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 is included in Purple's Federal income tax return for the current year, assuming that Purple elects to include all eligible entities in its consolidated Federal income tax return?

Question

Quizplus · Accepted Answer

For U.S. Federal income tax purposes, a consolidated tax return can include the income of a parent corporation and its 80% or more owned domestic subsidiaries. Since Purple, Inc. owns 80% of Yellow, Inc., a domestic corporation, both can be included in the consolidated tax return. Blue, Ltd., being a foreign corporation, and Green, Inc., of which Purple owns only 50%, do not qualify for inclusion in the consolidated return.