Question

In: Accounting

Do parent corporations generally prefer to file consolidated tax returns with their subsidiaries as opposed to...

Do parent corporations generally prefer to file consolidated tax returns with their subsidiaries as opposed to filing separate returns? Why or why not?

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Expert Solution

Answer:

Preference of Parent corporations in consolidation of tax returns:
GAAP has certain guidelines to combine returns of subsidiaries. According to ,a parent organization is needed to merge /consolidate its subsidiaries return, if the organization possesses over half of the share. Be that as it may ,parent organizations have no such commitment to consolidate their subsidiary's income for tax purposes

Parent organizations while by and large like to consolidate their income, than providing their tax return independently. A parent organization may have number of subsidiaries with gain and loss . The organization needs to pay tax on profitable subsidiaries and unprofitable subsidiaries need to forward their misfortunes whether the organization isn't solidified their returns..

It expands the tax liability of the organization and doesn't get unwinding/relaxation for unprofitable subsidiaries. Consolidation/merge of subsidiary's incomes and losses / misfortunes will give huge unwinding in tax liability with the misfortune - gain setoff. Consequently ,parent organizations by and large want to record solidify or consolidate tax return of their subsidiaries


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