Law question data bank

| March 14, 2016

Question
809. #1-9
Match each of the following terms with the appropriate description, in the context of a consolidated Federal income tax return.Additional compliance deadlines and recordkeepingOffsetting gains against other members’ lossesLoss deferral on intercompany transactionsGain deferral on intercompany transactionsSharing of low Federal corporate income tax bracketsBinding nature of election over multiple tax yearsSharing of one AMT exemptionJoint and several liability for Federal income taxConformity of affiliates’ tax year endsDisadvantage of consolidating Advantage of consolidating Disadvantage of consolidating Advantage of consolidating Disadvantage of consolidating Disadvantage of consolidating Disadvantage of consolidating Disadvantage of consolidating Disadvantage of consolidating

[a] 1. Additional compliance deadlines and recordkeeping
[b] 2. Offsetting gains against other members’ losses
[c] 3. Loss deferral on intercompany transactions
[d] 4. Gain deferral on intercompany transactions
[e] 5. Sharing of low Federal corporate income tax brackets
[f] 6. Binding nature of election over multiple tax years
[g] 7. Sharing of one AMT exemption
[h] 8. Joint and several liability for Federal income tax
[i] 9. Conformity of affiliates’ tax year ends

810. #10-15
Match each of the following items with the appropriate description, indicating whether the item increases or decreases the parent’s basis in the stock of a subsidiary.Member’s operating lossMember’s operating loss, when stock basis = $0Member’s operating gains/profitsDividend paid to parent out of affiliate’s E & PDecrease in a group member’s excess loss account from $3 million to $1 millionDeduction on consolidated return for member’s capital loss carryforward from a prior tax yearDecreases stock basis No effect on stock basis Increases stock basis Decreases stock basis No effect on stock basis Decreases stock basis

[a] 1. Member’s operating loss
[b] 2. Member’s operating loss, when stock basis = $0
[c] 3. Member’s operating gains/profits
[d] 4. Dividend paid to parent out of affiliate’s E & P
[e] 5. Decrease in a group member’s excess loss account from $3 million to $1 million
[f] 6. Deduction on consolidated return for member’s capital loss carryforward from a prior tax year

811. #16-20
Match each of the following items with the appropriate description, indicating whether the item’s treatment for financial accounting and Federal income tax purposes is the same or not.Ownership level of parent at which a subsidiary can join the consolidated group.Parent owns 100% of a U.S. partnership and wants the entity to join the consolidated group.Parent owns 100% of a Brazil corporation and wants the entity to join the consolidated group.Computation of consolidated income includes elimination entries.
Purchased goodwill is amortized into annual income amounts.
Tax and book treatment differ Tax and book treatment differ Tax and book treatment differ Tax and book treatment is the same Tax and book treatment differ

[a] 1. Ownership level of parent at which a subsidiary can join the consolidated group.
[b] 2. Parent owns 100% of a U.S. partnership and wants the entity to join the consolidated group.
[c] 3. Parent owns 100% of a Brazil corporation and wants the entity to join the consolidated group.
[d] 4. Computation of consolidated income includes elimination entries.

[e] 5. Purchased goodwill is amortized into annual income amounts.

812. #21-26
Match each of the following items with the appropriate description, indicating whether the item is computed on a group basis on a consolidated tax return.Compensation deductionsDomestic production activities deductionAMT liabilityCost of goods soldInterest income from Ford Motor bondsNet capital gain/lossNot a group item Group item Group item Not a group item Group item Not a group item

[a] 1. Compensation deductions
[b] 2. Domestic production activities deduction
[c] 3. AMT liability
[d] 4. Cost of goods sold
[e] 5. Interest income from Ford Motor bonds
[f] 6. Net capital gain/loss

813. CO #1
One of the motivations for the consolidated return rules is to discourage conglomerates from trafficking in the deductible ____________________ of other entities.

Correct Answer(s):
a. losses

814. CO #2
Most of the rules governing the use of consolidated returns are found in tax ____________________, and not the ____________________.

Correct Answer(s):
a. regulations, Code

815. CO #3
Deferring recognition of an intercompany loss is one ____________________ (advantage/disadvantage) of electing to file consolidated returns.

816. CO #4
The parent and affiliates must elect to file on a consolidated basis by ____________________ after the first consolidated tax year.

817. CO #5
An affiliated group exists where there is ____________________ percent ownership of all of the affiliates within the group, and there is an identifiable ____________________ corporation.

818. CO #6
When an affiliated group elects to file Federal consolidated income tax returns, it gives up the ability to claim a ____________________ deduction for distributions of profits paid to other members.

819. CO #7
Members of an affiliated group must share one $40,000 ____________________ for the tax year.

820. CO #8
In terms of the consolidated return rules, Akron Manufacturing LLC is a(n) ____________________ entity.

821. CO #9
Generally, when a subsidiary leaves an on-going consolidated group, it must wait ____________________ years before it can reenter another consolidated group.

822. CO #10
Consolidated estimated tax payments must begin for the ____________________ (first, second, etc.) tax year after the group’s election.

823. CO #11
All members of an affiliated group have ____________________ and ____________________ liability for each other’s Federal income tax liabilities.

824. CO #12
Consolidated return members determine which affiliates will pay how much of the annual Federal income tax liability by making a(n) ____________________ election.

\

825. CO #13
If, on joining an affiliated group, SubCo has a different tax year than that of ParentCo, SubCo must switch its year-end to ParentCo’s by the end of the ____________________ (first, second, etc.) tax year after the election to consolidate.

826. CO #14
Within a Federal consolidated income tax group, SubOne ____________________ (can/cannot) use the LIFO inventory method at the same time that SubTwo uses dollar-cost averaging.

827. CO #15
Dividends paid by a subsidiary to the parent cause a ____________________ (positive/negative) adjustment to the parent’s stock basis of the subsidiary.

828. CO #16
If the negative adjustments to the stock basis of the subsidiary exceed the positive adjustments plus the subsidiary stock basis at the beginning of the tax year, a(n) ____________________ account is created.

829. CO #17
If there is a balance in the excess loss account when a subsidiary’s stock is sold, the balance is recognized as ____________________.

830. CO #18
The consolidated return rules combine the members’ transactions involving ____________________ items when computing consolidated taxable income.

831. CO #19
In computing consolidated taxable income, a charitable contribution is an example of a(n) ____________________ item.

832. CO #20
In computing consolidated taxable income, the profit/loss from a sale between Subsidiary and Parent is an example of a(n) ____________________ item.

833. CO #21
In computing consolidated taxable income, the purchase of database services by Subsidiary from Parent is an example of a(n) ____________________ transaction.

834. CO #22
The ____________________ rules can limit the net operating loss deduction claimed on a Federal consolidated return.

835. CO #23
When both apply, the § 382 NOL limitation rules override the ____________________ limits.

836. CO #24
The capital gain/loss of the affiliates is an example of an item that is computed on a ____________________ basis on a Federal corporate income tax consolidated return.

837. CO #25
The casualty/theft gain/loss of the affiliates is an example of an item that is computed on a ____________________ basis on a Federal corporate income tax consolidated return.

838. CO #26
If one member sells an asset with a realized loss to another member of an affiliated group, any loss on the transaction is not recognized at that time; such a deferral applies the ____________________ rule.

839. CO #27
In the year that the group terminates its consolidation election, a consolidated group’s deferred gain from an intercompany asset sale between affiliates is recognized in full, under the ____________________ rule.

840. PR #1
ParentCo’s controlled group includes the following members. ParentCo owns all of the stock in each of the listed entities. Which entities can join ParentCo in a consolidated return?

·

SubCoA, a U.S. manufacturer.

·

SubCoB, a manufacturer incorporated in France.

·

SubCoC, a U.S. S corporation.

·

SubCoD, a U.S. partnership.

·

SubCoE, a U.S. charity.

·

SubCoF, a U.S. manufacturer incorporated in Puerto Rico.

·

SubCoG, a U.S. manufacturer that claims a deduction for its production activities (DPAD).

·

SubCoH, a U.S. limited liability company (LLC).

842. PR #3
The Parent consolidated group reports the following results for the tax year. Determine each member’s share of the consolidated tax liability, assuming that the members all have consented to use the relative taxable income tax-sharing method. Dollar amounts are listed in millions, and a 35% marginal income tax rate applies.

Parent

SubOne

SubTwo

SubThree

Consolidated

Ordinary income

$700

$100

$ 60

($30)

$830

Capital gain/loss

–0–

–0–

20

(5)

15

§1231 gain/loss

130

–0–

(55)

–0–

75

Separate taxable incomes

$830

$100

$ 25

($30), with a $5 capital loss carryover

Consolidated taxable income

$920

Consolidated tax liability

$322

Energy tax credit, from SubOne

(10)

Net tax due

$312

843. PR #4
The Parent consolidated group reports the following results for the tax year. Determine each member’s share of the consolidated tax liability, assuming that the members all have consented to use the relative tax liability tax-sharing method. Dollar amounts are listed in millions, and a 35% marginal income tax rate applies.

Parent

SubOne

SubTwo

SubThree

Consolidated

Ordinary income

$700

$100

$60

($30)

$830

Capital gain/loss

–0–

–0–

20

(5)

15

§ 1231 gain/loss

130

–0–

(55)

–0–

75

Separate taxable incomes

$830

$100

$25

($30), with a $5 capital loss carryover

Consolidated taxable income

$920

Consolidated tax liability

$322

Energy tax credit, from SubOne

(10)

Net tax due

$ 312

844. PR #5
TopCo owns all of the stock of BottomCo. Both taxpayers are subject to the alternative minimum tax (AMT) this year for the first time, due to a dependence on MACRS deductions. The corporations incurred no intercompany transactions during the year. TopCo has a consolidation election in effect for the group.

If the affiliates were to file separate Forms 1120 this year, the following amounts would be reported.

TopCo’s adjusted current earnings

$2,000,000

TopCo’s AMT income before the ACE adjustment

900,000

BottomCo’s adjusted current earnings

500,000

BottomCo’s AMT income before the ACE adjustment

1,000,000

a.

Compute the ACE adjustment for the consolidated group.

b.

Comment on the effects of the consolidation election on the companies’ AMT liabilities.

Order your essay today and save 30% with the discount code: ESSAYHELP
Order your essay today and save 30% with the discount code: ESSAYHELPOrder Now