M6-Consolidated Tax Returns

Question 1

In filing a consolidated federal income tax return, a corporate group eliminates the dividends from group members. (true or false)

Answer 1

true

Question 2

Intercompany dividends are eliminated when preparing a consolidated return. (true or false)

Answer 2

true

Question 3

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. (true or false)

Answer 3

true

Question 4

An affiliated group of corporations may elect to be taxed as a single unit, thereby eliminating intercompany gains and losses. To be entitled to file a consolidated return, all the corporations in a group:

Answer 4

1) must have been of an affiliated group at some time during the tax year and
2) must have filed a consent (the act of filing a consolidated return qualifies as consent).

Question 5

An affiliated group means that a common parent owns

Answer 5

1) 80% or more of the voting power of all outstanding stock and
2) 80% or more of the value of all outstanding stock of each corporation

Question 6

Not all corporations are allowed the privilege of filing a consolidated return. Examples of those denied the privilege include

Answer 6

S corpoartions
Foreign Corporations
Most real estate investment trusts (REITs)
Some insurance companies
Brother-sister corporations in which an individual (not a corporation) owns 80% or more of the stock of two or more corporations.
And most exempt organizations

Question 7

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. (true or false)

Answer 7

True