Legal Definitions - affiliated group

An affiliated group refers to a collection of corporations that are connected through a specific level of common ownership. For a group of corporations to be considered affiliated, one or more corporations within the group must own at least 80% of the voting power and at least 80% of the total value of the stock of each other corporation in the group. This significant ownership link allows these corporations to choose to file a single, combined federal income tax return, known as a consolidated tax return, rather than each filing separately. This can offer administrative and financial advantages, such as offsetting losses from one company against profits from another within the group.

• Example 1: Parent Company and its Operating Subsidiaries

  Imagine "Global Innovations Inc." is a large holding company that owns 100% of "Tech Solutions LLC," which develops software, and 90% of "Marketing Dynamics Corp.," an advertising agency. Both Tech Solutions LLC and Marketing Dynamics Corp. are direct subsidiaries of Global Innovations Inc.

  This scenario illustrates an affiliated group because Global Innovations Inc. meets the "at least 80% ownership" threshold for both Tech Solutions LLC and Marketing Dynamics Corp. As a result, Global Innovations Inc., Tech Solutions LLC, and Marketing Dynamics Corp. can choose to file a single, consolidated federal income tax return, combining their financial results for tax purposes.

• Example 2: A Chain of Ownership

  Consider "Manufacturing Giant Corp.," which owns 95% of "Logistics Express Inc." In turn, Logistics Express Inc. owns 85% of "Warehousing Solutions LLC."

  Here, Manufacturing Giant Corp., Logistics Express Inc., and Warehousing Solutions LLC form an affiliated group. Manufacturing Giant Corp. directly owns Logistics Express Inc. (exceeding 80%), and Logistics Express Inc., which is part of the group, owns Warehousing Solutions LLC (also exceeding 80%). This chain of ownership, where each link meets the 80% threshold, qualifies them as an affiliated group, allowing them to file a consolidated tax return.

• Example 3: Diversified Business Group

  Let's say "Apex Conglomerate" owns 82% of "Foodie Brands Inc.," which operates a chain of restaurants, and 88% of "Property Management Services LLC," which manages commercial real estate. These are two distinct businesses under the same ultimate parent.

  Apex Conglomerate, Foodie Brands Inc., and Property Management Services LLC constitute an affiliated group. Despite operating in different industries, Apex Conglomerate's ownership stake in both subsidiaries exceeds the 80% requirement. This common ownership allows them to elect to file a consolidated tax return, treating them as a single entity for federal income tax reporting, potentially simplifying their tax obligations and allowing for intercompany loss offsets.