 Hello, and welcome to the session in which we will discuss when do we have to prepare a consolidated tax return? Simply put, a consolidated tax return is a tax return where you have a parent company and you have several subsidiaries. And what happened is this? All this group, parent, sub one, sub two, could be many subsidiaries or affiliated groups, they file one tax return. Before we discuss this, we have to basically go back and discuss when do we consolidate financial statements? What does consolidated financial statement means? Same concept, you have a parent company and you have sub, sub, and another sub, and they all file the same financial statements, consolidated financial statement, they are all consolidated with the parent company. While GAAP requires that to happen when you have more than 50% control, so if the parent company have more than 50% of the sub, sub one, sub two, sub three, it could be direct or indirect, then you have to consolidate. Well, for tax purposes, it's a little bit more different. Some entities require only one single consolidated tax return and in other circumstances, what's gonna happen is the parent will file separately and the component will file a separate return as well. Why? Because when we file a tax return, we cannot follow GAAP. We have to follow the IRS revenue code versus GAAP. So in this session, we learned that under GAAP, you need 50% plus, then you can consolidate as far as financial statements. When you file your tax return, the rules are a little bit different. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's gonna help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Myles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today. No obligation, no credit card required. Let's talk about the IRS criteria rules. What are the requirements? Well, the parent company have to have at least 80% of the voting stock and at least 80% of each class of non-voting stock. So notice, you have to own more than 50. You have to own at least 80 for tax purposes for the voting as well as non-voting stocks. And the ownership here could be direct or indirect. Although the parent must meet this requirement in connection with at least one directly owned subsidiary. So that has to exist. Also, each company has to be in the group, has to be a domestic rather than a foreign. So when you're consolidating another corporation, the corporation has to be a domestic US corporation to be more specific. So to summarize is, if you own between 80 to 100% and the corporation is domestic, well, you have two options here. You can consolidate or the subsidiaries can file their own tax return. That's fine. If you own less than 80% of a domestic corporation, guess what? Then you cannot consolidate. Remember for tax purposes, it's 80%. Then each of these subs will have to file a separate return. If you are dealing with a foreign subsidiary, regardless of the percentage, even if you own 100%, they cannot file a tax return with their parent company in the US. Once they are foreign, that's it. They must file a separate return. If you own less than 80%, they must file a separate return. If you own between 80 to 100%, then you have the option either consolidate the affiliates with the parent or the subsidiaries with the parents or you may want them to file a separate return. Now, why file a consolidated versus a separate return? We'll look at different scenarios later, but simply put, if you have an inter-company profit organs, they are deferred. What does deferred means? It means they are not taxed until the asset assault outside of the consolidated parties. And we'll look at this a little bit more in details later. If you have inter-entity losses, which is not usual to have inter-entity losses, those are also not deductible until the transaction is finalized. It means with a third party, the asset leaves the consolidated entity. Now, the good thing is losses incurred by one affiliate may be used to reduce the taxable income from another affiliate. So if you have one affiliate with gains, they may put profit, they could be used to offset the gains and losses could offset the gains gains could offset the losses amongst themselves. So that's the good part. So this is an overview of the consolidated tax return. What should you do now? Go to Farhat Lectures and look at MCQs, additional exercises, additional resources that's gonna help you understand this topic. This topic is briefly covered on the CPA exam, but mostly it's an advanced accounting course. In the next session, we would look a little bit more in depth about consolidated tax return. Good luck, study hard, stay safe.