ParentCo and SubCo Have Filed Consolidated Returns Since Both Entities

question 22

Multiple Choice

ParentCo and SubCo have filed consolidated returns since both entities were incorporated in Year 1. Taxable income computations for the members include the following. Neither group member incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. $$\begin{array} { c c c c } & \text { ParentCo's } & \text { SubCo's Taxable } & \text { Consolidated } \\\text { Year } & \text { Taxable Income } & \text { Income } & \text { Taxable Income } \\\text { Year 1 } & \$ 100,000 & \$ 35,000 & \$ 135,000 \\\text { Year 2 } & \$ 100,000 & ( \$ 20,000 ) & \$ 80,000 \\\text { Year 3 } & \$ 100,000 & ( \$ 109,000 ) & ? \\\text { Year 4 } & \$ 100,000 & \$ 190,000 & ?\end{array}$$ The Year 3 consolidated loss:

• A)must be carried forward, unless an election to forgo carryforward is made by the parent.
• B)must be carried back, unless an election to forgo the carryback is made by the parent.
• C)can be used only to offset SubCo's future income.
• D)cannot be used to offset any of ParentCo's Year 1 income.

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Definitions:

Wavelength

The distance between successive peaks of a wave, often used to describe the physical property of light, sound, and other waves.

Dark Adaptation

The process by which the eyes become more sensitive to light in low illumination, improving the ability to see in darkness.

Cones

Photoreceptor cells in the retina of the eye that function best in relatively bright light and are responsible for perceiving color and fine detail.

Rods

Photoreceptor cells in the retina of the eye that provide night vision and peripheral vision by detecting brightness and shades of gray.