Question 1

For each of the indicated tax years, compute consolidated taxable income for the calendar year Whitman Group, which elected consolidated status immediately upon creation of the two member corporations in January 2011. All recognized income related to the data processing services of the firms. No intercompany transactions were completed during the indicated years.

Accepted Answer

The answer of For each of the indicated tax years,...

Question 2

How many consolidated tax returns are filed annually? What types of taxpayer do they represent?

Accepted Answer

The answer of How many consolidated tax returns are filed...

Question 3

In the current year, Parent Corporation provided advertising services to its 100%-owned subsidiary, SubCo, under a contract that requires no payments to Parent until next year. Both parties use the accrual method of tax accounting and a calendar tax year. The services that Parent rendered were valued at $250,000. In addition, Parent received $20,000 of interest payments from SubCo., relative to an arm's length note between them.
Including these transactions, Parent's taxable income for the year amounted to $400,000. SubCo reported $200,000 separate taxable income. Derive the group's consolidated taxable income, using the format of Figure 8­2.

Accepted Answer

The answer of In the current year, Parent Corporation provided...

Question 4

When a corporate group elects to file Federal income tax returns on a consolidated basis, it is subject to several tax return filing requirements for its first and subsequent tax years. List the most important of those requirements.

Accepted Answer

The answer of When a corporate group elects to file...

Question 5

Except for the § 199 domestic production activities deduction (DPAD), the members of an electing affiliated group report the following data. Compute the group's DPAD.

Accepted Answer

The answer of Except for the § 199 domestic production...

Question 6

Gold, Silver, and Bronze constitute a Federal consolidated tax return group. Which of the members is responsible to pay the tax liability-the parent, the subsidiaries, or both? How are these tax-payable amounts determined? Hint: Use the term tax-sharing agreement in your answer.

Accepted Answer

The answer of Gold, Silver, and Bronze constitute a Federal...

Question 7

Discuss how a parent corporation computes its stock basis for a subsidiary that joins in a Federal consolidated income tax return.

Accepted Answer

The answer of Discuss how a parent corporation computes its...

Question 8

Parent's basis in the stock of Child, its subsidiary, is $1 million at the beginning of the year. Child's share of consolidated taxable income this year is a $1.25 million operating loss. Parent's basis in the Child stock now is zero. Explain.

Accepted Answer

The answer of Parent's basis in the stock of Child,...

Question 9

Certain business entities are ineligible to join an affiliated group and file a consolidated Federal income tax return. List three or more entities that cannot be part of a Federal consolidated tax return group.

Accepted Answer

The answer of Certain business entities are ineligible to join...

Question 10

Parent Corporation's current­year taxable income included $100,000 net profit from operations and a $30,000 net long-term capital gain. Parent also made a $22,000 contribution to State University. SubCo produced $85,000 of income from operations and incurred a $25,000 net short-term capital loss.
Use the computational worksheet of Figure 8.2 to derive the group members' separate taxable incomes and the group's consolidated taxable income.

Accepted Answer

The answer of Parent Corporation's current­year taxable income included $100,000...

Question 11

List some of the non-tax reasons that groups of corporations form conglomerates and may be eligible also to file consolidated Federal income tax returns.

Accepted Answer

The answer of List some of the non-tax reasons that...

Question 12

For each of the indicated tax years, compute consolidated taxable income for the calendar year Holloway Group, which elected consolidated status immediately upon creation of the two member corporations in January 2011. All recognized income related to the data processing services of the firms. No intercompany transactions were completed during the indicated years.

Accepted Answer

The answer of For each of the indicated tax years,...

Question 13

The consolidated income tax return rules apply only for Federal tax purposes. Financial accounting rules can be quite different from the corresponding tax rules, but the tax professional should be familiar with both sets of requirements. Describe the major differences between the book and tax treatment for the conglomerate's reporting of:
a. The ownership levels required to consolidate.
b. Goodwill.
c. The entities included on the report.

Accepted Answer

The answer of The consolidated income tax return rules apply...

Question 14

The U.S. states apply different rules in treating Federal consolidated groups for corporate income tax purposes. Describe at least three different approaches that the states currently use to allow or restrict conglomerates' use of consolidations.

Accepted Answer

The answer of The U.S. states apply different rules in...

Question 15

Gold and Bronze elect to form a Federal consolidated group. Gold, the parent entity, uses a calendar tax year, while Bronze's tax year ends on March 31. Which tax year(s) does the new consolidated group use?

Accepted Answer

The answer of Gold and Bronze elect to form a...

Question 16

Parent Corporation, SubOne, and SubTwo have filed consolidated returns since 2013. All of the entities were incorporated in 2012. None of the group members incurred any capital gain or loss transactions during 2012-2015, nor did they make any charitable contributions. Taxable income computations for the members are listed below.
  * Separate return year.
** Consolidated return year. 
a. How much of the 2014 loss is apportioned to SubOne and SubTwo? How is this loss treated in generating a refund of prior tax payments?
b. Why would Parent consider electing to forgo the carryback of the 2014 consolidated NOL?
c. In this light, analyze the election to consolidate.

Accepted Answer

The answer of Parent Corporation, SubOne, and SubTwo have filed...

Question 17

Outline the major advantages and disadvantages of filing Federal corporate income tax returns on a consolidated basis. Limit your comments to the income tax effects of the election.

Accepted Answer

The answer of Outline the major advantages and disadvantages of...

Question 18

Where are the controlling Federal income tax rules regarding consolidated tax returns to be found? What is the general philosophy of those rules? Do they tend to be pro-or anti-taxpayer?

Accepted Answer

The answer of Where are the controlling Federal income tax...

Question 19

The group of Parent Corporation, SubOne, and SubTwo has filed a consolidated return since 2013. The first two entities were incorporated in 2012, and SubTwo came into existence in 2013 through an asset spin-off from Parent. Taxable income computations for the members are shown below. None of the group members incurred any capital gain or loss transactions during 2012-2015, nor did they make any charitable contributions.
Describe the treatment of the group's 2014 consolidated NOL. Hint: Apply the offspring rule.
  * Consolidated return year.

Accepted Answer

The answer of The group of Parent Corporation, SubOne, and...

Question 20

Consider AB, a brother-sister group of U.S. corporations, and CD, a parent-subsidiary group of U.S. corporations. Which of these could comprise a controlled group? An affiliated group?

Accepted Answer

The answer of Consider AB, a brother-sister group of U.S....

Quiz 8: Consolidated Tax Returns