M5 Consolidated Tax Returns Flashcards
MCQ-06007
Which of the following groups may elect to file a consolidated corporate return?
Members of an affiliated group.
MCQ-12524
Which of the following statements regarding the election to file a consolidated tax return is correct?
Intercompany gains are eliminated.
MCQ-06536
On June 30, Gold and Silver are calendar-year C corporations. The corporations have merged, with Gold as a subsidiary of Silver. Silver owns 85% of Gold’s voting stock and fair market value (FMV). Which of the following tax return filings would be appropriate for the two companies?
A consolidated return, because Silver owns at least 80% of both the voting stock and FMV of Gold.
IRC Sections 1501 and 1504 allow certain combinations of corporations (an affiliated group) to file a consolidated income tax return. An affiliated group is one or more chains of corporations connected through stock ownership with a common parent if that parent directly owns stock possessing at least 80% of the total voting power of at least one of the other corporations and having a value equal to at least 80% of the total value of the stock of the corporation.
MCQ-02112
With regard to consolidated tax returns, which of the following statements is correct?
Operating losses of one group member may be used to offset operating profits of the other members included in the consolidated return.
A significant advantage of consolidated tax returns is the ability to offset gains and losses among group members as if they were a single taxpayer.
MCQ-14679
With regard to consolidated returns, which one of the following statements is correct?
Operating losses of one group member may be used to offset operating profits of the other members included in the consolidated return
Operating losses of one group member of a consolidated return may be used to offset operating profits of the other members included in the consolidated return.
MCQ-02225
In the consolidated income tax return of a corporation and its wholly-owned subsidiary, what percentage of cash dividends paid by the subsidiary to the parent is tax-free?
100%
The dividends-received deduction is increased to 100% of qualifying dividends received from a consolidated “parent-subsidiary affiliated group” of a common parent who owns at least 80% of the total value and 80% of the total voting stock of the “other” includible corporations, if elected
MCQ-11085
Rigg, Steele, and Urco Corps., all accrual basis, calendar year C corporations, have only voting common stock outstanding. Rigg owns 85 percent of Steele and 40 percent of Urco. Steele owns 50 percent of Urco. Which group of corporations qualifies as an affiliated group and may join in the filing
of a consolidated federal income tax return?
Rigg, Steele, and Urco.
Rigg, Steele, and Urco are an affiliated group because Rigg owns at least 80 percent of Steele, and together Rigg and Steele own at least 80 percent of Urco (40% + 50% = 90%).
MCQ-11086
Sunshine Corp., a wholly owned subsidiary of Pierpoint Corp., purchased land from Pierpoint for its fair market value of $10,000 on January 1 of the previous tax year. Pierpoint’s adjusted basis of the land on the date of sale was $8,000. During the current tax year, Sunshine sold the land for $9,000
to an unrelated taxpayer. What gain or loss will be reported on a consolidated tax return filed by Sunshine and Pierpoint for the current tax year?
$1,000
Gains from intercompany transactions between corporations in an affiliated group are eliminated when calculating taxable income on a consolidated return, thus the $2,000 gain on the sale of property from Pierpoint to Sunshine is not recognized in the previous tax year ($10,000 sales price − $8,000 basis = $2,000 gain). In the current year, Sunshine sells the property to an unrelated taxpayer for a loss of $1,000 ($9,000 sales price − $10,000 basis). The $1,000 loss in the current year is added to the previous tax year’s eliminated gain of $2,000 for a net gain of $1,000 ($1,000 loss + $2,000 gain) to be reported on the consolidated tax return.
MCQ-14678
Tech Corp. files a consolidated return with its wholly-owned subsidiary, Dow Corp. During the year, Dow paid a cash dividend of $20,000 to Tech. What amount of this dividend is taxable on the current year’s consolidated return?
$0
Intercompany dividends are eliminated when preparing a consolidated return. The $20,000 came from income of Dow and is reported as part of consolidated income. The receipt
of the dividend by Tech is not included again.
MCQ-02148
During the year, Portal Corp. received $100,000 in dividends from Sal Corp., its 80%-owned subsidiary. What net amount of dividend income should Portal include in its current year consolidated tax return?
$0
If a corporation owns 80% or more of another corporation, the dividends received deduction is 100% as the dividend income is eliminated in consolidation. Therefore, the net amount of dividend income is $0.
MCQ-15820
Peach Inc. files a consolidated federal income tax return with its 100%-owned domestic subsidiaries. In Year 2, members of the consolidated group reported net book income (loss) as follows:
Peach Inc. $ 125,000
Apple Inc. 45,000
Blueberry Inc. (100,000)
Apple paid $50,000 in dividends to Peach in Year 2. The dividends are included in Peach’s net income reported above. Based on the information provided, what is the group’s consolidated taxable
income for Year 2?
$20,000
Peach’s net income per books $125,000
Dividends received from Apple (50,000)
Peach’s taxable income 75,000
Apple’s taxable income 45,000
Blueberry’s taxable loss (100,000)
Consolidated taxable income $20,000
