Question 1

Cooper Corporation joined the Duck consolidated Federal income tax return group when Cooper held a $1 million NOL carryforward. In its first year as a part of the Duck group, Cooper generated a $150,000 operating profit. For that year, Duck can deduct only $150,000 of Cooper's NOL in computing consolidated taxable income.

Accepted Answer

When a corporation joins a consolidated group, its NOL carryforwards can be used to offset its own income first. Since Cooper generated a $150,000 operating profit in its first year as part of the Duck group, only that amount of Cooper's NOL carryforward can be used to offset the consolidated taxable income for that year.

Question 2

When a consolidated NOL is generated, each affiliate is allocated a share of the loss.

Accepted Answer

In a consolidated tax return, the net operating loss (NOL) is shared among the affiliates based on their contribution to the loss, allowing each affiliate to potentially benefit from the NOL.

Question 3

In computing consolidated taxable income, compensation amounts are removed from the taxable incomes of the group members and determined on a group basis.

Accepted Answer

In computing consolidated taxable income, compensation amounts are not removed from the taxable incomes of the group members. Each member's taxable income is calculated individually, including their compensation amounts, before being combined to determine the group's consolidated taxable income.

Question 4

The starting point in computing consolidated taxable income is the sum of the separate Federal taxable income amounts of the affiliated group members.

Accepted Answer

The starting point in computing consolidated taxable income is indeed the sum of the separate Federal taxable income amounts of the affiliated group members, before any intercompany eliminations and adjustments are made.

Question 5

In computing consolidated E & P, dividends paid to the parent by group members are subtracted.

Accepted Answer

In computing consolidated Earnings and Profits (E&P), dividends paid to the parent by group members are not subtracted because these intercompany dividends are eliminated in consolidation.

Question 6

Keep Corporation joined an affiliated group by merger in 2010. The group generated a 2018 consolidated NOL, and Keep's share of the loss was $50,000. Keep's share of the loss is included in the group's NOL carryforward to 2019.

Accepted Answer

In the United States, when a corporation becomes part of an affiliated group that files a consolidated tax return, the group's net operating losses (NOLs) can be shared among the members of the group. This means that Keep Corporation's share of the 2018 consolidated NOL would be included in the group's NOL carryforward to 2019, allowing the group to offset its 2019 income with losses incurred in 2018, including those attributed to Keep Corporation.

Question 7

Consolidated group members each are jointly and severally liable for the entire consolidated Federal income tax liability.

Accepted Answer

In a consolidated tax return, all members of the group are jointly and severally liable for the entire tax liability, meaning each member can be held responsible for the full amount.

Question 8

If subsidiary stock is redeemed or sold outside the group when an excess loss account exists, the selling parent corporation recognizes ordinary income equal to the account balance.

Accepted Answer

The answer of If subsidiary stock is redeemed or sold...

Question 9

Each member of a consolidated group must use the same tax year-end, and all of the members must use the same tax accounting methodse.g., LIFO or FIFO).

Accepted Answer

While each member of a consolidated group must use the same tax year-end, they are not required to use the same tax accounting methods (e.g., LIFO or FIFO) for inventory.

Question 10

In computing consolidated taxable income, capital gains and losses are removed from the taxable incomes of the group members and determined on a group basis.

Accepted Answer

Capital gains and losses are consolidated and determined on a group basis under the rules of consolidated taxable income.

Question 11

Cooper Corporation joined the Duck consolidated Federal income tax return group when Cooper held a $1 million NOL carryforward. In its first year as a part of the Duck group, Cooper generated a $150,000 taxable loss. For that year, Duck cannot deduct any of Cooper's NOL in computing consolidated taxable income.

Accepted Answer

When a corporation joins a consolidated group, its pre-existing NOL carryforwards can only be used to offset its own income, not the income of the group.

Question 12

When the net accumulated taxable losses of a subsidiary exceed the parent's acquisition price, the parent's basis in the subsidiary's stock becomes negative.

Accepted Answer

The parent's basis in the subsidiary's stock cannot become negative; instead, it would be reduced to zero, and any losses beyond that point would not be recognized for tax purposes until the subsidiary generates future income or the investment is disposed of.

Question 13

When a member departs from a consolidated group, it leaves behind any NOLs that it generated while in the group.
The parent corporation and remaining affiliates apply those NOLs against future consolidated taxable income.

Accepted Answer

The answer of When a member departs from a consolidated...

Question 14

A Federal consolidated filing group aggregates its separate charitable contributions for the tax year, deductions for which are then subject to an annual limitation of 10% of consolidated taxable income.

Accepted Answer

A Federal consolidated filing group can aggregate charitable contributions, and the deduction is limited to 10% of the consolidated taxable income, as per IRS regulations.

Question 15

A Federal consolidated tax return group can apply the "relative taxable income" method as a means to apportion the tax liabilities of the members among the affiliates.

Accepted Answer

The "relative taxable income" method is one of the accepted approaches for apportioning tax liabilities among members of a consolidated tax return group, based on the proportion of each member's taxable income relative to the total taxable income of the group.

Question 16

In computing consolidated E & P, a negative adjustment is allowed for the group's disallowed entertainment expenditures.

Accepted Answer

The answer of In computing consolidated E & P, a...

Question 17

An example of an intercompany transaction is the use of the trademarks of the parent corporation by a subsidiary for an arm's length licensing fee.

Accepted Answer

Intercompany transactions involve financial activities between two entities within the same corporate group. When a subsidiary pays a licensing fee to its parent corporation for the use of trademarks, it is an example of such a transaction, reflecting the internal financial arrangements and transfers within the corporate structure.

Question 18

When a subsidiary sells to the parent some business-use property that has appreciated from its $20,000 basis to a
$50,000 fair market value, the subsidiary immediately recognizes $30,000 ordinary income on the consolidated return.

Accepted Answer

The subsidiary does not recognize the $30,000 gain as ordinary income immediately on a consolidated return because intercompany transactions are eliminated in consolidation. The gain would be deferred and not recognized until the property is sold to an outside party.

Question 19

In computing consolidated taxable income, capital gains and losses are removed from the taxable incomes of the group members and determined on a group basis.

Accepted Answer

In consolidated tax filings, capital gains and losses from individual group members are not considered separately. Instead, they are aggregated and calculated on a consolidated basis for the entire group, allowing for the offsetting of gains and losses within the group.

Question 20

With the filing of its first consolidated return, the parent corporation of a Federal consolidated group makes an irrevocable election as to how the group will allocate a tax year's income tax liability among the group members.

Accepted Answer

The election regarding the allocation of a tax year's income tax liability among the members of a Federal consolidated group is not irrevocable. The parent corporation can choose a different allocation method in a subsequent year by filing a statement with its consolidated return for that year.

Quiz 8: Consolidated Tax Returns

When a consolidated NOL is generated, each affiliate is allocated a share of the loss.

In computing consolidated taxable income, compensation amounts are removed from the taxable incomes of the group members and determined on a group basis.

The starting point in computing consolidated taxable income is the sum of the separate Federal taxable income amounts of the affiliated group members.

In computing consolidated E & P, dividends paid to the parent by group members are subtracted.

Keep Corporation joined an affiliated group by merger in 2010. The group generated a 2018 consolidated NOL, and Keep's share of the loss was $50,000. Keep's share of the loss is included in the group's NOL carryforward to 2019.

Consolidated group members each are jointly and severally liable for the entire consolidated Federal income tax liability.

If subsidiary stock is redeemed or sold outside the group when an excess loss account exists, the selling parent corporation recognizes ordinary income equal to the account balance.

Each member of a consolidated group must use the same tax year-end, and all of the members must use the same tax accounting methodse.g., LIFO or FIFO).

In computing consolidated taxable income, capital gains and losses are removed from the taxable incomes of the group members and determined on a group basis.

When the net accumulated taxable losses of a subsidiary exceed the parent's acquisition price, the parent's basis in the subsidiary's stock becomes negative.

When a member departs from a consolidated group, it leaves behind any NOLs that it generated while in the group. The parent corporation and remaining affiliates apply those NOLs against future consolidated taxable income.

A Federal consolidated filing group aggregates its separate charitable contributions for the tax year, deductions for which are then subject to an annual limitation of 10% of consolidated taxable income.

A Federal consolidated tax return group can apply the "relative taxable income" method as a means to apportion the tax liabilities of the members among the affiliates.

In computing consolidated E & P, a negative adjustment is allowed for the group's disallowed entertainment expenditures.

An example of an intercompany transaction is the use of the trademarks of the parent corporation by a subsidiary for an arm's length licensing fee.

When a subsidiary sells to the parent some business-use property that has appreciated from its $20,000 basis to a $50,000 fair market value, the subsidiary immediately recognizes $30,000 ordinary income on the consolidated return.

In computing consolidated taxable income, capital gains and losses are removed from the taxable incomes of the group members and determined on a group basis.

With the filing of its first consolidated return, the parent corporation of a Federal consolidated group makes an irrevocable election as to how the group will allocate a tax year's income tax liability among the group members.