Combined group composition

# (a)

Step 1. Every taxpayer must identify all of the corporations to which it is related, regardless of the franchise tax imposed by the Tax Law the corporation is subject to (or would be taxable under if subject to tax).
Where one or more of the related corporations are taxpayers, identify all of the corporations related to these taxpayers. Do this until all related corporations have been identified. If a taxpayer has no related corporations, it must file on a separate basis. This constitutes the step 1 group of related corporations.

# (b)

Step 2. Identify all of the related corporations that have substantial intercorporate transactions with a taxpayer identified in step 1. These related corporations and the taxpayer with which they have substantial intercorporate transactions constitute the step 2 tentative combined group.

# (c)

Step 3. Add to the step 2 tentative combined group every related corporation that has substantial intercorporate transactions with any corporation identified in step 2. This constitutes the step 3 tentative combined group.

# (d)

Step 4. Add to the step 3 tentative combined group every related corporation that has substantial intercorporate transactions with any corporation identified in step 3. Repeat this process until it adds no more corporations to the group. This constitutes the step 4 tentative combined group.

# (e)

Step 5. Identify each related corporation not in the step 4 tentative combined group that has substantial intercorporate transactions with another related corporation not in the step 4 tentative combined group. Compare all such groups and combine into one group those with common members (unattached related group). There may be more than one unattached related group.

# (f)

Step 6. If there are substantial intercorporate transactions between any one corporation in an unattached related group and the step 4 tentative combined group, then all corporations in that unattached related group are included in the combined group. Do this for each unattached related group. As unattached related groups are included in the combined group, do this analysis between the expanded group and each unattached related group. The resulting group is the step 6 tentative combined group.

# (g)

Step 7. If there are substantial intercorporate transactions between any one corporation in the step 6 tentative combined group and an unattached related group, then all corporations in the unattached related group are included in the combined group. Do this for each unattached related group. As unattached related groups are included in the combined group, do this analysis between the expanded group and each unattached related group.
The resulting group is the step 7 tentative combined group.

# (h)

Step 8. Add to the step 7 tentative combined group each related corporation that has substantial intercorporate transactions with the step 7 tentative combined group.

# (i)

Step 9. Repeat the process set forth in steps 4, 6, 7, and 8 until no more corporations can be added to the tentative combined group.

# (j)

Step 10. Eliminate from the tentative combined group those corporations that are formed under the laws of another country (alien corporations), that are taxable under another franchise tax imposed by the Tax Law (or would be taxable under another franchise tax if subject to tax), or that are subject to the tax imposed by section 1502-a or section 1502-b. Also eliminate any captive REIT or captive RIC as defined in subdivisions 9 and 10 of section 2, respectively, that is required to be included in a combined return under section 210-C. If two or more corporations are eliminated, it is possible that they will constitute a combined group if they have substantial intercorporate transactions.
Section 32.7 Filing Combined Returns.
(a)(1) As provided in this Part, a group of related corporations may be required or permitted to file on a combined basis. To file on a combined basis the group must file a completed combined return. The first year the group files on a combined basis, and each year thereafter in which the composition of the group changes, the group must include the following information, with the return:

(i) the exact name, address, employer identification number and the state of incorporation of each corporation included in the combined return;
(ii) information showing that each of the corporations meets the capital stock requirement for the taxable year; and
(iii) the exact name, address, employer identification number and the state of incorporation of all corporations (except alien corporations) that meet the capital stock requirement for the taxable year, but are not included in the combined return.
(2) In addition, the following information may be required to be submitted for the taxable year at another time, such as in conjunction with an audit:
(i) a statement providing details as to why a combined return that includes only the corporations listed in subparagraph (1)(i) of this subdivision that meet the capital stock requirement and the details as to why the corporations listed pursuant to subparagraph (1)(iii) of this subdivision are excluded; and
(ii) information establishing that each corporation included in the return meets the substantial intercorporate transactions test.
(b) The filing of a combined return, or the inclusion of a corporation in or the exclusion of a corporation from a combined return, is subject to revision or disallowance on audit.
(c) If a corporation properly reports on a combined basis, the corporation must continue to file its returns on a combined basis until the facts relevant to section 32.1 of this Part materially change.