Exam 8: Consolidated Tax Returns

How do the members of a Federal consolidated group split among themselves the benefits of the lower tax brackets on the first $75,000 of taxable income?

Which of the following potentially is a disadvantage of electing to file a Federal corporate income tax consolidated return?

An example of an intercompany transaction is the use of the trademarks of the parent corporation by a subsidiary for an arm's length licensing fee.

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary -Dividend paid to parent out of affiliate's E & P

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary -Member's operating loss, when stock basis = $0

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not -Joining the consolidated group is mandatory if ownership requirements are met by the entities.

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary -Member's operating loss

Cooper Corporation joined the Duck consolidated Federal income tax return group, when Cooper held a $1 million NOL carryforward. In its first year as a part of the Duck group, Cooper generated a $150,000 taxable loss. For that year, Duck cannot deduct any of Cooper's NOL in computing consolidated taxable income.

Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?

Which of the following statements is true with regard to intercompany transactions?

Cooper Corporation joined the Duck consolidated Federal income tax return group, when Cooper held a $1 million NOL carryforward. In its first year as a part of the Duck group, Cooper generated a $150,000 operating profit. For that year, Duck can deduct only $150,000 of Cooper's NOL in computing consolidated taxable income.

When negative adjustments are made to the stock basis of the subsidiary that exceed the basis as of the beginning of the tax year, a(n) ____________________ account is created, rather than giving the parent a negative tax basis in the stock.

For consolidated tax return purposes, purchased goodwill is amortized as a deduction to taxable income over 15 years. Under financial accounting rules, 40-year amortization is allowed.

ParentCo purchased all of the stock of ChildCo on January 2, 2015, and the two companies filed consolidated returns for 2015 and thereafter. Both entities were incorporated in 2014. Taxable income computations for the members include the following. Neither group member incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. No § 382 limit applies. To what extent can ChildCo's 2014 losses be used by the group in 2017?

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return -Choice of tax year-ends by affiliates

Business reasons, and not tax incentives, constitute the primary motivation for most corporations to form a conglomerate and file tax and financial accounting reports on a consolidated basis.

A calendar year parent corporation wants to file its tax returns on a consolidated basis with its affiliates. The group's election to file consolidated Federal corporate income tax returns must be made by the extended due date of the first return on which the consolidation is applied .

A penalty can be assessed by the IRS if the parent corporation does not keep good records to support the computation of a subsidiary's stock basis.

In computing consolidated taxable income, the purchase at a realized gain of a depreciable asset by Subsidiary from Parent is an example of a(n) ____________________ transaction.

Calendar year ParentCo acquired all of the stock of SubCo on January 1, 2013, for $1,000,000. The parties immediately elected to file consolidated income tax returns. SubCo generated taxable income of $250,000 for 2013 and paid a dividend of $100,000 to ParentCo. In 2014, SubCo generated an operating loss of $350,000, and in 2015 it produced taxable income of $750,000. As of the last day of 2015, what was ParentCo's basis in the stock of SubCo?