B.I.G. Corporation sold a plot of undeveloped land to SubCo this year for $100,000. B.I.G. had acquired the land several years ago for $40,000. The consolidated return also reflects the operating results of the parties: B.I.G. generated $130,000 income from operations, and SubCo produced a $20,000 operating loss.

a. Use the computational worksheet of Exhibit 8.3 to derive the group members separate taxable incomes and the groups consolidated taxable income.

b. Same as part (a), except that five years later SubCo sold the land to Outsider Corporation for $130,000, when its operating income totaled $20,000 (exclusive of the sale of the land), and Parents operating income amounted to $90,000.

c. Using a 25% combined state and Federal income tax rate and the materials from text Appendix F*, compute the benefit to the group of deferring the gain on the sale of the land. The B.I.G. group uses a 4% after-tax internal rate of return for purposes of this analysis.

* Appendix F contains Present Value of a $1 and Future Value of a $1 Tables.

8-5a. Computational Procedure The remainder of this chapter will follow the computational procedure suggested in Exhibit 8.2. Exhibit 8.3 presents a skeleton worksheet to be used for the procedure in the related examples. More information is added to the worksheet for every additional subsidiary. In each case, the starting point for this procedure is the separate taxable incomes of all of the group mem- bers. Adjustments then are made for group and intercompany items, as indi- cated in the footnotes to the worksheet. Exhibit 8.3. Consolidated Taxable Income Worksheet Separate Tax- able Income Adjustments Post-Adjust- ment Amounts Parent information Subsidiary information Group-basis transactions Intercompany events Consolidated taxable income *Permanent eliminations. *Group-basis transaction. Matching rule