Exam 8: Consolidated Tax Returns

Parent and Subsidiary Corporations form an affiliated group.Last year,the initial year of operation,Parent and Subsidiary filed separate returns.This year the group files a consolidated return. Taxable Income How much of the Subsidiary loss can be carried back to last year?

Blitzer Corporation is the parent corporation of a 10-member group that has filed consolidated tax returns for a number of years.Last year,the group sold all the stock of Wolf Corporation to Jerry Jensen.This year,Wolf Corporation reported a $300,000 NOL.Wolf's taxable income while a group member averaged $200,000 annually for the past five years but is expected to be only $50,000 next year due to start-up costs that will be incurred with the introduction of a new product line.Profits are expected to increase in each succeeding year.What issues should Blitzer have considered when trying to value Wolf's NOL prior to its sale? What tax issues should Wolf now consider when deciding how to use its NOL?

What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?

A separate return year is a corporation's tax year for which it files a separate tax return or files a consolidated tax return with another affiliated group.

Identify which of the following statements is true.

Identify which of the following statements is false.

A consolidated NOL carryover is $52,000 at the beginning the year.Twenty-five percent of the loss is allocable to Duke Corporation.Duke Corporation leaves the group in the middle of the affiliated group's tax year.Before Duke's departure,it had earnings of $15,000 for the year,and the remainder of the affiliated group earned a total of $25,000,or $40,000 of taxable income for the group,excluding any NOL carryover.Following its departure from the affiliated group,Duke earned $8,000 in its first separate return.How much of the $52,000 NOL can Duke use on its first separate return?

Mako and Snufco Corporations are affiliated and have filed consolidated returns for the past three years.Mako acquired 100% of Zebco stock on January 1 of last year,the date of Zebco's formation.Mako,Snufco,and Zebco,who have filed consolidated returns for last year and the current year,report the following taxable incomes. The $15,000 consolidated NOL reported in the current year

Why are other intercompany transactions not given any special treatment?

Identify which of the following statements is false.

Parent Corporation purchases a machine (a five-year property)for $20,000.It claims $4,000 of depreciation under the MACRS rules in the first year it owns the property.At the close of business on the last day of the first year,Parent sells the machine to a 100%-owned corporation (Subsidiary)for $18,000.Subsidiary immediately commences depreciating the machine as a five-year property using the regular MACRS rules. What gain is reported by Parent Corporation in the first year that Subsidiary Corporation depreciates the machine?

Which of the following corporations is entitled to join in a consolidated tax return without making a special election?

The treatment of capital loss carrybacks and carryovers is similar to NOLs.

Parent and Subsidiary Corporations form an affiliated group.Last year,the initial year of operation,Parent and Subsidiary filed separate returns.This year,the group files a consolidated tax return.The results for last year and the current year are: Taxable Income How much of Subsidiary's loss can be carried back to last year?

Ajax and Brindel Corporations have filed consolidated returns for several calendar years.Ajax acquires land for $60,000 on January 1 of last year.On September 1 of this year,Ajax sells the land to Brindel for $90,000.The basis and holding period for the land acquired by Brindel are:

Alpha,Beta,Gamma,and Delta Corporations form a controlled group.Delta is a nonincludible regulated investment company.Only Alpha,Beta,and Gamma are able to file their income tax returns on a consolidated basis.What options are available for allocating the 15%,25%,and 34% tax rates to the members of the controlled group?

What are the five steps in calculating consolidated taxable income?

Identify which of the following statements is true.

An advantage of filing a consolidated return is that losses of one affiliated group member may be offset against the taxable income of other group members in the same tax year.

Which of the following intercompany transactions creates temporary book/tax differences when a parent corporation owns 100% of a subsidiary's stock and the companies file a consolidated return?