Exam 8: Consolidated Tax Returns

List some of the non-tax reasons that groups of corporations form conglomerates and may be eligible also to file consolidated Federal income tax returns.

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.

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.

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?

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

When a member departs a consolidated group,it forfeits the use of any NOLs it generated while in the group.

The "SRLY" and § 382 limitation rules for Federal consolidated tax returns are designed to keep corporations from "trafficking" their net operating losses.These rules are restrictive and somewhat complex.Explain why these rules exist,and how they interact if both apply in the same tax year.

ParentCo purchased 100% of SubCo's stock on January 1,2012,and the companies have filed consolidated returns since then.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. The 2013 net operating loss:

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

The calendar year Sterling Group files its Federal corporate income tax return on a consolidated basis.The group's Form 1120 is due on March 15,or September 15 if an extended due date is approved by the IRS.

ParentCo's separate taxable income was $200,000,and SubCo's was $50,000.Consolidated taxable income before contributions was $200,000.Charitable contributions made by the affiliated group included $60,000 by ParentCo and $10,000 by SubCo.Compute the group's maximum charitable contribution deduction.

A subsidiary corporation must leave the consolidated group if it is restructured as an LLC.

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

The rules for computing Federal consolidated taxable income are some of the most complex in the tax law.

In a Federal consolidated tax return group,who is responsible to pay the tax liability-the parent,the subsidiaries,or both? How are these tax-payable amounts determined?

Discuss how a parent corporation computes its stock basis for a subsidiary that joins in a Federal consolidated income tax return.

A consolidated Federal income tax return may be the product of a merger of the affiliates,or of some other tax-favored reorganization.

In an affiliated group,the parent must own at least 80% of each of the subsidiaries.

Members of the ABCD Federal consolidated group conduct various transactions with each other during the tax year.These include the purchase/sale of land and depreciable assets,the licensing of intangible assets,and the conduct of service arrangements.How does the tax law account for these intercompany items? In your answer,be sure to use the terms matching rule and acceleration rule at least once each.

Cooper Corporation joined the Duck consolidated Federal income tax return group,when Cooper held a $1 million NOL carryforward.In its first year as a part of the Duck group,Cooper generated a $150,000 operating profit.For that year,Duck can deduct only $150,000 of Cooper's NOL in computing consolidated taxable income.