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Corporate Tax > Ch 8 > Flashcards

Ch 8 Flashcards

0
Q

2 options affiliated group has for filing federal income tax returns

A

1 each member of group can file separate tax return

2 affiliated group can file single consolidated return

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1
Q

Affiliated group of corporations

A

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

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2
Q

Intercompany transactions

A

Transaction between 2 corporations that are in same

consolidated group immediately after transaction

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3
Q

3 stock ownership requirements to qualify as affiliated group

A

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

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4
Q

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

A 
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
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5
Q

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

A

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

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6
Q

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?

A

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

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7
Q

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

A

Brother sister control groups

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8
Q

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

A

Ps: at least 80% voting power or value

Aff: at least 80% voting power and value

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9
Q

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

A

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

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10
Q

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

A

Differ between controlled group and affiliated group

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11
Q

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

A

Definition of controlled group tested only on December 31st

Definition of affiliated group tested each day of the year

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12
Q

Consolidated group

A

Affiliated group of corporations that file consolidated tax return

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13
Q

Consolidated return year

A

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

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14
Q

Separate tax return year

A

Corporations tax year for which it files separate tax return

Or files consolidated return with another affiliated group

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15
Q

Accounting period for consolidated tax return of affiliated group

A

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

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16
Q

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

A

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

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17
Q

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

A

The taxable income on the consolidated tax return

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18
Q

Inter company item

A

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

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19
Q

Corresponding item

A

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

or from property acquired in inter company transaction

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20
Q

Recomputed corresponding item

A

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

And transaction occurred btw/those divisions

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21
Q

Matching rule

A

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

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22
Q

When does the acceleration rule occur

A

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

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23
Q

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

Example of how acceleration rule works?

A

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

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24
Q

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

A

Gains recognized in years installment payments are made

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

25
Q

Inter company transaction treatment for performance of services

A

Similar treatment to inter company property transactions

26
Q

Equation for seller’s inter company item

A

Sellers inter company item =

Recomputed corresponding item) - (buyer’s corresponding item

27
Q

Reporting inter company transactions: separate entity concept

A

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

28
Q

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

A

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

29
Q

4 common situations that can trigger recognition of inter company item

A

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

30
Q

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

Tax treatment?

A

Net of gains and losses from sec. 1231 property

Losses treated as ordinary losses, gains usually treated as
LT capital Gains

31
Q

Charitable contribution carry forward

A

Limited to 5 years

32
Q

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

A

Carry back 3 years, carry forward 5 years

Not allowed to forego 3 years of capital loss carry back

33
Q

Capital losses of departing members from affiliated groups

A

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

34
Q

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

A

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

Or dividends received from non group members

35
Q

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

A

Not if affiliated group files consolidated tax return

because Inter company dividends are excluded from distributee member Corp’s gross income

36
Q

Consolidated group can’t claim 100% dividends received deduction for…

A

Excluded dividend

37
Q

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)?

A

Distributee corporation can claim 100% dividends received

deduction in both cases

38
Q

Expanded affiliated group

A

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

39
Q

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

A

The taxable income limitation

40
Q

A consolidated group can claim all tax credits available to…

A

Corporate tax payers

41
Q

2 major tax credits

A

1 General business credit

2 foreign tax credit

42
Q

How does consolidated group determine its general business credit?

A

On consolidated basis, combining its members separate credit

Amounts into single amount

43
Q

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

A

1 its consolidated tentative minimum tax
Or

2) 25% of its consolidated net regular tax liability exceeding
$25,000

44
Q

General business credit carryover

A

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

45
Q

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

A

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

46
Q

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

A

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

47
Q

Estimated tax payments of consolidated groups: first 2 years

A

In first 2 years affiliated group may file on separate or

consolidated Basis

48
Q

Large corporation rule

A

Applies to corp whose taxable income is over $1 million

In any 3 proceeding years

49
Q

Separate basis vs. consolidated basis of estimated payments

A

Separate bias can reduce estimated payments, but cause

Group to make larger payment on tax due date

50
Q

Advantage of consolidated tax return: NOL

A

Can offset one consolidated group members NOL with other

Group member

51
Q

Consolidated NOL

A

Carries back 2 years and forward 20 years

52
Q

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

A

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

53
Q

Current year NOL

A

Current year NOL must be used to offset current year profits

Before it can be carried back or carried forward

54
Q

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

A

Parent corp. can elect to relinquish NOL carry back and just

Use the carry forward for 20 years

55
Q

NOL for departing member of affiliated group

A

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

56
Q

CRY and SRY, what are they acronyms for?

A

Consolidated return year

Separate Return Year

57
Q

When must a consolidated group member adjust basis of stock

It owns?

A

Annually

58
Q

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

A

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

59
Q

First tier subsidiary

Second tier subsidiary

A

First: subsidiary of parent

2nd: subsidiary of subsidiary

60
Q

Basis needs to be adjusted when…

Example

A

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)

61
Q

Adjusted basis: excess loss account on subsidiaries

A

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

Corporate Tax (23 decks)

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