With regard to consolidated tax returns, which of the following statements is tr

Question

With regard to consolidated tax returns, which of the following statements is true? Operating losses of one group member may be used to offset operating profits of the other members included in the consolidated return. Only corporations that issue their audited financial statements on a consolidated basis may file consolidated returns. Of all intercompany dividends paid by the subsidiaries to the parent, 70% are excludable from taxable income on the consolidated return. The common parent must directly own 51% or more of the total voting power of all corporations included in the consolidated return.

Explanation / Answer

With regard to consolidated tax returns, which of the following statements is true?

Operating losses of one group member may be used to offset operating profits of the other members included in the consolidated return.

A major advantage of consolidated tax returns is the ability to offset gains and losses among group members as if they were a single taxpayer.

The other points are not true due to the following reasons:

- Corporations need not have audited financial statements issued on a consolidated basis to file a consolidated tax return.

- 100% of dividends (not 70% as mentioned) received by the parent are eliminated on a consolidated tax return.

- The common parent must own directly or indirectly 80% (not 51% as mentioned) of the total voting power of all corporations included in the consolidated tax return.

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