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The Corporate Income Tax

3. Chapter. The Corporate Income Tax. Controlled Groups of Corporations. Three types of controlled groups: Brother-sister Parent-subsidiary Combined group. Parent-Subsidiary Groups. Common parent and all “controlled” subsidiaries 80% control test [IRC §1563(a)(1)]

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The Corporate Income Tax

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  1. 3 Chapter The Corporate Income Tax

  2. Controlled Groups of Corporations • Three types of controlled groups: • Brother-sister • Parent-subsidiary • Combined group

  3. Parent-Subsidiary Groups • Common parent and all “controlled” subsidiaries • 80% control test [IRC §1563(a)(1)] • Constructive stock ownership rules apply[IRC §1563(d)(1) and (e)]

  4. Combined Control Group • [IRC §1563(a)(3)] Group where one corporation is the parent of a parent-subsidiary group and the member of a brother-sister control group

  5. Controlled Groups • Problem C3-52

  6. [IRC §1501] Members of an affiliated group may elect to file a consolidated tax return [Reg. §1.1502-75(a)(2)] Once a group files a consolidated return it must continue filing consolidated returns Consolidated Tax Returns

  7. Affiliated Group • [IRC §1504] U.S. parent corporation directly owns stock with 80% of voting power and 80% of the value in at least one other U.S. corporation • All other U.S. corporations in unbroken chains of at least 80% stock ownership by one or more members are included in the affiliated group

  8. Gamma 85% 35% Alpha Beta 60% 45% Delta Kappa Affiliated Group • Affiliated Group: Gamma, Alpha, Beta and Delta 53% 10% 45%

  9. Comparison to Consolidated Financial Statement • Test for filing consolidated financials is 50% or more controlling interest (plus certain variable interest entities) • Foreign as well as domestic corporations included in consolidated financial statements but not in the consolidated tax return • Entities that are not corporations are also included in the consolidated financial statements but not in the consolidated tax return • Go to Chapter 4

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