Question 1

Identify which of the following statements is true.

Accepted Answer

An affiliated group electing to file a consolidated return may be composed of as few as two corporations. The other statements are false - the ownership threshold for an affiliated group is 80% (but it can include indirect ownership), and all types of stock (not just common stock) are considered when determining ownership.

Question 2

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

Accepted Answer

Brother-sister controlled groups cannot elect to file a consolidated tax return because consolidated returns are generally limited to parent-subsidiary controlled groups.

Question 3

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. )

Accepted Answer

Since Cardinal Corporation buys all of Bluebird Corporation's stock and they file a consolidated return, 100% of Cardinal's income for the entire year will be included in the consolidated return, regardless of the acquisition date.

Question 4

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. )

Accepted Answer

Since Cardinal Corporation acquired Bluebird Corporation on June 30, only half of the income earned by Bluebird Corporation for the year would be included in the consolidated return. Specifically, the income earned by Bluebird Corporation from January 1 to June 30 (which accounts for 6 out of the 12 months of the calendar year) would be included.

Question 5

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?

Accepted Answer

The answer of Jeffrey Corporation owns 85% of Placer Corporation...

Question 6

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.

Accepted Answer

Affiliation requires at least 80% ownership in at least one other corporation in the group. Ajak Corporation owns 85% of Utech Corporation and 50% of Tech Corporation, which means Ajak is affiliated with both Utech and Tech. Tech Corporation owns 75% of Baxter Corporation, so Tech and Baxter are also affiliated. However, Ajak and Baxter do not have a direct ownership relationship, so they are not a part of the same affiliated group. Therefore, the correct choice is C, Ajak, Tech, and Utech Corporations are an affiliated group.

Question 7

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

Accepted Answer

Closely held corporations (defined as corporations with fewer than 5 shareholders who own more than 50% of the stock) are automatically eligible to join in a consolidated tax return without making a special election.

Question 8

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

Accepted Answer

According to the IRS, in order to be an affiliated group, the parent corporation must have at least 80% direct ownership of another group member.

Question 9

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?

Accepted Answer

For consolidated tax returns, a parent corporation must own at least 80% of the voting power and 80% of the total value of the subsidiary's stock.

Question 10

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

Accepted Answer

The answer of Explain the requirements a group of corporations...

Question 11

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?

Accepted Answer

The answer of Toby Corporation owns 85% of James Corporation's...

Question 12

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

Accepted Answer

The answer of A Canadian subsidiary cannot file as part...

Question 13

What issues determine whether an affiliated group exists?

Accepted Answer

The answer of What issues determine whether an affiliated group...

Question 14

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

Accepted Answer

The answer of What types of corporations are not includible...

Question 15

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

Accepted Answer

The answer of What are the differences between a controlled...

Question 16

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

Accepted Answer

For purposes of filing a consolidated tax return, only domestic corporations are includible corporations. S corporations and foreign corporations do not qualify, and while insurance companies can be included in a consolidated return under certain circumstances, they are not always includible. The car manufacturing corporation would be the best choice as it is the only option given that is a potential includible corporation.

Question 17

The election to file a consolidated return is made annually.

Accepted Answer

The election to file a consolidated tax return is not made annually; once made, it applies to the current tax year and all subsequent tax years until the election is formally revoked.

Question 18

Identify which of the following statements is true.

Accepted Answer

A is false because even if the same individual owns 100% of the stocks of two corporations, they must meet certain criteria to be eligible to file a consolidated return. 
C is false because even if a group of corporations meets the parent-subsidiary controlled group requirements, they still need to meet other criteria to be eligible to file a consolidated return. 
B is true because the check-the-box regulations provide flexibility for a partnership or LLC to elect to be taxed as a C corporation, which can have tax benefits in certain situations.

Question 19

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.

Accepted Answer

A separate return year is a valid tax year option for corporations, allowing them to file their own tax return separate from any affiliated groups or to file a consolidated tax return with another affiliated group.

Question 20

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?

Accepted Answer

The answer of Toby owns all of the single class...

Quiz 8: Consolidated Tax Returns

Identify which of the following statements is true.

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

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.

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

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

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?

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

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

What issues determine whether an affiliated group exists?

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

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

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

The election to file a consolidated return is made annually.

Identify which of the following statements is true.

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.