Question

The stock of Wheel Corporation, a U.S. company, is publicly traded, with no single shareholder owning more than 5 percent of its outstanding stock. Wheel owns 90 percent of the outstanding stock of Axle, Inc, also a U.S. company. Axle owns 100% of the outstanding stock of Tire Corporation, a German company. Wheel and Tire each own 50 percent of the outstanding stock of Bumper, Inc., a U.S. company. Wheel and Axle each own 50 percent of the outstanding stock of Trunk Corporation, a U.S. company. Which of these corporations form an affiliated group eligible to file a consolidated tax return?

Answer 1

Answer: D)Wheel, Axle, and Trunk are an affiliated group.

Explanation:

Affiliated groups according to tax laws are those where a parent company owns at least 80% of the stock or the voting power in a company or in the case of multiple affiliates, the parent company must own at least 80% of one of the affiliates. This Affiliate should then own at least 80% of at least one of the others and so on.

Wheel owns 90% of Axle stock which would therefore make them affiliates. Axle then owns 100% of Tire which would then make Tire an affiliate to Axle and by extension to Wheel. Bumper is not considered an affiliate as it is only 50% owned by affiliates.