R4-M5 Consolidated Tax Returns

Question 1

what are the steps of calculating consolidated tax returns?

Answer 1

1. calculate the stand-alone taxable income of each member
2. eliminate intercompany transactions: intercompany sales, dividends received, gains/losses from sale intercompany personal property, …
3. gains, losses, and deductions are required to be determined at consolidated level are removed from member’s taxable income:
   + capital gains and losses
   + section 1231 gains and losses
   + NOL
   + charitable contribution
   + DRD
4. combined members’ taxable income
5. combined taxable income is then adjusted for the items required at consolidated level

Question 2

what requirements entity groups may elect consolidation?

Answer 2

• GAAP: at least 50% of ownership
• Tax: at any time of the year
  + a common parent must own at least 80% of ownership
  + members of affiliate group
  + must filed a consent