Reference no: EM132096409
Problem - 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 eliminations, 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:
1. P sells land to a third party for $80000. P purchased the land from S two years ago for $70000. S had purchased the land 5 years ago for $48000.
2. P's separate taxable income includes a $12000 dividend S paid to P.
3. P sold inventory to S in the previous year for which the deferred profit at the beginning of the current year is $5000. S sells this inventory outside the consolidated group in the current year. P sells additional inventory to S in the current year, realizing a $100000 profit. The intercompany profit on this unsold inventory is $8000.
4. The P-S group has a 20,000 consolidated NOL carryover available from the previous year. The NOL is wholly attributable to S.
5. P receives 10,000 of dividends from corporations in which it owns less than 1% of the stock.
6. P and S contribute cash to charities of 17000 and 11000, respectively.
7. P lends S 150000 early in the current year. S repays the loan later in the year. In addition, S pays P 6000 interest at the time of repayment.
8. S earns 1600 of tax-exempt interest income, which is not included in S's 250000 separate return taxable income.
9. P and S have no qualified production activities income.
Determine the P-S group's consolidated taxable income and consolidated tax liability for the current year.
What is P's basis for the S stock at the end of the current year? Assume that P's basis for the S stock was $1.4 million at the beginning of the current year.