ParentCo Purchased 100% of SubCo's Stock on January 1, Year

question 147

Multiple Choice

ParentCo purchased 100% of SubCo's stock on January 1, Year 2, and the companies have filed consolidated returns since then. 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. $$\begin{array} { l c c c } & \text { ParentCo's } & \text { SubCo's Taxable } & \text { Consolidated } \\\text { Year } & \text { Taxable Income } & \text { Income } & \text { Taxable Income } \\\text { Year } 1 & \$ 100,000 & \$ 70,000 & \text { N/A } \\\text { Year 2 } & \$ 100,000 & ( \$ 70,000 ) & \$ 30,000 \\\text { Year } 3 & \$ 12,000 & \$ 20,000 ) & ? \\\text { Year 4 } & \$ 100,000 & \$ 200,000 & ?\end{array}$$ The Year 3 net operating loss:

• A)may be carried back to offset SubCo's Year 1 taxable income.
• B)may be carried forward only and applied against group income if so elected by ParentCo.
• C)cannot be carried back against Year 1 SubCo income, as consolidated returns were not filed.
• D)either a or b, but not both.

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Definitions:

Higher-order Conditioning

A form of learning in which a stimulus is first made meaningful or significant through classical conditioning and then that stimulus is used as a base for learning about additional stimuli.

Sensitization

An increased reaction to a stimulus following repeated exposure to it, often leading to heightened responsiveness to other stimuli.

Higher-order Conditioning

A form of conditioning in which a stimulus that was previously neutral is paired with a conditioned stimulus to produce the same conditioned response.

Habituation

The process by which an individual becomes accustomed to a stimulus through repeated exposure, leading to a decrease in response.