Exam 8: Consolidated Tax Returns

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.

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?

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.

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) § 1231 Loss (5,000) Capital Gain 15,000 Charitable Contribution 12,000 Compute ParentCo and SubCo's taxable income or loss computed on a separate basis. ParentCo SubCo a. $85,000 $5,000 a. None of the above. b. $85,000 $3,000 c. $85,500 $5,000 d. $85,500 $3,000

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 c. Neither an advantage nor a disadvantage -Loss deferral on intercompany transactions

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. ParentCo SubCo a. $81,000 $21,000 b. $81,000 $22,000 c. $70,000 $22,000 d. $70,000 $21,000

When both apply, the § 382 NOL limitation rules override the limits.

The treatment of group items on a Federal consolidated corporate income tax return (always, sometimes, never) results in a reduction of consolidated taxable income.

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

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

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

When a corporate group elects to file Federal income tax returns on a consolidated basis, it is subject to several tax return filing requirements for its first and subsequent tax years. List the most important of those requirements.

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 of subsidiary b. Decreases stock basis of subsidiary c. No effect on stock basis of subsidiary -Member's capital gain

Consider AB, a brother-sister group of U.S. corporations, and CD, a parent-subsidiary group of U.S. corporations. Which of these could comprise a controlled group? An affiliated group?

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

The domestic production activities deduction (DPAD) of the affiliates is an example of an item that is computed on a basis on a Federal corporate income tax consolidated return.

ParentCo owns all of the stock of both SubOne and SubTwo. List three "intercompany transactions" that might occur among the three members of the consolidated filing group.

A Federal consolidated filing group aggregates its separate charitable contributions for the tax year, deductions for which then are subject to an annual limitation of 10% of consolidated taxable income.

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. a. Tax and book treatment is the same b. Tax and book treatment differ -Parent owns 100% of a U.S. partnership and wants the entity to join the consolidated group.