Common questions about consolidated corp returns and affiliation schedules in Form 851 in Lacerte

The Lacerte tax program does not support consolidated returns in the S-Corporation module.

A parent S-Corporation uses Form 8869 Qualified Subchapter S Subsidiary Election, to elect to treat one or more of its eligible subsidiaries as a qualified subchapter S subsidiary (QSub).

The QSub election results in a deemed liquidation of the subsidiary into the parent. Following the deemed liquidation, the QSub is not treated as a separate corporation and all of the subsidiary's assets, income, liabilities, and items of income, deduction, and credit are treated as those of the parent.

Because the liquidation is deemed liquidation, do not file Form 966, Corporate Dissolution or Liquidation. However, a final return for the subsidiary may have to be filed if it was a separate corporation prior to the date of the deemed liquidation. No final return is required if this election is being made pursuant to a reorganization under section 368(a)(1)(F) and Rev. Rul. 2008-18. See Rev. Rul. 2008-18, 2008-13 I.R.B. 674, for more details.

The "Consolidator" checkbox is unavailable whenever a state that Lacerte doesn't consolidate has been added to the return. Lacerte supports consolidated returns for:

• Arizona
• California
• Colorado
• Connecticut
• Florida
• Georgia
• Idaho
• Illinois
• Kentucky
• Massachusetts
• Michigan
• New Jersey
• New Mexico
• New York
• Oregon
• Virginia
• Wisconsin

Lacerte does not do consolidated returns for any other state. (For some states, consolidated returns simply aren't allowed.)

Note: Once a return has been marked "consolidated", clicking "add state" on a consolidated return displays only the states listed above.

On a Consolidator Corporate file, the Net Operating Loss (NOL) statement for Form 1120, line 29a shows an amount in Column E, Non-SRLY Loss Previously Used.  I checked the input for that year in the Consolidator file Screen 23, Net Operating Loss, and there is nothing entered for Consolidated NOL Carryovers, if Different.  I also checked the parent and subsidiaries' Regular NOL Carryovers section of the same screen, and nothing matches the amount I'm seeing on the statement.  Where is this coming from?

The amount in Column E, Non-SURLY Loss Previously Used can also come from any of the Parent or Subsidiary files, Screen 23, Net Operating Loss, from the section Consolidated NOL Carryovers, if different.

Note: Consolidated carryover amounts do not get entered in the Parent or the Subsidiary files, but only in the Consolidator file.  If a Consolidated NOL carryover is entered in a Parent or Subsidiary file, the Consolidated Net Operating Loss statement for the 1120, line 29a will show an erroneous amount in column E, thus affecting the computation of NOL available in the current year.

To correct the issue on the Consolidator NOL statement, remove all entries from the Consolidated NOL Carryovers, if different section of Screen 23, Net Operating Loss in the Parent and Sub(s) client files.

The Schedule M-3 must be generated on all companies in the Consolidated group. Even if the separate company is not required to file the M-3 based on its total assets, it must be generated since the combined total assets for all the companies is 10 Million or more.

To force the M-3 on each company, use Screen 39.2, Schedule M-3 and enter a 1 in Schedule M-3: 1=Force, 2=Suppress (code 1).

Generally the Consolidated Schedule M-3 amounts flow from the parent and sub returns. Any overrides or eliminations needed should be made in the Consolidator in  Screen 39.2, Schedule M-3.

Additional things to note:

• The entry for Worldwide consolidated net income or loss from the income statement source identified above must be entered on all returns, including the Consolidator.
• The Schedule M-3 must balance on the separate company level before it will balance on the consolidated return.

To calculate an Elimination  of Retained Earnings in a consolidated return :

1. Go to Screen 3, Consolidated Information.
2. Select Consolidated Eliminations from the top left navigation panel. (This will take you to Screen 3.2, Consolidated Eliminations.)
3. Locate the Elimination Code (Ctrl+T) column from the Grid at the top of the screen.
4. Select the drop down arrow and click on the + next to Schedule M-2.
5. Select the item you want to eliminate from the M-2 subcategory.
6. Enter a Description of the item you want to eliminate. ( Descriptions are required for items from the eliminations table marked with an asterisk (*)).
7. Enter a 1 or 2 in, Balance sheet designation: 1= beginning, 2= ending.
8. Enter the Federal Amount.

1. Go to Screen 3, Consolidated Information.
2. Click on Consolidated Eliminations from the top left navigation panel.
3. Locate the Elimination Code (Ctrl+T) column from the Grid at the top of the screen.
4. Click on the drop down arrow and click on the + next to the Category your elimination relates to.
5. Select the applicable elimination code. 
6. Note- If the eliminations code has an asterisk (*), you must also enter a Description. Enter the Description in the Consolidated Tax Return and match it exactly to the description you entered on the separate Parent or Sub Return.
7.  Enter the Federal Amount.
8. Enter the State Amount, if different (-1=none).

Important:

• If you do not select the correct Elimination or enter the correct Description (for eliminations identified with a *) you may see a line on the Consolidated Statement that shows a zero amount with an elimination and then a negative total.
•  Ending Unappropriated Retained Earnings are calculated on the Consolidator the same way they are calculated for each Affiliated Corporation. Because of this, you cannot make an elimination directly to the ending Unappropriated Retained Earnings account. If an elimination needs to be made to this account, you should make the elimination on another line on the Schedule M-2. 
• Eliminations for the Schedule M-3 should be entered on Screen 39.2, Schedule M-3 on the Consolidator client file.
•  Like other Balance Sheet entries, eliminations that are entered for the Ending Balance will proforma to the next year's Return.

On the Consolidated Worksheet, there is a depreciation adjustment. Where is this difference coming from?

When overrides are used in the subsidiary returns, those overrides must be entered in the consolidator as well.  Otherwise, the Lacerte program will enter an adjustment in the Consolidated worksheet.  Without duplicating the override, the program does not know what to do with the difference and will make an adjustment.

1. Go to Screen 20, Deductions
2. Search for Depreciation [O]
3. Go to screen 14, Cost of Goods Sold
4. Search for Depreciation [O]
5. Go to screen 21, Depreciation
6. Search for Current depreciation/amortization (-1=none) [O]
7. Entries in Screen 22, Direct Input (4562) can also cause a depreciation adjustment. It is better to make all entries tries in Screen 21, Depreciation.

Entries in these overrides require an override in the consolidator, Screen 20 Depreciation [O].

One of three things could be happening:

• Charitable contributions should be entered at the Parent/Subsidiary level, not at the Consolidator level. Remove any charitable contribution entries in the Consolidator client file.
• If Contribution Carryovers are present in the Parent or the Subsidiaries, remove any figures entered in Contribution Carryovers (Screen 24 of the Consolidator client file). Such entries will cause an adjustment at the Consolidator level. If no Contribution Carryovers from the Parent or Subs apply at the Consolidator level, Lacerte will automatically compute the limitation, so long as there is nothing in the Consolidator client file’s screen 24 to interfere with the calculation.
• If Contribution Carryovers are present in the Parent or Subsidiaries, verify that -1 has not been entered in Contribution Carryovers (Screen 24) for any field in the section Consolidated Contribution Carryovers. A -1 tells the program “none,” and since Lacerte automatically applies any regular Contribution Carryovers to the Consolidator unless told otherwise, a -1 at the Parent or Sub level will interfere with the automatic calculation and cause an adjustment at the Consolidator level.

Perform the following steps to generate the election to waive the net operating loss carryback period for a consolidated return.

1. On Screen 41, Elections, select Misc. Elections in the Election box on the left side of the screen.
2. Check the box next to Waive net operating loss carryback period [172(b)(3)].
3. Select Election 1 in the Elections box on the left side of the screen.
4. Select Other Election in the Section box on the left side of the screen.
5. Enter the Election Title Election to waive net operating loss carryback period [172(b)(3)].Enter the Election Text.

Form 1120 Page 4 Line 11 will show the box checked to forego the carryback period. In addition, an election statement will generate as indicated on Form 1120 Page 4 Line 11 which states: If the corporation is filing a consolidated return, the statement required by Regulations section 1.1502-21(b)(3) must be attached or the election will not be valid. 

You may run across unknown adjustments on the consolidated statements of a consolidated return. Down below we'll go over what could be potentially generating them.

Overrides

In general when an override is used on a Parent or Subsidiary file, that same override must be input in the Consolidator to remove the adjustment from Consolidated Schedules.

If an override is different from the sum of the Subsidiaries for a given field, the difference will show up as an adjustment.

Net operating losses/contributions

Adjustments in these areas are usually caused by amounts being computed differently (due to income limitations) for the Consolidated Return than for the sum of each of the separate companies. If the separate company inputs have been done correctly, these generally are correct adjustments.

Depreciation

Depreciation adjustments can be generated due to:

• A different convention ( HY vs MQ) being applied for the Consolidated Return than for the separate company returns individually.
• Using the override for depreciation in Screen 20, Deductions.
• Section 179 entered in more than one company could cause an adjustment if over the limit.

To eliminate the Depreciation Adjustment for Conventions, the Depreciation Convention calculated on the Consolidated Return may need to be entered in Convention Override for all Parent/Subsidiary Companies that are not being computed using the Consolidated Return's Convention.

To remove the Depreciation Adjustment caused by the use of an override, calculate the total depreciation of all involved companies and enter the total in the Consolidator on Screen 20, Deductions in the in the Depreciation [O] field.

M-3 Worldwide income

Make an entry in Screen 39.2, M-3 under Worldwide consolidated net income or loss from the income statement source identified above.

Fiscal/Calendar Year

The Subsidiary and Parent Returns should be using the same reporting Fiscal or Calendar Year. The ending month will appear in Screen 1, Client Information and any Fiscal Year Calendar Dates will appear in Screen 4.1, Miscellaneous/Other Information.