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
A)can offset taxable income of Pants and Skirt Corporations from last year.
B)can offset Zipper Corporation separate return taxable income only from last year.
C)can be used only as a carryover to the future.
D)can offset Zipper Corporation separate return taxable income from last year and then be carried forward to offset the affiliated group's subsequent taxable income.

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
A)can offset taxable income of Pants and Skirt Corporations from last year. 
B)can offset Zipper Corporation separate return taxable income only from last year. 
C)can be used only as a carryover to the future. 
D)can offset Zipper Corporation separate return taxable income from last year and then be carried forward to offset the affiliated group's subsequent taxable income.

Quizplus · Accepted Answer

The consolidated NOL can offset Zipper Corporation's separate return taxable income from last year and thereafter can be carried forward to offset the affiliated group's subsequent taxable income. This is because the NOL is generated by the consolidated group, which includes Zipper Corporation after its acquisition by Pants. As such, it can be used to offset the taxable income of any member of the consolidated group, including Zipper Corporation's separate taxable income from last year. Any unused amount can be carried forward to offset future taxable income of the consolidated group. It cannot be used to offset taxable income of Pants and Skirt Corporations from last year since they were not part of the same consolidated group that generated the NOL in the prior years.

Pants and Skirt Corporations Are Affiliated and Have Filed Consolidated