ParentCo purchased all of the stock of SubCo on January 2,2008,and the two companies filed consolidated returns for 2008 and thereafter.Both entities were incorporated in 2007.Taxable income computations for the members include the following.Neither group member incurred any capital gain or loss transactions during these years,nor did they make any charitable contributions.No § 382 limit applies.

To what extent can SubCo's 2007 losses be used by the group in 2010?
A)$175,000.
B)$130,000.
C)$90,000.
D)$0.
E)Some other amount.

Question

ParentCo purchased all of the stock of SubCo on January 2,2008,and the two companies filed consolidated returns for 2008 and thereafter.Both entities were incorporated in 2007.Taxable income computations for the members include the following.Neither group member incurred any capital gain or loss transactions during these years,nor did they make any charitable contributions.No § 382 limit applies.

To what extent can SubCo's 2007 losses be used by the group in 2010?

To what extent can SubCo's 2007 losses be used by the group in 2010?
A)$175,000. 
B)$130,000. 
C)$90,000. 
D)$0. 
E)Some other amount.

Quizplus · Accepted Answer

The $40,000 2008 loss is absorbed in the current year against ParentCo's income.Because the 2007 loss arose in a separate return year,its use as a deduction against group income is limited to the lesser of SubCo's current-year or cumulative positive contribution to consolidated taxable income.
SubCo's cumulative contribution to consolidated taxable income was $90,000 = $40,000 loss for 2008 plus 2009's $20,000 income plus 2010's income of $110,000.Thus,all of the 2007 separate return year $75,000 loss is applied against 2010 income.

ParentCo Purchased All of the Stock of SubCo on January