Because S corporations cannot be included in an affiliated group, an S corporation cannot join in the filing of a consolidated return. However, a C corporation subsidiary can elect to join in the filing of a consolidated return with its affiliated C corporations.
Can an S corporation own a C corporation?
Effective for taxable years beginning after December 31, 1996, S corporations may now own 80% or more of a C corporation or 100% of a qualified subchapter S subsidiary (QSSS). However, an S corporation may not elect to file a consolidated tax return with a C corporation.
When does a parent company file a consolidated tax return?
When the parent company files a consolidated Form 1120 — the federal corporate tax return — the financial activity of all affiliated group members are essentially combined to arrive at a single taxable income figure.
What does it mean to be part of a consolidated group?
Thereafter, the affiliated group is referred to as a consolidated group. The consolidated group exists as long as the parent corporation satisfies the 80% rule for at least 1 subsidiary. Other members of the group can leave the group without terminating the group’s status. Other companies can join the group later, without having to file Form 1122.
What happens when an affiliated group files a consolidated tax return?
An affiliated group electing to file a consolidated tax return may substantially alter its combined overall tax liability. For example, a consolidated return ignores sales between connected corporations and therefore no tax is marked. Deferment of taxable gains or losses become realized with the ultimate sale to an outside third party.
Where do I file a consolidated tax return?
(1) Consolidated return made by common parent corporation. The consolidated return shall be made on Form 1120 for the group by the common parent corporation. The consolidated return, with Form 851 (affiliations schedule) attached, shall be filed with the district director with whom the common parent would have filed a separate return.
