Tax Allocation Agreement

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Tax Allocation Agreement Powered By Docstoc
					This is an agreement whereby the parent company in a consolidated group is
responsible, on behalf of the group, for the payment of income tax related liabilities. If
the parent company fails to fully discharge its obligation to pay the group’s tax liability,
subsidiary members that were part of the group become jointly and severally liable.
This agreement can be used by small businesses or other entities that have subsidiary
group members and want to ensure the prompt and timely tax payments on behalf of
the entire group.
                                TAX SHARING AGREEMENT
This Tax Sharing Agreement (the “Agreement”) made and entered this ________________ day
of _____________________, 20__ (the “Effective Date”) by and between
____________________ (the “Parent”) with its offices at __________and _________________
(“Members”), the entities listed on Schedule A annexed hereto.

WHEREAS, as of the date hereof, Parent and the entities listed on Schedule A are members of
an Affiliated Group (as defined below), of which Parent is the common parent;

WHEREAS, Parent, on behalf of the Affiliated Group, has agreed to file consolidated federal
income tax returns in accordance with section 1501 of the Code and may be required to file
consolidated federal income tax returns for subsequent taxable years; and

WHEREAS, the Parent and the Members hereby desire to provide for the allocation of
consolidated federal income tax Liability, state and local income tax liability, and certain related
matters between them.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

1. Definitions.

“Code” means the Internal Revenue Code of 1986, as amended.

“Consolidated Returns” means any consolidated, combined or unitary Tax Returns required to
be filed by Parent with respect to United States federal, state or local Taxes imposed or based on
net income, net worth or gross receipts.

“Group” means an affiliated group of corporations within the meaning of section 1504(a) of the
Code that files a consolidated return for United States federal Income Tax purposes.

“Group Tax Liability” shall mean the consolidated federal income tax Liability of the Group
reported on the Group's consolidated federal income tax return filed for the taxable year.

“Member” shall mean any corporation that is required to join with Parent in filing a
consolidated federal income tax return, as listed on Schedule A, as amended from time to time.

“Returns” means all returns, reports and information statements (including all exhibits and
schedules thereto) required to be filed with a taxing authority with respect to any Taxes.

2. Preparation and Filing of Tax Returns.

(a) For the Term of this Agreement, on behalf of the Group Parent shall, be responsible for
timely filing of Consolidated federal income tax returns including income, loss, or credit against

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tax of the member, and estimated tax returns for each taxable year and shall pay in full any tax
due. Parent shall prepare and file tax returns and any other Returns, documents, or statements
required to be filed with the Internal Revenue Service with respect to the determination of the
Group Tax liability of the Group. With respect to such preparation of Returns, Parent shall act in
good faith with regard to the Member.

(b) Member shall provide the Parent all necessary documents and information, and make
available such employees and officers of Member as Parent reasonably requests, on a mutually
convenient basis during normal business hours, to aid Parent in preparing any Consolidated Tax
Returns as described in Section 1 (a) of this Agreement. Member shall prepare, effect and file
such consents, elections, and other documentation as may be required or appropriate for the
proper filing of such Returns. Member shall also maintain such books and records and provide
such information that Parent may request in connection with the matters contemplated by this
Agreement.

(c) Parent shall have the sole right and discretion with respect to any consolidated federal income
tax return to determine in good faith, (i) any elections which are employed in the filing of such
returns, including any elections denominated as such in the Code and choice of methods of
accounting and depreciation; (ii) determine the manner in which the Returns shall be prepared
and filed, including without limitation, the methods of accounting, conventions and principles of
taxation to be used and the manner in which any item of income, gain, loss, deduction or credit
shall be reported; (iii) contest, compromise or settle any adjustment or deficiency proposed,
asserted or assessed as a result of any audit of any such returns; (iv) file, prosecute, compromise
or settle any claim for refund; (v) determine whether any refunds to which the Group may be
entitled shall be paid by way of refund or credit against the federal income tax liability of the
Group; (vi) determine whether any extensions should be requested; (vii) determine whether any
amended Returns shall be filed and (vii) determine whether any refunds shall be received by way
of refund or credited against tax liabilities.

(d) The Group will jointly file all state, local and foreign tax returns on a combined,
consolidated, unitary, or other method as determined by the Parent in its sole discretion keeping
in consideration a lower overall tax liability for the Group. In the event if any such state or local
tax returns are filed by the Parent, all of the provisions of this Agreement shall apply to the
extent determined by Parent to the allocation, preparation, filing and payment related to such
state and local taxes and returns and shall be applied as is appropriate in the context of the
applicable state and local tax laws as determined in the sole discretion of Parent, provided,
further, that any benefit realized by the filing of such state and local returns shall remain with
Parent.

(e) Member shall prepare and present to Parent for review and inclusion in the Group income tax
returns a separate federal consolidated income tax return and separate combined, consolidated or
separate (as required) state and local income tax returns for the Member Group.

3. Agent.




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Member hereby irrevocably designates Parent as its sole and exclusive agent and attorney-in-fact
to take such action (including execution of documents) as Parent, in its reasonable discretion,
may deem appropriate in any and all matters (including audits) relating to any Group Tax
Liability; provided, however, that Parent shall not exercise its rights as agent and attorney-in-fact
in any manner that is inconsistent with the rights granted to Parent under this Agreement.

4. Applicable Taxes.

(a) This Agreement applies to: (1) all taxes and related returns under Subtitles A and F in the
Code and (2) income taxes and functionally similar taxes based upon taxable income levied by
state and local jurisdictions on any member of the Group. Such taxes shall be referred to in this
Agreement as "income taxes."

(b) This Agreement does not apply to any employment-related taxes (such as taxes imposed
under Subtitle C of the Code), taxes under Subtitles D and E of the Code, or other taxes not
imposed with respect to taxable income of a corporation. Member shall be solely responsible for
the timely filing of all returns for such taxes and the timely payment of taxes to which this
Agreement does not apply.

5. Payment of Income Taxes by Member.

(a) Not later than ____ ( ) days before the date on which the Group's consolidated federal
income tax return is required to be filed, Member shall pay to Parent the portion of the Group’s
Tax Liability allocable to the members of the Member Group under Treasury Regulation 1.1552-
1(a)(1) (and amendments or successors thereto).

(b) Member shall pay to the Parent an amount equal to the Group's aggregate state and local
income tax liabilities, multiplied by the Member Group Percentage, which is defined to be the
ratio of (i) Member's payment as laid in clause (a) above, divided by (ii) the Group’s Tax
Liability.

6. Time of Payment.

The Member shall make payments of income taxes to the Parent in the following manner:

(a) Not later than the ____________________ day of April, June, September and December of
each calendar year. Member shall make a reasonable estimation of the amount it would be
required to pay for the Group's estimated income tax liability. Based on such determinations,
Member shall make quarterly payments to Parent on or before the _________________ day of
April, June, September and December of each calendar year equal to (i) Parent's payment of
estimated tax necessary to avoid underpayment under Code Section 6655 (and amendments or
successors thereto), multiplied by (ii) the estimated Member Group Percentage.

(b) In the event if the payment made by the Member is less than that of the Member's income tax
liability for any calendar year, Member shall pay the deficit amount to Parent within
____________ ( ) days of the filing of the income tax return. Any overpayment by Member

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shall be promptly credited by Parent to Member's quarterly payment next due in the absence of a
direction otherwise by Member.

(c) ______________________ {Add other tax liabilities if applicable and how they will be
computed}

7. Adjustments to Tax Liability.

(a) If with respect to any taxable year (i) the Group files an amended consolidated federal
income tax return reporting a consolidated federal income tax liability different from the Group
Tax Liability, (ii) the Group Tax Liability or any Member's tax liability shall be adjusted and
such adjustment is part of a final "determination" as that term is defined in section 1313(a) of the
Code, or (iii) the Group is assessed and pays federal income taxes in excess of the Group Tax
Liability by reason of any of the events specified in section 6213(b) or (d) of the Code, then the
amounts of the payments required under Section 6 shall be recomputed, subject to the limitations
of subparagraph (c) of this Section 7, to give effect to such amended return, adjustment or
assessment, as the case may be. Each Member shall then pay to Parent, or Parent shall then pay
to each Member, as the case may be, any difference between the amounts determined by such
recomputation and the amounts previously paid.

(b) If with respect to any taxable year the Group files an amended consolidated federal income
tax return reporting a consolidated federal income tax liability identical to the Group Tax
Liability, then the amounts of the payments required under Section 6, subject to the limitations of
subparagraph (c) of this Section 7, shall be recomputed to give effect to such amended return.
Not later than forty-five (45) days after the filing of such amended return, each Member shall
pay to Parent, or Parent shall pay to each Member, as the case may be, any difference between
the amounts determined by such recomputation and the amounts previously paid.

(c) The parties recognize that a recomputation under subparagraphs (a) or (b) of this Section 7 of
the amounts of the payments required under Section 6 for any taxable year will not necessarily
be the final determination of the amounts of such payments for such year, and the amounts of
such payments may be recomputed more than once.

{Mention how deficiency, refunds, and adjustments would be taken care of by both parties
after such as reassessment and recomputation}

8. Interest and Penalties.

Where payment required by this Agreement to be made from one party to another is not made
within the time provided, the amount not timely paid shall bear interest at the rate established
pursuant to section 6621(a)(2) of the Code.

9. New Group Members.

If a new Member or corporation is acquired or created by Parent, that Member shall become a
party to this Agreement and shall be required to sign a consent form. Upon signing of the

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consent, the new Member agrees to be bound by the terms of this Agreement in the same manner
as any other Member.

10. Termination Of Affiliation.

(a) In the event that a Member ceases to be included in the Group but continues to be a
corporation subject to federal income tax (“Former Member”), this Agreement shall, except as
provided in Section 10 of this Agreement, shall terminate with respect to such Member.

(b) Parent and the Former Member shall consult and furnish each other with information
concerning the status of any tax audit or tax refund claim relating to a taxable year in which such
Former Member was a Member and a consolidated federal income tax return was filed. Parent
shall have the right to make the final decision about the response of the Group to any audit and
shall have the sole right to control, at its own expense, any contest of any change proposed and
any proposed disallowance of a refund claim by the Internal Revenue Service through the
Appeals Office of the Internal Revenue Service and the courts in connection with any taxable
year for which this Agreement is in effect.

(c) The Former Member shall reimburse Parent the taxable income, tax credits, special items of
deduction or allowance, quarterly income tax payments and income tax liabilities of the Member
computed pursuant to this Agreement for that portion of the taxable year during which the
Member was part of the Group and any unused tax benefits of the Member arising during that
portion of the taxable year or in earlier years shall remain with Parent to the extent that the
Group has utilized any tax benefit of that Member for the period in which the Departing Member
was included in the Group. Parent shall provide the Departing Member information regarding
the amounts of any tax benefits unused by the Group for utilization by Departing Member in
later separate return years in accordance with provisions of applicable law.

11. Duration.

Unless earlier terminated by mutual agreement of the parties, this Agreement shall remain in
effect for income tax purposes with respect to any tax year for which combined, consolidated or
unitary income tax returns are required or permitted to be filed by the Parent.

12. Indemnification

(a) Member agrees to indemnify and hold harmless Parent with respect to any liability for federal
income taxes, including any interest thereon, any additions to such taxes and assessable penalties
imposed with respect thereto (collectively "Taxes") to the extent that Parent's liability for such
Taxes is attributable to the failure of such Member to make the payments required of it pursuant
to Sections 5 and 6 of this Agreement or to the failure of such Member to comply with
subsection(a) of Section 2 of this Agreement.

(b) Parent agrees to indemnify and hold Member harmless with respect to any Liability for
federal income taxes, including any interest thereon, any additions to such taxes and assessable
penalties imposed with respect thereto (collectively, "Taxes"), where such Liability arises solely

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by reason of such Member being severally liable for any taxes of the Group pursuant to Treas.
Reg. Section 1.1502-6; provided, however, that such Member shall not be entitled to
indemnification by Parent pursuant to this Section 12 unless such Member has made all
payments required of it pursuant to Sections 5 and 6 of this Agreement and fully complied with
subsection(a) of Section 2 of this Agreement.

(c) Payment pursuant to the indemnity provided in this Section 12 shall be made within ten (10)
days of notice that a payment requiring indemnification under this Section 12 has been made by
the Parent.

13. Disputes.

Any dispute or ambiguity concerning the amount of any payment provided for under this
Agreement shall be resolved by Parent in a manner consistent with the principles and procedures
set forth in this Agreement. The judgment of Parent shall be conclusive and binding upon each of
the parties to this Agreement. Parent may from time to time establish any other special rules that
Parent in its sole discretion deems necessary or appropriate to carry out the purposes of this
Agreement.

14. Confidentiality.

Each party shall hold and cause its directors, officers, employees, advisors and consultants to
hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in
the opinion of its counsel, by other requirements of law, all information (other than any such
information relating solely to the business or affairs of such party) concerning the other party
hereto furnished it by such other party or its representatives pursuant to this Agreement (except
to the extent that such information can be shown to have been (i) in the public domain through
no fault of such party or (ii) later lawfully acquired from other sources not under a duty of
confidentiality by the party to which it was furnished), and each party shall not release or
disclose such information to any other person, except its directors, officers, employees, auditors,
attorneys, financial advisors, bankers and other consultants who shall be advised of and agree to
be bound by the provisions of this Section 14. Each party shall be deemed to have satisfied its
obligation to hold confidential information concerning or supplied by the other party if it
exercises the same care as it takes to preserve confidentiality for its own similar information.

15. Changes in Tax Year.

In the event that Parent changes its tax year end to other than a calendar year, Member shall
change its tax year to coincide with Parent's tax year, and all references in this Agreement to due
dates of tax returns and payments shall be modified to refer to the corresponding quarterly or
annual periods.

16. No Conflict of Interest.




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None of the parties hereto will, on or after the date of this Agreement, enter into any agreement
that is inconsistent with the rights granted to the other party in this Agreement or otherwise
conflicts with the provisions hereof.

17. Notices.

All notices and other communications provided for or permitted hereunder shall be made in
writing by hand delivery, registered first-class mail, facsimile or air courier guaranteed overnight
delivery:

(a) if to Parent, to it at:

(b) if to Member, to it at:

All such notices and communications shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five business days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if delivered by facsimile; and on the next
business day if timely delivered to an air courier guaranteeing overnight delivery.

18. Successors and Assigns.

This Agreement shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto. This Agreement is not intended to benefit any person other than the
parties hereto, each of their respective successors and assigns. No person not (i) a party or (ii) a
party's successor or assign shall be a third party beneficiary hereof

19. Counterparts.

This Agreement may be executed simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and the same
instrument.

20. Headings.

The descriptive headings in this Agreement are for the convenience of reference only and shall
not limit or otherwise affect the meaning thereof.

21. Governing Law.

This Agreement shall be governed by, interpreted and enforced in accordance with the laws of
the State of _______________ (regardless of the laws that might be applicable under principles
of conflicts of laws).

22. Severability.




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In the event that any one or more of the provisions contained herein, or the application thereof in
any circumstance, is held invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of any such provision in such jurisdiction in any other respect and of
the remaining provisions herein shall not be affected or impaired thereby.

23. Entire Agreement.

This Agreement contains the entire understanding of the parties. There are no representations,
warranties, promises, covenants or undertakings of any nature whatsoever, except as herein
expressly set forth. This Agreement supersedes all prior agreements and understandings between
the parties with respect to such subject matter. This Agreement may be amended, waived,
discharged or terminated only by written agreement of the parties.

24. Attorneys Fees.

In any action or proceeding brought to enforce any provision of this Agreement, the successful
party shall be entitled to recover reasonable attorneys' fees, including such fees on appeal, in
addition to its costs and expenses and any other available remedy.

25. Captions.

Titles or captions of Sections and paragraphs contained in this Agreement are inserted only as a
matter of convenience and for reference, and in no way define, limit, extend, or describe the
scope of this Agreement or the intent of any provision hereto.

26. Number and Gender.

Whenever required by the context, the singular number shall include the plural, the plural
number shall include the singular, and the gender of any pronoun shall include all genders.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and
delivered by their duly authorized officers or representatives as of the date hereof.

PARENT

By:
Name:
Title:

MEMBER/S

By:
Name:
Title:




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                                                  SCHEDULE A

                    LIST AND ADDRESSES OF MEMBER CORPORATIONS




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DOCUMENT INFO
Description: This is an agreement whereby the parent company in a consolidated group is responsible, on behalf of the group, for the payment of income tax related liabilities. If the parent company fails to fully discharge its obligation to pay the group's tax liability, subsidiary members that were part of the group become jointly and severally liable. This agreement can be used by small businesses or other entities that have subsidiary group members and want to ensure the prompt and timely tax payments on behalf of the entire group.
This document is also part of a package Beginner Tax Starter Kit 10 Documents Included