Exam 8: Consolidated Tax Returns

Parent's basis in the stock of Child, its subsidiary, is $1 million at the beginning of the year. Child's share of consolidated taxable income this year is a $1.25 million operating loss. Parent's basis in the Child stock now is zero. Explain.

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

Giant Ltd. owns 100% of the stock of Middle Corporation. BottomCorp is owned 60% by Giant and 40% by Middle. Giant's Federal consolidated income tax return includes both Middle and Bottom.

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.

The consolidated tax return regulations use "SRLY" limitations with respect to losses of a subsidiary that can be deducted on the consolidated return. Describe the various SRLY rules that might apply to a consolidated group member's losses.

Which of the following is not generally a disadvantage of filing Federal corporate income tax returns on a consolidated basis?

In the current year, Parent Corporation provided advertising services to its 100%-owned subsidiary, SubCo, under a contract that requires no payments to Parent until next year. Both parties use the accrual method of tax accounting and a calendar tax year. The services that Parent rendered were valued at $250,000. In addition, Parent received $20,000 of interest payments from SubCo., relative to an arm's length note between them. Including these transactions, Parent's taxable income for the year amounted to $400,000. SubCo reported $200,000 separate taxable income. Derive the group's consolidated taxable income, using the format of Exhibit 8.3. Separate Taxable Income Adjustments Post- Adjustment Amounts ParentCo Information SubCo Information Group-Basis Transactions Intercompany Events Consolidated Taxable Income NOTES

The Parent consolidated group reports the following results for the tax year. Determine each member's share of the consolidated tax liability, assuming that the members all have consented to use the relative taxable income tax-sharing method. Dollar amounts are listed in millions, and a 35% marginal income tax rate applies to all of the entities. Parent Subone SubTwo SubThree Consolidated Ordinary income \ 600 \ 200 \ 60 (\ 30) \ 830 Capital gain/loss -0- -0- 20 (5) 15 \ 1231 gain/loss -0- (55) -0] Separate taxable incomes \ 730 \ 200 \ 25 (\ 30) with a \ 5 capital loss carryover Consolidated taxable income \9 20 Consolidated tax liability \3 22 Energy tax credit from SubOne (10) Net tax due \3 12

Discuss how a parent corporation computes its stock basis for a subsidiary that joins in a Federal consolidated income tax return.

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 capital gain

When a member departs from a consolidated group, it leaves behind any NOLs that it generated while in the group. The parent corporation and remaining affiliates apply those NOLs against future consolidated taxable income.

ParentCo and SubCo had the following items of income and deduction for the current year. ParentCo's SubCo's Taxable Item Taxable Income Income Income (loss) from Operations \ 100,000 (\ 10,000) \S1231 Loss (5,000) Capital Gain 15,000 Charitable Contribution 12,000 Compute ParentCo and SubCo's consolidated taxable income or loss.

A tax-exempt charitable trust, created by a U.S. C corporation, can join in a Federal consolidated return.

Most of the rules governing the use of consolidated returns are found in tax ____________________, and not the ____________________.

ParentCo's separate taxable income was $200,000, and SubCo's was $50,000. Consolidated taxable income before contributions was $200,000. Charitable contributions made by the affiliated group included $60,000 by ParentCo and $10,000 by SubCo. Compute the group's maximum charitable contribution deduction.

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

In computing consolidated taxable income, the domestic production activities deduction (DPAD) is removed from the taxable incomes of the group members and determined on a group basis.

The rules for computing Federal consolidated taxable income are some of the most complex in the tax law.

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

Which of the following is not a requirement that must be met before a group files a consolidated return?