Question 1

In computing consolidated taxable income,compensation amounts are removed from the taxable incomes of the group members and determined on a group basis.

Accepted Answer

In computing consolidated taxable income, compensation amounts are not removed from the taxable incomes of the group members. Each member's taxable income is calculated individually, including their compensation amounts, before being combined to determine the group's consolidated taxable income.

Question 2

The starting point in computing consolidated taxable income is the separate Federal taxable income amounts of the affiliated group members.

Accepted Answer

This is true according to the rules and regulations for computing consolidated taxable income in the United States tax system.

Question 3

When a consolidated NOL is generated,each affiliate is allocated a share of the loss.

Accepted Answer

When a consolidated NOL is generated, each affiliate is allocated a share of the loss based on its proportionate ownership interest in the consolidated group. This allocation allows each affiliate to use its share of the NOL to offset its own taxable income or future tax liabilities.

Question 4

When the net accumulated taxable losses of a subsidiary exceed the parent's acquisition price,the parent's basis in the subsidiary's stock becomes negative.

Accepted Answer

The parent's basis in the subsidiary's stock cannot become negative; instead, it would be reduced to zero, and any losses beyond that point would not be recognized for tax purposes until the subsidiary generates future income or the investment is disposed of.

Question 5

In computing consolidated taxable income,capital gains and losses are removed from the taxable incomes of the group members and determined on a group basis.

Accepted Answer

This is correct. When computing the consolidated taxable income of a group, capital gains and losses are not included in the taxable income of each group member, but are instead determined on a group basis.

Question 6

A Federal consolidated tax return group can apply the "relative taxable income" method as a means to apportion the tax liabilities of the members among the affiliates.

Accepted Answer

The "relative taxable income" method is one of the methods that can be used by a Federal consolidated tax return group to apportion tax liabilities among members.

Question 7

An example of an intercompany transaction is the use of the financial accounting software of the parent corporation by a subsidiary for an arm's length management fee.

Accepted Answer

The use of financial accounting software by a subsidiary from its parent corporation for an arm's length management fee is an example of an intercompany transaction.

Question 8

With the filing of its first consolidated return,the parent corporation of a Federal consolidated group makes an irrevocable election as to how the group will allocate a tax year's income tax liability among the group members.

Accepted Answer

The election regarding the allocation of a tax year's income tax liability among the members of a Federal consolidated group is not irrevocable. The parent corporation can choose a different allocation method in a subsequent year by filing a statement with its consolidated return for that year.

Question 9

Keep Corporation joined an affiliated group by merger.The group generated a 2012 consolidated NOL,and Keep's share of the loss was $50,000.Keep's share of the loss is included in the group's NOL carryforward to 2013.

Accepted Answer

When a corporation joins an affiliated group by merger, it becomes part of the group's consolidated tax return. The group generates a consolidated NOL, which includes the NOLs of all the members of the group. Keep's share of the NOL ($50,000) would be included in the group's NOL carryforward, which can be used to offset future taxable income of the group.

Question 10

All affiliates joining in a newly formed consolidated return must consent to the election on Form 1122,as attached to the tax return for the group.

Accepted Answer

All affiliates joining in a newly formed consolidated return must indeed consent to the election on Form 1122, as attached to the tax return for the group.

Question 11

In computing consolidated taxable income,the domestic production activities deduction (DPAD)is removed from the taxable incomes of the group members and determined on a group basis.

Accepted Answer

The DPAD is removed from the taxable incomes of group members and determined on a group basis in computing consolidated taxable income.

Question 12

If subsidiary stock is redeemed or sold outside the group when an excess loss account exists,the selling parent corporation recognizes capital gain income equal to the account balance.

Accepted Answer

This statement is true. When subsidiary stock is redeemed or sold outside the group and an excess loss account exists, the selling parent corporation recognizes a capital gain income equal to the excess loss account balance. This is done to prevent the parent corporation from avoiding taxes by offsetting gains from the sale of the subsidiary stock with losses from the subsidiary's operations.

Question 13

In computing consolidated E & P,a negative adjustment is allowed for the group's Federal income tax payments.

Accepted Answer

The answer of In computing consolidated E & P,a negative...

Question 14

When a subsidiary sells to the parent some business-use property that has appreciated from its $20,000 basis to a $50,000 fair market value,the subsidiary immediately recognizes $30,000 ordinary income on the consolidated return.

Accepted Answer

The subsidiary does not recognize the $30,000 gain as ordinary income immediately on a consolidated return because intercompany transactions are eliminated in consolidation. The gain would be deferred and not recognized until the property is sold to an outside party.

Question 15

Keep Corporation joined an affiliated group by merger in 2012.The group generated a consolidated 2012 NOL,and Keep's share of the loss was $50,000.Lacking an election by the parent to the contrary,Keep can carry the loss back to its separate 2010 return,and the parent can claim a tax refund.

Accepted Answer

In a consolidated group, net operating losses (NOLs) are generally carried back or forward at the group level, not by individual members. Keep Corporation cannot carry back its share of the NOL to its separate return; the parent company manages the NOL for the entire group.

Question 16

Consolidated group members each must use the same tax year end.

Accepted Answer

According to IRS rules, a consolidated group must use the same tax year end for all members. This is necessary to ensure proper reporting and coordination of finances within the group. Exceptions may be made in certain circumstances with prior approval from the IRS.

Question 17

Lacking elections to the contrary,Federal consolidated NOLs are carried back two years and then forward twenty years.

Accepted Answer

This is the default rule for Federal consolidated NOLs. However, taxpayers may elect to waive the carryback period and instead carry the NOL forward for up to 20 years.

Question 18

In computing consolidated E & P,dividends paid to the parent by group members are subtracted.

Accepted Answer

In computing consolidated Earnings and Profits (E&P), dividends paid to the parent by group members are not subtracted because these intercompany dividends are eliminated in consolidation.

Question 19

Each of the members of a Federal consolidated tax return group can claim its own $40,000 AMT exemption,subject to phase-out.

Accepted Answer

The answer of Each of the members of a Federal...

Question 20

Consolidated group members each are jointly and severally liable for the entire consolidated income tax liability.

Accepted Answer

Under consolidated group taxation, each member is jointly and severally liable for the entire consolidated income tax liability. This means that if any member fails to pay their share of the tax liability, the IRS can collect the entire amount owed from any member of the group.

Quiz 8: Consolidated Tax Returns