Parent and Minor form a non-unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Minor's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

Question

Quizplus · Accepted Answer

All of the options presented are effective income-shifting techniques for a non-unitary group. 
A) Having Parent charge Minor a management fee allows Parent to earn income and reduce its taxable income, while Minor can deduct the management fee as an expense on its tax return. 
B) Shifting high-cost operations from Parent to Minor allows the high-tax minor to generate income and reduce its taxable income, while the low-tax Parent can focus on other operations. 
C) Executing an intercompany loan allows Minor to pay deductible interest to Parent, which reduces Minor's taxable income while increasing Parent's income. Combining these techniques can effectively reduce the overall tax liabilities of the group.

Parent and Minor Form a Non-Unitary Group of Corporations