Question

What are some advantages and disadvantages of filing a consolidated return? Make a detailed post about a specific advantage or disadvantage. Contrast this with the Consolidated Return Sect. 1502 Regulations eligibility and election requirements.

Answer 1

Advantages of filing Consolidated Return

1  The avoidance of tax on intercompany dividends

2 the deferral of income on intercompany transactions

3 offsetting capital losses of one company against the capital gains of another

4 The designation of the parent company as agent of the group for all tax purposes

5 use by the group of the excess of one member's soil and water conservation expense over 25% of its gross income from farming

6 offsetting operating losses of one company against the profits of another

Disadvantages of Filing Consolidated Return

1 Losses of a subsidiary that reduce the tax liability of the group also decrease the parent's tax basis in the subsidiary

2  Separate return credits and capital losses can be limited by operating losses and capital losses from other members of the group

3 The presence of minority shareholders may create situations that may have adverse effects for the affiliated group.

4  At the initial consolidated return year, a double counting of inventory profit can occur if any of the group members had intercompany transactions in an affiliated separate return year

5  Under controversial loss disallowance rules, losses on the sale of a subsidiary's stock are not allowed to be recognized for tax purposes.