Question

(1) What are the advantages for a corporation of a Consolidated Tax Return?

(2) What are the disadvantages for a corporation of a Consolidated Tax Return?

(3)  Which FASB is the primary source of GAAP for Income Taxes?

(4)  Which are the FASB, APB, etc. which address Income Taxes for the accounting profession?

Answer 1

Answer 1:

1. Consolidated income tax return will help the companies to set off the losses of one company against the profit of another company.
2. The overall income tax liability in consolidated income tax returns will be relatively less.
3. The ability to take credit for deferred tax assets.

Answer 2:

1. The overall income in case of no loss by the subsidiary or parent entity will increase as a result the overall income tax liability might also increase.
2. The applicable rate of income tax in case of higher income will be higher compare to relatively lower profit.

Answer 3:

International Accounting Standard IAS 12 is the primary source for computation of income taxes for an organization following IFRSs to prepare and present financial statements. ASC 740 has the same responsibility under the US GAAP.

Answer 4:

IAS 12 has to be followed in relation to the income taxes irrespective of the individual and his or her profession.