P Corporation acquires all of S Corporation€™s stock on January 1 of Year 2. In Year 1, the corporations were unrelated entities that filed separate returns. P and S report the following results:

Ignore the Sec. 382 loss limitation that might apply to P€™s acquisition of S, and ignore the U.S. production activities deduction.
a. What are the Year 2 tax consequences if P and S file a consolidated tax return? What are the Year 2 tax consequences if P and S instead file separate tax returns?
b. What are the Year 3 tax consequences if P and S file consolidated returns for Years 2 and 3?

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Taxable Income Group Member Year 1 Year 2 Year 3 S40,000 S(30,000) 20,000 S10.000) $21,000 6.000 Consolidated taxable income (before NOL deduction) NIA /A Not applicable