Question 1

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-Gain deferral on intercompany transactions

Accepted Answer

The gain deferral on intercompany transactions is an advantage of consolidating because it allows for the deferral of taxes on any gains or losses that arise from transactions between companies within the consolidated group. By consolidating, these gains and losses can be netted against each other, resulting in potential tax savings.

Question 2

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-Binding nature of election over multiple tax years

Accepted Answer

The binding nature of election over multiple tax years is considered a disadvantage of consolidating because once an election is made, it often cannot be changed in future years without IRS consent, limiting flexibility.

Question 3

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary.
-Member's operating loss, when stock basis = $0

Accepted Answer

When the stock basis is already $0, a member's operating loss does not further decrease the basis, as it cannot go below zero.

Question 4

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-Offsetting gains against other members' losses

Accepted Answer

Offsetting gains against other members' losses is an advantage of consolidating because it allows the group to reduce its overall tax liability by combining the profits and losses of all the entities.

Question 5

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-Loss deferral on intercompany transactions

Accepted Answer

Loss deferral on intercompany transactions is considered a disadvantage of consolidating because it prevents the recognition of losses on transactions between companies within the consolidated group until those items are sold to an outside party. This can delay tax benefits that might otherwise be available.

Question 6

Forming a Federal consolidated tax return group is a discretionary action by eligible affiliates. List several tax attributes and situations that might make a subsidiary an attractive partner for a parent corporation on a consolidated return.

Accepted Answer

The answer of Forming a Federal consolidated tax return group...

Question 7

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-Tax compliance deadlines and recordkeeping

Accepted Answer

The answer of Match each of the following terms with...

Question 8

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary.
-Member's operating gains/profits

Accepted Answer

Member's operating gains/profits increase the parent's basis in the stock of a subsidiary.

Question 9

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary.
-Dividend paid to parent out of affiliate's E & P

Accepted Answer

Dividends paid out of affiliate's E&P reduce the parent's basis in the stock of a subsidiary.

Question 10

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-Tax treatment of operating losses when the basis of the payor's stock is zero

Accepted Answer

When a consolidated Federal income tax return is filed, the operating losses of one member may offset the income of another member, lowering the group's overall tax liability. However, if the basis of the payor's stock is zero, the operating losses may be limited or suspended, resulting in a disadvantage for consolidating.

Question 11

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary.
-Member's operating loss

Accepted Answer

A member's operating loss decreases the parent's basis in the stock of a subsidiary.

Question 12

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-Choice of tax year-ends by affiliates

Accepted Answer

The answer of Match each of the following terms with...

Question 13

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not.
-Ownership level of parent at which a subsidiary can join the consolidated group.

Accepted Answer

The treatment for financial accounting and Federal income tax purposes may differ depending on the ownership level of the parent at which a subsidiary can join the consolidated group. For financial accounting purposes, ownership of greater than 50% is required for consolidation. However, for Federal income tax purposes, ownership of at least 80% is required. Therefore, the treatment for financial accounting and Federal income tax purposes is different in this case.

Question 14

Gold, Silver, and Tin are the affiliates in a Federal consolidated group. Each of the members conducts traditional manufacturing activities. Is a domestic production activities deduction (DPAD) available to the group members? Explain.

Accepted Answer

The answer of Gold, Silver, and Tin are the affiliates...

Question 15

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary.
-Member's capital gain

Accepted Answer

A member's capital gain increases the stock basis of the subsidiary.

Question 16

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary.
-Increase in affiliate's E & P

Accepted Answer

The answer of Match each of the following items with...

Question 17

Members of the ABCD Federal consolidated group conduct various transactions with each other during the tax year. These include the purchase/sale of land and depreciable assets, the licensing of intangible assets, and the conduct of service arrangements. How does the tax law account for these intercompany items? In your answer, be sure to use the terms matching rule and acceleration rule at least once each.

Accepted Answer

The answer of Members of the ABCD Federal consolidated group...

Question 18

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-A new affiliate uses the LIFO method for inventories

Accepted Answer

The answer of Match each of the following terms with...

Question 19

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.
-Joint and several liability for Federal income tax

Accepted Answer

Joint and several liability for Federal income tax is a disadvantage of consolidating because it means that each member of the consolidated group is individually responsible for the entire amount of tax owed, not just their portion. This increases the risk and potential financial burden for each member.

Question 20

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not.
-Parent owns 100% of a U.S. partnership and wants the entity to join the consolidated group.

Accepted Answer

For financial accounting purposes, the U.S. partnership would be consolidated into the parent's financial statements. However, for Federal income tax purposes, partnerships are treated as separate entities and cannot be included in a consolidated tax return. Therefore, the tax treatment would differ from the book treatment.

Quiz 8: Consolidated Tax Returns

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Gain deferral on intercompany transactions

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Binding nature of election over multiple tax years

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary. -Member's operating loss, when stock basis = $0

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Offsetting gains against other members' losses

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Loss deferral on intercompany transactions

Forming a Federal consolidated tax return group is a discretionary action by eligible affiliates. List several tax attributes and situations that might make a subsidiary an attractive partner for a parent corporation on a consolidated return.

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Tax compliance deadlines and recordkeeping

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary. -Member's operating gains/profits

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary. -Dividend paid to parent out of affiliate's E & P

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Tax treatment of operating losses when the basis of the payor's stock is zero

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary. -Member's operating loss

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Choice of tax year-ends by affiliates

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not. -Ownership level of parent at which a subsidiary can join the consolidated group.

Gold, Silver, and Tin are the affiliates in a Federal consolidated group. Each of the members conducts traditional manufacturing activities. Is a domestic production activities deduction (DPAD) available to the group members? Explain.

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary. -Member's capital gain

Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent's basis in the stock of a subsidiary. -Increase in affiliate's E & P

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -A new affiliate uses the LIFO method for inventories

Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return. -Joint and several liability for Federal income tax

Match each of the following items with the appropriate description, indicating whether the item's treatment for financial accounting and Federal income tax purposes is the same or not. -Parent owns 100% of a U.S. partnership and wants the entity to join the consolidated group.