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 group’s 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 Parent’s 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.