Parent and Junior Form a Unitary Group of Corporations

question 110

Multiple Choice

Parent and Junior form a unitary group of corporations. Parent is located in a state with an effective tax rate of 3%, while Junior's effective tax rate is 9%. Acting in concert to reduce overall tax liabilities, the group should:

• A) Execute an intercompany loan, such that Junior pays deductible interest to Parent.
• B) Have Parent charge Junior an annual management fee.
• C) Shift Parent's high-cost assembly and distribution operations to Junior.
• D) All of the above are effective income-shifting techniques for a unitary group.
• E) None of the above is an effective income-shifting technique for a unitary group.

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Definitions:

Reserves

Vault cash and deposits of banks held by Federal Reserve district banks.

Deposits

Funds placed into an account at a financial institution for safekeeping and often to earn interest.

Federal Reserve

The central banking system of the United States, responsible for monetary policy, regulating banks, maintaining financial stability, and providing banking services to governmental institutions.

Board of Governors

The Federal Reserve System’s governing body.