Exam 8: Consolidated Tax Returns

To be an affiliated group, the parent corporation must directly own at least 80% of another group member.

Identify which of the following statements is true.

Which of the following intercompany transactions creates temporary book/tax differences when a parent corporation owns 100% of a subsidiary's stock and the companies file a consolidated return?

Mako and Snufco Corporations are affiliated and have filed consolidated returns for the first time in 2019. Mako acquired 100% of Zebco stock on January 1 of 2019, the date of Zebco's formation. Mako, Snufco, and Zebco, report the following taxable incomes for 2018 and 2019. How much of the 2018 Zebco NOL be used to offset CTI in 2019?

How do intercompany transactions affect the calculation of capital gains/losses?

Penish and Sagen Corporations have filed consolidated tax returns for several calendar years. At the close of business on September 30, 2018, Penish Corporation sells all of its Sagen stock to June. What are the tax consequences to each corporation?

Last year, Trix Corporation acquired 100% of Track Corporation. The acquisition occurred on July 1, which was five months after Track's creation. The corporations filed separate returns that year and have filed consolidated returns since then. The group results for the years, excluding the NOL deduction, are shown below. Which of the following statements is incorrect?

Gee Corporation purchased land from an unrelated corporation several years ago for $105,000. The land was used by Gee as a storage lot for company trucks. Gee sold the land to Wilkers, its 85%-owned subsidiary corporation, last year (July 3) for $115,000. The land was also used in Wilkers' trade or business. Wilkers Corporation sold the land for cash this year (August 22) for $130,000 to a corporation that was not a member of the affiliated group. What gains and losses are recognized, deferred, or restored by Gee and Wilkers Corporations?

An advantage of filing a consolidated return is that losses of one affiliated group member may be offset against the taxable income of other group members in the same tax year.

Parent Corporation sells land (a capital asset) to Subsidiary Corporation in an intercompany transaction, realizing a $25,000 gain. Subsidiary uses the land for five years in its trade or business before selling the land to a nonmember of the group in a cash sale in which a $50,000 gain is realized. Which statement is correct?

An affiliated group elects the use of the consolidated method for filing its tax return by

Subsidiary Corporation purchases a used machine from Parent Corporation in an intercompany transaction. Which of the following events is a corresponding event for the intercompany transaction?

Which of the following events is an intercompany transaction?

Blitzer Corporation is the parent corporation of a 10-member group that has filed consolidated tax returns for a number of years. Last year, the group sold all the stock of Wolf Corporation to Jerry Jensen. This year, Wolf Corporation reported a $300,000 NOL. Wolf's taxable income while a group member averaged $200,000 annually for the past five years but is expected to be only $50,000 next year due to start-up costs that will be incurred with the introduction of a new product line. Profits are expected to increase in each succeeding year. What issues should Blitzer have considered when trying to value Wolf's NOL prior to its sale? What tax issues should Wolf now consider when deciding how to use its NOL?

Blair and Cannon Corporations are the two members of an affiliated group. No prior net Sec. 1231 losses have been reported by any group member. The two corporations report consolidated ordinary income of $100,000 and gains and losses from property transactions as follows: Included in the above totals is $6,000 of long-term capital losses recognized by Cannon on an intercompany transaction. Excluded from the above is a $4,000 Sec. 1231 gain originally deferred by Cannon that must be reported by the group in the current year. Which one of the following statements is incorrect?

Parent Corporation purchases a machine (a five-year property) for $20,000. It claims $4,000 of depreciation under the MACRS rules in the first year it owns the property. At the close of business on the last day of the first year, Parent sells the machine to a 100%-owned corporation (Subsidiary) for $18,000. Subsidiary immediately commences depreciating the machine as a five-year property using the regular MACRS rules. What depreciation can be claimed by Subsidiary Corporation in the first year it uses the machine?

Identify which of the following statements is true.

The Alto-Baxter affiliated group filed a consolidated return for the first time last year. The group does not come under the "large" corporation rules. For last year, the group reports a tax liability of $60,000. Cooper Corporation has a $30,000 tax liability last year. This year, the Alto-Baxter affiliated group purchased all of the Cooper stock. This year, the Alto-Baxter-Cooper group reports a $110,000 consolidated tax liability. To avoid penalties for the current year, the group must make timely estimated tax payments of how much during the year?

What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?

A separate return year is a corporation's tax year for which it files a separate tax return or files a consolidated tax return with another affiliated group.