Federal consolidated corporate income tax return

769. MC #1
Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?

a. Recognition of losses from certain intercompany transactions is deferred.
b. The taxation of intercompany dividends is not eliminated.
c. The tax basis of investments in the stock of subsidiaries is unaffected by members contributing to consolidated taxable income.
d. The § 1231 loss of one member is not offset against the § 1231 gain of another member of the group.

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770. MC #2
Which of the following is not generally a disadvantage of filing Federal corporate income tax returns on a consolidated basis?

a. Compliance costs usually are higher when a consolidation election is in effect.
b. Realized losses from transactions between affiliates are not recognized immediately.
c. Capital gains from one affiliate can be offset by the capital losses from another. This can reduce the tax liabilities of the group as a whole.
d. The election generally is binding for future tax years.

771. MC #3
Which of the following potentially is a disadvantage of electing to file a Federal corporate income tax consolidated return?

a. Additional administrative costs in complying with the election.
b. Deferral of gains realized in transactions between group members.
c. Increased basis in the stock of a subsidiary that generates annual taxable income.
d. Dividends received deduction for payments from a subsidiary to the group’s parent.

772. MC #4
Which of the following is not a requirement that must be met before a group files a consolidated return?

a. None of the corporations can be ineligible under the Code to file on a consolidated basis with the others.
b. All of the corporations must be members of an affiliated group.
c. None of the group members can use the LIFO method of accounting for inventories.
d. The group members must share a common tax year end.

773. MC #5
Which of the following tax effects becomes more restrictive if an election is made to file a group’s Federal corporate income tax returns on a consolidated basis?

a. Choice of members’ tax year ends.
b. Use of the lower tax rate brackets.
c. Use of the $40,000 AMT exemption.
d. Choice of members’ tax accounting methods

774. MC #6
Members of a controlled group share all but which of the following tax attributes?

a. The lower tax rates on the first $75,000 of taxable income.
b. The tax accounting inventory method used by the members.
c. The $40,000 AMT exemption.
d. The floor on the accumulated earnings credit.

775. MC #7
Which of the following is eligible to file Federal income tax returns on a consolidated basis?

a. U.S. corporation engaged in the oil and gas industry.
b. Japanese corporation engaged in multinational operations, including two-thirds of its activities in the U.S.
c. Japanese corporation engaged in multinational operations, including one-third of its activities in the U.S.
d. Limited liability company operating exclusively in Texas.

776. MC #8
Which of the following is eligible to join in a Federal consolidated return?

a. A sole proprietor with annual sales of more than $50 million.
b. A U.S. corporation’s § 401(k) plan.
c. A partnership organized in Germany.
d. A corporation that operates in seven different U.S. states.

777. MC #9
The Rub, Sal, and Ton Corporations file Federal income tax returns on a consolidated basis. The group’s tax return currently is under audit. Under a valid tax-sharing agreement, each corporation is liable for one-third of the group’s consolidated tax liability. The affiliates have agreed with the auditor that the group’s unpaid liability for the year is $90,000. Because of an incorrect tax return position, another $3,000 in interest and a $1,800 penalty is attributable solely to Ton.

At present, only Rub is solvent and has the cash with which to make such a tax payment. What is the maximum amount for which the government could be successful in forcing Rub to satisfy the outstanding liabilities of the consolidated group?

a. $4,800.
b. $90,000.
c. $91,800.
d. $93,000.
e. $94,800.

778. MC #10
How must the IRS collect the liability for Federal taxes from among a consolidated group?

a. Against the parent of the group.
b. According to the members’ relative net asset holdings.
c. According to the members’ current internal tax-sharing agreement.
d. Against the member of the group that generated the tax.
e. No particular order of collection is prescribed by IRS rules.

779. MC #11
How do the members of a consolidated group split among themselves the benefits of the lower tax brackets on the first $75,000 of taxable income?

a. According to their relative net asset holdings.
b. According to an internal tax-sharing agreement.
c. According to an internal tax-sharing agreement, which may be modified by the IRS upon audit.
d. According to a tax-sharing agreement that must be approved by the IRS by the end of the first quarter of the tax year.

780. MC #12
Conformity among the members of a consolidated group must be implemented for which of the following tax items?

a. Use of foreign tax payments (i.e., as a credit or deduction).
b. Tax accounting method (i.e., cash or accrual).
c. Inventory accounting method (e.g., FIFO or LIFO).
d. Election to claim the § 179 depreciation expensing amount.
e. Tax year end.

781. MC #13
How are the members of a Federal consolidated group affected by computations related to E & P?

a. E & P is computed solely on a consolidated basis.
b. Each member keeps its own E & P account.
c. Members’ E & P balances are frozen as long as the consolidation election is in place.
d. Consolidated E & P is computed as the sum of the E & P balances of each of the group members.

782. MC #14
ParentCo acquired all of the stock of SubCo on January 1, 2011, for $1,000,000. The parties immediately elected to file consolidated income tax returns. SubCo generated taxable income of $150,000 for 2011 and paid a dividend of $100,000 to ParentCo. In 2012, SubCo generated an operating loss of $350,000, and in 2013 it produced taxable income of $75,000. As of the last day of 2013, what was ParentCo’s basis in the stock of SubCo?

a. $1,000,000.
b. $875,000.
c. $775,000.
d. $0.

783. MC #15
ParentCo purchased all of the stock of SubCo on January 1, 2011, for $500,000. SubCo produced a loss for 2011 of $150,000 and distributed cash of $25,000 to ParentCo. In 2012, SubCo generated a loss of $450,000; in 2013, it recognized net income of $45,000. What is ParentCo’s capital gain or loss if it sells all of its SubCo stock to a nongroup member on January 1, 2014, for $50,000?

a. $10,000.
b. $50,000.
c. ($80,000).
d. ($50,000).

784. MC #16
ParentCo owned 100% of SubCo for the entire year, and both companies use the accrual method of tax accounting. During the year, SubCo purchased $20,000 of supplies from ParentCo. In addition, SubCo provided internal audit services to ParentCo, which were worth $40,000. Including these transactions, ParentCo’s separate taxable income was $75,000, and SubCo’s separate taxable income was $100,000. What is the group’s consolidated taxable income for the year?

a. $215,000.
b. $195,000.
c. $175,000.
d. $155,000.

785. MC #17
ParentCo owned 100% of SubCo for the entire year. ParentCo uses the accrual method of tax accounting, whereas SubCo uses the cash method. During the year, SubCo sold raw materials to ParentCo for $35,000 under a contract that requires no payment to SubCo until the following year.

Exclusive of this transaction, ParentCo had income for the year of $30,000, and SubCo had income of $50,000. The group’s consolidated taxable income for the year was:

a. $165,000.
b. $150,000.
c. $115,000.
d. $80,000.

786. MC #18
ParentCo and SubCo have filed consolidated returns since 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.

The 2013 consolidated loss:

a. must be carried forward before it can be carried back.
b. must be carried forward, unless an election to forgo carryforward is made by the parent.
c. must be carried back, unless an election to forgo the carryback is made by the parent.
d. can be used only to offset SubCo’s future income.
e. cannot be used to offset any of ParentCo’s 2011 income.

787. MC #19
The consolidated net operating loss of the Parent Group includes all of the following except:

a. Parent’s operating income/loss.
b. Parent’s passive activity income/loss.
c. Parent’s charitable contributions.
d. Subsidiary’s operating income/loss.

788. MC #20
The Harris consolidated group reports a net operating loss (NOL) for the year. The tax law works to:

a. Keep the consolidated group from benefiting when the election to consolidate is motivated chiefly by tax reduction strategies.
b. Disallow any carrybacks of NOL deductions.
c. Allow unused charitable contributions a 20-year carryforward.
d. All of the above statements describe effects of the consolidated return rules.

789. MC #21
ParentCo purchased 100% of SubCo’s stock on January 1, 2011, and the companies have filed consolidated returns since then. 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.

The 2012 net operating loss:

a. may be carried back to offset SubCo’s 2010 taxable income.
b. may be carried forward only and applied against group income if so elected by ParentCo.
c. cannot be carried back against 2010 SubCo income, as consolidated returns were not filed.
d. either a or b, but not both.

790. MC #22
The Philstrom consolidated group reported the following taxable income amounts. Parent owns all of the stock of both Junior and Minor. Determine the net operating loss (NOL) that is apportioned to Junior.

a. $0. All NOLs of a consolidated group are apportioned to the parent.
b. $300,000.
c. $360,000.
d. $400,000.

791. MC #23
The Philstrom consolidated group reported the following taxable income amounts. Parent owns all of the stock of both Junior and Minor. Determine the net operating loss (NOL) that is apportioned to Minor.

a. $0. Minor did not report an NOL of its own.
b. $0. All NOLs of a consolidated group are apportioned to the parent.
c. $100,000.
d. $300,000.