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- A corporation can conduct more than one unitary business. In this situation, the business income of the corporation should be decomposed into separate unitary business income groups. The corporate management then files separate tax returns for each unitary business group.
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Why is unitary combined reporting becoming more popular?
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Apr 14, 2015 · For purposes of filing a unitary combined return, the composition of a unitary group (or multiple groups for large multinational corporations) is premised on a highly subjective facts and...
- What Is A Consolidated Tax Return?
- Understanding A Consolidated Tax Return
- Electing to File A Consolidated Tax Return
- Process of Filing A Consolidated Tax Return
- Advantages and Disadvantages of Filing A Consolidated Tax Return
- Consolidated Tax Returns and Agents
- The Bottom Line
A consolidated tax return is a corporate income tax return of an affiliated group of corporations that elect to report their combined tax liability on a single return. This tax return allows for corporations that run their business through many legal affiliates to be viewed as one single entity. Common items that are consolidated include capital ga...
A consolidated tax return combines the tax liability of all includible corporations in an affiliated group. The companies legally permitted to partake in the consolidated group must be includible companies. An includible company, defined by tax law, is any corporation except for certain insurance companies, foreign corporations, tax-exempt corporat...
Each affiliated corporation must consent to file a consolidated tax return by filing Form 1122 and returning it along with Form 1120, the tax form for U.S. corporations. After that point, any new member of the associated group must join in the consolidated tax return. Single affiliates may leave the consolidated group without the group's status bei...
The parent company files the consolidated tax return and all subsidiaries typically begin to follow the tax year of the parent company. This means that the fiscal year of all entities must be aligned.Note that for financial reporting, this is not required. The reporting dates of the parent and subsidiary entities can be different, provided the diff...
Advantages
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. The income of one affiliated corporation can be used to offset losses of another. Capital gains and losses can also be netted across affiliates and foreign tax...
Disadvantages
When calculating the accumulated earnings tax, the profit and loss of all affiliates are included, which can be detrimental as only a single minimum credit amount is allowed to be used. Plus, not only is intercompany income deferred but so are losses. Accordingly, the effect of filing a consolidated return on each member, and the affiliated group as a whole, is complicated and should be carefully considered before making the election. The associated group should consider its eligibility, its...
Under IRS regulations, the agent for a consolidated group is the sole entity authorized to handle all matters related to the federal income tax liability for the consolidated return year for each group member. This agent remains the same for that tax year regardless of subsequent changes in the group's structure or membership. All communications an...
Section 1501 of the Internal Revenue Code permits companies to report the taxable income for all of their qualifying subsidiaries and affiliates on a single return. All connected entities can combine their incomes, net operating losses, credits, and other items, barring certain insurance companies, foreign corporations, tax-exempt corporations, reg...
- Julia Kagan
Nov 29, 2022 · A majority of states that impose a corporate income tax have adopted the use of mandatory worldwide, or water’s-edge, combined reporting methods for unitary businesses. At the same time, historically separate-filing states are seeking to adopt combined reporting tax regimes for corporate taxpayers.
The use of mandatory unitary combined reporting has become increasingly popular among states in recent years, driven by state budgetary shortfalls and the perceived distortion of taxable income by multistate corporations filing separate company reports.
As a result of the law change from an AND to an OR in the definition of a unitary business, more entities may be unitary and required to be included in the combined group. However, the tests (discussed below) for determining whether a unitary business relationship exists remain the same.
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At the state level, members of a multi-corporate group may, depending on the circumstances and the laws of the particular state, determine their state taxable income using the separate return, combined report, or consolidated return methods.
A corporation can conduct more than one unitary business. In this situation, the business income of the corporation should be decomposed into separate unitary business income groups. The corporate management then files separate tax returns for each unitary business group.
