ParentCo purchased all of the stock of ChildCo on January 2,2012,and the two companies filed consolidated returns for 2012 and thereafter.Both entities were incorporated in 2011.Taxable income computations for the members include the following.Neither group member incurred any capital gain or loss transactions during these years,nor did they make any charitable contributions.No § 382 limit applies. To what extent can ChildCo's 2011 losses be used by the group in 2014?

Question

ParentCo purchased all of the stock of ChildCo on January 2,2012,and the two companies filed consolidated returns for 2012 and thereafter.Both entities were incorporated in 2011.Taxable income computations for the members include the following.Neither group member incurred any capital gain or loss transactions during these years,nor did they make any charitable contributions.No § 382 limit applies.  To what extent can ChildCo's 2011 losses be used by the group in 2014?

Quizplus · Accepted Answer

According to the consolidated return regulations, when a parent company acquires a subsidiary company, the subsidiary company's losses incurred before the acquisition may be used by the group to offset the consolidated taxable income. However, the amount of losses that can be used is limited to the value of the subsidiary company's stock at the time of acquisition.

In this case, since the acquisition occurred on January 2, 2012, the value of the ChildCo stock would be the same as its book value on that date, which was $75,000. Therefore, the group can use up to $75,000 of ChildCo's 2011 losses to offset the consolidated taxable income in 2014.

ParentCo Purchased All of the Stock of ChildCo on January