1. The Corporate Income Tax3
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. Consolidated Tax Returns
[IRC §1501] Members of an affiliated group may elect to file a consolidated tax return
[Reg. § (a)(2)] Once a group files a consolidated return it must continue filing consolidated 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. Affiliated Group Affiliated Group: Gamma, Alpha, Beta and Delta Gamma
Kappa
Delta
85%
35%
60%
45%
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