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 (exclusive of the sale of the land), and SubCo produced a $20,000 operating loss.

If required, use the minus sign to indicate a loss.

a. Compute the group members' separate taxable incomes and the group's consolidated taxable income or loss.

	Taxable Income/Loss
B.I.G. Co	190,000
SubCo	-20,000
Consolidated	110,000

Feedback

A special class of inter-company transactions receives deferral treatment under the Regulations. The gain or loss realized on these transactions is removed from consolidated taxable income until the sold asset leaves the affiliated group. The purpose of this matching rule is to prevent group members from accelerating loss deductions that relate to sales of assets within the group.

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 B.I.G.Co's operating income amounted to $90,000.

	Taxable Income/Loss
B.I.G.Co	90,000
SubCo	50,000
Consolidated	200,000

Using a 25% combined state and Federal income tax rate 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. The present value factor at 4% for 5 years is 0.8219.

Round your answers to the nearest dollar.

Present value of the tax on the sale of the land, as deferred for 5 years is $12,329. Therefore, the net tax benefit to the group as a result of the deferral would be ?????

Please answer for the question marks. Explain your answer.