Deck 8: Consolidated Tax Returns

Question 1

Diana Corporation owns stock of Tomika Corporation. For Diana and Tomika to qualify for the filing of consolidated returns, at least what percentage of Tomika's total voting power and total value of stock must be directly owned by Diana?

A) $$\begin{array} { | l | l | } \hline \text { Total voting power } & \text { Total Value of stock } \\\hline 80 \% & 80 \% \\\hline\end{array}$$
B) $$\begin{array} { | l | l | } \hline \text { Total voting power } & \text { Total Value of stock } \\\hline 51 \% & 51 \% \\\hline\end{array}$$
C) $$\begin{array} { | l | l | } \hline \text { Total voting power } & \text { Total Value of stock } \\\hline 51 \% & 80 \% \\\hline\end{array}$$
D) $$\begin{array} { | l | l | } \hline \text { Total voting power } & \text { Total Value of stock } \\\hline 80 \% & 51 \% \\\hline\end{array}$$

Answer 1

$$\begin{array} { | l | l | } \hline \text { Total voting power } & \text { Total Value of stock } \\\hline 80 \% & 80 \% \\\hline\end{array}$$

Question 2

The election to file a consolidated return is made annually.

Answer 2

False

Question 3

A separate return year is a corporation's tax year for which it files a separate tax return or files a consolidated tax return with another affiliated group.

Answer 3

True

Question 4

A Canadian subsidiary cannot file as part of the consolidated group with its U.S. parent.

Question 5

Identify which of the following statements is true.

A) An affiliated group electing to file a consolidated return may be composed of as few as two corporations.
B) To be part of an affiliated group, a corporation must be at least 80% directly owned by another group member.
C) Only common stock is considered when determining if the 80% ownership test is met for affiliated group eligibility.
D) All of the above are false.

Question 6

What are the differences between a controlled group and an affiliated group?

Question 7

What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?

Question 8

What issues determine whether an affiliated group exists?

Question 9

Explain the requirements a group of corporations must meet in order to elect to file a consolidated return.

Question 10

Brother- sister controlled groups can elect to file a consolidated tax return.

Question 11

Jeffrey Corporation owns 85% of Placer Corporation and 25% of Mercer Corporation. Placer Corporation owns 60% of Mercer Corporation and 45% of Tyson Corporation. Jeffrey Corporation also owns 85% of Apple Corporation and Apple Corporation owns 30% of Tyson Corporation. Which of these corporations are members of an affiliated group if all percentages represent voting power and value held by the respective corporations?

Question 12

Cardinal and Bluebird Corporations both use a calendar year as their tax year. At the close of business on June 30, Cardinal Corporation buys all of Bluebird Corporation's stock. If the two corporations file a consolidated return and both corporations earn their income evenly throughout the year, what portion of Bluebird's income will be included in the consolidated return? (Assume all months have 30 days.)

A) 50%
B) 100%
C) 0%
D) none of the above

Question 13

Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return?

A) S corporations
B) insurance companies
C) car manufacturing corporation
D) foreign corporations

Question 14

To be an affiliated group, the parent corporation must directly own at least 80% of another group member.

Question 15

Cardinal and Bluebird Corporations both use a calendar year as their tax year. At the close of business on June 30, Cardinal Corporation buys all of Bluebird Corporation's stock. If the two corporations file a consolidated return and both corporations earn their income evenly throughout the year, what portion of Cardinal's income will be included in the consolidated return? (Assume all months have 30 days.)

A) 100%
B) 0%
C) 50%
D) none of the above

Question 16

Toby Corporation owns 85% of James Corporation's single class of stock and 35% of Mony Corporation's single class of stock. James Corporation owns 45% of Mony's stock. The remainder of James and Mony's stock is owned by 80 individual shareholders. Are the corporations part of an affiliated group, and can they elect to file a consolidated tax return?

Question 17

Ajak Corporation owns 85% of the single class of Utech Corporation stock. Utech Corporation owns 35% of Tech Corporation. Ajak Corporation also owns 50% of Tech Corporation, and Tech Corporation owns 75% of Baxter Corporation.

A) Ajak, Tech, and Baxter Corporations are an affiliated group.
B) Ajak, Tech, Utech, and Baxter Corporations are an affiliated group.
C) Ajak, Tech, and Utech Corporations are an affiliated group.
D) None of the above are correct.

Question 18

Which of the following corporations is entitled to join in a consolidated tax return without making a special election?

A) closely held corporations
B) corporations exempt from tax under Sec. 501
C) real estate investment trusts
D) foreign corporations

Question 19

Toby owns all of the single class of stock of James and Mony Corporations. James Corporation owns all of Volt Corporation's stock. Mony owns all of Wegnin Corporation. Mony and Wegnin Corporations are foreign corporations. Toby, James, and Volt are domestic corporations. Are the corporations part of an affiliated group?

Question 20

Identify which of the following statements is true.

A) The check- the- box regulations permit partnership and LLCs to elect C corporation tax treatment.
B) A group of corporations that meets the parent- subsidiary controlled group requirements is always eligible to file a consolidated return.
C) If 100% of the stock of two corporations is owned by the same individual, the two corporations are eligible to file a consolidated return.
D) All of the above are false.

Question 21

Gee Corporation purchased land from an unrelated corporation several years ago for $105,000. The land was used by Gee as a storage lot for company trucks. Gee sold the land to Wilkers, its 85%- owned subsidiary corporation, last year (July 3) for $115,000. The land was also used in Wilkers' trade or business. Wilkers Corporation sold the land this year (August 22) for $130,000 to a corporation that was not a member of the affiliated group. The $130,000 purchase price is to be collected in five equal, annual installments, commencing with the current year's sale date. What gains and losses are recognized, deferred, or restored by Gee and Wilkers Corporations?

Question 22

Identify which of the following statements is true.

A) When a new corporation joins an affiliated group, all of its income and expense items for the tax year, including the acquisition date, must be allocated between the separate tax return and consolidated tax return that are to be filed based on the number of days included in each of the two tax years.
B) All members of a consolidated group must use the same tax year.
C) A consolidated return election may be revoked after 5 years.
D) All of the above are false.

Question 23

Gee Corporation purchased land from an unrelated corporation several years ago for $105,000. The land was used by Gee as a storage lot for company trucks. Gee sold the land to Wilkers, its 85%- owned subsidiary corporation, last year (July 3) for $115,000. The land was also used in Wilkers' trade or business. Wilkers Corporation sold the land for cash this year (August 22) for $130,000 to a corporation that was not a member of the affiliated group. What gains and losses are recognized, deferred, or restored by Gee and Wilkers Corporations?

Question 24

Penish and Sagen Corporations have filed consolidated tax returns for several calendar years. At the close of business on September 30, 2018, Penish Corporation sells all of its Sagen stock to June. What are the tax consequences to each corporation?

Question 25

Parent Corporation sells land (a capital asset) to Subsidiary Corporation in an intercompany transaction, realizing a $25,000 gain. Subsidiary uses the land for five years in its trade or business before selling the land to a nonmember of the group in a cash sale in which a $50,000 gain is realized. Which statement is correct?

A) A $25,000 capital gain is included in consolidated taxable income when Parent sells the land to Subsidiary Corporation. A $50,000 Sec. 1231 gain is included in consolidated taxable income when Subsidiary sells the land.
B) A $75,000 Sec. 1231 gain ($25,000 from Parent and $50,000 from Subsidiary) is included in consolidated taxable income in the year Subsidiary sells the land (assuming no recapture of previously deducted Sec. 1231 losses must occur).
C) A $25,000 capital gain and a $50,000 Sec. 1231 gain are included in consolidated taxable income when Subsidiary sells the land.
D) None of the above are correct.

Question 26

Identify which of the following statements is true.

A) If a corporation becomes a member of an affiliated group within the first thirty days of the corporation's tax year, the corporation can elect not to file a short- period tax return.
B) When a corporation joins in filing a consolidated return, taxable income of the member is combined with other members' taxable income prior to any adjustments.
C) A corporation may be required to file a separate return and file with an affiliated group in the same calendar year.
D) All of the above are false.

Question 27

Identify which of the following statements is false.

A) The basis to the purchasing member of property acquired in an intercompany transaction is the amount of cash paid to the selling member.
B) In general, buyers and sellers engaging in an intercompany transaction are treated as separate entities.
C) The holding period for property acquired in an intercompany transaction begins when the corresponding item is reported.
D) Inventory sales between group members are an example of an intercompany transaction.

Question 28

Parent Corporation purchases a machine (a five- year property) for $20,000. It claims $4,000 of depreciation under the MACRS rules in the first year it owns the property. At the close of business on the last day of the first year, Parent sells the machine to a 100%- owned corporation (Subsidiary) for $18,000. Subsidiary immediately commences depreciating the machine as a five- year property using the regular MACRS rules. What depreciation can be claimed by Subsidiary Corporation in the first year it uses the machine?

Question 29

Marietta and Alpharetta Corporation, two accrual method of accounting corporations that use the calendar year as their tax year, have filed consolidated tax returns for a number of years. Alpharetta Corporation, a 100% owned subsidiary of Marietta, is transferring a patent, equipment, and working capital to newly created Georgia Corporation in exchange for 100% of its stock. In 2018, the corporation will begin to produce parts for the computer industry. Georgia Corporation expects to incur organizational expenditures of $10,000 and
start- up expenditures of $60,000. What tax issues should Georgia Corporation consider with respect to the selection of its overall accounting method, inventory method, and tax year, and the proper reporting of its organizational and start- up expenditures?

Question 30

Parent Corporation owns all of the stock of Richards and Smith Corporations on January 1. The three corporations have filed consolidated tax returns for a number of calendar years. Parent sells all of the stock of Richards Corporation on June 1. Parent purchases all of the stock of Taylor Corporation on September 1. Parent sells all of the stock of Smith Corporation on November 1. When does the affiliated group terminate?

A) November 1
B) September 1
C) June 1
D) The original affiliated group does not terminate.

Question 31

Which of the following is not reported by an affiliated group on a consolidated basis?

A) section 1231 gain
B) capital gain
C) casualty & theft gain
D) All of the above are included.

Question 32

Ajax and Brindel Corporations have filed consolidated returns for several calendar years. Ajax acquires land for $60,000 on January 1 of last year. On September 1 of this year, Ajax sells the land to Brindel for $90,000. The basis and holding period for the land acquired by Brindel are:

A) $$\begin{array} { | l | l | } \hline \text { Basis } & \text { Holding Period Begins On } \\\hline \$ 90,000 & \text { January 2of last year } \\\hline\end{array}$$
B) $$\begin{array} { | l | l | } \hline \text { Basis } & \text { Holding Period Begins On } \\\hline \$ 60,000 & \text { January 2 of last year } \\\hline\end{array}$$
C) $$\begin{array} { | l | l | } \hline \text { Basis } & \text { Holding Period Begins On } \\\hline \$ 90,000 & \text { September } 2 \text { of this year } \\\hline\end{array}$$
D) none of the above

Question 33

P and S are members of an affiliated group that has filed consolidated tax returns for a number of years. The sale of inventory by P that was acquired from S in an intercompany transaction outside the affiliated group triggers the recognition of gain by S.

Question 34

Identify which of the following statements is true.

A) Last year, P, S, and T Corporations have filed consolidated tax returns for a number of years. Last year P Corporation sold land (a Sec. 1231 asset) to T at a $75,000 profit. The gain was deferred by P in last year's consolidated tax return. P sold the T stock to Mike on June 1 of this year. The stock sale will require P to report in its income the gain that was deferred on the land sale.
B) P and S are members of an affiliated group that has filed consolidated tax returns for a number of years. The sale of inventory by P, which was acquired from S in an intercompany transaction, outside the affiliated group triggers the restoration of gain by S.
C) The basic accounting method elections that are used by the seller in intercompany transactions do not override the intercompany transaction rules.
D) All of the above are true.

Question 35

Subsidiary Corporation purchases a used machine from Parent Corporation in an intercompany transaction. Which of the following events is a corresponding event for the intercompany transaction?

A) the purchasing group member selling the machine for cash to a nonmember of the group
B) the departure of the purchasing group member from the affiliated group when its stock is sold to a nonmember of the group
C) the purchasing group member depreciating the machine
D) All of the above are recognition events.

Question 36

Parent and Subsidiary Corporations have filed calendar- year consolidated tax returns for several years. Parent Corporation uses the cash method of accounting while Subsidiary Corporation uses the accrual method of accounting. If Parent lends Subsidiary money,

A) the interest expense is deductible when accrued.
B) the interest income is reported when the interest expense is accrued by Subsidiary.
C) the interest expense and interest income may be reported in different consolidated return years.
D) the interest expense deduction is taken when Parent reports the interest income.

Question 37

Which of the following events is an intercompany transaction that requires the deferral and later recognition of income?

A) cash dividend payment from a subsidiary corporation to its parent corporation
B) sale of inventory from a subsidiary corporation to its parent corporation
C) accrual of rentals on a lease of real property owned by one group member that is used by another group member; both group members use the accrual method of accounting
D) None of the above transactions require the deferral and later recognition of income.

Question 38

Parent Corporation sells land (a capital asset) to Subsidiary Corporation in an intercompany transaction, recognizing a $25,000 gain. Subsidiary holds the land as an investment for five years before selling the land to a nonmember of the group on an installment basis in a sale in which a $50,000 gain is realized. The sales proceeds are collectible in four equal installments with an appropriate interest amount being charged to the purchaser. Which statement is correct?

A) The $25,000 capital gain from Parent and $50,000 capital gain from Subsidiary are included ratably in consolidated taxable income, commencing in the year the first installment is received.
B) A $25,000 capital gain from Parent and a $50,000 capital gain from Subsidiary are included in consolidated taxable income when Subsidiary sells the land.
C) A $25,000 capital gain is included in consolidated taxable income when Parent sells the land to Subsidiary Corporation. A $50,000 capital gain is included in consolidated taxable income when Subsidiary sells the land.
D) None of the above are correct.

Question 39

Which of the following events is an intercompany transaction?

A) a parent corporation's sale of stock of a subsidiary corporation to a nonmember of the group
B) dividend payment received from a subsidiary corporation to its parent corporation; the subsidiary corporation is not an includible corporation
C) a capital contribution
D) accrual of interest on a loan made by one group member to another group member; both group members use the accrual method of accounting

Question 40

Identify which of the following statements is true.

A) Permission to discontinue the filing of consolidated tax returns is sometimes granted by the IRS.
B) Corporations that join in a consolidated return must adopt the same tax year as the parent corporation.
C) Additional administrative costs may be incurred when filing a consolidated tax return.
D) All of the above are true.

Question 41

Boxcar Corporation and Sidecar Corporation, an affiliated group, reports the following results for the current year: $$\begin{array} { | c | c | c | c | } \hline \text { Corporation } & \begin{array} { c } \text { Ordinary } \\\text { Income }\end{array} & \text { STCG/STCL } & \text { LTCG/LTCL } \\\hline \text { Boxcar } & \$ 10,000 & \$ 10,000 & ( \$ 5,000 ) \\\text { Sidecar } & 30,000 & ( 12,000 ) & 16,000 \\\hline\end{array}$$ The affiliated group's consolidated taxable income is

A) $52,000.
B) $40,000.
C) $49,000.
D) $51,000.

Question 42

Identify which of the following statements is true.

A) A member of an affiliated group can elect to carry back its own separate return losses from a consolidated return year to one of its earlier profitable separate return years.
B) The basic dividends- received deduction rules generally do not apply to the calculation of the consolidated dividends- received deduction.
C) A consolidated NOL is computed in part by including the consolidated capital gain in taxable income.
D) All of the above are false.

Question 43

Intercompany dividends and undistributed subsidiary earnings do not create temporary differences for affiliated companies filing a consolidated return.

Question 44

Boxcar Corporation and Sidecar Corporation, an affiliated group, reports the following results for the current year: $\begin{array}{|c|c|c|c|}\hline\text { Corporation } & \begin{array}{c}\text { Ordinary } \\\text { Income }\end{array} & \text { STCG/STCL } & \text { LTCG/LTCL } \\\hline \text { Boxcar } & \$ 10,000 & \$ 10,000 & (\$ 5,000) \\\text { Sidecar } & 30,000 & (12,000) & 16,000\\\hline\end{array}$ What is the affiliated group's consolidated regular tax liability?

A) $7,700
B) $11,000
C) $49,000
D) $10,290

Question 45

Identify which of the following statements is true.

A) The dividends- received deduction claimed when a $50,000 dividend is received from a 100%- owned nonconsolidated life insurance company is $35,000 (ignoring any dividends- received deduction limitations).
B) The consolidated dividends- received deduction percentage for dividends received by one affiliated group member from another affiliated group member is always 100%.
C) P Corporation receives a dividend from its 100%- owned subsidiary corporation S. P and S have filed consolidated tax returns for a number of years. The dividend payment is out of S's earnings and profits and reduces P's investment in S. The dividend is an intercompany transaction and excluded from P's gross income.
D) All of the above are false.

Question 46

Identify which of the following statements is true.

A) The dividends- received deduction cannot be taken in full on a consolidated return if the deduction amount creates or increases a consolidated NOL.
B) The dividends- received deduction limitation for dividends received by members of an affiliated group from nonmembers is applied to the separate taxable income of each group member.
C) A shareholder corporation that receives a nondividend distribution from an affiliated group member is not required to recognize a gain when the distribution amount exceeds the shareholder's basis in the distributing corporation's stock.
D) All of the above are false.

Question 47

Why are other intercompany transactions not given any special treatment?

Question 48

What are the five steps in calculating consolidated taxable income?

Question 49

Define intercompany transactions and explain the two types of transactions.

Question 50

Roland, Shedrick, and Tyrone Corporations formed an affiliated group a number of years ago, which has since filed consolidated tax returns. No prior Sec. 1231 losses have been reported by any group member. The group had a consolidated capital loss carryover last year. For the current year, the group reports the following results: $$\begin{array} { | c | c | c | c | c | } \hline \text { Corporation } & \begin{array} { c } \text { Ordinary } \\\text { Income }\end{array} & \text { STCG/STCL } & \text { LTCG/LTCL } & \begin{array} { c } \text { Sec. 1231 } \\\text { Gains and Losses }\end{array} \\\hline \text { Roland } & \$ 25,000 & \$ 4,000 & ( \$ 2,000 ) & ( \$ 5,000 ) \\\text { Shedrick } & 30,000 & ( 2,000 ) & 14,000 & ( 2,000 ) \\\text { Tyrone } & 20,000 & ( 3,000 ) & 8,000 & ( 3,000 ) \\\hline\end{array}$$ Which of following statements is incorrect?

A) No Sec. 1231 recapture can occur this year.
B) The net capital gain is taxed at the regular corporate tax rates.
C) The net capital gain is $20,000.
D) The Sec. 1231 loss is treated as an ordinary loss.

Question 51

Identify which of the following statements is false.

A) An intercompany item includes income reported by the seller on the providing of services by one group member to another group member and the gain/loss reported by the seller on the sale of property to another group member.
B) An intercompany transaction is a transaction that takes place between two corporations that are members of the same affiliated group immediately after the transaction.
C) Unused general business credit carryforwards, which originate in a consolidated return year, are absorbed in a FIFO manner, beginning with the earliest ending tax year.
D) All of the above are false.

Question 52

Identify which of the following statements is true.

A) The charitable contribution deduction is calculated on a separate return basis for each group member, and the separate company deductions of the individual group members are totaled to arrive at the consolidated deduction.
B) Charitable contributions, which cannot be deducted in a consolidated return due to the 10% deduction limitation, can be carried forward indefinitely by the affiliated group.
C) An affiliated group member cannot carry over any unused charitable contribution deduction from a consolidated return year to a separate return year if the member leaves the group prior to the end of the current consolidated return year.
D) All of the above are false.

Question 53

Identify which of the following statements is false.

A) Affiliated groups of corporations filing a consolidated tax return are not eligible for the small corporation exemption from the corporate alternative minimum tax.
B) An intercompany transaction generally results in the selling member and buying member in a property transaction being treated as divisions of a single corporation.
C) Intercompany dividends and undistributed subsidiary earnings do not create temporary differences for affiliated companies filing a consolidated return.
D) A corresponding item includes the income, gain, deduction, or loss amount reported by the buyer from an intercompany transaction, or from property acquired in an intercompany transaction.

Question 54

Blair and Cannon Corporations are the two members of an affiliated group. No prior net Sec. 1231 losses have been reported by any group member. The two corporations report consolidated ordinary income of $100,000 and gains and losses from property transactions as follows: $$\begin{array} { | c | c | c | c | } \hline \text { Corporation } & \text { STCG/STCL } & \text { LTCG/LTCL } & \begin{array} { c } \text { Sec.1231 } \\\text { Gains and Losses }\end{array} \\\hline \text { Blair } & ( \$ 5,000 ) & \$ 6,000 & \$ 3,000 \\\text { Cannon } & 6,000 & ( 7,000 ) & ( 3,000 ) \\\hline\end{array}$$ Included in the above totals is $6,000 of long- term capital losses recognized by Cannon on an intercompany transaction. Excluded from the above is a $4,000 Sec. 1231 gain originally deferred by Cannon that must be reported by the group in the current year. Which one of the following statements is incorrect?

A) The affiliated group reports a $4,000 net Sec. 1231 gain.
B) The consolidated group must report a net long- term capital gain of $9,000 and a net short- term capital gain of $1,000.
C) Cannon Corporation's separate return reports a $6,000 net long- term capital gain.
D) None of the above statements are incorrect.

Question 55

Identify which of the following statements is true.

A) Capital loss carrybacks and carryforwards are all treated as short- term capital losses.
B) A member leaving an affiliated group cannot use capital loss carryovers that originated in one of its previous separate return years.
C) Rules for carryforward and carryback of a consolidated net capital loss and a consolidated NOL are the same with the exception of the carryforward period.
D) All of the above are false.

Question 56

The treatment of capital loss carrybacks and carryovers is similar to NOLs.

Question 57

Blair and Cannon Corporations are members of an affiliated group. No prior net Sec. 1231 losses have been reported by any group member. The two corporations report consolidated ordinary income of $100,000 and gains and losses from property transactions as follows. $$\begin{array} { | c | c | c | c | } \hline \text { Corporation } & \text { STCG/STCL } & \text { LTCG/LTCL } & \begin{array} { c } \text { Sec.1231 } \\\text { Gains and Losses }\end{array} \\\hline \text { Blair } & ( \$ 5,000 ) & \$ 6,000 & \$ 3,000 \\\text { Cannon } & 6,000 & ( 7,000 ) & ( 3,000 ) \\\hline\end{array}$$ Which of the following statements is correct?

A) The consolidated group reports a net short- term capital gain of $1,000.
B) Cannon Corporation's separate return reports a $1,000 net long- term capital loss.
C) Blair Corporation's separate return reports a $4,000 net long- term capital gain.
D) All three of the above are correct.

Question 58

Parent Corporation purchases a machine (a five- year property) for $20,000. It claims $4,000 of depreciation under the MACRS rules in the first year it owns the property. At the close of business on the last day of the first year, Parent sells the machine to a 100%- owned corporation (Subsidiary) for $18,000. Subsidiary immediately commences depreciating the machine as a five- year property using the regular MACRS rules.
What gain is reported by Parent Corporation in the first year that Subsidiary Corporation depreciates the machin

Question 59

Which of the following statements is true?

A) The general business credit can be carried back 3 years and forward 15 years.
B) The general business credit can be carried forward indefinitely.
C) A consolidated group determines its general business credit on a consolidated basis.
D) The general business credit cannot be carried forward or backward.

Question 60

The Alpha- Beta affiliated group has consolidated taxable income of $400,000 and tentative general business credit of $80,000 in the current year. The maximum general business credit that can be used on the consolidated return is

A) $14,750.
B) $64,000.
C) $69,250.
D) $80,000.

Question 61

Pants and Skirt Corporations are affiliated and have filed consolidated tax returns for the past three years. Pants acquires 100% of Zipper stock on January 1 of 2019. Zipper Corporation filed separate returns previously. Pants, Skirt, and Zipper filed a consolidated return for 2019 and reported the following taxable incomes: $\begin{array}{|c|c|r|}\hline\text { Corporation } & \text { Taxable Income } & \text { Taxable Income } \\& 2018 & 2019\\\hline \text { Pants } & \$ 18,000 & \$ 12,000 \\\text { Skirt } & 9,000 & 8,000 \\\text { Zipper } & (17,000) & 20,000 \\\hline\end{array}$ How much of the 2018 Zipper NOL be used to offset CTI in 2019?

A) $0
B) $17,000
C) $20,000
D) $16,000

Question 62

Parent and Subsidiary Corporations form an affiliated group. In 2018, the initial year of operation, P and Subsidiary filed separate returns. In 2019, the group files a consolidated tax return. The results and 2019 are: $\begin{array}{l}\text { Taxable Income }\\\begin{array} { | l | r | r | } \hline & { \mathbf { 2 0 1 8 } } & { \mathbf { 2 0 1 9 } } \\\hline \text { Parent } & ( \$ 10,000 & \$ 50,000 \\\hline \text { Subsidiary } & 30,000 & ( 25,000 \\\hline\end{array}\end{array}$ How much of Subsidiary's loss can be carried back to last year?

A) $0
B) $25,000
C) $20,000
D) none of the above

Question 63

Mako and Snufco Corporations are affiliated and have filed consolidated returns for the first time in 2019. Mako acquired 100% of Zebco stock on January 1 of 2019, the date of Zebco's formation. Mako, Snufco, and Zebco, report the following taxable incomes for 2018 and 2019. $$\begin{array} { | c | c | c | } \hline \text { Corporation } & \text { Taxable Income } & \text { Taxable Income } \\& \mathbf { 2 0 1 8 } & \mathbf { 2 0 1 9 } \\\hline \text { Mako } & \$ 18,000 & \$ 12,000 \\\text { Snufco } & 9,000 & 8,000 \\\text { Zebco } & ( 25,000 ) & 15,000 \\\hline\end{array}$$ How much of the 2018 Zebco NOL be used to offset CTI in 2019?

A) $0
B) $12,000
C) $15,000
D) $20,000

Question 64

Last year, Trix Corporation acquired 100% of Track Corporation. The acquisition occurred on July 1, which was five months after Track's creation. The corporations filed separate returns that year and have filed consolidated returns since then. The group results for the years, excluding the NOL deduction, are shown below. $$\begin{array} { | c | c | c | } \hline \text { Corporation } & \begin{array} { c } \text { Taxable Income } \\\text { Last year }\end{array} & \begin{array} { c } \text { Taxable Income } \\\text { Current year }\end{array} \\\hline \text { Trix } & ( \$ 12000 ) & \$ 34,000 \\\text { Track } & ( 10,000 ) & ( 2,000 ) \\\text { Consolidated Taxable Income } & ( \$ 22,000 ) & \$ 32,000 \\\hline\end{array}$$ Which of the following statements is incorrect?

A) None of Track's last year's loss can be used to offset the current year's consolidated taxable income.
B) Last year is an SRLY (separate return limitation year) with respect to Track Corporation.
C) Track's last year loss is offset against the consolidated current taxable income.
D) Track's last year loss can be used to offset the current year's consolidated taxable income.

Question 65

Jason and Jon Corporations are members of an affiliated group whose taxable incomes (before dividends) are
$90,000 and $100,000, respectively. Jason Corporation owns all of the Jon stock. Jon Corporation received a dividend from a less- than- 20%- owned corporation of $10,000 and $25,000 from a 100%- owned nonconsolidated insurance company. Jon Corporation distributed a $40,000 dividend to Jason Corporation. Jason Corporation also received dividends from a 25%- owned corporation of $20,000. The consolidated dividends- received deduction for federal income tax purposes is what?

Question 66

Identify which of the following statements is true.

A) When applying the large corporation rules for purposes of determining underpayments, each member of an affiliated group is considered separately.
B) Once consolidated tax returns have been filed for two consecutive years, the affiliated group must pay estimated taxes on a consolidated basis.
C) The entire consolidated tax liability cannot be collected from one group member.
D) All of the above are false.

Question 67

Blue and Gold Corporations are members of the Blue- Gold affiliated group, which filed a consolidated tax return for last year, reporting a $200,000 consolidated NOL. Small taxable income amounts were reported by Blue and Gold in separate tax returns filed in years prior to last year. Early in the current year, 100% of Blue's stock is purchased by Robert Martin who contributes additional funds to Blue Corporation sufficient to acquire all of Green Corporation's stock. For the current year, the affiliated group reports the following results (excluding the consolidated NOL deduction): $$\begin{array} { | l | r | } \hline { \text { Corporation } } & \text { Taxable Income } \\\hline \text { Blue } & \$ 150,000 \\\hline \text { Gold } & ( 25,000) \\\hline \text { Green (since acquisition) } & 100,000 \\\hline\end{array}$$ Which of the following statements is correct?

A) The portion of last year's NOL that is not used as a carryback can be carried over, but is used only against the Blue's and Gold's taxable income.
B) Last year's NOL cannot be carried back.
C) The portion of last year's NOL that is not used as a carryback can be carried over against the current consolidated taxable income, but is subject to the Sec. 382 limitation.
D) The portion of last year's NOL that is not used as a carryback can be carried over the current year but is only used against Blue's taxable income.

Question 68

The Alto- Baxter affiliated group filed a consolidated return for the first time last year. The group does not come under the "large" corporation rules. For last year, the group reports a tax liability of $60,000. Cooper Corporation has a $30,000 tax liability last year. This year, the Alto- Baxter affiliated group purchased all of the Cooper stock. This year, the Alto- Baxter- Cooper group reports a $110,000 consolidated tax liability. To avoid penalties for the current year, the group must make timely estimated tax payments of how much during the year?

A) $60,000
B) $110,000
C) $90,000
D) No estimated tax payments are required.

Question 69

A consolidated 2018 NOL carryover is $36,000 at the beginning of 2019 is exists. Of the 2018 NOL, 25% of the loss is allocable to Duke Corporation. Duke Corporation leaves the group in the middle of the affiliated group's tax year. Before Duke's departure, it had earnings of $15,000 for the year, and the remainder of the affiliated group earned a total of $25,000, or $40,000 of taxable income for the group, excluding any NOL carryover. Following its departure from the affiliated group, Duke earned $8,000 in its first separate return. How much of the $36,000 NOL can Duke use on its first separate return?

Question 70

Blitzer Corporation is the parent corporation of a 10- member group that has filed consolidated tax returns for a number of years. Last year, the group sold all the stock of Wolf Corporation to Jerry Jensen. This year, Wolf Corporation reported a $300,000 NOL. Wolf's taxable income while a group member averaged $200,000 annually for the past five years but is expected to be only $50,000 next year due to start- up costs that will be incurred with the introduction of a new product line. Profits are expected to increase in each succeeding year. What issues should Blitzer have considered when trying to value Wolf's NOL prior to its sale? What tax issues should Wolf now consider when deciding how to use its NOL?

Question 71

P and S comprise an affiliated group that filed consolidated returns in 2018, 2019 and 2020. They report the following for 2018, 2019 and 2020. $\begin{array}{|l|l|l|l|} \hline & 2018 & 2019 & 2020 \\\hline \text { Parent } & 100 & 200 & 200 \\\hline \text { Subsidiary } & (500) & 100 & 100\\\hline \end{array}$ How much of the Subsidiary 2018 loss can be utilized against consolidated net income in 2019?

A) $300
B) $400
C) $240
D) $80

Question 72

Jackson and Tanker Corporations are members of an affiliated group. The two corporations have been affiliated since they were formed last year. Both corporations have always used a calendar year as their tax year. Tanker, the subsidiary, has a separate return year NOL of $14,000 from last year. Jackson Corporation has a separate return year NOL of $16,000 from last year. Commencing this year, the two corporations filed a consolidated tax return. The NOLs can be carried over

A) to a consolidated return year and both are SRLY (separate return limitation year) losses.
B) to a consolidated return year and Jackson's loss is a SRLY loss.
C) to a consolidated return year and Tanker's loss is a SRLY loss.
D) to a consolidated return year without limit.

Question 73

Identify which of the following statements is true.

A) Section 382 adopts a single- entity approach in determining ownership changes.
B) The 50- percentage- point minimum stock ownership change that triggers the Sec. 382 loss limitation rules will not occur in acquisitive transactions involving a group of corporations filing consolidated returns.
C) A built- in deduction accrues in a separate return year, but is not recognized in a consolidated return year.
D) All of the above are false.

Question 74

A member's portion of a consolidated NOL may be carried back against that member's taxable income from the preceding two separate return years.

Question 75

Parent and Subsidiary Corporations form an affiliated group. In 2018, the initial year of operation, Parent and Subsidiary filed separate returns. In 2019, the group files a consolidated return. $\begin{array}{l}\text { Taxable Income }\\\begin{array} { | l | r | c | } \hline &{ 2018 } &{ 2019 } \\\hline \text { Parent } & ( \$ 16,000 & \$ 20,000 \\\hline \text { Subsidiary } & 10,000 & ( 21,000 \\\hline\end{array}\end{array}$ How much of the Subsidiary loss can be carried back to last year?

A) $0
B) $10,000
C) $1,000
D) none of the above

Question 76

Key and Glass Corporations were organized in 2018. They became an affiliated group and filed separate tax returns. In 2019, the corporations begin filing a consolidated tax return. Key and Glass report the following results:
$\begin{array}{|l|c|c|}\hline\text { Consolidated } & \begin{array}{c}\text { Income (loss) } \\\mathbf{2 0 1 8}\end{array} & \begin{array}{c}\text { Income (loss) } \\\mathbf{2 0 1 9}\end{array} \\\hline \text { Key } & (\$ 30,000) & \$ 50,000 \\\text { Glass } & 10,000 & (35,000) \\\hline\end{array}$ Which of the following statements is not correct?

A) Key's last year NOL cannot offset this year's consolidated taxable income.
B) Key's current year income must first be offset by Glass's current year loss.
C) Key's last year NOL cannot offset Glass's last year profits.
D) All of the above are correct.

Question 77

Mariano owns all of Alpha Corporation, which owns 100% of Beta Corporation's single class of stock. On January 1, Alpha and Beta Corporations report a consolidated NOL carryover from prior years. What is the maximum percentage of Alpha Corporation's single class of stock that Mariano can sell to a single shareholder without triggering the Sec. 382 loss limitation?

A) 50%
B) 75%
C) 80%
D) 0%

Question 78

What is the consequence of having losses subject to the SRLY limitations?

Question 79

How do intercompany transactions affect the calculation of capital gains/losses?

Question 80

Parent and Subsidiary Corporations are members of an affiliated group. Their separate taxable incomes (before taking into account any dividends) are $75,000 and $85,000, respectively. Subsidiary Corporation receives a dividend from a less- than- 20%- owned corporation of $8,000 and from an affiliated 100%- owned nonconsolidated insurance subsidiary of $40,000. Subsidiary distributes a dividend of $35,000 to Parent Corporation who also receives dividends of $6,000 from a less- than- 20%- owned corporation. The consolidated dividends- received deduction is what?