Discussion Question Week 5 (Coursework Sample)

Discussion Questions
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Discussion Questions
Response to discussion question 1
The advantages of the acquisition and the subsequent inclusion are as follows. (1) The current losses could offset income of the other member and reduce the current regular tax. (2) Capital and operating loss carryovers of one member can be utilized in offsetting income of the other member. (3) Income on some intercompany transactions between Corporation B and Corporation A could be deferred. (4) Taxation of intercompany dividends can be removed. (5) Some tax credits and deductions could be properly used when subject to limitations of overall group instead of individual members. Disadvantages: (1) Election is binding on both members for the current and all successive years’ returns. (2) Losses on intercompany transactions are deferred. (3) There are additional reporting requirements and extra administrative procedures that are required. (4) Some tax credits and deductions can be decreased if limitations are determined basing on the activities of the whole group.
The key tax issues that the client needs to consider in determining the deductibility of the net operating losses are as follows. First, consolidated taxable income takes into consideration the losses of the member – the client in this case – and deductions are absorbed by the affiliated group of companies in consolidated return years. Secondly, consolidated taxable income is calculated without considering consolidated net operating loss deductions. Thirdly, in calculating the consolidated taxable, the consolidated return years of the group consists of only those years, plus the year to which the loss is carried, that the client has been continuously incorporated in the consolidated return of the group, but excludes the years ending after the year to which the loss is carried.
Response to discussion question 2
A strategy that forms an affiliated group which makes Corporations C, B, A, P and S all qualified to file a consolidated tax return is as follows: (1) t...