Question 1

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?

Accepted Answer

D

Question 2

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 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

This is true according to the rules of intercompany transactions within an affiliated group. When inventory is sold by one member of the group to another, the transaction is not recognized for tax purposes, and no gain or loss is recognized until the inventory is sold outside of the group. When inventory is sold outside of the group, any gain recognized is allocated among the members of the group who had ownership of the inventory. Therefore, in this scenario, the sale of inventory by P (a member of the affiliated group) that was acquired from S (also a member of the affiliated group) triggers the recognition of gain by S.

Question 4

Identify which of the following statements is true.

Accepted Answer

The statement "All members of a consolidated group must use the same tax year" is true. The other statements are false. A new corporation joining an affiliated group may choose either a separate tax return or a consolidated tax return for the entire tax year. A consolidated return election may not be revoked after 5 years, but instead can only be revoked with permission from the IRS.

Question 5

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 when preparing consolidated financial statements, thus not creating temporary differences for affiliated companies.

Question 6

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 is an accurate statement. Consolidated returns allow for the offsetting of losses and taxable income among affiliated group members, providing a tax advantage for the group as a whole.

Question 7

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 8

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

Accepted Answer

Only corporations (including LLCs taxed as corporations) that are members of the same parent-subsidiary controlled group can file a consolidated tax return. Insurance companies and foreign corporations are not members of a parent-subsidiary controlled group, and S corporations cannot be included in a consolidated return because they are taxed as pass-through entities at the shareholder level. Car manufacturing corporations (assuming they meet the other requirements) can be included in a consolidated return if they are part of the same parent-subsidiary controlled group.

Question 9

Identify which of the following statements is true.

Accepted Answer

A) This statement is false. Even if one person owns 100% of the stock in two separate corporations, they may not be eligible to file a consolidated return if certain requirements are not met.

B) This statement is true. The check-the-box regulations allow certain entities to choose how they are classified for tax purposes, including electing to be treated as a C corporation.

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, there are other requirements that must be met as well.

D) This statement is false as well, as statement B is true.

Question 10

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.

Accepted Answer

Ajak, Tech, and Utech Corporations are an affiliated group because Ajak owns 85% of Utech, and Ajak also owns 50% of Tech, which means that there is at least 80% ownership between Ajak, Utech, and Tech Corporations. Additionally, Utech owns 35% of Tech, which further strengthens the affiliated group relationship between these three corporations. Baxter Corporation is not included in the affiliated group because it is only owned 75% by Tech, which is less than the required 80% ownership for an affiliated group.

Question 11

Identify which of the following statements is 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 12

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

Accepted Answer

Closely held corporations are entitled to join in a consolidated tax return without making a special election.

Question 13

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 14

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

Accepted Answer

According to the Internal Revenue Service (IRS), to be considered an affiliated group for tax purposes, the parent corporation must directly own at least 80% of another group member.

Question 15

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...

Question 16

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

The statement is true. Members of a consolidated group may carry back their portion of a consolidated NOL against their taxable income from the preceding two separate return years.

Question 17

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 can collect taxes owed on a consolidated return from any member of the group, not just the designated agent or parent company. This is because a consolidated return represents the tax liability of the entire group, not just the individual companies.

Question 18

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

Accepted Answer

Capital loss carrybacks and carryovers can be used to offset capital gains in future years, similar to how NOLs can be carried back or forward to offset taxable income.

Question 19

Identify which of the following statements is true.

Accepted Answer

Statement A is incorrect because a corporation must be at least 80% owned by *any* group member, not necessarily directly owned. Statement B is incorrect because both common and preferred stock are considered when determining ownership for affiliated group eligibility. Statement C is correct as an affiliated group may elect to file a consolidated return with as few as two corporations.

Question 20

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

Quiz 15: Consolidated Tax Returns

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?

The election to file a consolidated return is made annually.

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.

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.

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.

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

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

Identify which of the following statements is true.

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.

Identify which of the following statements is true.

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

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

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

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

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.

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

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

Identify which of the following statements is true.

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.