Question 1

What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?

Accepted Answer

Special tax status corporations are not includible corporations.
• Exempt corporations under Sec.501
• Insurance companies subject to tax under Sec.801
• Foreign corporations
• Corporations claiming the Puerto Rico and U.S.possessions tax credit
• Regulated investment companies
• Real estate investment trusts
• Domestic international sales corporations
• S corporations

Question 2

What are the differences between a controlled group and an affiliated group?

Accepted Answer

Three forms of controlled groups are permitted - brother-sister groups,parent-subsidiary groups,and combined groups.Only parent-subsidiary groups and the parent-subsidiary portion of a combined group can elect to file a consolidated tax return.Four primary differences between a controlled group and an affiliated group exist.First,the two 80% stock ownership tests must be met to have an affiliated group.Only one of the tests needs to be met to have a controlled group.Second,the controlled group definition uses certain stock attribution rules and included and excluded corporation rules that are not used in testing for an affiliated group.Third,certain special status corporations are excluded from the affiliated group definition that may be included in a controlled group.Fourth,the controlled group definition is tested only at December 31.The affiliated group definition must be tested on each day of the year.See Chapter C3 for further discussion of controlled group topics.

Question 3

A Canadian subsidiary cannot file as part of the consolidated group with its U.S.parent.

Accepted Answer

False

Question 4

The election to file a consolidated return is made annually.

Accepted Answer

The election to file a consolidated tax return is not made annually; once made, it applies to the current tax year and all subsequent tax years until the election is formally revoked.

Question 5

Ajak Corporation owns 85% of the single class of Utech Corporation stock.Utech Corporation owns 35% of Tech Corporation.Ajak Corporation also owns 50% of Tech Corporation,and Tech Corporation owns 75% of Baxter Corporation.
A)Ajak,Tech,Utech,and Baxter Corporations are an affiliated group.
B)Ajak,Tech,and Baxter Corporations are an affiliated group.
C)Ajak,Tech,and Utech Corporations are an affiliated group.
D)None of the above are correct.

Accepted Answer

According to the rules of affiliation, a group must have at least 80% ownership between any two corporations in the group. Ajak owns 85% of Utech, which is more than 80%, establishing a connection between Ajak and Utech. Furthermore, since Ajak and Tech are both owners of Tech Corporation with a combined ownership of 100%, they are also affiliated. Finally, Tech Corporation owns 75% of Baxter Corporation, establishing a connection between Tech and Baxter. Therefore, Ajak, Tech, and Utech are an affiliated group. Baxter is not part of this group since it does not have more than 80% ownership between any other member of the group.

Question 6

A separate return year is a corporation's tax year for which it files a separate tax return or files a consolidated tax return with another affiliated group.

Accepted Answer

A separate return year is a recognized tax year for a corporation, where it files its own tax return or files a consolidated tax return with another affiliated group. This allows the corporation to pay taxes on a separate basis from other entities in the group.

Question 7

Identify which of the following statements is true.
A)If 100% of the stock of two corporations is owned by the same individual,the two corporations are eligible to file a consolidated return.
B)The check-the-box regulations permit partnership and LLCs to elect C corporation tax treatment.
C)A group of corporations that meets the parent-subsidiary controlled group requirements is always eligible to file a consolidated return.
D)All of the above are false.

Accepted Answer

The check-the-box regulations do permit partnership and LLCs to elect C corporation tax treatment. However, both statements A and C are false. For statement A to be true, the two corporations must also be members of the same affiliated group. For statement C to be true, the group of corporations must also have at least 80% ownership by a common parent corporation.

Question 8

Identify which of the following statements is true.
A)To be part of an affiliated group,a corporation must be at least 80% directly owned by another group member.
B)Only common stock is considered when determining if the 80% ownership test is met for affiliated group eligibility.
C)An affiliated group electing to file a consolidated return may be composed of as few as two corporations.
D)All of the above are false.

Accepted Answer

Option A is incorrect because a corporation must be at least 80% owned by the common parent of the affiliated group, not by another group member. Option B is incorrect as both common and preferred stocks are considered for the 80% ownership test. Option C is correct as an affiliated group can elect to file a consolidated return with as few as two corporations. Option D is incorrect as option C is true.

Question 9

Which of the following corporations is entitled to join in a consolidated tax return without making a special election?
A)corporations exempt from tax under Sec.501
B)real estate investment trusts
C)closely held corporations
D)foreign corporations

Accepted Answer

Closely held corporations are entitled to join in a consolidated tax return without making a special election. The other options (A, B, and D) require the corporation to make a special election in order to be included in a consolidated tax return.

Question 10

Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return?
A)insurance companies
B)S corporations
C)car manufacturing corporation
D)foreign corporations

Accepted Answer

Only corporations that are members of the same affiliated group may file a consolidated tax return. Insurance companies are not includible corporations for consolidated returns, nor are S corporations. Foreign corporations may be includible if they meet certain requirements, but they are not a choice listed in the question. Car manufacturing corporations are a type of regular corporation and may be includible in a consolidated tax return if they are part of the same affiliated group.

Question 11

Toby Corporation owns 85% of James Corporation's single class of stock and 35% of Mony Corporation's single class of stock.James Corporation owns 45% of Mony's stock.The remainder of James and Mony's stock is owned by 80 individual shareholders.Are the corporations part of an affiliated group,and can they elect to file a consolidated tax return?

Accepted Answer

The answer of Toby Corporation owns 85% of James Corporation's...

Question 12

Brother-sister controlled groups can elect to file a consolidated tax return.

Accepted Answer

Brother-sister controlled groups cannot elect to file a consolidated tax return because consolidated returns are generally limited to parent-subsidiary controlled groups.

Question 13

Explain the requirements a group of corporations must meet in order to elect to file a consolidated return.

Accepted Answer

The answer of Explain the requirements a group of corporations...

Question 14

To be an affiliated group,the parent corporation must directly own at least 80% of another group member.

Accepted Answer

This is the definition of an affiliated group according to the IRS.

Question 15

What issues determine whether an affiliated group exists?

Accepted Answer

The answer of What issues determine whether an affiliated group...

Question 16

Toby owns all of the single class of stock of James and Mony Corporations.James Corporation owns all of Volt Corporation's stock.Mony owns all of Wegnin Corporation.Mony and Wegnin Corporations are foreign corporations.Toby,James,and Volt are domestic corporations.Are the corporations part of an affiliated group?

Accepted Answer

The answer of Toby owns all of the single class...

Question 17

Diana Corporation owns stock of Tomika Corporation.For Diana and Tomika to qualify for the filing of consolidated returns,at least what percentage of Tomika's total voting power and total value of stock must be directly owned by Diana?
A) 
B) 
C) 
D)

Accepted Answer

The answer of Diana Corporation owns stock of Tomika Corporation.For...

Question 18

Cardinal and Bluebird Corporations both use a calendar year as their tax year.At the close of business on June 30,Cardinal Corporation buys all of Bluebird Corporation's stock.If the two corporations file a consolidated return and both corporations earn their income evenly throughout the year,what portion of Cardinal's income will be included in the consolidated return? (Assume all months have 30 days. )
A)100%
B)50%
C)0%
D)none of the above

Accepted Answer

Since Cardinal Corporation buys all of Bluebird Corporation's stock and they file a consolidated return, 100% of Cardinal's income for the entire year will be included in the consolidated return, regardless of the acquisition date.

Question 19

Jeffrey Corporation owns 85% of Placer Corporation and 25% of Mercer Corporation.Placer Corporation owns 60% of Mercer Corporation and 45% of Tyson Corporation.Jeffrey Corporation also owns 85% of Apple Corporation and Apple Corporation owns 30% of Tyson Corporation.Which of these corporations are members of an affiliated group if all percentages represent voting power and value held by the respective corporations?

Accepted Answer

The answer of Jeffrey Corporation owns 85% of Placer Corporation...

Question 20

Cardinal and Bluebird Corporations both use a calendar year as their tax year.At the close of business on June 30,Cardinal Corporation buys all of Bluebird Corporation's stock.If the two corporations file a consolidated return and both corporations earn their income evenly throughout the year,what portion of Bluebird's income will be included in the consolidated return? (Assume all months have 30 days. )
A)100%
B)50%
C)0%
D)none of the above

Accepted Answer

Since Cardinal Corporation bought all of Bluebird Corporation's stock on June 30, Bluebird's income earned from January 1 to June 30 will be included in the consolidated return. However, Bluebird's income earned from July 1 to December 31 will not be included, as it is earned after the acquisition date. Therefore, only 50% of Bluebird's income will be included in the consolidated return.

Quiz 8: Consolidated Tax Returns

What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?

What are the differences between a controlled group and an affiliated group?

A Canadian subsidiary cannot file as part of the consolidated group with its U.S.parent.

The election to file a consolidated return is made annually.

Ajak Corporation owns 85% of the single class of Utech Corporation stock.Utech Corporation owns 35% of Tech Corporation.Ajak Corporation also owns 50% of Tech Corporation,and Tech Corporation owns 75% of Baxter Corporation.

A separate return year is a corporation's tax year for which it files a separate tax return or files a consolidated tax return with another affiliated group.

Identify which of the following statements is true.

Identify which of the following statements is true.

Which of the following corporations is entitled to join in a consolidated tax return without making a special election?

Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return?

Brother-sister controlled groups can elect to file a consolidated tax return.

Explain the requirements a group of corporations must meet in order to elect to file a consolidated return.

To be an affiliated group,the parent corporation must directly own at least 80% of another group member.

What issues determine whether an affiliated group exists?

Diana Corporation owns stock of Tomika Corporation.For Diana and Tomika to qualify for the filing of consolidated returns,at least what percentage of Tomika's total voting power and total value of stock must be directly owned by Diana?