Create, Inc., a domestic corporation, owns 90% of Vinyl, Ltd., a foreign corporation and Digital, Inc., a domestic corporation. Create also owns 60% of Record, Inc., a domestic corporation. Create receives no distributions from any of these corporations. Which of these entities' net income are included in Create's Federal income tax return for the current year, assuming that Create elects to include all eligible entities in its consolidated Federal income tax return?
A)Create, Vinyl, Digital, and Record.
B)Create, Vinyl, and Digital.
C)Create, Vinyl, and Record.
D)Create and Digital.

Question

Quizplus · Accepted Answer

In a consolidated Federal income tax return, only domestic corporations that are part of an affiliated group can be included. Since Create owns 90% of Digital, Inc., it can be included. Record, Inc. cannot be included because Create only owns 60%, which is less than the 80% required for consolidation. Vinyl, Ltd. is a foreign corporation and cannot be included in a domestic consolidated return.