Rule: An affiliated group of corporations may elect to be taxed as a single unit, thereby eliminating intercompany gains and losses. To be entitled to file a consolidated return, all the corporations in the group (1) must have been members of an affiliated group at some time during the tax year and (2) must have filed a consent (the act of filing a consolidated return qualifies as consent). An affiliated group means that a common parent owns (1) 80% or more of the voting power of all outstanding stock and (2) 80% or more of the value of all outstanding stock of each corporation.

Rule: Not all corporations are allowed the privilege of filing a consolidated return. Examples of those denied the privilege include S corporations, foreign corporations, most real estate investment trusts (REITs), some insurance companies, brother-sister corporations where an individual (not a corporation) owns 80% or more of the stock of two or more corporations, and most exempt organizations.

Choice "b" is correct. An affiliated group of corporations may file a consolidated return (electing to be taxed as a single unit and eliminating intercompany gains and losses). This answer option comes right out and defines the entities as an "affiliated group," thereby removing the need to determine if the group is actually affiliated!

Choice "d" is incorrect. Per the above rule, not all corporations are allowed the privilege of filing a consolidated return. Examples of those denied the privilege include S corporations, foreign corporations, most real estate investment trusts (REITs), some insurance companies, brother-sister corporations where an individual (not a corporation) owns 80% or more of the stock of two or more corporations, and most exempt organizations.

Choice "c" is incorrect. Per the above rule, an affiliated group means that a common parent owns (1) 80% or more of the voting power of all outstanding stock and (2) 80% or more of the value of all outstanding stock of each corporation. In this answer option, the parent owns partnerships, not corporations [and, even if it did own corporations, the percentage ownership is too small at "more than 10%"].

Choice "a" is incorrect. Per the above rule, an affiliated group means that a common parent owns (1) 80% or more of the voting power of all outstanding stock and (2) 80% or more of the value of all outstanding stock of each corporation. In this answer option, the parent owns only "more than 50%" of the controlled corporations.