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When a corporate group elects to file Federal income tax returns on a consolidated basis, it...

When a corporate group elects to file Federal income tax returns on a consolidated basis, it is subject to several tax return filing requirements for its first and subsequent tax years. List the most important of those requirements.

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Answer #1

The most important requirements are:

  • The return should be filed by a common parent company and only those subsidiaries in which the parent company owns more than 80% of value and vote should be included.
  • All the eligible subsidiaries (i.e. those meeting the 80% criteria as mentioned above) will have to make the election.
  • All members of the group should have the same tax year as the parent company.
  • When the return is first filed then consent of all entities within the group has to be taken. The subsidiaries do this by filing Form 1122, Authorization and Consent of Subsidiary Corporation to be included in a consolidated income tax return. This is attached to the group’s Form 1120.
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