Question
P and S Corporations have filed consolidated tax returns for ten years. P and S use the accrual method of accounting, and they use the
P and S Corporations have filed consolidated tax returns for ten years. P and S use the accrual method of accounting, and they use the calendar year as their tax year. P and S report separate return taxable income (before any consolidation adjustments and elimi-nations, the NOL deduction, the charitable contributions deduction, and the dividends-received deduction) for the current year of $200,000 and $250,000, respectively. These amounts include the following current year transactions and events:
P sells land to a third party for $80,000 P purchased the land from S 2 years ago for $70,000. S had purchased the land five years ago for $48,000.
Ps seperate taxable income includes a $12,000 dividend S paid to P.
P sold inventory to S in the previous year for which the deferred profit at the beginning of the current year is $5,000. S sells this inventory outside the consolidated group in the current year. P sells additional inventory to S in the current year, realizing a $100,000 profit. The intercompany profit on this unsold inventory is $8,000
The P-S group has a $20,000 consolidated NOL carryover available from the previous year. The NOL is wholly attributable to S.
P receives $10,000 of dividends from corporations in which it owns less than 1% of the stock.
P and S contribute cash to charities of $17,000 and $11,000 respectively.
P lends $150,000 early in the current year. S repays the loan later in the year. In addition, S pays P $6,000 interest at the time of repayment.
S earns $1,600 of tax-exempt interest income, which is not included in Ss $250,000 separate return taxable income.
P and S have no qualified production activities income.
Determine the P-S groups consolidated taxable income and consolidated tax liability for the current year. What is Ps basis for the S stock at the end of the current year? Assume that Ps basis for the S stock was $1.4 million at the beginning of the current year.
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