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

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 $9,000 consolidated NOL reported in the current year can offset Zipper Corporation's separate return taxable income from last year and then be carried forward to offset the affiliated group's subsequent taxable income. This is because Zipper was not a member of the affiliated group until this year and thus had its own separate tax return from the previous year. Once Zipper became a member of the affiliated group, its taxable income can be offset by the group's NOL, and any excess NOL can be carried forward to offset future taxable income of the group.

Pants and Skirt Corporations Are Affiliated and Have Filed Consolidated