Question 1

A provision of the U.S. tax code that allows dividend income from a domestic subsidiary to not be taxed at the parent level is the election to file a(n) _____________________________________________.

Accepted Answer

The answer of A provision of the U.S. tax code...

Question 2

To file a consolidated income tax return, a subsidiary must be at least _________________________owned either directly or indirectly, with at least one subsidiary being _________________________________________ owned by the parent.

Accepted Answer

The answer of To file a consolidated income tax return,...

Question 3

A parent can file a consolidated income tax return only with its ________________ _______________________________ subsidiaries.

Accepted Answer

The answer of A parent can file a consolidated income...

Question 4

One of the advantages of filing a consolidated income tax return is that ___________________________________________ are not taxed.

Accepted Answer

The answer of One of the advantages of filing a...

Question 5

An advantage of filing a consolidated income tax return is that ________________ _____________________________ problems are avoided.

Accepted Answer

The answer of An advantage of filing a consolidated income...

Question 6

A domestic company cannot file a consolidated income tax return with its ___________________________________________ subsidiaries.

Accepted Answer

The answer of A domestic company cannot file a consolidated...

Question 7

The 100% dividend received deduction is applicable only to ___________________________________________________ subsidiaries.

Accepted Answer

The answer of The 100% dividend received deduction is applicable...

Question 8

The double corporate taxation possibility does not occur with a division or branch.

Accepted Answer

A division or branch of a company is not a separate legal entity from its parent corporation, so its profits are taxed only once at the corporate level, avoiding the double taxation that can occur with subsidiaries.

Question 9

The intent of the U.S. Internal Revenue Code is to tax only twice (in the United States) at the corporate level the earnings of a subsidiary.

Accepted Answer

The U.S. Internal Revenue Code does not specifically intend to tax the earnings of a subsidiary only twice at the corporate level. Instead, it aims to tax earnings when they are earned by the subsidiary and then again when those earnings are distributed as dividends to the parent company or shareholders, potentially leading to more complex tax situations depending on various factors such as foreign tax credits, tax treaties, and the structure of the corporation.

Question 10

A foreign subsidiary will not pay taxes to the U.S. government.

Accepted Answer

A foreign subsidiary typically pays taxes to the government of the country where it operates, not to the U.S. government.

Question 11

The U.S. income tax system taxes worldwide income-not only income earned in the United States.

Accepted Answer

The U.S. income tax system taxes U.S. citizens and resident aliens on their worldwide income, not just the income they earn within the United States. This means that all income, regardless of where it is earned, is subject to U.S. income tax for these individuals.

Question 12

A parent may file a consolidated income tax return with only foreign subsidiaries.

Accepted Answer

A parent company cannot file a consolidated income tax return with only foreign subsidiaries because U.S. tax law generally allows consolidated tax filings only for U.S.-based entities that are part of the same corporate group. Foreign subsidiaries are typically required to comply with the tax laws of their respective countries.

Question 13

A parent may file a consolidated income tax return with only domestic subsidiaries.

Accepted Answer

A parent company can file a consolidated income tax return with its domestic subsidiaries, as U.S. tax law allows for the consolidation of domestic entities for tax purposes.

Question 14

A parent may file a consolidated income tax return with domestic subsidiaries and foreign subsidiaries.

Accepted Answer

A parent company can file a consolidated income tax return with its domestic subsidiaries, but foreign subsidiaries are generally not included in the consolidated tax return due to differing tax jurisdictions and regulations.

Question 15

To file a consolidated income tax return, the parent must have a 100% ownership interest in the subsidiary.

Accepted Answer

To file a consolidated income tax return in the United States, the parent company must own at least 80% of the subsidiary's voting stock and at least 80% of the total value of its stock.

Question 16

In preparing a consolidated income tax return, all intercompany transactions are eliminated.

Accepted Answer

In preparing a consolidated income tax return, all intercompany transactions among the consolidated group members are eliminated to avoid double counting of income or expenses and to present the financial position and results of operations of the group as a single entity.

Question 17

An advantage of filing a consolidated income tax return is that losses on intercompany transactions are deferred.

Accepted Answer

Losses on intercompany transactions are not deferred but eliminated in consolidation, meaning they are not recognized until the goods are sold to an outside party.

Question 18

An advantage of filing a consolidated income tax return is that operating losses of one company can offset capital losses of another company.

Accepted Answer

Operating losses can offset taxable income across the consolidated group, but they cannot directly offset capital losses of another company within the group. Capital losses are treated differently from operating losses in tax calculations.

Question 19

Section 482 problems are avoided if a consolidated income tax return is filed.

Accepted Answer

A consolidated income tax return combines the income and expenses of all members of a consolidated group, eliminating intercompany transactions and resulting in a single tax liability for the group. This eliminates the potential for Section 482 problems, which arise when transactions between related parties are not conducted at arm's length.

Question 20

When a consolidated income tax return is filed and the subsidiary issues separate financial statements to its lenders, income taxes must be reported in the subsidiary's income statement.

Accepted Answer

When a subsidiary issues separate financial statements to its lenders or for any other purpose, it must report income taxes in its income statement as if it filed its own tax return, even though the actual tax liability is settled through the consolidated tax return filed by the parent company. This approach ensures that the subsidiary's financial statements reflect its standalone financial performance and tax obligations.

Quiz 3: Partially Owned Created Subsidiaries & Variable Interest Entities