Question 1

The foreign tax credit of a consolidated group can be greater than the sum of the credits of the group members when filing separately.

Accepted Answer

When a consolidated group files a single tax return, the foreign tax credit is calculated on the basis of the entire group's foreign income and foreign taxes paid, which can result in a higher credit than the sum of individual credits if the group members filed separately. This is because a consolidated group can allocate foreign taxes paid among its members in a way that maximizes the overall credit.

Question 2

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

Accepted Answer

Only a U.S. corporation can file Federal income tax returns on a consolidated basis. Therefore, option D is the only eligible entity. Options A, B, and C do not meet the eligibility criteria to file Federal income tax returns on a consolidated basis.

Question 3

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.

Accepted Answer

This statement is true. A Federal consolidated filing group can aggregate its separate charitable contributions for the tax year and the deductions are subject to an annual limitation of 10% of consolidated taxable income.

Question 4

Which of the following potentially is a disadvantage of electing to file a Federal corporate income tax consolidated return?

Accepted Answer

Electing to file a Federal corporate income tax consolidated return can result in additional administrative costs in complying with the election, such as preparing and filing the necessary paperwork and coordinating with the IRS. The other options listed are potential advantages of this type of filing.

Question 5

Conformity among the members of a consolidated group must be implemented for which of the following tax items?

Accepted Answer

The answer of Conformity among the members of a consolidated...

Question 6

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

Accepted Answer

The answer of How must the IRS collect the liability...

Question 7

Which of the following entities is eligible to join in a Federal consolidated return?

Accepted Answer

Only U.S. corporations and their subsidiaries can join in a Federal consolidated return. Therefore, choice D, a corporation that operates in seven different U.S. states, is eligible to join.

Question 8

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 taxable loss. For that year, Duck cannot deduct any of Cooper's NOL in computing consolidated taxable income.

Accepted Answer

According to the IRS regulations, a member's NOL cannot be used to offset the consolidated group's taxable income until the member generates taxable income in a future year. Since Cooper generated a taxable loss of $150,000 in its first year, Duck cannot deduct any of Cooper's NOL to offset the consolidated taxable income.

Question 9

The losses of a consolidated group member are subject to both the SRLY rules and a § 382 limitation. When both limitations apply, the § 382 restrictions override the SRLY rules for this affiliate.

Accepted Answer

When both SRLY rules and a § 382 limitation apply to a consolidated group member's losses, the § 382 restrictions take precedence over the SRLY rules for that affiliate. Therefore, the losses are subject to the § 382 limitation rather than the SRLY rules.

Question 10

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.

Accepted Answer

This is because the consolidated taxable income of the group is the sum of the taxable incomes of each member, subject to certain adjustments. In this case, Cooper's NOL can only be used to offset its own taxable income of $150,000, and cannot be used to offset the taxable income of other members in the group. Therefore, Duck can only deduct $150,000 of Cooper's NOL in computing consolidated taxable income.

Question 11

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

Accepted Answer

DEarnings and Profits (E & P) are important for determining dividend distributions and other tax-related matters. In a Federal consolidated group, each member maintains its own E & P account (A), and the consolidated E & P is computed as the sum of the E & P balances of each of the group members, computed on the last day of the tax year (D). This approach allows for the accurate tracking of each member's contribution to the group's overall E & P while still recognizing the group's consolidated financial position.

Question 12

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

Accepted Answer

While all corporations must be members of an affiliated group, have the same tax year end, and be eligible to file on a consolidated basis, sharing the same inventory accounting method is not a requirement for filing a consolidated return.

Question 13

Which of the following tax effects becomes more restrictive if an election is made to file a group's Federal corporate income tax returns on a consolidated basis?

Accepted Answer

When a group elects to file a consolidated tax return, all members of the group become jointly and severally liable for the consolidated tax liability. This can be more restrictive than filing separate tax returns, where each member would be responsible for their own tax liability. Therefore, the tax effect that becomes more restrictive is D, members who are liable for the consolidated tax liability.

Question 14

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.

Accepted Answer

The IRS can assess a penalty if the parent corporation does not maintain adequate records to support the computation of a subsidiary's stock basis.

Question 15

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

Accepted Answer

Only a U.S. C corporation that files on a separate basis for its state income tax returns is eligible to file Federal income tax returns on a consolidated basis. The other entities listed do not meet the requirements for filing on a consolidated basis.

Question 16

How do the members of a Federal consolidated group split among themselves the benefits of the lower tax brackets on the first $75,000 of taxable income?

Accepted Answer

The members of a Federal consolidated group split among themselves the benefits of the lower tax brackets on the first $75,000 of taxable income according to an internal tax-sharing agreement. This agreement is not required to be approved by the IRS but should be documented in case of an audit.

Question 17

Which of the following is not generally a disadvantage of filing Federal corporate income tax returns on a consolidated basis?

Accepted Answer

Net capital losses from one affiliate offsetting capital gains from another is actually an advantage of filing taxes on a consolidated basis, as it reduces the overall tax liabilities of the group. The other options are general disadvantages of this type of filing.

Question 18

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.

Accepted Answer

The answer of When a member departs from a consolidated...

Question 19

The Rack, Spill, 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 $18,000 penalty is attributable solely to Ton.
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At present, only Rack 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 Rack to satisfy the outstanding liabilities of the consolidated group?

Accepted Answer

The answer of The Rack, Spill, and Ton Corporations file...

Question 20

Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?

Accepted Answer

The taxation of intercompany dividends is not eliminated and losses from certain intercompany transactions are deferred. While the other options listed may be potential disadvantages of consolidated income tax filings, they do not directly relate to the election to file a consolidated return.

Quiz 8: Consolidated Tax Returns

The foreign tax credit of a consolidated group can be greater than the sum of the credits of the group members when filing separately.

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

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.

Which of the following potentially is a disadvantage of electing to file a Federal corporate income tax consolidated return?

Conformity among the members of a consolidated group must be implemented for which of the following tax items?

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

Which of the following entities is eligible to join in a Federal consolidated return?

The losses of a consolidated group member are subject to both the SRLY rules and a § 382 limitation. When both limitations apply, the § 382 restrictions override the SRLY rules for this affiliate.

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

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

Which of the following tax effects becomes more restrictive if an election is made to file a group's Federal corporate income tax returns on a consolidated basis?

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.

Which of the following entities is eligible to file Federal income tax returns on a consolidated basis?

How do the members of a Federal consolidated group split among themselves the benefits of the lower tax brackets on the first $75,000 of taxable income?

Which of the following is not generally a disadvantage of filing Federal corporate income tax returns on a consolidated basis?

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.

Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?