Sally owns 100% of the outstanding stock of Eta, Theta, Phi, and Gamma Corporations, each of which files a separate return for the current year. During the current year, the corporations report taxable income as follows:
Corporation Taxable Income
Eta ………………………………… $40,000
Theta ……………………………… (25,000)
Phi ………………………………… 50,000
Gamma …………………………… 10,000
a. What is each corporation’s separate tax liability, assuming the corporations do not elect a special apportionment plan for allocating the corporate tax rates?
b. What is each corporation’s separate tax liability, assuming the corporations make a special election to apportion the reduced corporate tax rates in such a way that minimizes the group’s total tax liability? Note: More than one plan can satisfy this goal.
c. How does the result in Part b change if Gamma’s income is $30,000 instead of $10,000?