Exam 8: Consolidated Tax Returns

Consolidated return members determine which affiliates will pay how much of the annual Federal income tax liability by making an) election.

Campbell Corporation left the Crane consolidated tax return group after the calendar 2018 tax year. Generally, Crane can add Campbell back to the consolidated group but no earlier than for the 2024 tax year.

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

ParentCo and SubCo have filed consolidated returns since 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. Year ParentCo's Taxable Income SubCo's Taxable Income Consolidated Taxable Income Year 1 \ 100,000 \ 35,000 \ 135,000 Year 2 \ 100,000 (\ 20,000) \ 80,000 Year 3 \ 100,000 (\ 109,000) ? Year 4 \ 100,000 \ 190,000 ? The year 3 consolidated loss:

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.

Where are the controlling Federal income tax rules regarding consolidated tax returns to be found? What is the general philosophy of those rules? Do they tend to be pro- or anti-taxpayer?

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. -Parent owns 100% of a Brazil corporation and wants the entity to join the consolidated group.

When the parent acquires 51% of a subsidiary U.S. corporation, the subsidiary can join the consolidated financial statements and the consolidated tax return of the parent.

ParentCo's controlled group includes the following members. ParentCo owns all of the stock in each of the listed entities. Which entities can join ParentCo in a consolidated return? ∙ SubCoA, a manufacturer incorporated in India. ∙ SubCoB, a U.S. manufacturer. ∙ SubCoC, a U.S. S corporation. ∙ SubCoD, a U.S. partnership. ∙ SubCoE, a U.S. limited liability company LLC). ∙ SubCoF, a U.S. manufacturer incorporated in Puerto Rico. ∙ SubCoG, a U.S. manufacturer that claims a deduction for its research activities. ∙ SubCoH, a U.S. tax-exempt museum.

In computing consolidated taxable income, the profit/loss from a sale between Subsidiary and Parent is an example of an) ____________________ item.

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

The Parent consolidated group reports the following results for the tax year. Determine each member's share of the consolidated tax liability, assuming that all members have consented to use the relative taxable income tax-sharing method. Dollar amounts are listed in millions, and a 21% 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 \S1231 gain/loss

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.

For consolidated tax return purposes, purchased goodwill is amortized as a deduction to taxable income over 15 years. Under financial accounting rules, 40-year amortization is allowed.

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 years) does the new consolidated group use?

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.

If one member of an affiliated group sells an asset with a realized gain to another member, any gain on the transaction is not recognized at that time; such a deferral applies the______________ rule.

ParentCo and SubCo recorded the following items of income and deduction for the current tax year. Compute ParentCo and SubCo's taxable income or loss computed on a separate basis. Then compute the total of those amounts if appropriate.

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.

Match each of the following terms with the appropriate description in the context of a consolidated Federal income tax return. -A new affiliate uses the LIFO method for inventories.