Question

What are some of the advantages and disadvantages for an affiliated group of corporations to file a consolidated income taxes return ?

Answer 1

The affiliate group of corporations have vast advantages as well as disadvantages of its own. The main difference between them is:

An affiliated group electing to file a consolidated return may substantially alter its combined overall tax liability. For example, a consolidated return ignores sales between connected corporations. Deferment of taxable gains or losses become realized with the ultimate sale to an outside third party.

However, once losses are recognized, losses of one affiliated corporation can be used to offset income of another. Accordingly, the effect of filing a consolidated return on each member, and the affiliated group as a whole, are complicated and should be carefully considered before making the election. The associated group should consider its eligibility, its overall tax liability relative to separate filings, and the election’s effect on future years.