ParentCo, SubOne and SubTwo have filed consolidated returns since Year 2. All of the entities were incorporated in Year 1. Taxable income computations for the members include the following. None of the group members incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. $$\begin{array} { c c c c c }
& \text { ParentCo's } & \text { SubOne's Taxable } & \text { SubTw o's Taxable } & \text { Consolidated } \
\text { Year } & \text { Taxable Income } & \text { Income } & \text { Income } & \text { Taxable Income } \
\text { Year 1 } & \$ 200,000 & \$ 50,000 & \$ 150,000 & \text { N/A } \
\text { Year 2 } & \$ 200,000 & ( \$ 60,000 ) & \$ 70,000 & \$ 210,000 \
\text { Year 3 } & \$ 20,000 & ( \$ 60,000 ) & ( \$ 40,000 ) & ? \
\text { Year 4 } & \$ 200,000 & \$ 130,000 & \$ 10,000 & ?
\end{array}$$ How should the Year 3 consolidated net operating loss be apportioned among the group members? ParentCo SubOne SubTwo
A)$80,000 $ 0 $ 0
B)$ 0 $60,000 $40,000
C)$ 0 $40,000 $40,000
D)$ 0 $48,000 $32,000

Question

ParentCo, SubOne and SubTwo have filed consolidated returns since Year 2. All of the entities were incorporated in Year 1. Taxable income computations for the members include the following. None of the group members incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. $$\begin{array} { c c c c c } 
& \text { ParentCo's } & \text { SubOne's Taxable } & \text { SubTw o's Taxable } & \text { Consolidated } \
\text { Year } & \text { Taxable Income } & \text { Income } & \text { Income } & \text { Taxable Income } \
\text { Year 1 } & \$ 200,000 & \$ 50,000 & \$ 150,000 & \text { N/A } \
\text { Year 2 } & \$ 200,000 & ( \$ 60,000 ) & \$ 70,000 & \$ 210,000 \
\text { Year 3 } & \$ 20,000 & ( \$ 60,000 ) & ( \$ 40,000 ) & ? \
\text { Year 4 } & \$ 200,000 & \$ 130,000 & \$ 10,000 & ?
\end{array}$$ How should the Year 3 consolidated net operating loss be apportioned among the group members? ParentCo SubOne SubTwo
A)$80,000 $ 0 $ 0
B)$ 0 $60,000 $40,000
C)$ 0 $40,000 $40,000
D)$ 0 $48,000 $32,000

Quizplus · Accepted Answer

The consolidated net operating loss is apportioned among the group members based on their separate taxable incomes. In Year 3, ParentCo had a taxable income of $20,000, SubOne had a taxable loss of $60,000, and SubTwo had a taxable loss of $40,000. The consolidated net operating loss is $120,000 ($20,000 + $60,000 + $40,000). ParentCo's share of the loss is $0, SubOne's share of the loss is $48,000 ($60,000 x $120,000/$120,000), and SubTwo's share of the loss is $32,000 ($40,000 x $120,000/$120,000).

ParentCo, SubOne and SubTwo Have Filed Consolidated Returns Since Year