Exam 8: Consolidated Tax Returns

The calendar year Sterling Group files its Federal corporate income tax return on a consolidated basis. The group's Form 1120 is due on April 15, or September 15 if an extended due date is approved by the IRS.

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. -Net operating loss

Forming a Federal consolidated tax return group is a discretionary action by eligible affiliates. List several tax attributes and situations that might make a subsidiary an attractive partner for a parent corporation on a consolidated return.

When a corporate group elects to file Federal income tax returns on a consolidated basis, it is subject to several tax return filing requirements for its first and subsequent tax years. List the most important of those requirements.

When a consolidated NOL is generated, each affiliate is allocated a share of the loss.

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. -Ownership level of parent at which a subsidiary can join the consolidated group.

The ____________________ rules can limit the net operating loss deduction claimed on a Federal consolidated return.

How must the IRS collect the liability for Federal taxes from among a consolidated group?

If, on joining an affiliated group, SubCo has a different tax year than that of ParentCo, SubCo must switch its year-end to ParentCo's by the end of the ____________________ (first, second, etc.) tax year after the election to consolidate.

When a subsidiary sells to the parent some business-use property that has appreciated from its $20,000 basis to a $50,000 fair market value, the subsidiary immediately recognizes $30,000 ordinary income on the consolidated return.

In terms of the consolidated return rules, the Radcliffe Charitable Foundation is a(n) ____________________ entity.

Keep Corporation joined an affiliated group by merger in 2010. The group generated a 2016 consolidated NOL, and Keep's share of the loss was $50,000. Keep's share of the loss is included in the group's NOL carryforward to 2017.

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Loss deferral on intercompany transactions

Consider AB, a brother-sister group of U.S. corporations, and CD, a parent-subsidiary group of U.S. corporations. Which of these could comprise a controlled group? An affiliated group?

The "SRLY" and § 382 limitation rules for Federal consolidated tax returns are designed to keep corporations from "trafficking" their net operating losses. These rules are restrictive and somewhat complex. Explain why these rules exist, and how they interact if both apply in the same tax year.

The calendar year parent and affiliates must elect to file on a consolidated basis by ____________________ 15 after the first consolidated tax year.

After a takeover, the parent's balance sheet shows a fair market value cost basis in the subsidiary, for both book and tax purposes.

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.

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.

Dividends paid out of a subsidiary's E & P to the parent cause a ____________________ (positive/negative) adjustment to the parent's stock basis of the subsidiary.