Bart, P’s sole shareholder, creates P on January 1 of Year 1. P purchases all of S1’s and S2’s stock on September 1 of Year 1, after both corporations are in operation for about six months. P, S1, and S2 Corporations comprise the P-S1-S2 affiliated group and file separate tax returns for Year 1. The P-S1-S2 affiliated group then elects to file consolidated tax returns starting in Year 2. The group reports the following results:

Ignore the Sec. 382 loss limitation that might apply to the acquisitions of S1 and S2, assume that P’s purchase of S1 and S2 does not qualify as a reverse acquisition, and assume that Year 1 is a post-2017 year.

a. What is Year 2 consolidated taxable income?

b. What is Year 3 consolidated taxable income?

c. What NOL carryovers are available in Year 4?

d. How would your answer to Parts a through c change if Bart instead  created P, S1, and S2 as an affiliated group on January 1 of Year 1?

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Taxable Income Group Member Year 1 Year 2 Year 3 $(8,000) (24,000) (16,000) $50,000 20,000 (10,000) $10,000 (18,000) 15,000 P S1 S2 Consolidated taxable income (before NOL deduction) N/A $60,000 $ 7,000