Question 1

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

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Question 2

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

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Question 3

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.

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Question 4

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 accelerated 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. Comment on the effects of the consolidation election on the companies' AMT liabilities.

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Question 5

When negative adjustments are made to the stock basis of the subsidiary that exceed the basis as of the beginning of the tax year, a(n) account is created, rather than giving the parent a negative tax basis in the stock.

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Question 6

LargeCo files on a consolidated basis with LittleCo. The subsidiary was acquired for $400,000 on January 1, Year 1, and it paid a $75,000 dividend to LargeCo at the end of both Year 2 and Year 3.
a. Given the following information about the subsidiary's operating results, derive the requested amounts as of December 31 of each year. The group files using a calendar year.
  
b. LargeCo sold LittleCo to an unrelated competitor for $600,000 on December 31, Year 3. How will LargeCo account for this sale?

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Question 7

If one member sells an asset with a realized gain to another member of an affiliated group, any gain on the transaction is not recognized at that time; such a deferral applies the rule.

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Question 8

ParentCo's controlled group includes the following members. ParentCo owns all of the stock in each of the listed entities. Which entities can join ParentCo in a consolidated return?
-SubCoA, a manufacturer incorporated in India.
-SubCoB, a U.S. manufacturer.
-SubCoC, a U.S. S corporation.
-SubCoD, a U.S. partnership.
-SubCoE, a U.S. limited liability company (LLC).
-SubCoF, a U.S. manufacturer incorporated in Puerto Rico.
-SubCoG, a U.S. manufacturer that claims a deduction for its production activities (DPAD).
-SubCoH, a U.S. tax-exempt museum.

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Question 9

Maxi Corporation owns 100% of the stock of MiniCo, and the two corporations file a consolidated tax return. Over a five-year period, the corporations generate the following taxable income/(loss). Indicate how you would assign the taxpayers' low marginal rates that apply to the group's first $75,000 of taxable income. Explain the rationale for your recommendation.

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Question 10

In computing consolidated taxable income, the purchase at a realized gain of a depreciable asset by Subsidiary from Parent is an example of a(n) transaction.

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Question 11

The consolidated return rules combine the members' transactions involving items (e.g., § 1231 gain/loss) when computing consolidated taxable income.

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Question 12

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

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Question 13

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

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Question 14

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 taxable income tax-sharing method. Dollar amounts are listed in millions, and a 35% marginal income tax rate applies to all of the entities.

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Question 15

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.

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Question 16

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

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Question 17

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.

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Question 18

In the year that the group terminates its consolidation election, a consolidated group's deferred gain from an
intercompany asset sale between affiliates is recognized in full, under the rule.

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Question 19

In computing consolidated taxable income, a net capital gain/loss is an example of a(n) ___________________ item.

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Question 20

Dividends paid out of a subsidiary's E & P to the parent cause a (positive/negative) adjustment to the parent's stock basis of the subsidiary.

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Quiz 8: Consolidated Tax Returns