Question 1

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 2

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 the group members and determined on a group basis in computing consolidated taxable income.

Question 3

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

Accepted Answer

According to the Internal Revenue Code, consolidated net operating losses (NOLs) are generally carried back two years and then carried forward twenty years, unless there is an election to waive the carryback period or to carry the losses back for a different number of years.

Question 4

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 5

A Federal consolidated tax return group commonly applies the "relative tax liability" method as a means to apportion the tax liabilities of the members among the affiliates.

Accepted Answer

This is a correct statement about how tax liabilities are typically apportioned in a consolidated tax return group. The relative tax liability method involves allocating tax liabilities based on the proportionate share of each member's taxable income.

Question 6

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

Accepted Answer

The answer of In computing consolidated E & P,dividends paid...

Question 7

Affiliates must keep track of their allocated shares of a consolidated NOL.

Accepted Answer

Affiliates are required to keep track of their allocated shares of a consolidated net operating loss (NOL) to correctly calculate the tax liability for each member of the consolidated group.

Question 8

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

Accepted Answer

An excess loss account is created.Stock basis cannot be less than zero.

Question 9

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

Accepted Answer

An intercompany transaction refers to a transaction between two entities of the same parent company. In this example, the subsidiary is using the customer databases of the parent corporation for a fee, which is an intercompany transaction.

Question 10

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

Accepted Answer

This means that each member of the consolidated group can be held responsible for the full amount of the group's income tax liability, not just their individual share.

Question 11

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

Accepted Answer

In a Federal consolidated tax return group, the $40,000 AMT exemption is not available to each member individually; instead, the group as a whole is subject to a single AMT exemption amount, which is then allocated among the members.

Question 12

Keep Corporation joined an affiliated group by merger in 2010.The group generated a consolidated 2010 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 2008 return and claim a separate refund.

Accepted Answer

When a corporation becomes part of an affiliated group, it becomes subject to group filing rules, but it may still have NOLs that can be carried back or forward to years when it filed separately. In this case, Keep Corporation can carry back its share of the consolidated NOL to its 2008 separate return and claim a separate refund, assuming there is no election by the parent to waive the carryback period for the group.

Question 13

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 must consent to the election on Form 1122, as it is necessary for the formation of a consolidated return.

Question 14

Consolidated group members each can use a different tax year end.

Accepted Answer

Members must conform to the parent's tax year.

Question 15

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

Accepted Answer

The answer of If subsidiary stock is redeemed or sold...

Question 16

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 of consolidated tax returns in the United States.

Question 17

Keep Corporation joined an affiliated group by merger.The group generated a consolidated NOL this year,and Keep's share of the loss was $50,000.If the parent elects to forgo an NOL carryback,refunds or tax reductions resulting from the loss are received solely by the parent,and not by Keep separately.

Accepted Answer

As Keep Corporation is now part of the affiliated group, refunds or tax reductions resulting from the consolidated NOL will be received solely by the parent, and not by each member of the group separately. Therefore, Keep Corporation will not receive any separate refunds or tax reductions resulting from its share of the NOL.

Question 18

In computing consolidated taxable income,capital and § 1231 gains and losses are removed from the taxable incomes of the group members and determined on a group basis.

Accepted Answer

Capital and § 1231 gains and losses are generally removed from the taxable incomes of the group members and determined on a group basis when computing consolidated taxable income.

Question 19

A Federal consolidated group makes an annual election to allocate the income tax liability for the year among the group members.

Accepted Answer

Federal consolidated groups have the option to make an annual election to allocate the income tax liability for the year among its members. This allows the group members to share and offset their tax liabilities based on their respective taxable incomes.

Question 20

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

Accepted Answer

The answer of In computing consolidated taxable income,travel and entertainment...

Quiz 8: Consolidated Tax Returns