Pants and Skirt Corporations are affiliated and have filed consolidated tax returns for the past three years.Pants acquires 100% of Zipper stock on January 1 of this year.Zipper Corporation filed separate returns previously.Pants,Skirt,and Zipper filed a consolidated return for the current year and reported the following taxable incomes: The $9,000 consolidated NOL reported in the current year
A)can offset taxable income of Pants and Skirt Corporations from last year.
B)can offset Zipper Corporation separate return taxable income only from last year.
C)can be used only as a carryover to the future.
D)can offset Zipper Corporation separate return taxable income from last year and then be carried forward to offset the affiliated group's subsequent taxable income.

Question

Pants and Skirt Corporations are affiliated and have filed consolidated tax returns for the past three years.Pants acquires 100% of Zipper stock on January 1 of this year.Zipper Corporation filed separate returns previously.Pants,Skirt,and Zipper filed a consolidated return for the current year and reported the following taxable incomes:  The $9,000 consolidated NOL reported in the current year
A)can offset taxable income of Pants and Skirt Corporations from last year. 
B)can offset Zipper Corporation separate return taxable income only from last year. 
C)can be used only as a carryover to the future. 
D)can offset Zipper Corporation separate return taxable income from last year and then be carried forward to offset the affiliated group's subsequent taxable income.

Quizplus · Accepted Answer

The consolidated NOL can first offset Zipper Corporation's separate return taxable income from last year. Then, the remaining NOL can be carried forward to offset the affiliated group's subsequent taxable income in the future. This is because the NOL is generated at the consolidated group level and can be used to offset any member's taxable income, as well as carried forward to future years. It cannot be used to offset the taxable income of Pants and Skirt Corporations from last year since they filed a consolidated return and their taxable income is already included in the current year consolidated return.

Pants and Skirt Corporations Are Affiliated and Have Filed Consolidated