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

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According to the intercompany transfer rules, when one member of an affiliated group sells inventory to another member outside of the consolidated group, any gain recognized by the selling member must be recognized by the buying member as well. Therefore, if P sells inventory acquired from S outside of the affiliated group, any gain recognized by S will be triggered.

P and S Are Members of an Affiliated Group That