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 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 based on the principle of consolidated tax returns where the losses and gains of all affiliated corporations are combined into one tax return, allowing for the offsetting of losses against gains. Since Zipper was not part of the consolidated group in the past and had separate returns, its losses can be carried forward to offset its own past and future taxable income, as well as offsetting the taxable income of the entire group in the future. However, it cannot offset the taxable income of Pants and Skirt Corporations from last year as they were already included in the consolidated tax return, and their losses and gains were already combined with the rest of the group.

Pants and Skirt Corporations Are Affiliated and Have Filed Consolidated