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 is 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

For U.S. Federal income tax purposes, a consolidated tax return can include the parent corporation and all of its 100% owned domestic subsidiary corporations. Since Create, Inc. owns 90% of Vinyl, Ltd. (a foreign corporation), it cannot be included in the consolidated return. Record, Inc., of which Create owns only 60%, also cannot be included due to not being wholly owned. Therefore, only Create, Inc. and Digital, Inc., which is a 100% owned domestic subsidiary, can be included in the consolidated Federal income tax return.