Ch 8

Question 0

2 options affiliated group has for filing federal income tax returns

Answer 0

1 each member of group can file separate tax return

2 affiliated group can file single consolidated return

Question 1

Affiliated group of corporations

Answer 1

Parent corporation and all it’s subsidiaries that are at least 80%
Owned by the parent and other subsidiaries in the group

Question 2

Intercompany transactions

Answer 2

Transaction between 2 corporations that are in same

consolidated group immediately after transaction

Question 3

3 stock ownership requirements to qualify as affiliated group

Answer 3

1 parent must own at least 80% stock of includible corp.s
2 at least 80% of stock of each corp in group, other than
Parent, must be directly owned by parent or other group members
3 stock owned directly must be both 80% voting stock and total
Value of includible corp’s outstanding stock

Question 4

6 types of corporations that are not includible in an affiliated group because of their tax status

Answer 4

1 corps exempt from tax under sec. 501
2 life insurance companies subject to tax under sec. 801
3 foreign corps
4 regulated investment companies
5 real estate investment trusts
6 S corporations

Question 5

Corporations that are not includible, but are subsidiaries of large corporations, do not qualify for what? What must they do?

Answer 5

Don’t qualify as part of affiliated group and must file separate
Tax return

Question 6

How can a partnership or LLC be a part of an affiliated group?

2) What happens to their income if they are not treated as affiliated group members?

Answer 6

Yes if it elects to be treated as a corporation on the check the box
Regulations

Income and losses of the LLC and partnership pass through to
Each affiliated group member having ownership interest

Question 7

Which of the 3 control groups can’t file a consolidated return?

Answer 7

Brother sister control groups

Question 8

Parent subsidiary control group vs. affiliated group: stock ownership requirement

Answer 8

Ps: at least 80% voting power or value

Aff: at least 80% voting power and value

Question 9

Parent subsidiary control group vs. affiliated group: stock attribution rules

Answer 9

Stock owner by certain related persons is taken into account in
Determining whether controlled group exists

They are not used to determine whether affiliated group exists

Question 10

Parent subsidiary control group vs. affiliated group: types of corporations excluded

Answer 10

Differ between controlled group and affiliated group

Question 11

Parent subsidiary control group vs. affiliated group: how often is their definition tested

Answer 11

Definition of controlled group tested only on December 31st

Definition of affiliated group tested each day of the year

Question 12

Consolidated group

Answer 12

Affiliated group of corporations that file consolidated tax return

Question 13

Consolidated return year

Answer 13

Corporation’s tax year for which it files consolidated tax return
With other members of affiliated group

Question 14

Separate tax return year

Answer 14

Corporations tax year for which it files separate tax return

Or files consolidated return with another affiliated group

Question 15

Accounting period for consolidated tax return of affiliated group

Answer 15

All subsidiary corporations in the group must adopt the parent
Corporation’s tax year

Question 16

When is income of a parent or subsidiary included in a consolidated tax return?

Answer 16

Entire tax year except for any part of year it was a member of
Another affiliated group

Question 17

Inter company transactions (sale between 2 divisions in affiliated group) are not included in…

Answer 17

The taxable income on the consolidated tax return

Question 18

Inter company item

Answer 18

Seller’s income, gain, deduction and loss from inter company transaction

Question 19

Corresponding item

Answer 19

Buyer’s income, gain, deduction and loss from inter company transaction

or from property acquired in inter company transaction

Question 20

Recomputed corresponding item

Answer 20

Corresponding item buyer would take into account if seller
And buyer were divisions of single corporation

And transaction occurred btw/those divisions

Question 21

Matching rule

Answer 21

Gains and losses from sellers transaction and buyer’s transaction
From different divisions in same company aren’t recognized
Til sold to outside party

Must keep track of realized gain/loss of inter company transactions
To know how much gain/loss to recognize

Question 22

When does the acceleration rule occur

Answer 22

When it is not possible to match sellers inter company item
With buyer’s because either seller or buyer is no longer a
Member of consolidated group

Question 23

The acceleration rule requires that the consolidated group take into account the seller’s inter company item…

Example of how acceleration rule works?

Answer 23

Immediately before first time it becomes impossible to apply
The matching rule

Ex. If parent sells all of buyer corporations stock, any gain or loss
Buyer has in inter company transactions is included in that years
Income

Question 24

Gains and losses from installment sales between buyer corp. and third parties

Answer 24

Gains recognized in years installment payments are made Losses recognized immediately even when installment payments Will be made in the future

Question 25

Inter company transaction treatment for performance of services

Answer 25

Similar treatment to inter company property transactions

Question 26

Equation for seller's inter company item

Answer 26

Sellers inter company item = | Recomputed corresponding item) - (buyer's corresponding item

Question 27

Reporting inter company transactions: separate entity concept

Answer 27

Selling and buying corporations involved in inter company Transaction generally are treated as separate entities in Determining income, gain, deduction and loss each one incurs

Question 28

Under the acceleration rule, how does the consolidated group take into account the selling corporation's inter company item?

Answer 28

Consolidated group takes selling corp's inter company item Into account immediately before time it first becomes impossible To apply matching rule

Question 29

4 common situations that can trigger recognition of inter company item

Answer 29

1 buying corp sells to 3rd party 2 buying corp claims depreciation, amortization or depletion Deductions for property acquired in inter company transaction 3 selling corp or buying corp leaves consolidated group 4 corps in affiliated group discontinue filing consolidated return

Question 30

Net sec. 1231 gain or loss, how is it computed? Tax treatment?

Answer 30

Net of gains and losses from sec. 1231 property Losses treated as ordinary losses, gains usually treated as LT capital Gains

Question 31

Charitable contribution carry forward

Answer 31

Limited to 5 years

Question 32

Capital loss carryover, time periods? What is not allowed?

Answer 32

Carry back 3 years, carry forward 5 years Not allowed to forego 3 years of capital loss carry back

Question 33

Capital losses of departing members from affiliated groups

Answer 33

Capital loss no longer belongs to the affiliated group but to The departing corp

Question 34

Dividends received deduction: limitation on dividends from non group members to consolidated group members

Answer 34

Dividends received deduction limited to lesser of dividends Received from within consolidated group Or dividends received from non group members

Question 35

Are dividends received from members of same affiliated group entitled to dividends received deduction?

Answer 35

Not if affiliated group files consolidated tax return because Inter company dividends are excluded from distributee member Corp's gross income

Question 36

Consolidated group can't claim 100% dividends received deduction for...

Answer 36

Excluded dividend

Question 37

If corporations in affiliated group do not file consolidated tax return, how is a dividend received deduction treated on the distributee corporation's separate tax return? How is it treated from a non includible corporation (insurance company)?

Answer 37

Distributee corporation can claim 100% dividends received | deduction in both cases

Question 38

Expanded affiliated group

Answer 38

Includes corporations that are eligible to file consolidated return In same affiliated group and 51% owned subsidiaries

Question 39

Unlike a 70% or 80% dividends received deduction, The 100% dividends received deduction is not subject to...

Answer 39

The taxable income limitation

Question 40

A consolidated group can claim all tax credits available to...

Answer 40

Corporate tax payers

Question 41

2 major tax credits

Answer 41

1 General business credit 2 foreign tax credit

Question 42

How does consolidated group determine its general business credit?

Answer 42

On consolidated basis, combining its members separate credit | Amounts into single amount

Question 43

Limitation of general business credit claimed by consolidated group: limited to consolidated group's net income tax to greater of 2 things

Answer 43

1 its consolidated tentative minimum tax Or 2) 25% of its consolidated net regular tax liability exceeding $25,000

Question 44

General business credit carryover

Answer 44

Any credit exceeding limitation carries back 1 year and forward 20 years

Question 45

What elections can a parent corporation make with foreign taxes? 2

Answer 45

1 elect to claim a deduction Or 2 elect to claim credit for group's foreign taxes

Question 46

Consolidated group foreign tax limitation: what 3 factors are taken into account?

Answer 46

Consolidated group takes into account consolidated foreign source income, consolidated taxable income, consolidated regular tax

Question 47

Estimated tax payments of consolidated groups: first 2 years

Answer 47

In first 2 years affiliated group may file on separate or | consolidated Basis

Question 48

Large corporation rule

Answer 48

Applies to corp whose taxable income is over $1 million | In any 3 proceeding years

Question 49

Separate basis vs. consolidated basis of estimated payments

Answer 49

Separate bias can reduce estimated payments, but cause | Group to make larger payment on tax due date

Question 50

Advantage of consolidated tax return: NOL

Answer 50

Can offset one consolidated group members NOL with other | Group member

Question 51

Consolidated NOL

Answer 51

Carries back 2 years and forward 20 years

Question 52

If an affiliated group takes on a new member with an NOL

Answer 52

The affiliated group can receive the tax benefits from the new members NOL in their consolidated income if they file a Consolidated return instead of separate

Question 53

Current year NOL

Answer 53

Current year NOL must be used to offset current year profits | Before it can be carried back or carried forward

Question 54

NOL carry backs and carry forwards: what election can parent corporation make?

Answer 54

Parent corp. can elect to relinquish NOL carry back and just | Use the carry forward for 20 years

Question 55

NOL for departing member of affiliated group

Answer 55

Affiliated group has right to use departing member's NOL in The tax year the member leaves If any NOL remains, it goes with the departing member

Question 56

CRY and SRY, what are they acronyms for?

Answer 56

Consolidated return year Separate Return Year

Question 57

When must a consolidated group member adjust basis of stock | It owns?

Answer 57

Annually

Question 58

What is the effect of positive stock basis adjustments for consolidated groups?

Answer 58

Reduce amount of gain or increase amount of loss reported When sale of stock of consolidated group member (other than Parent) occurs

Question 59

First tier subsidiary Second tier subsidiary

Answer 59

First: subsidiary of parent 2nd: subsidiary of subsidiary

Question 60

Basis needs to be adjusted when... Example

Answer 60

Income is recognized, so the income won't be taxed twice Ex. If you have a $500k basis in a subsidiary and that subsidiary Makes $50k and pays 17k in tax Your adjusted basis = $533k (500 + 50 - 17)

Question 61

Adjusted basis: excess loss account on subsidiaries

Answer 61

Large negative bias adjustments reduce basis in subsidiary Stock to 0 Additional negative basis adjustment create excess loss account, Which does not trigger recognition of income until subsidiary is Sold