ParentCo and SubCo Have Filed Consolidated Returns Since Both Entities

Multiple Choice

ParentCo and SubCo have filed consolidated returns since both entities were incorporated in year 1. Taxable income computations for the members include the following. Neither group member incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. $$\begin{array} { l c c c } \text { Year } & \begin{array} { c } \text { ParentCo's } \\\text { Taxable Income }\end{array} & \begin{array} { c } \text { SubCo's Taxable } \\\text { Income }\end{array} & \begin{array} { c } \text { Consolidated } \\\text { Taxable Income }\end{array} \\\text { Year 1 } & \$ 100,000 & \$ 35,000 & \$ 135,000 \\\text { Year 2 } & \$ 100,000 & ( \$ 20,000 ) & \$ 80,000 \\\text { Year 3 } & \$ 100,000 & ( \$ 109,000 ) & ? \\\text { Year 4 } & \$ 100,000 & \$ 190,000 & ?\end{array}$$ The year 3 consolidated loss:

A) Is carried forward to year 4.
B) Is carried back to year 1 and produces a tax refund.
C) Can be used only to offset SubCo's future income.
D) Offsets ParentCo's year 1 income.