Federal Tax

Consolidated Returns — Elections and Filing (Portfolio 754)

  • This Portfolio analyzes the eligibility requirements and scope of the consolidated return regulations, and it discusses the advantages and disadvantages of filing consolidated returns.

Description

Bloomberg Tax Portfolio, Consolidated Returns — Elections and Filing, No. 754, analyzes the eligibility requirements and the scope of the consolidated return regulations.

Generally, affiliated groups may elect to file consolidated returns in lieu of separate returns. Affiliated groups are groups of “includible corporations” which are connected through stock ownership with a common parent which is an includible corporation. Includible corporations consist of most domestic corporations and certain foreign corporations. Entities that cannot file consolidated returns include: (1) tax-exempt corporations; (2) regulated investment companies; and (3) real estate investment trusts. If a group elects to file consolidated returns, it computes a single tax based on the incomes of all corporations in the group after numerous adjustments and eliminations. Thus, filing consolidated returns may substantially affect the group’s overall tax liability since losses of one member may be used to offset income or gains of another member. However, before deciding to file consolidated returns, the group must consider the effect of the consolidated return rules upon each member and upon the group as a whole. Among other things, the group should consider: (1) whether it is eligible to file a consolidated return; (2) how the tax liability of filing a consolidated return compares to separate filings; and (3) the effect an election to file consolidated returns will have on future years.

This Portfolio discusses the advantages and disadvantages of filing consolidated returns. It also analyzes: (1) the administrative rules for electing and filing consolidated returns; (2) the eligibility requirements that must be met in order to file a consolidated return; and (3) the computation of estimated tax payments if consolidated returns are filed. This Portfolio is one of four Portfolios devoted to an analysis of consolidated returns. For an analysis of the concepts involved in the ownership of subsidiary stock within an affiliated group filing consolidated returns, see 755 T.M., Consolidated Returns—Investment in Subsidiaries. For an analysis of (1) the computation of separate taxable income, (2) the computation of consolidated income items, such as capital gain or loss and §1231 gain or loss, and (3) the computation of consolidated tax credits, see 756 T.M., Computation of Consolidated Tax Liability. For an analysis of the limitations imposed by the consolidated return regulations on the use of losses, such as the separate return limitation year rules and §382, see 757 T.M., Consolidated Returns — Limitations on Losses.

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Table of Contents

I. Introduction
II. Overview
III. Eligibility to File a Consolidated Return
IV. Advantages of Filing Consolidated Returns
V. Disadvantages of Filing Consolidated Returns
VI. Consent to Consolidated Return Regulations
VII. Administrative Rules Relating to the Election to File Consolidated or Separate Returns, the
VIII. Administrative Rules Regarding Changes of Affiliated Group During Year, Accounting
IX. Estimated Tax Payments and Penalties
X. Tentative Carryback Adjustments

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George-White-2016
George White
Adjunct Professor
George Washington University