Extra materials and Notes

Extra materials and Notes - Extra Materials Consolidated...

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Extra Materials Consolidated return is our first extra toprcs. As the diagram above, a parent company holds two subsidiary companies. Here, we have three different entities, and three separate income tax returns need to be filed to reflect three activities in three companies. However, since there is a relationship between them, there is an ELECTION that these group members can use to consolidate the income tax return and file only ONE income tax return to reflect all activities. Now, what are the basic requirements? 1. Corporation has to be Includible corporation. Anything Other Than -Tax-Exempt Corporation; no tax-exempt corp. combines with tax corp. to consolidate. -Foreign Corporation; no foreign corporation with domestic corporations -S Corporation; S is not a tax corporation, its profit allocates to the shareholders. 2. Stock ownership requirement is that the parent corporation must hold at least 80o/" of the stock of the subsidiary corporation. or Looking at the prospective of the subsidiary, the subsidiary company's stock has to be owned by either a parent company or other members of affiliated group in the organization. Let's look at some examples, Here, an individual owns all the stocks of two subsidiary comparues. May S1 and 52 file the consolidated retum? Answer: NO. There is NO parent-subsidiary relationship. There is No one corporation holding the stock of another. Parent Inc. Individual
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Here, we have 53 in the group. 53 is 60% owned by 51 and 40o/o owned by 52. May 53 files income return with S1 and 52? Answer: YES. It is because of the stock ownership. From 53 prospective, it has at least 80% of its stock owned either by the parent company (0%) or other members in the affiliated goup (S1 owns 60% and 52 owns 40%). Sl and 52 are both parts of the group. Therefore, I00% of the stock of 53 is owned by the group. So, it is able to consolidate the return together. All 4 corporations will be eligible. Here, we have 53 in the group. 53 is 60% owned by S I and 40o/o owned by 52, but the parent is an individual. May any 3 corporations can consolidate? Answer: NO. We do not have the require parent-subsidiary relationship. The maximum we have is that 52 is owning 60% of 53 stock. It is still short of the requirement of at least 80% ownership. Thus, all 3 entities must file separate income return. Below, we have 53 in the group. 53 is 80% owned by S1 and2}Yo owned by 52, but the parent May any 3 corporations can consolidate? Answer: YES. Only S1 and 53 can file tighter because they meet the 80% stock ownership. only one in this group can be filed together. is an individual. This will be the Individual
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Individual Now, what difference will it make to file together? Let's consider they file separately,
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This note was uploaded on 09/08/2010 for the course BUS 123A at San Jose State University .

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Extra materials and Notes - Extra Materials Consolidated...

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