Exam 8: Consolidated Tax Returns

All members of an affiliated group have ____________________and ____________________ liability for each other's Federal income tax liabilities.

In a Federal consolidated group,what is an excess loss account? How is it used?

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. a.Increases stock basis b.Decreases stock basis c.No effect on stock basis -Increase in the excess loss account

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

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. a.Advantage of consolidating b.Disadvantage of consolidating -Conformity of affiliates' tax year ends

The Rub,Sal,and Ton Corporations file Federal income tax returns on a consolidated basis.The group's tax return currently is under audit.Under a valid tax-sharing agreement,each corporation is liable for one-third of the group's consolidated tax liability.The affiliates have agreed with the auditor that the group's unpaid liability for the year is $90,000.Because of an incorrect tax return position,another $3,000 in interest and an $1,800 penalty is attributable solely to Ton.At present,only Rub is solvent and has the cash with which to make such a tax payment.What is the maximum amount for which the government could be successful in forcing Rub to satisfy the outstanding liabilities of the consolidated group?

In an affiliated group,the parent must own 100 percent of each of the subsidiaries.

Consolidated estimated tax payments are required by the ____________________ tax year after the group's election.

Dividends paid by a subsidiary to the parent cause a ____________________ (positive/negative)adjustment to the stock basis of the subsidiary.

ParentCo and SubCo had the following items of income and deduction for the current year. Compute ParentCo and SubCo's consolidated taxable income or loss.

Keep Corporation joined an affiliated group by merger in 2009.The group generated a consolidated 2009 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 2007 return and claim a separate refund.

Members of an affiliated group must share one $40,000 ____________________.

ParentCo's separate taxable income was $100,000,and SubCo's was $40,000.Consolidated taxable income before contributions was $125,000.Charitable contributions made by the affiliated group included $10,000 by ParentCo and $1,000 by SubCo.Compute the group's maximum charitable contribution deduction.

How are the members of a Federal consolidated group affected by computations related to E & P?

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 $100,000.In addition,Parent received $45,000 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 $300,000.SubCo reported $80,000 separate taxable income.Derive the group's consolidated taxable income,using the format of Figure 8-2.

A penalty can be assessed by the IRS if the parent corporation does not keep good records to support the computation of a subsidiary's stock basis.

ParentCo and SubCo had the following items of income and deduction for the current year. Compute ParentCo and SubCo's taxable income or loss computed on a separate basis.

What tax accounting period and methods must be used by the members of a Federal consolidated group?

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. a.Increases stock basis b.Decreases stock basis c.No effect on stock basis -Member's operating gains/profits

TopCo owns all of the stock of BottomCo.Both taxpayers are subject to the alternative minimum tax (AMT)this year for the first time,due to a dependence on MACRS deductions.The corporations incurred no intercompany transactions during the year.TopCo has a consolidation election in effect for the group. If the affiliates were to file separate Forms 1120 this year,the following amounts would be reported. a.Compute the ACE adjustment for the consolidated group. b.Comment on the effects of the consolidation election on the companies' AMT liabilities.