Tax Analysts provides news, analysis, and commentary on consolidated tax returns. If an affiliated group of corporations files its tax return on a consolidated tax basis, the IRS treats the group as a single entity in calculating its tax liability. A parent corporation that owns 80 percent of both the total voting power and the total value of stock of its subsidiary corporation meets the section 1504(a)(2) control test for affiliation. If the subsidiary is eligible and if it consents, it – and any other similarly qualified subsidiaries – can file a consolidated tax return with the parent.
A consolidated group files one corporate income tax return on behalf of all of its members by simply checking a box on the Form 1120 and reporting the group’s items of income, gain, loss, expense, and deduction on a net basis. All intercompany transactions among the group members are disregarded for this purpose, although a statement of items of gross income and deductions for each separate corporation must be attached to the return.
The rules that apply to consolidated groups can be found in sections 1504 through 1563. If a member of a consolidated group deconsolidates, it (or any successors to it) must wait five years before being allowed to reconsolidate with its old group (or another affiliated group with the same common parent as its old group, or any successors to it).
Tax Analysts covers regulations, revenue procedures, and private letter rulings related to consolidated tax return rules. See, for example, proposed regulations (REG-100400-14) that would replace the next-day rule in current reg. section 1.1502-76(b)(1)(ii)(B); Rev. Proc. 2015-3, 2015-1 IRB 129, which provides that the IRS will only issue a determination letter if a member of an affiliated group fails to file Form 1122; and a private letter ruling (LTR 201451009) that appears to allow a non-doctor-owned corporation to affiliate with an incorporated medical practice.
