Bart, P€™s sole shareholder, creates P on January 1 of Year 1. P purchases all of S1€™s and S2€™s stock on September 1 of Year 1, after both corporations are in operation for about six months. P, S1, and S2 Corporations comprise the P-S1-S2 affiliated group and file separate tax returns for Year 1. The P-S1-S2 affiliated group then elects to file consolidated tax returns starting in Year 2. The group reports the following results:

Ignore the Sec. 382 loss limitation that might apply to the acquisitions of S1 and S2, assume that P€™s purchase of S1 and S2 does not qualify as a reverse acquisition, and ignore the U.S. production activities deduction.
a. What is Year 2 consolidated taxable income?
b. What is Year 3 consolidated taxable income?
c. What NOL carryovers are available in Year 4?
d. How would your answer to Parts a through c change if Bart instead created P, S1, and S2 as an affiliated group on January 1 of Year 1?

Taxable income Year 1 S(8,000) (24,000) Year 3 10,000 (18,000) Group Member Year 2 S50,000 S1 20,000 S2 (16.000) (10,000) 15.000 Consolidated taxable income (before NOL deduction N/A S60,000 7,000