ParentCo and SubOne have filed consolidated returns since 2006.SubTwo was formed in 2009 through an asset spin-off from ParentCo.SubTwo has joined in the filing of consolidated returns since then.Taxable income computations for the members include the following.None of the group members incurred any capital gain or loss transactions during these years,nor did they make any charitable contributions.

If ParentCo does not elect to forgo the carryback of the 2009 net operating loss,what portion of the 2009 consolidated net operating loss is carried back to offset prior years' income?
A)$120,000.
B)$90,000.
C)$40,000.
D)$30,000.
E)$0.

Question

ParentCo and SubOne have filed consolidated returns since 2006.SubTwo was formed in 2009 through an asset spin-off from ParentCo.SubTwo has joined in the filing of consolidated returns since then.Taxable income computations for the members include the following.None of the group members incurred any capital gain or loss transactions during these years,nor did they make any charitable contributions.

If ParentCo does not elect to forgo the carryback of the 2009 net operating loss,what portion of the 2009 consolidated net operating loss is carried back to offset prior years' income?

If ParentCo does not elect to forgo the carryback of the 2009 net operating loss,what portion of the 2009 consolidated net operating loss is carried back to offset prior years' income?
A)$120,000. 
B)$90,000. 
C)$40,000. 
D)$30,000. 
E)$0.

Quizplus · Accepted Answer

For a consolidated return,current year operating losses must first be used to reduce the current year income of the group and thereafter may be carried back or forward.The group has a net operating loss for 2009 of $90,000.Of this amount,$30,000 is allocable to SubOne [$90,000 NOL F1F1F1S1F1F1F10 $40,000 ÷ ($40,000 + $80,000)],and $60,000 is allocable to SubTwo [$40,000 NOL F1F1F1S1F1F1F10 $80,000 ÷ ($40,000 + $80,000)].The Offspring Rule applies because SubTwo became a member of the group immediately upon its incorporation.Accordingly,the group may carry back SubTwo's 2009 loss to offset the group's 2007 consolidated taxable income,as well as SubOne's,despite the fact that SubTwo was not yet in existence.

ParentCo and SubOne Have Filed Consolidated Returns Since 2006