a) A control group is created when two or more people jointly acquire more than 50% stock of one company. Just like Tammy and Matthew in the second case.
b) Matthew, Kelly and Tammy will acts as a control group with having share of 33% or one-third of the stock. In this case, the taxable income will be computed by the following formula. Since, all three are partner and they share equal liabilities and as a result they will equal tax liability of 33%.
Matthew, Kelly and Tammy have a taxable income of = (325 + 400)/3
= 725,000/3
= $241,667
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In this case, there are two types of groups. In first group, Matthew, Kelly and Tammy one third of Avis’s stock
Kelly, Tammy and Matthew = $100,000 each
Matthew and Joshua own 50% of stock of Best each.
Best’s income is $425,000
Tax liability for Best’s stockholders
Joshua = 425,000/2 = $212500
Tax liability of Matthew = $212500
Total Tax liabilities
Matthew = 212500 + 100,000 =$312500
Kelly = $100,000
Tammy = $100,000
Joshua = $212500
In the above case, Matthew’s taxable income will include his share of stock in both Avis and Best. His tax liability will be $312500. Kelly and Tammy’s will be $100,000 and Joshua’s liability will be $212500.
Avis’s Taxable Income = $300,000
Avis own 85% of Best’s Income = 0.85 * 425,000 = $361250
Total Tax Liability of Avis = $661250
Tax Liability of Best = 0.15* 425,000 = $63750
Avis buy 85% of Best Stock at the last day of fiscal year
Best Taxable Income = 0.15*425,000 = $63750
Avis Taxable Income = $661250
