Question 1

Identify which of the following statements is true.
A)Corporations that join in a consolidated return must adopt the same tax year as the parent corporation.
B)Permission to discontinue the filing of consolidated tax returns is sometimes granted by the IRS.
C)Additional administrative costs may be incurred when filing a consolidated tax return.
D)All of the above are true.

Accepted Answer

All the statements are true. A) Corporations in a consolidated return must use the same tax year as the parent to simplify reporting and ensure consistency. B) The IRS may grant permission to discontinue consolidated filing under certain conditions, recognizing that business structures and needs change. C) Filing a consolidated tax return can lead to additional administrative costs due to the complexity of combining multiple entities' financial activities into a single return.

Question 2

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?
A) 
B) 
C) 
D)

Accepted Answer

D

Question 3

P and S are members of an affiliated group that has filed consolidated tax returns for a number of years.The sale of inventory by P that was acquired from S in an intercompany transaction outside the affiliated group triggers the recognition of gain by S.

Accepted Answer

According to the intercompany transaction rules, gain or loss on the sale of inventory between members of an affiliated group is deferred until the inventory is sold to a third party. However, if the intercompany transaction occurs outside the affiliated group, the gain or loss must be recognized immediately by the seller. Therefore, the sale of inventory by P (outside the affiliated group) that was acquired from S triggers the recognition of gain by S.

Question 4

Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return?
A)insurance companies
B)S corporations
C)car manufacturing corporation
D)foreign corporations

Accepted Answer

Car manufacturing corporations are includible corporations for purposes of filing a consolidated tax return. Insurance companies, S corporations, and foreign corporations are typically not includible corporations.

Question 5

The IRS can attempt to collect taxes owed on a consolidated return from any of the members of the consolidated group.

Accepted Answer

The IRS has the authority to attempt to collect taxes owed on a consolidated return from any member of the consolidated group. This is because the members of a consolidated group are treated as a single entity for tax purposes, and the group as a whole is responsible for paying any tax liabilities.

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

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

Accepted Answer

According to the IRS regulations, for a group of corporations to be considered an affiliated group, the parent corporation must directly own at least 80% of another member corporation within the group.

Question 8

Identify which of the following statements is true.
A)To be part of an affiliated group,a corporation must be at least 80% directly owned by another group member.
B)Only common stock is considered when determining if the 80% ownership test is met for affiliated group eligibility.
C)An affiliated group electing to file a consolidated return may be composed of as few as two corporations.
D)All of the above are false.

Accepted Answer

Option A is partially correct, as a corporation must be at least 80% owned by other group members to be part of an affiliated group, but it can be indirectly owned as well. Option B is false because both common and preferred stock are considered in determining the 80% ownership test. Option C is true, as an affiliated group electing to file a consolidated return may consist of as few as two corporations.

Question 9

Identify which of the following statements is true.
A)If 100% of the stock of two corporations is owned by the same individual,the two corporations are eligible to file a consolidated return.
B)The check-the-box regulations permit partnership and LLCs to elect C corporation tax treatment.
C)A group of corporations that meets the parent-subsidiary controlled group requirements is always eligible to file a consolidated return.
D)All of the above are false.

Accepted Answer

A) This statement is false. In order to file a consolidated return, the corporations must meet certain requirements including the requirement of being affiliated through common ownership among other requirements. 
B) This statement is true. The check-the-box regulations allow for partnership and LLCs to elect C corporation tax treatment. 
C) This statement is false. While a group of corporations that meets the parent-subsidiary controlled group requirements may be eligible to file a consolidated return, they must also meet other requirements such as being affiliated through common ownership. 
D) This statement is false, as statement B is true.

Question 10

Intercompany dividends and undistributed subsidiary earnings do not create temporary differences for affiliated companies filing a consolidated return.

Accepted Answer

Intercompany dividends and undistributed subsidiary earnings are eliminated in consolidation process and thus do not create temporary differences.

Question 11

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 12

Which of the following corporations is entitled to join in a consolidated tax return without making a special election?
A)corporations exempt from tax under Sec.501
B)real estate investment trusts
C)closely held corporations
D)foreign corporations

Accepted Answer

Closely held corporations are entitled to join in a consolidated tax return without making a special election, as long as they meet certain ownership and relationship requirements. Other types of corporations, such as exempt organizations, real estate investment trusts, and foreign corporations, may be able to join in a consolidated tax return, but they generally require a special election to do so.

Question 13

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 a tax year for a corporation in which it files a separate tax return or files a consolidated tax return with another affiliated group.

Question 14

Identify which of the following statements is true.
A)When a new corporation joins an affiliated group,all of its income and expense items for the tax year,including the acquisition date,must be allocated between the separate tax return and consolidated tax return that are to be filed based on the number of days included in each of the two tax years.
B)A consolidated return election may be revoked after 5 years.
C)All members of a consolidated group must use the same tax year.
D)All of the above are false.

Accepted Answer

All members of a consolidated group must use the same tax year. Option A is incorrect because newly joined corporations are only required to allocate items of income and expense for the portion of the year in which they were a member of the affiliated group. Option B is incorrect because a consolidated return election can only be revoked with the approval of the IRS commissioner or with the termination of the common parent of the group. Therefore, the correct option is C.

Question 15

The treatment of capital loss carrybacks and carryovers is similar to NOLs.

Accepted Answer

Capital loss carrybacks and carryovers, like NOLs, allow businesses to use losses from previous years to offset future taxable income and potentially receive a refund for taxes paid in previous years.

Question 16

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.
A)Ajak,Tech,Utech,and Baxter Corporations are an affiliated group.
B)Ajak,Tech,and Baxter Corporations are an affiliated group.
C)Ajak,Tech,and Utech Corporations are an affiliated group.
D)None of the above are correct.

Accepted Answer

Ajak, Tech, and Utech Corporations are an affiliated group because Ajak owns 85% of Utech, and Ajak and Utech together own more than 50% of Tech. This makes Ajak, Utech, and Tech affiliated. Baxter Corporation is not included in the affiliated group because it is not directly owned by Ajak or Utech, but rather indirectly through Tech Corporation.

Question 17

An advantage of filing a consolidated return is that losses of one affiliated group member may be offset against the taxable income of other group members in the same tax year.

Accepted Answer

This statement is true. Consolidated returns allow affiliated groups to pool their resources and offset losses of one member with the taxable income of another member in the same tax year. This can help lower the overall tax liability for the group.

Question 18

Intercompany sales between members of an affiliated group filing separate returns cause deferred tax assets to be recognized by both buyer and seller.

Accepted Answer

Intercompany sales between members of an affiliated group filing separate returns do not cause deferred tax assets to be recognized by both buyer and seller because these transactions are eliminated in consolidation and do not create temporary differences that would give rise to deferred tax assets or liabilities.

Question 19

A member's portion of a consolidated NOL may be carried back against that member's taxable income from the preceding two separate return years.

Accepted Answer

This is true according to the tax code.

Question 20

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...

Quiz 15: Consolidated Tax Returns

Identify which of the following statements is true.

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?

P and S are members of an affiliated group that has filed consolidated tax returns for a number of years.The sale of inventory by P that was acquired from S in an intercompany transaction outside the affiliated group triggers the recognition of gain by S.

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

The IRS can attempt to collect taxes owed on a consolidated return from any of the members of the consolidated group.

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

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

Identify which of the following statements is true.

Identify which of the following statements is true.

Intercompany dividends and undistributed subsidiary earnings do not create temporary differences for affiliated companies filing a consolidated return.

The election to file a consolidated return is made annually.

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

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.

Identify which of the following statements is true.

The treatment of capital loss carrybacks and carryovers is similar to NOLs.

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.

An advantage of filing a consolidated return is that losses of one affiliated group member may be offset against the taxable income of other group members in the same tax year.

Intercompany sales between members of an affiliated group filing separate returns cause deferred tax assets to be recognized by both buyer and seller.

A member's portion of a consolidated NOL may be carried back against that member's taxable income from the preceding two separate return years.

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