P Corporation acquires all of S Corporation’s stock on January 1 of Year 2. In Year 1, the corporations were unrelated entities that filed separate returns. P and S report the following results:

Ignore the Sec. 382 loss limitation that might apply to P’s acquisition of S. Assume that Year 1 is a post-2017 year.

a. What are the Year 2 tax consequences if P and S file a consolidated tax return? What are the Year 2 tax consequences if P and S instead file separate tax returns?

b. What are the Year 3 tax consequences if P and S file consolidated returns for Years 2 and 3?

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Taxable Income Group Member Year 1 Year 2 Year 3 $40,000 (29,000) $(30,000) 20,000 $21,000 6,000 P S Consolidated taxable income (before NOL deduction) N/A $(10,000) $27,000 N/A = Not applicable %3D