Taxation of Related Companies

Question 1

Describe the brother/sister controlled group total control test.

Answer 1

The five common shareholders must own in aggregate 80% or more of the stock of each corporation within the group for certain tax provisions.

Question 2

Describe the brother/sister controlled group common ownership test.

Answer 2

Aggregating the lowest percentages each holds in any one firm for the common shareholders, the total must exceed 50 percent.

Question 3

List the two types of tests for brother/sister controlled groups.

Answer 3

Total control;

Common ownership.

Question 4

Define “affiliated groups.”

Answer 4

Corporations related through intercorporate ownership, can elect to file consolidated return.

Question 5

What are the requirements of a controlled group?

Answer 5

Each corporation, except for parent, must be owned 80% (value or voting power) or more by the other corporations in the group on last day of tax year.

Question 6

Describe the tax consequences of being a controlled group.

Answer 6

Limited to one set of corporate tax brackets;
One alternative minimum tax exemption and one accumulated earnings credit;
Intercompany losses are treated as related party sales.

Question 7

What are the requirements of an affiliated group?

Answer 7

Each corporation (except for parent) must be owned 80% (value and voting power) or more by the other corporations in the group on every day of tax year.