A new Frequently Asked Question (“FAQ”) on corporate tax reform has been added to the New York State Department of Taxation and Finance website that provides an important reminder on the scope of the commonly owned group election to file a combined return under Article 9-A. Dep’t of Taxation & Fin., Corporate Tax Reform FAQs, https://www.tax.ny.gov/bus/ct/corp_tax_reform_faqs.htm. Under that election – which is made on an original timely filed return and is binding and irrevocable for seven years – all corporations that meet the more-than-50% ownership requirement for combination with any taxpayer in the group must be included in the Article 9-A combined return, regardless of whether they are engaged in a unitary business.
Corporations that are not subject to combination – such as most alien corporations that do not have federal effectively connected income – are not covered by the election. The election can only be made by the group’s “designated agent.”
Significantly, the FAQ points out that the corporations required to be included in the commonly owned group Article 9-A return are not limited to entities included in the designated agent’s federal consolidated group return under IRC § 1504. In other words, the 50% ownership test is applied to all qualifying corporations. The FAQ contains a useful example illustrating the consequences of making the election, which can result in the inclusion of corporations that file as part of a different federal affiliated group return. Particularly since the election is irrevocable for seven years, taxpayers and practitioners should carefully consider these potential consequences before making the election.