A consolidated tax return is a return filed for all the different segments of a business, it also includes the return filed by a holding company along with its subsidiaries. A consolidated return shows the consolidates income as well as the expenses. The advantages of filing a consolidated return is that the profits of one company as written off with the loses of the other, there is a tax advantage on inter company distributions, the un used credit of one company can be transferred to the other company and the capital gains and losses can be adequately adjusted. Disadvantages of the same are that the revenue and loss recognition is deferred, the credit for tax liability is allowed only once because all the income is consolidated at one place. No multiple credits can be taken.
The Crown Media and Hallmark Cards have benefitted with a consolidated tax return, the company became a member of Hallmark Cards in 2003 and has benefitted from tax losses. Based on the agreement, the taxable income which is recognized by Crown Media and is included in the corporate return of Hallmark Cards, which be the amount payable by Crown Media to Hallmark Cards. Wolter Construction Company and River Hills filed a consolidated return which led to a loss. The companies were engaged in the business of construction and after filing a consolidated return, the amount of loss carried forward by River Hills was disallowed. The net operative losses of a company before it affiliates with another company is not allowed to be carried forward. It can only be set off against the profits of that particular period. The group was then required to file separate returns and carry forward the loss and simultaneously file a corporate consolidated return for liquidation of the loss.
Bibliography
Spaulding, W. .. (n.d.). Consolidated Corporate Tax Returns. Retrieved from This Matter: http://thismatter.com/money/tax/consolidated-corporate-tax-returns.htm
