Exam 8: Consolidated Tax Returns

Members of a parent-subsidiary controlled group must share one $40,000 ____________________ for the tax year.

Outline the major advantages and disadvantages of filing Federal corporate income tax returns on a consolidated basis. Limit your comments to the income tax effects of the election.

Consolidated group members each must use the same tax year end, and all of the members must use the same tax accounting methods (e.g., LIFO or FIFO).

How are the members of a Federal consolidated group affected by computations related to E & P?

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. Assuming that no election is made to forgo the carryback, to what extent are ChildCo's 2014 losses used by the group in 2015-2017?

When the net accumulated taxable losses of a subsidiary exceed the parent's acquisition price, the parent's basis in the subsidiary's stock becomes negative.

Describe the general computational method used by a Federal consolidated group in computing taxable income.

The starting point in computing consolidated taxable income is the sum of the separate Federal taxable income amounts of the affiliated group members.

Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return -Interest income from Detroit School District bonds

The Nannerl consolidated group reported the following taxable income amounts. Parent owns all of the stock of both Junior and Minor. Determine the net operating loss (NOL) that is apportioned to Junior.

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 -Parent owns 100% of a Brazil corporation and wants the entity to join the consolidated group.

Campbell Corporation left the Crane consolidated tax return group after the calendar 2014 tax year. Generally, Crane can add Campbell back to the consolidated group, but no earlier than for the 2020 tax year.

ParentCo and SubCo had the following items of income and deduction for the current year. Compute ParentCo and SubCo's consolidated taxable income or loss.

In computing consolidated E & P, a negative adjustment is allowed for the group's disallowed travel and entertainment expenditures.

If subsidiary stock is redeemed or sold outside the group when an excess loss account exists, the selling parent corporation recognizes ordinary income equal to the account balance.

Each of the members of a Federal consolidated tax return group can claim its own $40,000 AMT exemption, subject to phase-out.

With the filing of its first consolidated return, the parent corporation of a Federal consolidated group makes an irrevocable election as to how the group will allocate a tax year's income tax liability among the group members.

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 -Increase in affiliate's E & P