Exam 8: Consolidated Tax Returns

Each of the members of a Federal consolidated tax return group can claim its own $40,000 AMT exemption, subject to phase-out.

How must the IRS collect the liability for Federal taxes from among a consolidated group?

The Parent consolidated group reports the following results for the tax year. Determine each member's share of the consolidated tax liability, assuming that the members all have consented to use the relative tax liability tax-sharing method. Dollar amounts are listed in millions, and a 35% marginal income tax rate applies to all of the entities.

When a member departs from a consolidated group, it leaves behind any NOLs that it generated while in the group. The parent corporation and remaining affiliates apply those NOLs against future consolidated taxable income.

In computing consolidated taxable income, the domestic production activities deduction (DPAD) is removed from the taxable incomes of the group members and determined on a group basis.

With the filing of its first consolidated return, the parent corporation of a Federal consolidated group makes an irrevocable election as to how the group will allocate a tax year's income tax liability among the group members.

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 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.

When the net accumulated taxable losses of a subsidiary exceed the parent's acquisition price, the parent's basis in the subsidiary's stock becomes negative.

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

A consolidated Federal income tax return may be the product of a merger of the affiliates, or of a stock-for-assets takeover.

A calendar year parent corporation wants to file its tax returns on a consolidated basis with its affiliates. The group's election to file consolidated Federal corporate income tax returns must be made by the extended due date of the first return on which the consolidation is applied .

The rules can limit the net operating loss deduction claimed on a Federal consolidated return.

Calendar year Parent Corporation acquired all of the stock of SubCo on January 1, Year 1, for $500,000. The subsidiary's operating gains and losses are shown below. In addition, a $50,000 dividend is paid early in Year 2. Complete the following chart, indicating the appropriate stock basis and excess loss account amounts.

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. a. Group item b. Not a group item -Compensation deductions