Purple, Inc., a domestic corporation, owns 80% of Blue, Ltd., a foreign corporation and Yellow, Inc., a domestic corporation. Purple also owns 50% of Green, Inc., a domestic corporation. Purple receives no distributions from any of these corporations. Which of these entities' net income are included in Purple's Federal tax return for the current year assuming Purple elects to include all eligible entities in its consolidated Federal income tax return?

Question

Quizplus · Accepted Answer

In a consolidated Federal income tax return, only domestic corporations in which the parent corporation owns at least 80% of the stock are included. Therefore, Purple and Yellow's net income are included, but not Blue (foreign corporation) or Green (only 50% owned).