How a consolidated group works
Under federal rules, a parent corporation and its subsidiaries can file a single consolidated income tax return if ownership meets a high threshold of common control. Filing together allows losses of one member to offset income of another, and transactions between members are generally accounted for so that gain or loss is deferred until something happens outside the group. In exchange, the group is bound by detailed regulations, some of which limit how losses a company brought into the group can be used. Each member is generally liable for the whole group's federal income tax for the years it was a member, not just its own share. New York has its own combined reporting rules for corporate tax, and the state group does not always match the federal one.
When a member joins or leaves
Buying or selling a company that has been part of a consolidated group raises questions that do not exist in a standalone deal. The target's tax attributes, such as losses or credits, may be reduced or may stay behind with the seller's group, depending on the structure and any elections made. Intercompany items that were deferred can come back into income when a member leaves. Purchase agreements usually address who bears the group's pre-closing taxes, because the target can remain liable for years in which it was a member. Tax sharing agreements between members also need attention, since they often decide how payments and refunds are divided.
Group disputes and refunds
Disputes inside a group often surface during an audit, a sale, or the bankruptcy of one member. Who owns a tax refund paid to the parent, and whether a subsidiary was compensated for losses the group used, are common points of contention, and courts generally look to the tax sharing agreement and state law to answer them. We review the group's structural history, its tax sharing arrangements, and the relevant returns, and identify which members could be affected by an adjustment or a refund. Where a member is in financial distress, the timing of any refund claim deserves particular care. Then we talk through how to protect your position in the deal or dispute in front of you.
