Module 6: Consolidated Tax Return

Question 1

What corporations are not allowed the privilege of filing consolidated return?

Answer 1

S corps
Foreign corps
Most REITs
Some insurance companies
Most exempt orgs

Question 2

What are the initial requirements for filing a consolidated return?

Answer 2

All corps must:

1. Be members of an affiliated group at some time during the year; and
2. Each member of the group must file a consent on Form 1122 (Consent of Subsidiary Corp to Be Included in a Consolidated Income Tax Return) no later than the extended due date of the parent corp’s tax return

Question 3

Define affiliated group

Answer 3

A common parent directly owns:

• 80% or more of voting power of all o/s stock; and
• 80% or more of value of all o/s stock of each corp

Question 4

Advantages of filing consolidated return

Answer 4

1. Capital losses can offset capital gains
2. Operating losses can offset operating profits
3. Dividends rec’v are 100% eliminated in consolidation

Question 5

How is consolidated taxable income determined?

Answer 5

Step 1: Calculated the stand-alone taxable income

Step 2: Adjustments made to each taxable income to remove effects of transactions b/w members (i.e. intercompany sales, inventory adjustments, dividends received)

Step 3: Gains, losses, deduction required to be determined at cons. level are removed from each

Step 4: Combine each members resulting taxable income

Step 5: Combined taxable income is then adjusted for items required to be determined at cons. level

Question 6

What items are required to be determined at cons. level?

Answer 6

• cap. gains/losses
• section 1231 gains/losses
• NOL
• charitable contribution deduction
• DRD
• domestic production deduction (section 199)