Taxation of Related Corporations

Question 1

What is controlled groups?

Answer 1

Corporations that are deemed to be created to take advantages of tax laws.

Question 2

What are 3 types of controlled groups?

Answer 2

Parent-subsidiary corporations.
Brother-sister groups.
Certain insurance companies.

Question 3

Controlled groups: what is the limit on accumulated earnings credit?

Answer 3

Each controlled group doesn’t get $250,000 AET credit. Only one for all corporations.

Question 4

Controlled groups: limits on tax brackets?

Answer 4

can use the first 2 brackets only for one time each.

Question 5

Controlled groups: limits on Sec. 179 expense deduction and AMT exemption?

Answer 5

Only one deduction each allowed for the whole group.

Question 6

What is the criteria for a parent-subsidiary controlled group to exist?

Answer 6

*Stock possessing at least 80% of the voting power of all classes of stock entitled to vote or at least 80% of the total value of shares of all classes of stock of each of the corporations, except the common parent, is owned by one ore more of the other corporations.
OR
*The common parent owns stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote or at least 80% of the total value of shares of all classes of stock of at least one of the other corporations.

Question 7

What are 2 criteria for brother-sister controlled group?

Answer 7

*2 or more corporations are owned by 5 or fewer persons (individuals, estates, or trusts), who have a common ownership of more than 50% of the total combined voting powers of all classes of stock entitled to vote or more than 50% of the total value of share of all classes of stock of each corporation

(50% test is checking to see if the 5 (or fewer) individuals collectively have more than 50% common ownership in EVERY company), and

*who possess stock representing at least 80% of the total combined voting power of all classes of stock entitled to vote or at least 80% of the total value of share of all classes of each corporation.

(The 80% test is checking to see if they have at least 80% ownership per company (testing each corp separately)).

Question 8

Brother-sister controlled group: when does 80% rule not apply for determining this group?

Answer 8

• Corporate tax brackets.
• The accumulated earnings credit.
• The minimum tax exemption.

Question 9

Brother-sister controlled group: how is the 50% test determined?

Answer 9

= add all the lowest stock owned percentages of corporations by the individuals. If more than 50%, met.

Question 10

Brother-sister controlled group: which test is done first; 50% or 80% test?

Answer 10

50% test.

Question 11

Criteria for an affiliated group?

Answer 11

One corporation owns at least 80% of the voting power of another corporation AND holds shares representing at least 80% of its value.

Question 12

When must the 80% test be met for affiliated group? Parent-subsidiary group?

Answer 12

A: Everyday of the year.
PS: On the last day of the tax year.

Question 13

Who can elect to file a consolidated tax return? Who is not eligible out of the above?

Answer 13

An affiliated group.

Not eligible: insurance companies, S corporations, and foreign corporations.

Question 14

Affiliated groups: what is the tax treatment re: dividends if a consolidated tax return is elected?

Answer 14

Dividends between affiliated corporations are eliminated.

Question 15

Affiliated groups: what is the tax treatment re: gains and losses on intercompany sales if a consolidated tax return is elected?

Answer 15

Deferred until disposition outside the group.

Question 16

Affiliated groups: what is the tax treatment re: the parent’s basis of the stock of a consolidated subsidiary if a consolidated tax return is elected?

Answer 16

The parent adjusts the basis of the stock of a consolidated subsidiary for allocable portion of income, losses, and dividends.

Question 17

Affiliated groups: what tax year must members use?

Answer 17

Must use the parent’s tax year.

Question 18

Benefit of a consolidated tax return re: operating losses?

Answer 18

Operating losses of one member of the group can offset operating profits of other members.