Preparing Alabama returns when the state and federal groups are different and there are members with at-risk or passive activities

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Use this procedure to ensure the correct preparation of Alabama consolidated income tax returns if the members of the Alabama unitary business group are different from those included in the federal consolidated group and the federal group contains members with at-risk or passive activities.

  1. Clone the parent and subsidiary clients. Open each member one at a time, choose File > Save As, enter a new client ID for the client, and click the Save button. The new client will have the same EIN and name as the original client. Creating new clients is necessary so that the federal at-risk and passive calculations for the original consolidated and member clients are not changed when the group members are changed.
  2. Add Alabama to the parent client and the applicable subsidiary clients. Complete all data entry for these member clients. Each member's state return should be complete and correct before proceeding to the next step.

    Notes

    • Alabama Statute 40-18-39 requires that income from intercompany transactions are conducted at an arms length, not eliminated. Include all necessary adjustments in each member's return.
    • Apportionment data entry must be completed for each member client, even if the client is 100 percent in-state. The parent client and the applicable subsidiary clients must use the same apportionment method. Apportionment data entry is accessed through View > Apportionment.
  3. Create a new consolidated client using the Consolidated entity type in the File > Client Properties dialog.
  4. Select the appropriate members to be included in the Alabama consolidated group. Choose File > Client Properties and click the Advanced Properties button. In the Group tab, remove or add subsidiary clients as necessary. Click OK to close the Advanced Properties dialog. Click OK again to close the New Client or Client Properties dialog.
  5. Add Alabama to the new consolidated client.

    Note: When adding a state to a consolidated federal client, the state automatically defaults to being a consolidated return.

    If the state is added as a C Corporation to a federal consolidated group, the consolidated functionality does not take place. The amounts from each member are not consolidated and the consolidated reports are not available.

  6. Review all Alabama consolidated client input screens and complete any necessary remaining data entry. For each category not marked in the File > Client Properties > Advanced Properties > Options dialog, enter the necessary data in the applicable input screens.

    Note: If a category is not marked, enter the data in the applicable input screens in the consolidated client. For a list of categories and related input screens, see Categories and related Alabama input screens.

    Any changes made to the File > Client Properties > Advanced Properties > Options dialog affect both the federal and state return.

  7. Click the Consolidated folder in the Alabama folders block. Complete any additional adjustments in Screen ALAffil.
  8. To file Form 20C-CRE, Election To File Consolidated Income Tax Return, for a particular member of the consolidated group, mark the Filing Form 20C-CRE field in Screen ALAffil for that member.
  9. To make manual adjustments in other areas of the return, click the Group View button or press F7 in the input screen field you want to adjust, and then enter the adjustment amount in the Group View dialog.
  10. To change amounts entered in the Alabama parent or subsidiary clients, go back to the original source of data entry. For instance, if you made a mistake when you entered the apportionment of the first subsidiary, close the consolidated client and reopen the first subsidiary. Choose View > Apportionment for that client and correct the data. Close the subsidiary client and reopen the consolidated client. The correct amount is now a part of the consolidated group return.
  11. Print and review the Alabama consolidated tax return.

Example of when the federal group contains members with at-risk or passive activities.

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