Question

Explain the requirements for corporations to file a consolidated tax return by identifying the tax code.

Answer 1

Answer

The Internal Revenue Service doesn't require corporations to file consolidated tax returns with their subsidiaries, but it does allow them to do so. Before a corporation can file a consolidated return, it must satisfy certain stock ownership and voting requirements. But even if your corporation satisfies the eligibility requirements, you may want to weigh the advantages against the disadvantages of filing a consolidated return with the other corporations in which your business has ownership interests.

Requirements for filing:

Only entities organized in the United States and treated as corporations may file a consolidated Federal income tax return.The return is filed by a “common parent” and only those subsidiaries in which the common parent owns 80% or more of the vote AND value. The parent and all subsidiaries must file Form 1122 to elect to file a consolidated return in the first year of election. Every 80% subsidiary must make the election or it is not valid. Thereafter, all corporations that begin to meet the 80% vote and value test must join in the consolidated return. If a subsidiary ceases to meet the 80% vote and value test, it is removed from the group. Adjustments to basis and other tax attributes apply upon a subsidiary joining or leaving a group.