• Explanation

For federal tax purposes, only an affiliated group Generally, a group of one or more C corporations having a common parent corporation, where (1) the common parent directly owns at least 80% of one or more of the subsidiaries, (2) each subsidiary is at least 80% directly owned by one or more other corporations in the group, and (3) 80% ownership refers to owning 80% of the total voting power and total stock of a corporation. of domestic C corporationsA tax-paying entity created formally in accordance with the laws of the state in which it is considered domiciled and taxed separately from its owners, with shareholders as owners who have limited liability. may elect to file a consolidated corporate A corporate income tax return of an affiliated group of domestic C corporations that elect to report their combined taxable income and tax liability on a single return. Certain adjustments are required for consolidated transactions (eg, sales and dividends between affiliated members). tax returnA corporate income tax return of an affiliated group of domestic C corporations that elect to report their combined taxable income and tax liability on a single return. Certain adjustments are required for consolidated transactions (eg, sales and dividends between affiliated members). instead of filing separate returns. One advantage of filing a consolidated return is offsetting one corporation's losses with another member corporation's income.

An affiliated group is one or more chains of includible corporations connected through stock ownership with:

• a common parent corporation (not individual shareholders) directly owning at least 80% of the voting power and total value of stock in at least one other corporation, and
• all other includible members are at least 80% owned by the parent and/or other group members.

If one corporation has control (80%+), consolidated returns may be prepared. In this scenario, there is no affiliated group because there is no corporation that owns at least 80% of another corporation. Accordingly, none of the corporations can file a consolidated return.

Mauve, Teal, and Fuchsia corporations are a brother-sister controlled group A group of two or more corporations in which five or fewer common owners (individuals, trusts, or estates) own directly or indirectly a controlling interest of each group and have "effective control" as defined by the IRC. (up to five noncorporate persons own 50% of two or more corporations) but lack a common parent corporation and therefore are not an affiliated group.

Things to remember:
Only an affiliated group of domestic C corporations may elect to file a consolidated tax return. In an affiliated group, (1) a common parent corporation directly owns at least 80% of at least one other corporation, and (2) all other members are at least 80% owned by the parent and/or other group members.