Question 1

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 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?

Accepted Answer

D

Question 3

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

Accepted Answer

According to the US Internal Revenue Service (IRS), to be considered an affiliated group, the parent corporation must own at least 80% of one or more other members of the group directly through stock ownership.

Question 4

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 statement is true according to the regulations regarding the carryback and carryforward of consolidated net operating losses (NOLs) for members of a consolidated group.

Question 5

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 6

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 7

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 prior or future years, similar to how NOLs can be used to offset taxable income in prior or future years.

Question 8

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 9

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. This is because they are considered to be under common control by a small number of shareholders. Other corporations, such as those exempt under Sec. 501 or real estate investment trusts, may be able to join in a consolidated tax return, but only after making a special election. Foreign corporations are generally not eligible to join in a consolidated tax return.

Question 10

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 which a corporation files a separate tax return or a consolidated tax return with another affiliated group.

Question 11

Identify which of the following statements is true.

Accepted Answer

Option A is false because the income and expense items of a new corporation joining an affiliated group are allocated between the separate tax return and consolidated tax return based on the acquisition date. Option B is false because a consolidated return election cannot be revoked after it has been made, except in certain circumstances. Option C is true because all members of a consolidated group must have the same tax year. Therefore, the correct answer is option C. Option D is incorrect as option C is true.

Question 12

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 rules of intercompany transactions within an affiliated group, the transfer of inventory between members is not a taxable event until there is a subsequent sale of the inventory outside the group. In this scenario, the sale of inventory by P to a third party triggers the recognition of gain by S, as the inventory was initially acquired from S in an intercompany transaction. This is known as the "built-in gain" or "built-in loss" on the transferred property.

Question 13

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

Accepted Answer

The car manufacturing corporation is an includible corporation for purposes of filing a consolidated tax return. Insurance companies, S corporations, and foreign corporations are not includible corporations.

Question 14

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

An affiliated group exists where a parent-subsidiary relationship exists among corporations connected through stock ownership. 
- Ajak Corporation owns 85% of Utech Corporation's stock, making Utech a subsidiary of Ajak. 
- Utech Corporation owns 35% of Tech Corporation's stock, making Tech a subsidiary of Utech. 
- Ajak Corporation also owns 50% of Tech Corporation's stock, making Tech also a subsidiary of Ajak. 
- Tech Corporation owns 75% of Baxter Corporation's stock, making Baxter a subsidiary of Tech. 
Therefore, Ajak, Tech, and Utech Corporations are an affiliated group. Baxter Corporation's 75% ownership by Tech does not affect the parent-subsidiary relationship between Ajak, Tech, and Utech.

Question 15

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

Accepted Answer

When a group of affiliated corporations files a consolidated tax return, they are treated as a single entity for tax purposes. However, the IRS can still attempt to collect taxes owed from any of the individual members of the group if necessary. This is known as joint and several liability.

Question 16

Identify which of the following statements is true.

Accepted Answer

Option C is true. An affiliated group choosing to file a consolidated return may consist of as few as two companies. Option A is false because the 80% ownership rule applies to either direct or indirect ownership. Option B is false because both preferred and common stock must be considered when determining ownership for affiliated group status.

Question 17

Identify which of the following statements is true.

Accepted Answer

A is false because in order to file a consolidated return, the two corporations must also meet certain ownership and control requirements. C is false because even if a group of corporations meets the parent-subsidiary controlled group requirements, they may not be eligible to file a consolidated return if certain other requirements are not met. B is true because the check-the-box regulations do allow certain entities to elect C corporation tax treatment.

Question 18

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 return allows for the combination of the taxable income and losses of all affiliated group members into a single tax return, which means that group members with taxable income can offset the losses of other members.

Question 19

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 consolidated financial statements, therefore they do not create temporary differences for affiliated companies.

Question 20

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.

Quiz 8: 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?

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

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 election to file a consolidated return is made annually.

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

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

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

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.

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?

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.

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

Identify which of the following statements is true.

Identify which of the following statements is true.

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

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