Video: Requirements for Affiliated Groups

In this lesson, Nick Palazzolo, CPA, breaks down the intricacies of affiliated groups for consolidated corporate tax filings. He clarifies the distinction between common misconceptions about majority ownership percentages and the actual requirement of at least an 80% ownership in both voting power and stock value necessary for forming an affiliated group. Nick also explains the essentials, such as the need for subsidiaries to share the same tax year as the parent corporation and consent to consolidate, drawing parallels with individual tax concepts for clarity. Alongside, he delves into the requirement for consistent treatment of income, deductions, and credits across all corporate entities within the group, as well as the prohibition of separate returns, underpinning the significance of these rules to achieve tax efficiencies when filing as one unified entity.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Let's see a couple items here. We've got definitions and requirements of affiliated groups. We talked about affiliated groups and what it means to be an affiliated group and what we need to do in order to file this consolidated return. Well, an affiliated group must consist of a common parent corporation and one or more subsidiaries. We saw that already. But building on this, the parent corporation must directly own at least 80 percent of the voting power and value of the outstanding stock of each subsidiary. So if you see questions and you see that the corporation owns 60 percent, they are going to try to trick you into thinking that you only need to own 50, because, well, in a lot of cases, whether it's in Gap and FASB and FAR or we're dealing with, you know, just different affiliated groups. Yeah, 50 percent will be the threshold. But for consolidated corporations, it's 80 percent. That's the threshold. So I know I said before, it doesn't have to be 100 percent. What does it have to be? Has to be at least 80 percent of the voting power and the value of the outstanding stock, which those can be different. Now, same tax year, all the corporations within this group, whether it's just two or 15, they have to have the same tax year as the parent corp. That's just something they need to do. They also all need to consent and agree to file by filing this form. You don't really need to know that form at all. But all you need to know is that all these entities within the affiliated group need to consent to the fact that they're going to be a consolidated corporation. It's kind of similar to dealing with individual income

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C corporations

Module: 3 Concepts, 30 Videos

Corporations: Consolidated Tax Returns Overview

1:22

Introduction to Consolidated Tax Returns

2:25

Entities Not Able to File a Consolidated Return

3:20

Requirements for Affiliated Groups