Reference no: EM132474151

Question - P and S Corporations have filed consolidated tax returns for several years. In Year 1, P purchased land as an investment for $ 70,000. In Year 3, P sold the land to S for $145,000. S used the land for four years as additional parking space for its employees and made no improvements to the land. In Year 7, S sells the land to Z Corporation, an unrelated party, for $ 250,000. The sale's terms require Z to pay S $ 50,000 in each of Years 7 through 11. The terms also require Z to pay S interest at a rate acceptable to the IRS. Z pays all the required amounts by using installment method.

1 - What are the intercompany item, the corresponding items, and the recomputed corresponding items?

2 - In what year(s) does the consolidated group include Upper P's gain or loss and Upper S's gain or loss in its taxable income?

3 - How does the consolidated group report the interest income?