We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Taxation

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Consolidated Tax Return?

Malcolm Tatum
By
Updated: May 16, 2024
Views: 19,414
References
Share

Consolidated tax returns are a means of allowing corporations that are all part of an affiliated group to file one return for the annual period, rather than each entity filing separately. The ability to file together depends on the exact nature of the connection between the parent organization and any subsidiaries that make up the group. Along with simplifying the tax reporting process, consolidation sometimes makes it possible for conglomerates and other affiliated groups to take advantage of certain tax breaks that would not be possible with individual filings.

The history of the consolidated tax return in the United States goes back to the early 20th century. During this period, the government sought ways to limit corporations from avoiding the payment of taxes by shifting what were thought to be excess profits from one highly profitable subsidiary to another member of the corporate family that was operating at a small profit or even a loss. By 1917, the Commissioner of the Internal Revenue Service has developed the consolidated format as a means of preventing this shifting of profits.

The end result is that corporation families that included multiple corporations could file as one entity and be assessed taxes on the overall profit generated by the parent and all the subsidiaries. This arrangement was understood to be equitable for the purposes of determining the overall tax liability without creating an unrealistic burden for any business entity. By 1918, Congress made this type of return mandatory in order to ensure compliance with laws concerning income tax as well as excess profit taxes.

After the end of World War I, excess profit taxes were repealed, and the main purpose of the consolidated tax return ceased to exist. Congress repealed laws mandating its use, but the Great Depression led to a resurgence in interest in this form of tax filing, since the practice of routing profits through unprofitable subsidiaries again became somewhat common. In 1942, Congress again made it possible for businesses to file consolidated returns, which helped to minimize the funneling activity.

The function of the consolidated tax return has been more or less constant since the 1940s. For a time, there was a 2% penalty imposed on consolidated taxable income, but that penalty was repealed in 1964. Currently, corporate structures that include a parent company and subsidiaries are free to make use of this form or file as individual entities.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By anon35017 — On Jul 01, 2009

When you consolidate, is a short period tax return required for the period up to the date of consolidation?

By Barbaraj — On Sep 26, 2008

If you file a consolidated tax return do the companies become responsible for the other company's liabilities?

By Barbaraj — On Sep 26, 2008

Do you always have to file a consolidated tax return if you file consolidated this year?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.smartcapitalmind.com/what-is-a-consolidated-tax-return.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.