Exam 8: Consolidated Tax Returns

Under the consolidated return rules, the realized gain from an intercompany transaction is deferred. For most taxpayers, this produces:

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. -Sales amounts after returns and allowances) are combined in the consolidation process.

Which of the following entities is eligible to join in a Federal consolidated return?

A Federal consolidated group can claim a dividends received deduction for payments that the parent receives from other affiliates.

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

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.

In computing consolidated taxable income, a net capital gain/loss is an example of an) item.

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. -Dividends received deduction.

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

Match each of the following terms with the appropriate description in the context of a consolidated Federal income tax return. -Binding nature of election over multiple tax years.

Azure Corporation leaves the Colorful Corporation Federal consolidated return group on the last day of year 1. As a result:

A consolidated Federal income tax return may be the product of a merger of the affiliates or another corporate combination.

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.

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

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

A Federal consolidated group reports a net operating loss for the year. How is this amount allocated to the various group members? Why is this allocation important?

Gold, Silver, and Bronze constitute a Federal consolidated tax return group. Which of the members is responsible to pay the tax liability-the parent, the subsidiaries, or both? How are these tax-payable amounts determined? Hint: Use the term tax-sharing agreement in your answer.

Members of the ABCD Federal consolidated group conduct various transactions with each other during the tax year. These include the purchase/sale of land and depreciable assets, the licensing of intangible assets, and the conduct of service arrangements. How does the tax law account for these intercompany items? In your answer, be sure to use the terms matching rule and acceleration rule at least once each.

In the year that the group terminates its consolidation election, a consolidated group's deferred gain from an intercompany asset sale between affiliates is recognized in full under the rule.

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.