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:

Determination

The method of precisely determining something, usually by means of calculation or investigation.

Multiple Regression Model

A statistical method involving the use of various predictor variables to determine the outcome of an outcome variable.

Critical Value

A threshold value that the test statistic must exceed in order to reject the null hypothesis in a statistical test.