Far question in the Reg review course. I failed FAR miserably so can someone please help break this down? How does a dividend from a sub increase parent's loss?
Parent company X and subsidiary company Y file a calendar year consolidated federal income tax return. Company X reported a $120,000 tax loss, which included a $10,000 dividend from Y. Company Y reported $140,000 of taxable income, which included $30,000 of dividends received from less than 20% owned stock investments. Neither company took into account any applicable dividends received deduction. What is the group's consolidated tax loss for the year?
Answer: Parent Company X’s loss of $120,000 will be increased by the elimination of the $10,000 in intercompany dividends, resulting in a taxable loss of $130,000. Company Y’s taxable income includes dividend income of $30,000, which will be reduced by the 70% dividends-received deduction, or $21,000, reducing Y’s income to $119,000. On a consolidated return the tax loss will be $130,000 – $119,000 or $11,000.
BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8
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