X hits on this document

17 views

0 shares

0 downloads

0 comments

1 / 8

ACCT 5327

FALL 2009

Class Notes—Exam 2

9/24/2009 – Affiliated Corporations, Joint Ventures, and Consolidated Returns

I.

Multiple relationships are possible

A.

Controlled groups – Common shareholder group owns multiple entities

a.

Called “brother-sister” corporations

b.

Common control does not mean 100% duplicate ownership

c.

§1561 requires sharing of corporate tax brackets and other similar tax benefits among related corporations if:

i.

Same 5 or fewer persons own more than 50% of the voting stock of two or more corporations

ii.

Same 5 or fewer shareholders also own at least 80% of the total value of all classes of stock of each corporation

iii.

Constructive ownership rules apply:

1.

Options deemed equivalent to shares

2.

Stock owned by other entities attributed pro rata to 5% owners

3.

Stock owned by spouse attributed to other spouse (subject to certain exceptions)

4.

Attribution from children, grandchildren, parents and grandparents

d.

Brother-sister corporations not allowed to file consolidated return.

B.

Joint ventures – two otherwise unrelated corporations form a partnership to jointly participate in a specific business activity

a.

File a partnership return

b.

Each corporate partner reports its allocable share of the partnership’s income

c.

No other relationship deemed to exist between corporations

C.

Affiliated groups – chain(s) of corporations linked by 80% ownership

a.

Must share tax rate schedules and other benefits

b.

May file a consolidated return

c.

Foreign corporations and certain other corporations may not join the consolidated group – they must file separate returns.

II.

Benefits of Consolidation

A.

Offsetting income and losses (immediate utilization of NOLs)

B.

Capital losses of one member may be deducted against capital gains of another

C.

Limitations (e.g., on charitable contributions) are computed on aggregate basis, thus potentially allowing excess contributions by one member to be deducted against income of another

D.

Intercompany gains are deferred until property is disposed of outside the group

E.

Distributions between members are nontaxable

1

Document info
Document views17
Page views17
Page last viewedFri Oct 28 00:41:56 UTC 2016
Pages8
Paragraphs364
Words2412

Comments