Create,Inc. ,a domestic corporation,owns 90% of Vinyl,Ltd. ,a foreign corporation and Digital,Inc. ,a domestic corporation.Create also owns 60% of Record,Inc. ,a domestic corporation.Create receives no distributions from any of these corporations.Which of these entities' net income are included in Create's Federal tax return for the current year assuming Create elects to include all eligible entities in its consolidated Federal income tax return?

Question

Quizplus · Accepted Answer

In a consolidated Federal income tax return, only domestic corporations that are part of an affiliated group can be included. Since Create owns 90% of Digital, Inc., both Create and Digital can file a consolidated return. Vinyl, Ltd., being a foreign corporation, and Record, Inc., with only 60% ownership, are not eligible to be included.