P Corporation owns all the stock of S and B Corporations. The three corporations have filed consolidated tax returns on a calendar year basis for several years. S owns property it had purchased for $40,000 several years ago. On August 1 of Year 1, S sells the property to B for $55,000. On February 1 of Year 3, B sells the property to an unrelated third party for $60,000.
a. What are the intercompany item, the corresponding item, and the recomputed corresponding item for this intercompany transaction?
b. In what year(s) are S’s and B’s gains or losses included in consolidated taxable income?
c. Suppose B sells the property to the third party for $53,000 instead of $60,000. How would your answers to Part b change?
d. Suppose P sells all of its B stock to an unrelated third party on October 1 of Year 2. How would your answers to Part b change?