Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

ParentCo owned 100% of SubCo for the entire year. ParentCo uses the accrual method of tax accounting, whereas SubCo uses the cash method. During the year, SubCo sold raw materials to ParentCo for $35,000 under a contract that requires no payment to SubCo until the following year. Exclusive of this transaction, ParentCo had income for the year of $30,000, and SubCo had income of $50,000. The group's consolidated taxable income for the year was:

Accepted Answer

A) $165,000. 
B) $150,000. 
C) $115,000. 
D) $80,000. 
A) $165,000. 
B) $150,000. 
C) $115,000. 
D) $80,000.

Question 3

How many consolidated tax returns are filed annually? What types of taxpayer do they represent?

Accepted Answer

Of the roughly 1.6 million corporations

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

ParentCo and SubCo recorded the following items of income and deduction for the current tax year. $$\begin{array} { l c c } 
\text { Item } & \begin{array} { c } 
\text { ParentCo's } \
\text { Taxable Income }
\end{array} & \begin{array} { c } 
\text { SubCo's Taxable } \
\text { Income }
\end{array} \
\text { Income (Loss) from Operations } & \$ 100,000 & \$ 20,000 \
\S 1231 \text { Loss } & ( 8,000 ) & \
\text { Capital Gain (Loss) } & ( 10,000 ) & 14,000 \
\text { Charitable Contribution } & 20,000 & 1,000
\end{array}$$ Compute ParentCo and SubCo's consolidated taxable income or loss.

Accepted Answer

A) $95,000 
B) $99,000 
C) $104,400 
D) $116,000 
E) $120,000 
A) $95,000 
B) $99,000 
C) $104,400 
D) $116,000 
E) $120,000

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

Accepted Answer

A) A U.S. C corporation that files on a separate basis for its state income tax returns. 
B) The charitable foundation of a U.S. C corporation. 
C) The liquidating trust of a U.S. C corporation. 
D) A wholly owned French subsidiary of a U.S. C corporation. 
A) A U.S. C corporation that files on a separate basis for its state income tax returns. 
B) The charitable foundation of a U.S. C corporation. 
C) The liquidating trust of a U.S. C corporation. 
D) A wholly owned French subsidiary of a U.S. C corporation.

Question 8

A corporation organized in Germany and wholly owned by the U.S. parent can be included in a Federal consolidated return.

Accepted Answer

A) True 
 B)False

Question 9

The group of Parent Corporation, SubOne, and SubTwo has filed a consolidated return since Year 2. The first two entities were incorporated in Year 1, and SubTwo came into existence in Year 2 through an asset spin-off from Parent. Taxable income computations for the members are shown below. None of the group members incurred any capital gain or loss transactions during any of the following any of the following years, nor did they make any charitable contributions.
Describe the treatment of the group's Year 3 consolidated NOL. Hint: Apply the offspring rule. $\begin{array}{ccccc} 
& \text { Parent's } & \text { SubOne's } & \text { Sub Two's } & \text { Consolidated } \
& \text { Taxable } & \text { Taxable } & \text { Taxable } & \text { Taxable } \
\text { Year } & \text { Income } & \text { Income } & \text { Income } & \text { Income }\\hline\text { Year 1 } & \$ 200,000 & \$ 70,000 & - & \$ 270,000 \
\text { Year 2* } & \$ 90,000 & \$ 20,000 & (\$ 40,000) & \$ 70,000 \
\text { Year 3* } & \$ 90,000 & (\$ 80,000) & (\$ 40,000) & ? \
\text { Year 4* } & \$ 90,000 & \$ 100,000 & \$ 210,000 & ?
\end{array}$
$\text { * Consolidated return year. }$

Accepted Answer

Lacking an election by ParentCo to forgo

Question 10

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.
-Compensation deductions

Accepted Answer

A) Group item 
B) Not a group item 
A) Group item 
B) Not a group item

Question 11

Keep Corporation joined an affiliated group by merger in 2016. The group generated a consolidated 2016 NOL, and Keep's share of the loss was $50,000. Lacking an election by the parent to the contrary, Keep can carry the loss back to its separate 2014 return, and the parent can claim a tax refund.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) Increases stock basis of subsidiary 
B) Decreases stock basis of subsidiary 
C) No effect on stock basis of subsidiary 
A) Increases stock basis of subsidiary 
B) Decreases stock basis of subsidiary 
C) No effect on stock basis of subsidiary

Question 13

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. $$\begin{array} { l l } 
\text { Parent } & ( \$ 400,000 ) \
\text { Junior } & ( \$ 600,000 ) \
\text { Minor } & \$ 100,000
\end{array}$$

Accepted Answer

A) $500,000. 
B) $540,000. 
C) $600,000. 
D) $0. All NOLs of a consolidated group are apportioned to the parent. 
A) $500,000. 
B) $540,000. 
C) $600,000. 
D) $0. All NOLs of a consolidated group are apportioned to the parent.

Question 14

Certain tax return items are computed on a group basis when a Federal consolidated return election is in place. List five or more of these group-basis items.

Accepted Answer

The following items are among those that

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

ParentCo purchased all of the stock of ChildCo on January 2, Year 2, and the two companies filed consolidated returns for Year 2 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. $$\begin{array} { l c c c } 
& \text { ParentCo's } & \text { ChildCo's Taxable } & \text { Consolidated } \
\text { Year } & \text { Taxable Income } & \text { Income } & \text { Taxable Income } \
\text { Year 1 } & \$ 100,000 & ( \$ 75,000 ) & \mathrm { N } / \mathrm { A } \
\text { Year 2 } & \$ 100,000 & ( \$ 40,000 ) & \$ 60,000 \
\text { Year 3 } & \$ 100,000 & \$ 10,000 & ? \
\text { Year 4 } & \$ 100,000 & \$ 125,000 & ?
\end{array}$$ To what extent can ChildCo's Year 1 losses be used by the group in Year 4?

Accepted Answer

A) $135,000 
B) $125,000 
C) $75,000 
D) $10,000 
E) $0 
A) $135,000 
B) $125,000 
C) $75,000 
D) $10,000 
E) $0

Question 17

ParentCo and SubCo recorded the following items of income and deduction for the current tax year. $$\begin{array} { l c c } 
& \text { ParentCo's } & \text { SubCo's Taxable } \
\text { Item } & \text { Taxable Income } & \text { Income } \
\text { Income (Loss) from Operations } & \$ 100,000 & \$ 20,000 \
\S 1231 \text { Loss } & ( 8,000 ) & \
\text { Capital Gain (Loss) } & ( 10,000 ) & 14,000 \
\text { Charitable Contribution } & 20,000 & 1,000
\end{array}$$ Compute ParentCo and SubCo's taxable income or loss computed on a separate basis. ParentCo SubCo

Accepted Answer

A) $78,300 $30,600 
B) $80,000 $33,000 
C) $81,000 $33,000 
D) $82,800 $30,600 
E) $82,800 $33,000 
A) $78,300 $30,600 
B) $80,000 $33,000 
C) $81,000 $33,000 
D) $82,800 $30,600 
E) $82,800 $33,000

Question 18

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

Accepted Answer

A) An intercompany transaction is eliminated from consolidated taxable income. 
B) All intercompany gains are recognized, but losses must be deferred. 
C) A cash sale of a business asset by the purchasing member to an acquirer outside of the group triggers immediate recognition of the gain or loss. 
D) The gain or loss on an intercompany transaction is deferred for up to ten years, after which it is recognized. 
A) An intercompany transaction is eliminated from consolidated taxable income. 
B) All intercompany gains are recognized, but losses must be deferred. 
C) A cash sale of a business asset by the purchasing member to an acquirer outside of the group triggers immediate recognition of the gain or loss. 
D) The gain or loss on an intercompany transaction is deferred for up to ten years, after which it is recognized.

Question 19

The Nanie 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 Minor. $$\begin{array} { l l } 
\text { Parent } & ( \$ 400,000 ) \
\text { Junior } & ( \$ 600,000 ) \
\text { Minor } & \$ 100,000
\end{array}$$

Accepted Answer

A) $100,000. 
B) $300,000. 
C) $0. Minor did not report an NOL of its own. 
D) $0. All NOLs of a consolidated group are apportioned to the parent. 
A) $100,000. 
B) $300,000. 
C) $0. Minor did not report an NOL of its own. 
D) $0. All NOLs of a consolidated group are apportioned to the parent.

Question 20

Parent Corporation's current-year taxable income included $100,000 net profit from operations and a $30,000 net long-term capital gain. Parent also made a $22,000 contribution to State University. SubCo produced $85,000 of income from operations and incurred a $25,000 net short-term capital loss.
Use the computational worksheet of Exhibit 8.3 to derive the group members' separate taxable incomes and the group's consolidated taxable income. $$\begin{array}{l}
\begin{array} { | l | | l | l | | l | | l | } 
\hline & \begin{array} { l } 
\text { Separate } \
\text { Taxable } \
\text { Income }
\end{array} & \text { Adjustments } & \begin{array} { l } 
\text { Post- } \
\text { Adjustment } \
\text { Amounts }
\end{array} \
\hline \hline \text { ParentCo Information } & & & \
\hline \hline \text { SubCo Information } & & & \
\hline \hline \begin{array} { l } 
\text { Group-Basis } \
\text { Transactions }
\end{array} & & & \
\hline \hline \begin{array} { l } 
\text { Intercompany } \
\text { Events }
\end{array} & & & \
\hline \hline \text { Consolidated } \
\text { Taxable Income } & & & \
\hline \hline
\end{array}\
\text { NOTES }
\end{array}$$

Accepted Answer

ParentCo's separate taxable income amoun

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

How many consolidated tax returns are filed annually? What types of taxpayer do they represent?

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.

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

A corporation organized in Germany and wholly owned by the U.S. parent can be included in a Federal consolidated return.

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. -Compensation deductions

Keep Corporation joined an affiliated group by merger in 2016. The group generated a consolidated 2016 NOL, and Keep's share of the loss was $50,000. Lacking an election by the parent to the contrary, Keep can carry the loss back to its separate 2014 return, and the parent can claim a tax refund.

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

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. Parent (\ 400,000) Junior (\ 600,000) Minor \ 100,000

Certain tax return items are computed on a group basis when a Federal consolidated return election is in place. List five or more of these group-basis items.

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.

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

The Nanie 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 Minor. Parent (\ 400,000) Junior (\ 600,000) Minor \ 100,000

Understanding and Working With the Federal Tax Law

Corporations Introduction and Operating Rules

Corporations Special Situations

Corporations Organization and Capital Structure

Corporations Earnings Profits and Dividend Distributions

Corporations Redemptions and Liquidations

Corporations Reorganizations

Taxation of International Transactions

Partnerships Formation Operation and Basis

Partnerships Distributions Transfer of Interests and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multi-State Corporate Taxations

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 8: Consolidated Tax Returns

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

How many consolidated tax returns are filed annually? What types of taxpayer do they represent?

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.

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

A corporation organized in Germany and wholly owned by the U.S. parent can be included in a Federal consolidated return.

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. -Compensation deductions

Keep Corporation joined an affiliated group by merger in 2016. The group generated a consolidated 2016 NOL, and Keep's share of the loss was $50,000. Lacking an election by the parent to the contrary, Keep can carry the loss back to its separate 2014 return, and the parent can claim a tax refund.

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

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. Parent (\ 400,000) Junior (\ 600,000) Minor \ 100,000

Certain tax return items are computed on a group basis when a Federal consolidated return election is in place. List five or more of these group-basis items.

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.

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

The Nanie 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 Minor. Parent (\ 400,000) Junior (\ 600,000) Minor \ 100,000

Understanding and Working With the Federal Tax Law

Corporations Introduction and Operating Rules

Corporations Special Situations

Corporations Organization and Capital Structure

Corporations Earnings Profits and Dividend Distributions

Corporations Redemptions and Liquidations

Corporations Reorganizations

Taxation of International Transactions

Partnerships Formation Operation and Basis

Partnerships Distributions Transfer of Interests and Terminations

S Corporations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multi-State Corporate Taxations

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters