Question 1

The consolidated income tax return rules apply only for Federal tax purposes.Financial accounting rules can be quite different from the corresponding tax rules,but the tax professional should be familiar with both sets of requirements.Describe the major differences between the book and tax treatment for the conglomerate's reporting of:

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Question 2

Describe the general computational method used by a Federal consolidated group in computing taxable income.

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Question 3

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.

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Question 4

List three "intercompany transactions" of a Federal consolidated income tax group.ParentCo owns all of the stock of both SubOne and SubTwo.

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Question 5

Where are the controlling Federal income tax rules regarding consolidated tax returns to be found? What is the general philosophy of those rules?

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Question 6

Outline the major advantages and disadvantages of filing Federal corporate income tax returns on a consolidated basis.Limit your comments to the income tax effects of the election.

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Question 7

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.

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Question 8

Gold and Bronze elect to form a Federal consolidated group.Gold,the parent entity,uses a calendar tax year,while Bronze's tax year ends on March 31.Which tax year(s)does the new consolidated group use?

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Question 9

The consolidated tax return regulations use "SRLY" limitations with respect to losses of a subsidiary that can be deducted on the consolidated return.Describe the various SRLY rules that might apply to a consolidated group member's losses.

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Question 10

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.

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Question 11

Certain tax return items are computed on a group basis when a Federal consolidated return election is in place.List five or more of these group-basis items.

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Question 12

Assume that all of the affiliates in a Federal consolidated group conduct allowable manufacturing activities.Is a domestic production activities deduction (DPAD)available? Who can claim it? How is each member's DPAD,if any,computed?

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Question 13

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.

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Question 14

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

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Question 15

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?

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Question 16

Parent's basis in the stock of Child,its subsidiary,is $1 million at the beginning of the year.Child's share of consolidated taxable income this year is a $1.25 million operating loss.Parent's basis in the Child stock now is zero.Explain.

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Question 17

A Federal consolidated group reports a net operating loss for the year.How is this amount allocated to the various group members? Why is this allocation important?

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Question 18

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?

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Question 19

To be part of a Federal consolidated return,an entity cannot be ineligible to join an affiliated group.List three or more business entities that cannot be part of a Federal consolidated tax return group.

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Question 20

The U.S.states apply different rules in treating Federal consolidated groups for corporate income tax purposes.Describe three different treatments that the states currently use.

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Quiz 8: Consolidated Tax Returns