Rev. Rul. 58-246

Advice has been requested regarding the computation of the additional tax of two percent imposed upon an affiliated group of corporations filing a consolidated return.

Section 1503(a) of the Internal Revenue Code of 1954, relating to the computation and payment of tax, provides:

GENERAL RULE.-In any case in which a consolidated return is made or is required to be made, the tax shall be determined, computed, assessed, collected, and adjusted in accordance with the regulations under section 1502 prescribed prior to the last day prescribed by law for the filing of such return; except that the tax imposed under section 11(c) or section 831 shall be increased for any taxable year by 2 percent of the consolidated taxable income of the affiliated group of includible corporations. For the purposes of this section, the term `consolidated taxable income' means consolidated taxable income computed without regard to the deduction provided by section 242 for partially tax-exempt interest.

Section 11(c) of the Code provides:

SURTAX.-The surtax is equal to 22 percent of the amount by which taxable income (computed without regard to the deduction, if any, provided in section 242 for partially tax-exempt interest) exceeds $25,000.

It is evident from the above that the additional tax of two percent, in the case of a group of affiliated corporations filing a consolidated return, is imposed as a surtax and is computed upon the entire consolidated taxable income as defined in section 1503(a) of the Code. Such tax is imposed in addition to the surtax otherwise imposed upon such corporations under section 11(c) of the Code with respect to taxable income which exceeds $25,000.

Accordingly, in the case of an affiliated group of corporations filing a consolidated return, the additional tax of two percent is imposed as a surtax, under the authority of section 11(c) of the Code, upon the entire consolidated taxable income as defined in section 1503(a) of the Code. This is in addition to the surtax otherwise imposed on corporations under section 11(c) of the Code with respect to taxable income which exceeds $25,000.