Exam 8: Consolidated Tax Returns

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.

ParentCo and SubCo had the following items of income and deduction for the current year. Item ParentCo's Taxable Income Sub Co's Taxable Income Income (loss) from Operations \ 100,000 (\ 10,000) \ 1231 Loss (5,000) Capital Gain 15,000 Charitable Contribution 12,000 Compute ParentCo and SubCo's taxable income or loss computed on a separate basis. ParentCo SubCo

Which of the following tax effects becomes more restrictive if an election is made to file a group's Federal corporate income tax returns on a consolidated basis?

In computing consolidated E & P, dividends paid to the parent by group members are subtracted.

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Joint and several liability for Federal income tax

In computing consolidated taxable income, capital gains and losses are removed from the taxable incomes of the group members and determined on a group basis.

ParentCo purchased all of the stock of ChildCo on January 2, Year 2, and the two companies filed consolidated returns for that year and thereafter. Both entities were incorporated in Year 1. 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. ParentCo's ChildCo's Taxable Consolidated Year Taxable Income Income Taxable Income Year 1 \ 10,000 (\ 95,000) / Year 2 \ 10,000 \ 50,000 ? Year 3 (\ 25,000) \ 40,000 ? Year 4 \ 10,000 \ 10,000 ? Assuming that no election is made to forgo the carryback, to what extent are ChildCo's Year 1 losses used by the group in Year 2-Year 4?

Certain business entities are ineligible to join an affiliated group and file a consolidated Federal income tax return. List three or more entities that cannot be part of a Federal consolidated tax return group.

Within a Federal consolidated income tax group, SubOne ____________________ (can/cannot) use the LIFO inventory method at the same time that SubTwo uses the FIFO method.

The consolidated return rules are designed to allow a tax-neutral means by which to elect to file on a consolidated basis.

JuniorCo sells an asset to SeniorCo at a realized loss. That loss is not recognized by the group in the year of the sale, because of the:

ParentCo owned 100% of SubCo for the entire year, and both companies use the accrual method of tax accounting. During the year, SubCo purchased $20,000 of supplies from ParentCo. In addition, SubCo provided internal audit services to ParentCo, which were worth $40,000. Including these transactions, ParentCo's separate taxable income was $75,000, and SubCo's separate taxable income was $100,000. What is the group's consolidated taxable income for the year?

ParentCo and SubCo had the following items of income and deduction for the current year. Item ParentCo's Taxable Income SubCo's Taxable In come Income (loss) from Operations \ 100,000 \ 10,000 \S1231 Loss (10,000) Capital Gain 12,000 Charitable Contribution 20,000 1,000 Compute ParentCo and SubCo's taxable income or loss computed on a separate basis. ParentCo SubCo

Consolidated estimated tax payments must begin for the ____________________ (first, second, etc.) tax year after the group's election.

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 .

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).

If there is a balance in the excess loss account when a subsidiary's stock is sold, the balance is recognized as ____________________ gain/income.

Campbell Corporation left the Crane consolidated tax return group after the calendar 2016 tax year. Generally, Crane can add Campbell back to the consolidated group, but no earlier than for the 2022 tax year.

Gold and Bronze elect to form a Federal consolidated group. Gold, the parent entity, uses a calendar tax year, while Bronze's tax year ends on March 31. Which tax year(s) does the new consolidated group use?

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Tax compliance deadlines and recordkeeping