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 this year. Zipper Corporation filed separate returns previously. Pants, Skirt, and Zipper filed a consolidated return for the current year and reported the following taxable incomes: The $9,000 consolidated NOL reported in the current year

Question

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 this year. Zipper Corporation filed separate returns previously. Pants, Skirt, and Zipper filed a consolidated return for the current year and reported the following taxable incomes:  The $9,000 consolidated NOL reported in the current year

Quizplus · Accepted Answer

The $9,000 consolidated NOL reported in the current year can be used to offset Zipper Corporation separate return taxable income from last year and then be carried forward to offset the affiliated group's subsequent taxable income. This is because the NOL can only be used to offset income from the same entity that generated the loss or from entities that are part of the same affiliated group at the time the loss was incurred. Since Zipper Corporation filed separate returns previously, it can only use the NOL to offset its own prior year taxable income. However, once the NOL is used by Zipper, any remaining amount can be carried forward to offset the consolidated taxable income of the affiliated group in future years.

Pants and Skirt Corporations Are Affiliated and Have Filed Consolidated