Corporate tax

Question 1

The primary advantages of filing a consolidated return are that:

Answer 1

1) losses of one affiliated member offset gains of another member;
2) intercompany dividends are excludable from taxable income; and
3) intercompany profits are deferred until realized.

Question 2

What additions should be made to taxable income when earnings and profits are computed?

Answer 2

1. Municipal interest;
2. Life insurance income;
3. Dividends received deduction;
4. Deductions claimed for carryforward from prior years;
5. The deferred portion of a gain from a current installment sale;
6. The amount of depreciation deducted in excess of straight-line.

Question 3

What deductions should be taken from taxable income when earnings and profits are computed?

Answer 3

1. Federal income tax (net of credits);
2. Net capital loss;
3. Excess amounts of charitable contributions;
4. Penalties;
5. Life insurance premiums for a key employee;
6. Disallowed portion of entertainment expenses;
7. Deferred gains on installment sales recognized in later years;
8. Reversal of taking out excess depreciation over straight- line.

Question 4

What effect does property distribution have on earnings and profits (E&P)?

Answer 4

1. Reduce E&P by greater of adjusted basis or value, then reduced by any liabilities assumed by shareholder;
2. Distributions of appreciated property also increase E&P by amount of gain.