consents, for said fiscal year, to the Renegotiation Board Regulations with respect to (a) the determination and elimination of excessive profits of the undersigned related group and (b) the determination of the amount of the excessive profits of the undersigned related group allocable, for the purposes of

section 3806 of the Internal Revenue Code, to each of the undersigned.

4. (one of the undersigned) is hereby designated as agent of the undersigned related group and is hereby authorized to represent all members of the group in all respects in connection with the consolidated renegotiation proceeding requested herein for said fiscal year.

5. The undersigned represent that all of the undersigned had the same fiscal year for Federal income tax purposes, except as indicated in Schedule A attached hereto.

6. The undersigned represents that Schedule B attached hereto is 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.

7. Each of the undersigned who participated in a consolidated renegotiation under the act for a prior fiscal year and whose fiscal year differed from the fiscal year of the related group in that renegotiation represents that it has adopted, under the Internal Revenue Code, a fiscal year in conformity with the fiscal year of the related group.

8. The undersigned are aware that under section 105 (e) (1) of the Renegotiation Act of 1951, criminal penalties may be incurred by any person who knowingly furnishes any statement, information, records or data required under said section 105 (e) (1), containing information which is false or misleading in any material respect.

9. The person signing this request on behalf of each of the undersigned declares, under the criminal penalties provided in section 105(e) (1) of the Renegotiation Act of 1951, that such undersigned has authorized him to sign this request on its behalf.

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Section 105 (c) of the act provides as follows:

Periods of limitations. In the absence of fraud or malfeasance or willful misrepresentation of a material fact, no proceeding to determine the amount of excessive profits for any fiscal year shall be commenced more than one year after a financial statement under subsection (e) (1) of this section is filed with the Board with respect to such year, and, in the absence of frauds or malfeasance or willful misrepresentation of a material fact, if such proceeding is not commenced prior to the expiration of one year following the date upon which such statement is so filed, all liabilities of the contractor or subcontractor for excessive profits received or accrued during such fiscal year

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