Question 1

What are the differences between a controlled group and an affiliated group?

Accepted Answer

Three forms of controlled groups are permitted - brother-sister groups, parent-subsidiary groups, and combined groups. Only parent-subsidiary groups and the parent-subsidiary portion of a combined group can elect to file a consolidated tax return. Four primary differences between a controlled group and an affiliated group exist. First, the two 80% stock ownership tests must be met to have an affiliated group. Only one of the tests needs to be met to have a controlled group. Second, the controlled group definition uses certain stock attribution rules and included and excluded corporation rules that are not used in testing for an affiliated group. Third, certain special status corporations are excluded from the affiliated group definition that may be included in a controlled group. Fourth, the controlled group definition is tested only at December 31. The affiliated group definition must be tested on each day of the year. See Chapter C3 for further discussion of controlled group topics.

Question 2

To be an affiliated group, the parent corporation must directly own at least 80% of another group member.

Accepted Answer

To be considered an affiliated group, the parent corporation must have at least 80% direct ownership of another group member.

Question 3

What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?

Accepted Answer

Special tax status corporations are not includible corporations.
• Exempt corporations under Sec. 501
• Insurance companies subject to tax under Sec. 801
• Foreign corporations
• Corporations claiming the Puerto Rico and U.S. possessions tax credit
• Regulated investment companies
• Real estate investment trusts
• Domestic international sales corporations
• S corporations

Question 4

Which of the following corporations is entitled to join in a consolidated tax return without making a special election?

Accepted Answer

Closely held corporations are entitled to join in a consolidated tax return without making a special election, as long as they meet the necessary ownership requirements. Other types of corporations may need to make a special election to join a consolidated tax return.

Question 5

Cardinal and Bluebird Corporations both use a calendar year as their tax year. At the close of business on June 30, Cardinal Corporation buys all of Bluebird Corporation's stock. If the two corporations file a consolidated return and both corporations earn their income evenly throughout the year, what portion of Cardinal's income will be included in the consolidated return? (Assume all months have 30 days.)

Accepted Answer

Since Cardinal Corporation buys all of Bluebird Corporation's stock and they file a consolidated return, 100% of Cardinal's income for the entire year will be included in the consolidated return, regardless of the acquisition date.

Question 6

Brother-sister controlled groups can elect to file a consolidated tax return.

Accepted Answer

Brother-sister controlled groups cannot elect to file a consolidated tax return because consolidated returns are generally limited to parent-subsidiary controlled groups.

Question 7

Cardinal and Bluebird Corporations both use a calendar year as their tax year. At the close of business on June 30, Cardinal Corporation buys all of Bluebird Corporation's stock. If the two corporations file a consolidated return and both corporations earn their income evenly throughout the year, what portion of Bluebird's income will be included in the consolidated return? (Assume all months have 30 days.)

Accepted Answer

Since Cardinal Corporation bought Bluebird Corporation's stock at the end of June, Bluebird Corporation earned income for the first six months of the year. Therefore, 50% of Bluebird Corporation's income will be included in the consolidated return.

Question 8

Diana Corporation owns stock of Tomika Corporation. For Diana and Tomika to qualify for the filing of consolidated returns, at least what percentage of Tomika's total voting power and total value of stock must be directly owned by Diana?

Accepted Answer

The answer of Diana Corporation owns stock of Tomika Corporation....

Question 9

Toby Corporation owns 85% of James Corporation's single class of stock and 35% of Mony Corporation's single class of stock. James Corporation owns 45% of Mony's stock. The remainder of James and Mony's stock is owned by 80 individual shareholders. Are the corporations part of an affiliated group, and can they elect to file a consolidated tax return?

Accepted Answer

The answer of Toby Corporation owns 85% of James Corporation's...

Question 10

Jeffrey Corporation owns 85% of Placer Corporation and 25% of Mercer Corporation. Placer Corporation owns 60% of Mercer Corporation and 45% of Tyson Corporation. Jeffrey Corporation also owns 85% of Apple Corporation and Apple Corporation owns 30% of Tyson Corporation. Which of these corporations are members of an affiliated group if all percentages represent voting power and value held by the respective corporations?

Accepted Answer

The answer of Jeffrey Corporation owns 85% of Placer Corporation...

Question 11

Identify which of the following statements is true.

Accepted Answer

A is false because even if the same individual owns 100% of the stocks of two corporations, they must meet certain criteria to be eligible to file a consolidated return. 
C is false because even if a group of corporations meets the parent-subsidiary controlled group requirements, they still need to meet other criteria to be eligible to file a consolidated return. 
B is true because the check-the-box regulations provide flexibility for a partnership or LLC to elect to be taxed as a C corporation, which can have tax benefits in certain situations.

Question 12

Identify which of the following statements is true.

Accepted Answer

Choice A is false because the ownership requirement for affiliated group eligibility is at least 80% owned (directly or indirectly) by the parent corporation. Choice B is false because both common and preferred stock are considered when determining the 80% ownership test. Choice C is true because an affiliated group electing to file a consolidated return may be composed of as few as two corporations. Choice D is false because at least one of the statements (Choice C) is true.

Question 13

Explain the requirements a group of corporations must meet in order to elect to file a consolidated return.

Accepted Answer

The answer of Explain the requirements a group of corporations...

Question 14

A Canadian subsidiary cannot file as part of the consolidated group with its U.S. parent.

Accepted Answer

The answer of A Canadian subsidiary cannot file as part...

Question 15

Ajak Corporation owns 85% of the single class of Utech Corporation stock. Utech Corporation owns 35% of Tech Corporation. Ajak Corporation also owns 50% of Tech Corporation, and Tech Corporation owns 75% of Baxter Corporation.

Accepted Answer

According to the rules of affiliation, a group must have at least 80% ownership between any two corporations in the group. Ajak owns 85% of Utech, which is more than 80%, establishing a connection between Ajak and Utech. Furthermore, since Ajak and Tech are both owners of Tech Corporation with a combined ownership of 100%, they are also affiliated. Finally, Tech Corporation owns 75% of Baxter Corporation, establishing a connection between Tech and Baxter. Therefore, Ajak, Tech, and Utech are an affiliated group. Baxter is not part of this group since it does not have more than 80% ownership between any other member of the group.

Question 16

Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return?

Accepted Answer

Only C, a car manufacturing corporation, is an includible corporation for purposes of filing a consolidated tax return. Insurance companies and foreign corporations have specific tax treatment and cannot be included in a consolidated return. S corporations are pass-through entities and are ineligible for consolidated returns.

Question 17

A separate return year is a corporation's tax year for which it files a separate tax return or files a consolidated tax return with another affiliated group.

Accepted Answer

A separate return year is when a corporation files its own tax return separate from any affiliated groups, or files a consolidated tax return with a different affiliated group with a different tax year.

Question 18

The election to file a consolidated return is made annually.

Accepted Answer

The election to file a consolidated tax return is not made annually; once made, it applies to the current tax year and all subsequent tax years until the election is formally revoked.

Question 19

Toby owns all of the single class of stock of James and Mony Corporations. James Corporation owns all of Volt Corporation's stock. Mony owns all of Wegnin Corporation. Mony and Wegnin Corporations are foreign corporations. Toby, James, and Volt are domestic corporations. Are the corporations part of an affiliated group?

Accepted Answer

The answer of Toby owns all of the single class...

Question 20

What issues determine whether an affiliated group exists?

Accepted Answer

The answer of What issues determine whether an affiliated group...

Quiz 8: Consolidated Tax Returns

What are the differences between a controlled group and an affiliated group?

To be an affiliated group, the parent corporation must directly own at least 80% of another group member.

What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?

Which of the following corporations is entitled to join in a consolidated tax return without making a special election?

Brother-sister controlled groups can elect to file a consolidated tax return.

Diana Corporation owns stock of Tomika Corporation. For Diana and Tomika to qualify for the filing of consolidated returns, at least what percentage of Tomika's total voting power and total value of stock must be directly owned by Diana?

Identify which of the following statements is true.

Identify which of the following statements is true.

Explain the requirements a group of corporations must meet in order to elect to file a consolidated return.

A Canadian subsidiary cannot file as part of the consolidated group with its U.S. parent.

Ajak Corporation owns 85% of the single class of Utech Corporation stock. Utech Corporation owns 35% of Tech Corporation. Ajak Corporation also owns 50% of Tech Corporation, and Tech Corporation owns 75% of Baxter Corporation.

Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return?

A separate return year is a corporation's tax year for which it files a separate tax return or files a consolidated tax return with another affiliated group.

The election to file a consolidated return is made annually.

What issues determine whether an affiliated group exists?